The federal government, feeling the heat to show more openness in defence procurement costing, has now come up with a ‘cradle to grave’ life-cycle estimate of more than $100-billion for its planned acquisition of 15 new surface combatant ships (frigates and destroyers, in other words) plus two joint supply ships, plus eight Arctic offshore patrol vessels. A Globe story on Wednesday put the total estimated lifespan cost at $105-billion for the planned 30-year service life of the ships.
The government is trying to provide public opinion with what it thinks it wants, and ‘cradle-to-grave’ estimates are being fetishized in Ottawa these days. The thought that we now have a number to carry around in our heads may be somehow comforting, but a mental security blanket is about all that it is.
The problem is that trying to estimate the maintenance cost of anything out over 30 years – let alone warships – is an impossibility on the face of it. There are just too many variables. This latest estimate nowhere mentions the forecasting model used – what rate of growth of inflation, to pick one variable – but even if that were stipulated, no economic indicator can be relied on that far out.
The actual construction cost estimate for the 15 destroyers and frigates in this latest go-round hasn’t changed: $26.2-billion. But the operating, personnel, maintenance and upgrade costs can charitably be described (and were described Wednesday by a knowledgeable Canadian defence blogger who has been tracking this business closely) as ‘wild-assed guesses.’ Even with respect to the construction costs themselves, it is likely that by the time steel is cut, costs per ship are likely to escalate to the point where we are going to have to spend a great deal more to get our fifteen ships, or settle for far fewer ships (or both).
Whether or not you believe that Canadian naval shipbuilding is a viable process (and there are plenty of informed people around dating back at least to 1918 who will tell you that it isn’t), $26.2-billion divided by fifteen ships still gives you the harrowing unit cost of $1.75-billion per destroyer or frigate. Yet another calculation – based on the sail-away cost of the last of the current class of Canadian patrol frigate built ($850-million) and multiplied by the compounded defence inflation rate of 10 per cent annually (which is considerably higher than the Bank of Canada’s predicted inflation rate of about 2 per cent) and you get a current cost per frigate replacement of about $2.2-billion.
Bear in mind that the contracts for the ships are due to be signed only in 2018, and that construction is unlikely to start before the 2020’s. There are a lot of unforeseeables, and at least one Federal election, lurking out there before those ships ever go into the water.
Bear in mind too that these are destroyers and frigates, not aircraft carriers, missile cruisers or battleships. Ducking back to an historical example for a moment, Nelson’s famous HMS Victory – the heaviest warship ever built by the British in her time - cost about $12.2-million Canadian to build in 1758 (and about 13.2 million to rebuild 40 years later). A modern Zumwalt-class stealth destroyer (which is really more like a Second World War battlecruiser in scale) is costing the U.S. taxpayer a nominal $3.45-billion each, excluding research and development costs. So an estimate of between $1.75- and $2.2-billion for a destroyer or frigate, even assuming no slippage between now and launch, seems excessive.
Technology is a wild card. HMS Victory served for more than 50 years, and underwent some upgrades in capacity, but the base technology of her day was stable, which is why a full refit 40 years into her life could be done for little more than her original construction cost. Now, essential combat technology and associated costs cannot be predicted five years in advance. Nobody knows how many upgrades of sensor packages or weapons systems might have to be performed in the thirty-year life of a modern destroyer.
So, $100-billion is a nice round figure to show to the Auditor General and the voters – but it’s not much more than that, and it still begs the essential question of what hat that number of 15 vessels was pulled out of in the first place. (Answer: a one-for-one replacement of existing units, but what is being replaced was a Cold War navy and that in turn begs the question of whether anyone has seriously examined in an integrated way what Canada’s real needs are in the modern environment.) Ships take longer and cost more to bring into service, but last longer than any other class of military hardware, so giving them priority in peacetime is not unreasonable – as long as the country has a clear idea of what it needs, and that it is getting reasonable bang for its buck. Absent that, nice round ‘cradle-to-grave’ numbers don’t mean a lot.
Eric Morse is a former Canadian diplomat. He is vice-chair of security studies for the Royal Canadian Military Institute in Toronto.