It would all be irresistibly comic, if it were not so ruinous. More than 12 years have passed since the day in 2010 when the Conservative government announced it would buy 65 Lockheed Martin F-35 fighter jets, a replacement for the air force’s fleet of CF-18s that even then were universally described as “aging.”
The process by which the F-35 was chosen, a sole-source contract without competitive bids, was controversial, as was the price: $9-billion, plus – well, it was hard to get a straight answer out of the Tories when it came to the costs of maintenance and operations. At length an estimate emerged of the full “lifecycle” cost of the jets: $45-billion over 30 years. True, the plane was widely acknowledged to be state-of-the-art, the most advanced of its kind in the world. But critics wondered why Canada needed to have the very top of the line in fighter jets, especially at the price.
Those critics included, prominently, the federal Liberals. Through two elections the Liberals promised they would cancel the deal – or as their 2015 platform put it, “we will not buy the F-35.” Even after the election, that remained the government’s position, even as it promised an “open competition” to replace it.
So here we are, all these years later, and the Liberals have at last confirmed what has long been obvious: We will buy the F-35, after all. Eighty-eight of them, in fact, at a cost of $19-billion – $70-billion, including maintenance and operations. All those billions of extra dollars, all those years in delay – the last of the jets are now scheduled for delivery in 2032 – and for what? To buy the same jet we were always going to buy.
Ah, but this was different: this time the F-35 was selected after a fair and open competition. Well, sort of. Initially the Liberals wanted to exclude the F-35 from consideration, only finally relenting after Lockheed threatened to sue. Later they barred Boeing from the competition for having the temerity to complain about Canada’s subsidies to Bombardier.
Still, at least we’re getting the planes: years late, billions over budget, but not nearly as late or as overbudget as most other defence projects. My only question is: where are we going to get the money to pay for them? Because, after the astronomic cost-overruns of those other projects, notably the galloping disaster known as the National Shipbuilding Strategy, there isn’t any money left in the kitty.
Launched in that same fateful year of 2010, the NSS had less to do with military procurement and more to do with the ambitions of the Harper government, those famous free marketers, to kickstart a domestic shipbuilding industry. It had two large components: combat and non-combat. The former was awarded to Irving Shipbuilding in Halifax, and the latter to Vancouver’s Seaspan Shipyard. Each was further divided into several projects, more than half a dozen in all. Virtually every one of them is now billions of dollars over budget and years behind schedule.
Of these, the largest and most out of control is the Irving-built Canadian Surface Combatant project, an order for 15 warships to replace the Royal Canadian Navy’s current fleet of 12 frigates, plus its three destroyers, already decommissioned. Acquisition costs were initially set at $26-billion, with the first ships to be delivered in 2025. By 2015, that had grown to $42-billion. By 2017, the Parliamentary Budget Officer put the figure at $62-billion; by 2019, $70-billion; by 2021, $77-billion.
The PBO now estimates the cost of the project at $84.5-billion – more than three times the initial estimate. None of the ships, mind, has yet been built, or even started: the first is slated for delivery in 2032, the last in 2049. The lifecycle cost of the project has likewise ballooned: it is now estimated at $306-billion over 30 years, more than twice what was forecast even five years ago.
On its own, this would be a disaster without parallel. As noted by Alan Williams, a former assistant deputy minister of materiel at National Defence, the department’s total budget for acquiring and maintaining such hardware over the next 30 years – that’s for the army, navy and air force, combined – is just $240-billion. But of course, even this is likely to prove an underestimate. Defence officials admit they do not know how much the program will cost in the end.
And the surface combatant project is only the start. There’s also the Arctic and Offshore Patrol Ship project, also being built by Irving. Initially budgeted at $2.6-billion for five ships, it is now reckoned to cost $6.6-billion for eight – six for the navy, two for the Coast Guard. The first of the three ships built so far was delivered in 2020, seven years behind schedule. It has already been taken out of service, in part over concerns that the valves in its water systems contain too much lead.
Not that things are any better on the West Coast. The two supply ships Seaspan was to deliver to the navy under the Joint Support Ship project were most recently estimated to cost $4.1-billion, nearly twice the initial projection. The first was to be delivered in 2012; it is now not expected to arrive until 2025.
In the meantime, the navy has been making use of the MV Asterix, a former commercial vessel converted to military use by the Chantier Davie shipyard in Quebec at a cost of $660-million. Unusually for Canadian defence projects, it was both on time and on budget. Naturally, the Liberals did everything they could to deep-six the deal – you may remember the scandal over the dismissal and failed prosecution of now-retired vice-admiral Mark Norman, who objected to the government’s interference – after a complaint from the Irving family, whose political connections are well known.
Where were we? Ah yes, there’s the new Offshore Oceanographic Science Vessel Seaspan is still working on for the Coast Guard: initially budgeted at $108-million, it is now expected to cost $1-billion. Plus the three Offshore Fisheries Science Vessels. These have been delivered, mercifully, but have been plagued with mechanical problems, requiring lengthy and costly repairs.
Oh, I almost forgot: the icebreakers! The original plan was to build one large polar icebreaker for the Coast Guard at a cost of $700-million. By 2013 – you may be discerning a trend here – that had grown to $1.3-billion. So far, so expensive. But then the Trudeau government, under pressure to deliver for Quebec in the wake of the Norman affair, announced that Canada needed a second polar icebreaker, to be built at the Davie shipyard. Add the inevitable further delays and cost overruns, and voila: the two ships are now expected to cost $7.25-billion.
It is, all told, a depressing story, the more so for the many procurement disasters that preceded it: the EH101 helicopter debacle, the submarines calamity, and on and on. The same elements are present in each: the political meddling, the regional squabbling, the bureaucratic empire-building, the industry snow jobs. Still, even by the standards of Canadian defence procurement, the NSS is off the charts. How on earth did it come to this?
Department officials like to blame things such as the pandemic or rising steel prices, but the truth is that costs were way out of control long before these were factors. One part of it, clearly, is the seeming endemic delays, which are often the product of the projects’ shifting specifications. Department officials seem incapable of resisting proposals to add this or that advanced capability to a project already weighted down with the latest gewgaws.
Once the contract has been awarded and the project is under way, moreover, the company has the government more or less over a barrel. To cancel the project, after all, would throw its employees out of work; worse, it would be an admission of error. Neither is congenial to the instincts of elected politicians, especially in regions that have come to expect them to “deliver the goods.” The more costs rise, the more this becomes an argument for soldiering on to the end, rather than let this “investment” be “wasted”: the “sunk cost” fallacy at its most virulent. But the most fundamental problem may simply be that – how shall I put this delicately – we aren’t very good at building ships in this country. Mr. Williams, the former Defence official, notes that the U.S. recently purchased 10 Constellation-class frigates, comparable to the ones Canada has commissioned, at less than a third of the cost, per ship.
That’s in part a function of lower labour costs: the PBO calculates these are 55 per cent higher in Canadian shipyards than in their U.S. counterparts. But it’s also shaped by differences in the procurement process. Among them, according to Mr. Williams: the U.S. Navy sets the operational requirements, drawing on existing systems, without input from the industry. Contracts have a fixed price, without allowance for cost overruns.
It’s not as if there are no alternatives. We could always get by with fewer ships, or with less advanced technology. We could cancel the existing contracts, in whole or in part, and hold a new competition, with more rigorous terms. Or – hear me out – we could just buy the ships off the shelf, from one of many existing shipyards around the world with proven track records, rather than squander hundreds of billions of scarce public dollars on the demonstrably incompetent Canadian industry.
The money we spend overpaying for domestically produced ships does not create jobs that would not otherwise exist: it merely takes them from other industries. It’s a subsidy that is, like any other, only on a scale that other industries would not dare dream of.
Perhaps that was acceptable, or at least tolerable, in the days when the defence of the country was more or less an afterthought – when, as we imagined, we had no natural predators, or none the U.S. would not dispatch on our behalf. In the more dangerous world we now find ourselves in, it is absolutely unacceptable.
We are already under pressure from our allies to spend more on defence, but the greater imperative by far is to get more out of the money we are spending already. Trashing the National Shipbuilding Strategy would be a good place to start.