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Auditor’s report applauds NSPS process but challenges shipbuilding budgets

For those anticipating yet another scathing critique of government defence procurement, the Auditor General’s fall report on government shipbuilding was surprisingly tame, even complimentary. But it did confirm what many have been saying for a long time: the dollars allocated to building the RCN’s next generation of ships do not square with the navy’s quantity or capability requirements.

While the National Shipbuilding Procurement Strategy worked well in the selection of the two shipyards to build the combat and non-combat packages – the report recommended Public Works capture the lessons from the request for proposal process for “future complex procurements and strategic sourcing arrangements” – it based the cost of building the Joint Support Ships, Arctic Offshore Patrol Ships and Canadian Surface Combatants on estimations during the early phase of options analysis and appears to have treated those figures as a hard cap, despite increased costs over the years for raw materials, labour and military components..

As a result, the AG noted that the JSS has been reduced to just two, less capable ships than the three multi-role platforms originally envisioned, while the AOPS took such steps as a reduction in “top speed in order to lower the cost associated with the propulsion system and overall size of the vessel.” As for CSC, the AG said the $26.2 billion budget “is insufficient to replace Canada’s 3 destroyers and 12 frigates with 15 modern warships with similar capabilities…The project team’s original and subsequent analyses indicate that the budget of $26.2 billion is sufficient to build only a lesser number of ships when considering the effects of inflation and other cost increases.” The report did note efforts to explore cost-saving proposals.

The report suggested more flexibility in how and when budgets are set, saying that while they are a useful control, “Canada may not get the military ships it needs if budgets are not subject to change.”

“The initial budget for each class of military ship was set years before construction will begin,” the report stated. “As such, the estimates were very imprecise and should be regarded as, at most, placeholders. As the military ships are complex developmental projects, their design will be defined more precisely over time, which will result in greater certainty on the cost of the vessels. It is not realistic to expect that the original budget cap will remain the same from a project’s conception to completion.”

The AG zeroed in on a gap that many pundits have been flagging between the ambition stated in the Canada First Defence Strategy and the cost of the capabilities required to meet it. “In our opinion, a gap appears to be developing between the CFDS level of ambition, the evolving naval capabilities, and the budgets. National Defence should continue to monitor the extent to which it will or will not meet the government’s expectations for future military needs, and continue to report to ministers on expected capability gaps, allowing the government to make adjustments to expectations and capabilities.”

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