In October 2011, the Harper government announced with great fanfare that Canada had finally selected, after a year-long process, the two shipyards that would build the new ships for the Royal Canadian Navy (RCN) and the Canadian Coast Guard.
Marketed as a historic moment by the government at the time, the National Shipbuilding Procurement Strategy (NSPS) is a mammoth procurement program that will in theory supply Canada with approximately 28 ships at a cost of $33 billion dollars. For the RCN, this project would comprise 15 Canadian surface combatants (CSC) to replace the 12 Halifax-class frigates and three Iroquois-class destroyers, two to three joint support ships (JSS) to substitute for the two Protecteur-class oiler replenishment vessels, as well as six to eight Arctic offshore patrol ships (AOPS), which would be a new capability for the RCN.
Certainly, the NSPS has been marred with difficulties, which merit ample debate and discussion. There is, however, one particular debate that needs to be discarded rapidly: whether the Department of National Defence should procure its vessels offshore or, to the contrary, build them in Canada.
This question has generated some notable attention lately, especially with the publication of two reports: the Parliamentary Budget Office (PBO) on the acquisition of the JSS, and the Jenkins Report on leveraging defence procurement in Canada, as well as recent media coverage.
To be sure, building the RCN’s future fleet at home will cost more in the immediate term to Canada. It is unclear how much more, but various estimates fluctuate between 15 to 30 percent. Hence, for a procurement strategy of $33 billion, building at home could cost Canadian taxpayers between $5 and $10 billion dollars.
The reasons for the “Canadian” premium are quite simple. First, Canada has limited military shipbuilding capacity to call our own. Our last experience was 20 years ago when we built the 12 Halifax-class frigates for the RCN. Thus, the NSPS is essentially creating that capacity from scratch, with of course the added cost of training the workforce and building the appropriate facilities in the shipyards to support the procurement strategy.
Second, despite the impressive price tag of the shipbuilding contracts, Canada will build relatively few ships. In effect, Canada will not be able to benefit from the economies of scales or economies of experience that result from sustained large-scale production.
Third, with so few types of ships being built, Canada will not be able to distribute the cost of designing the ships across a large number of vessels. Hence, the design phase of the NSPS is dramatically more expensive than it would be by acquiring ships already in production abroad.
For some, the added cost associated with a “made in Canada” strategy could be reason enough to buy off-the-shelf ships.
Be that as it may, I would argue that a Canadian shipbuilding project such as the NSPS remains the best option for political, economic and strategic factors.
The first dimension to consider in this respect is the political sphere. Although we often tend to forget, it is politicians and public servants that ultimately decide if, when and how many ships will be procured to replace the aging RCN fleet. The principal worry of any politician in a democracy is to get elected. Before principles and values, before even grand strategies and national interests, the desire to hold the reins of government is the most stable and best predictor of a politician’s decisions.
Through this lens, the NSPS is a political godsend, the capacity to spend billions of dollars over a large number of years (roughly 25 at this point) and thus reap the political benefits of multiple photo-ops, ribbon cutting events and announcements. The actual size of the NSPS, however, limits the capacity of any government to seriously consider foreign options in procurement. No federal government would be able or willing to argue to Canadian voters that they have made the decision to spend $33 billion of taxpayer money abroad. Since the NSPS effectively bundles together the procurement of the new RCN ships, the federal government has its hands tied to a “build at home” strategy.
Furthermore, the NSPS is a classic case of a collective action problem. The made-in-Canada strategy will benefit a small percentage of Canadians, namely those from the Maritime provinces and, to some extent, British Columbia. These voters will be especially sensitive to any attempts to remove those benefits – by procuring the ships abroad, for example – and will enact considerable political pressure on Ottawa. Quite the reverse, the added cost of the made-in-Canada strategy is shared and distributed by a larger number of Canadians, which will seldom spend their political capital to convince politicians to select a cheaper alternative, i.e., off-the-shelf foreign built vessels. From the perspective of politicians, it is almost impossible to reverse the decision to build the new RCN fleet in Canada.
The second dimension to consider is the economic imperatives of the NSPS. First, by focusing on a “build in Canada” strategy, the NSPS will provide important direct and indirect economic spinoffs for the Canadian economy. We should be weary of extravagant claims of massive economic benefits that are not supported by actual studies of such procurement process, but estimates vary from a projected $1.6 to $2.4 billion annually, with a yield of approximately 10,000 to 15,000 jobs.
These figures are probably an exaggeration, nevertheless, it is important to understand that these economic incidentals would be reaped mostly in the Atlantic provinces, a region where economic good news has been few and far between in the last decades. Thus, the shipbuilding strategy would become an important driver of economic growth.
Second, an important aspect of any procurement strategy is to assess the economic cost of the entire lifecycle of the equipment. Industry estimates that the maintenance and repair of the new fleet would cost approximately $500 million per year during the 40-year projected lifespan of the ships. By investing in its onshore shipyards, Canada assures that it will create the expertise (if we build them we can repair them more easily) and maintain a certain level of control over the future cost of maintaining the fleet.
This is a strong economic argument that should not be overlooked. A foreign-based procurement strategy would subject the RCN, and by extension, Canada to extreme financial uncertainty where economic hiccups such as exchange rate boom and bust, shipyard closure, decision to relinquish maintenance operations, or variations in labour wages could essentially make the maintenance and repair of the fleet either impossible or unaffordable. A build-at-home policy will shield the RCN from the shadow of an unpredictable future.
The last dimension relates to the navy itself. First, the build- at-home decision promotes Canadian operational sovereignty, mainly by giving the RCN the capacity to design, repair and conduct the maintenance of its fleet without relying heavily on allies or other nations. In the event of a conflict (although such probability appears remote for the moment), Canada must have the capacity to build, repair, train and maintain its navy. Reliance on allies to supply Canada with these tasks is extremely hazardous since these allies would probably (as they have done so in the past) satisfy their own material necessities before addressing Canadian issues.
Second, we do not buy naval vessels the same way we might other military equipment. Ships are really a system of systems, small cities that are designed for particular tasks and capacities. In this context, countries tend to supply their navies with specific capacities that fit their particular strategic interests. In this respect, the RCN needs specific ships that are able to conduct operations with international allies on open seas as well as defend Canadian coasts that have particular environmental requirements. To achieve such a high level of flexibility and reduce the security risks of espionage, the shipbuilding procurement strategy requires great coordination between the RCN and national industry.
When you take into account the various political, economic and strategic dimensions associated with foreign versus onshore procurement schemes, one has to conclude that the decision to supply the RCN with Canadian-made ships is overwhelmingly preferable. Such an option will cost Canadian taxpayers much more than selecting off-the-shelf options. Nonetheless, proponents of the offshore solution often fail to give serious thought to considerations beyond the actual price tag.
Policymakers, academics and military personnel should focus instead on the real problems associated with the NSPS. For example, there are clear indications that the government has underestimated the cost of the strategy. Furthermore, the NSPS suffers from a serious lack of strategic thinking in Canada. Military procurement is essentially a simple ends-means equation: you should purchase equipment to fulfill your task.
Be that as it may, successive Canadian governments have failed in their responsibility to choose between alternative roles, asking the Canadian Forces to be prepared for all types of missions. In this context, the proper response from the CF when the time comes to acquire new material is to select equipment that is both the most advanced technologically (to survive on a battlefield), but also flexible enough to conduct all types of operations.
The present plan to acquire Arctic offshore patrol ships is a perfect example of this strategic indeterminacy: a ship this is both capable of patrolling on open water (where speed is a principal objective) and of navigating in Arctic conditions (thus with some icebreaking capability). This “flexibility” incurs a number of technological challenges that remains one of the main price drivers of procuring military equipment and has the foreseeable problem of using state-of-the-art equipment to accomplish mundane tasks such as patrolling coasts. This political indeterminacy of military ends has plagued all procurement processes in Canada since the mid-1970s and is probably the single most important factor behind our successive failure to purchase military equipment at a reasonable price.
Jean-Christophe Boucher is an assistant professor of Political Science at Dalhousie University. He is a Research Director at the Centre Interuniversitaire de recherche sur les relations internationals du Québec et du Canada and a fellow at the Center of Foreign Policy Studies at Dalhousie University.