Canadian Manufacturing

Undisclosed report skewers Navy ship procurement process

Report says policy delays have eroded buying power and political considerations and industrial policy have trumped military requirements

OTTAWA—An options analysis for how the Canadian navy can cover the gap in military supply ships is now sitting on Defence Minister Rob Nicholson’s desk, but there are some contentious suggestions he likely won’t see.

There’s a growing divide in the military community about precisely what kind of ships should replace the aging HMCS Preserver and HMCS Protecteur, which are being decommissioned ahead of schedule.

The Harper government plans to build two joint support ships in Vancouver under its politically popular national shipbuilding strategy, but those vessels are at least eight years away and National Defence is searching for ways to fill the void.

Options have been provided to the minister, the commander of the navy told a Commons committee last month.

But an independent report—which is not part of the navy’s recommendations—questions whether waiting for the new ships to be built is the most cost-effective approach.

That analysis has been gathering dust in the office of the parliamentary budget officer.

It was written last year under contract by two experts at the Conference of Defence Associations Institute and meant to form part of the budget officer’s overall report on the joint support ship plan.

However, it was left out because senior retired naval commanders disagreed with the recommendations.

The dispute provides a behind-the-scenes glimpse at the vested interests involved and how industrial policy often trumps military requirements and capability needs.

The independent evaluation, penned by retired colonel George Petrolekas and defence analyst Dave Perry, recommended buying a French Mistral-class landing ship and converting at least two civilian-grade tankers into refuelling vessels.

Not only would that provide the navy with greater capability and flexibility, it would be cheaper than the current $2.9 billion plan, the analysts argued.

The “mixed-fleet package is the only means of providing both the joint capabilities and the replenishment capabilities at a speed of 20 knots, within the budget envelope,” said the draft report, a copy of which was obtained by The Canadian Press.

“We believe that this is the only option worthy of detailed scrutiny by the PBO that could provide the capabilities envisioned in the 2006 (statement of requirements).”

The parliamentary budget office wouldn’t discuss why the report’s findings didn’t make it into its final report, other than to say it commissions a lot of research as part of its due diligence.

Perry said the point of the analysis was to help the PBO, and ultimately the government, to broaden their thinking on the issue.

“Other countries ask themselves: What is the best capability you need and how do you get it?” he said.

“We do it the other way around. We ask: How much capability can you get within this budget, building it according to these conditions and doing it within our existing procurement practices.”

And often, political considerations and industrial policy rule the roost.

The Harper government and the navy are tied into the national shipbuilding strategy, which is intended to rebuild the fleet of surface ships and coast guard cutters with made-in-Canada vessels.

The negotiation of umbrella agreements with two shipyards—Vancouver’s Seaspan and Irving Shipbuilding in Halifax—and the subsequent defence procurement strategy are considered among the government’s signature accomplishments when it comes to the military.

The analysis, however, questions the kind of benefit Canadian industry will get and whether the delay and potential extra cost associated with the strategy are worth it from an economic and military perspective.

“The NSPS dictates that the vessels will be ‘built’ in Canada, but provides no explanation for what this actually means, beyond employing a Canadian shipyard,” said the report.

“It is clear, however, that many important components will very likely have to be sourced internationally, and potentially the design as well. Nonetheless, procuring ships through the NSPS process will ensure that they will be considered ‘Canadian.”’

The joint support ships were originally ordered by Paul Martin’s Liberal government, but the initial program was cancelled and restarted by the Conservatives because the first round of bids exceeded the budget envelope. The program was further delayed and is not slated to produce its first ship until 2018-19 because it was rolled into the shipbuilding strategy.

The analysis says the delay has eroded the budget.

“The net result is that rather than actually having $2.6 billion to spend on new ships, the erosion caused by various ”charges“ and ”risk factors“ mean that at best, only $1.8 billion is available for new ships—close to a 30 per cent erosion of buying power,” the report concludes.

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