Rebuilding the Navy
JERROD RILEY
© 2009 FrontLine Defence (Vol 6, No 2)

The (thus far) failed procurement for the Joint Support Ships hangs like a sword over the future of our Navy, with serious repercussions for our ­sovereignty and economic well-being also at stake.

The benefits of the JSS project are two-fold. The project will deliver the first of the next generation of Canadian warships and bring important new capabilities to the fleet. It will also rebuild the shipbuilding capacity of industry and government, serving as a stepping stone the Canadian Surface Combatant and other future programs.

The failure to move JSS procurement forward has forced our government to spend millions of dollars refitting the aging (40 year old) HMCS PRESERVER for the second time in four years to ensure there is fleet logistics support for our deployed ships. Beyond JSS, our next priority must be replacement of the four 35+ year-old Iroquois class Area Air Defence Destroyers (as per the Canadian Surface Combatant project), and our similarly aged fleet of Coast Guard icebreakers. Canada is faced with a host of essential shipbuilding requirements, and building warships in Canada is an investment in Canadians and Canadian technology. It is one of the few defence industries that directly generates high technology jobs in this country. Thus, urgent action is required to set Canada’s naval procurement on course, a course that will put Canadians to work.

Fortunately, the finger pointing and need to assign blame has passed, and numerous government and industry working groups have been beavering away on the development of a new way ahead for procurement reforms. Public Works and Government Services, Industry Canada and National Defence have all been engaging at a working level with representatives of Canada’s marine and defence industries.

Industry groups such as the Shipbuilding Association of Canada and the Canadian Association of Defence & Security Industries have also engaged in the development of proposals to government. The Navy League of Canada has closely monitored, and often participated in, these developments. Based on the present situation, and our best estimates of future requirements, the following actions need to be undertaken to avoid a maritime security crisis in Canada:

1. JSS Procurement needs more funding to proceed.
This project was originally announced in 2004. Since then we have seen fluctuations in commodity prices and a loss in buying power for the dollar. Because these projects are budgeted in Budget Year (BY) dollars and not Current Year (CY) dollars, any delays just make the project more and more expensive. It should be noted that BY dollars are fully inflated at the time the budget is set, thus, they loose buying power over time. This factor alone has made the project less affordable. Finally, we need to recognize that the original budget allocation was assigned before all of the requirements were identified. Thus, the project was unintentionally set to fail from the start.

Fortunately, two teams submitted bids for the Joint Support Ship procurement. One submitted a bid for two ships that fell within the mandatory contract price; the other submitted a bid for three ships that was well over this price. These figures can provide government an accurate benchmark for the true cost of building these ships, better than the ‘hocus pocus’ accounting that has caused this project not to come to fruition. Using these figures as a benchmark, adjusting for price fluctuations which have occurred in the interim, and adopting a CY costing model, a revised amount could be determined rather quickly.

There are numerous options to restart the JSS project. These range from starting over with a new RFP to continuing with the existing PD phase. The fact that our current ships are already 40 years old and expensive to maintain argues for the most timely and cost effective approach.

As an aside, our government now has the opportunity to build four of these ships, which is a highly desirable prospect for both economy of scale and the enhanced availability of these vessels capabilities. When building ships, the first of class is always the most expensive. Successive builds get cheaper and cheaper, as manufacturing processes get refined and the design and overhead costs have already been incurred.

Three vessels represent the minimum number of ships required, and would guarantee at least one ship is available 97% of the time. Although in some cases the available ship could be on the opposite coast from where it is required, necessitating increased transit and repositioning time. For a marginal increase in overall purchase price, a fourth ship means we will always have one available for deployment. It also allows for one on each coast about 70% of the time.

Yet, the project seems to be moving in the opposite direction. Options being studied have focused on reducing the capabilities of these ships, making them smaller and cheaper to fit within the $2.1 billion envelope (some readers are aware that the actual contract amount was capped at $1.575 billion – the difference between this figure and $2.1 billion represents the government’s project costs).

Reducing capabilities, however, is a perilous approach. The Navy has identified specific needs based on Government policy. Cutting capabilities or numbers to meet an unrealistic budget, set before all requirements were assessed, means that the ship will not come close to fulfilling Government policy direction. This leads to the worst case scenario of Canadians paying for ships that cannot do the jobs we require of them. It also means that all of the time and money spent thus far (5 years and more than $60 million) will be wasted.

2. Procurement Reforms.
Procurement Reform has been identified as a government priority in the last two Speeches from the Throne. Without significant reforms to our procurement practices, future build programs like the Arctic Offshore Patrol Ship and the Canadian Surface Combatant will fail. It is ironic that government efforts to eliminate risks from procurement have actually created greater strategic and operational risks for our country. These have already begun to manifest, and will worsen as we approach 2015 (when the Canadian Surface Combatant must be delivered). Yet while considerable good work is being done at relatively low levels within the bureaucracy, it has yet to produce meaningful results or gain traction at senior levels.

In his paper “Military/Naval Procurement in Canada: A Flawed Process” former naval officer and long-time industry executive Ken Bowering has provided insight and experience on the types of reforms required. Ken was ‘first out the gate’ with recommendations to the government on procurement reform during the last parlia­mentary session. His work has been broadly reviewed within the working levels of the government bureaucracy and industry, and is being reinforced by more detailed analyses conducted by CADSI and SAC.

Most players in the marine industries have been engaged on these issues and common themes emerge from these studies, namely: concise and consistent requirements, reduced bureaucratic overheads, clear accountability, equitable and effective risk management, and more flexibility in both contracting and the administration of Industrial Regional Benefits.

All of this is achievable, and could reduce procurement costs by up to 30 percent. However, it will take some time. While there seems to be a desire on the part of all political parties to get these projects rolling and add the much needed stimulus to our economy, this apparent political will has yet to bear fruit. Given the very real urgency of these operational capabilities, and the parallel need to maintain thousands of high technology jobs in the marine sector, procurement reform requires an aggressive political champion to pressure the senior levels of the bureaucracy to make it so.
 
3. Implement a Long Term Shipbuilding Plan.
Given that more than 55 large Navy and Coast Guard vessels need to be replaced within the next 20-25 years (at a cost of $30 -$40 billion or more) it makes sense to develop a plan with relatively stable production and funding. This stability will reduce costs by eliminating requirements to continuously re-capitalize shipyards and re-train the workforce. It also avoids the additional costs of keeping antiquated platforms and equipment in service and helps to avoid sticker shock – it’s easier to spend $1 billion a year and get new vessels on an ongoing basis than to spend $20 billion to buy a class of ship all at once.

In a country which has seen fumble after fumble in defence procurement football, there is a clear need for a new game plan. If we continue to invest hundreds of millions of dollars to keep antiquated equipment running, and fail to commit to a methodical and responsible replacement regime, we are bound to fail. This will cause further job losses and an inability to protect sovereignty in our own ocean approaches. Not only will we fail in the Atlantic and Pacific but we will greatly erode our ability to exercise appropriate control in Canada’s Arctic. Reversing this trend will reap major benefits for our defence, security, economy and our foreign policy. All that’s required is for someone to step forward and seize the helm. Let’s give our sailors the tools they need to do the dangerous work the nation asks of them. They deserve it. Canadians need it. Let’s get it done.

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Jerrod Riley is the National Deputy Director of The Navy League of Canada.
© FrontLine Defence Magazine 2009

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