Quotulatiousness

October 18, 2023

Why the Canadian Surface Combatant (CSC) program will cost so much more than equivalent US or British ships

Filed under: Business, Cancon, Military — Tags: , , , , , — Nicholas @ 03:00

In The Line, Philippe Lagassé outlines the Canadian Surface Combatant (CSC) program — the next-generation front-line combat ships for the Royal Canadian Navy intended to replace the current Halifax-class frigates and the already retired Iroquois-class destroyers:

Building warships is an expensive business, especially if you’re getting back into it after a few decades. Take the Canadian Surface Combatant (CSC). Fifteen CSCs will be built at Halifax’s Irving Shipbuilding to replace Canada’s current frigates and decommissioned destroyers. According to a 2022 study by the Parliamentary Budget Officer (PBO), the CSC acquisition will cost $80.2 billion. Given that defence inflation is well above regular inflation, and that regular inflation is running hot, that number isn’t going to go down.

Canada’s CSC will be a variant of the Type 26 Global Combat Ship originally designed for the Royal Navy. The Canadian variant includes significant changes to the original Type 26 design, notably to the combat systems. With the estimated per unit cost of each ship topping $5.6 billion, the National Post‘s John Ivison warns that the CSC is out of control. Ivison notes that the United States Navy (USN) acquired its Constellation-class frigates for $1.66 billion. Why, he understandably asks, is Canada paying so much for the CSC, and to what end?

The Canadian government always views major military purchases for the Canadian Armed Forces primarily as regional economic development projects and always attempts to get all or at least a major part of the construction done in Canada. To most people this sounds sensible: big military equipment acquisitions mean a lot of money being spent, so why shouldn’t most of that money be spent inside Canada? The answer, in almost every case, is that it will be significantly more expensive because Canadian industry doesn’t regularly produce these ships/planes/helicopters/tanks, so a lot of money will need to be spent to construct the factories or shipyards, import the specialized equipment, hire and train the workforce, etc., and no rational private industry will spend that kind of money unless they’re guaranteed to be repaid (plus profit).

Ordinary items for the Canadian military like clothing, food, non-specialized vehicles (cars, trucks, etc.) may carry a small extra margin over run-of-the-mill stuff, but it will generally be competitive with imported equivalents. Highly specialized items generally won’t be competitively priced exactly because of those specialized qualities. The bigger and more unusual the item to be purchased, the less economic sense it makes to buy domestically.

There are also the conflicting desires of the elected government (who generally want to target the spending to electoral districts or regions that benefit “their” voters), the permanent bureaucracy (who want to ensure that programs last a long time to ensure jobs within the civil service), and the military procurement teams (who have a tendency to over-optimistically estimate up-front and long-term costs because they want to get the procurement process underway … it’s tougher to stop something already in-process than one that still needs formal approval).

Once there’s a budget and capabilities are identified, the requirements for individual projects are prepared. It’s here that the comparison with lower cost, off-the-shelf alternatives runs into difficultly. The USN has lots of different types of ships that do lots of specific things. The above-mentioned Constellation-class is one of many different types of warships that the USN will sail, each with specific mission sets and roles. The Canadian military has only been directed to acquire fifteen CSCs, but the government expects the CAF to do a variety of missions at sea — not as many as the USN, of course, but still a good number. Canada has other military ships, including the Arctic Offshore Patrol Vessels (AOPS) also being built by Irving, but the CSC will be Royal Canadian Navy (RCN)’s primary expeditionary platform. Canadian defence planners, therefore, need those 15 ships to be capable of undertaking various missions and roles. Compounding this challenge are technological changes and the ever-evolving threat. The requirements for the CSC need to be continuously updated, and in some cases expanded, to keep pace with these developments, too.

An artist’s rendition of BAE’s Type 26 Global Combat Ship, which was selected as the Canadian Surface Combatant design in 2019, the most recent “largest single expenditure in Canadian government history” (as all major weapon systems purchases tend to be).
(BAE Systems, via Flickr)

On purely economic grounds, it would often make sense to add Canada’s order on to existing US, British, or other allied military orders to benefit from the economies of scale … but pure economic benefits don’t rank highly on the overall scale of importance. There’s also the understandable desire of the government to buy fewer items with wider capabilities as the government’s requirements for the military change with time and circumstance.

Were Canadian defence planners too cavalier in their requirements and design modifications? Maybe. Looking at it from their perspective, though, we should appreciate that they thinking about capabilities for a ship that Canada will use until the 2100s.

Doubts about the CSC are going to keep multiplying. The per unit costs can only increase so much before people start seriously discussing reducing how many of them will be built. You can be sure that some within government are already asking “Why 15? Why not 12?” Serious concerns are also being raised about whether the defence budget can afford to maintain CSC and keep them technologically up to date after the fleet is introduced. Given the CAF’s personnel recruitment troubles, moreover, it’s unclear if the RCN will have enough sailors to operate the full fleet. The first CSC that hits the water, furthermore, will have all sorts of kinks and problems that will need to be sorted out. That’s standard for first ships off the line, but you can be sure that every failing will be met with handwringing and charges of incompetence.

To address these concerns, the government must let DND/CAF better explain what the CSC is designed to do and why it needs to do it. Simply telling Canadians that it’s the right ship isn’t enough when it’s easy to point to lower-cost alternatives. As well, the government needs to be far more transparent about estimates of costs and what’s driving them. Political and public support for the CSC shouldn’t be taken for granted, and growing concerns about the program can’t be simply brushed away.

January 2, 2023

An in-depth look at the Type 26 frigate design

Filed under: Australia, Britain, Cancon, Military, Weapons — Tags: , , , , , — Nicholas @ 04:00

Navy Lookout
Published 31 Dec 2022

The Type 26 frigates being built for the Royal Navy [and Royal Canadian and Royal Australian navies] are specialist submarine hunters but with a range of other capabilities. This video provides a primer on the overall warship design, its weapons, sensors and decoys.
(more…)

August 6, 2022

Canada’s New Warship

Filed under: Australia, Britain, Cancon, Military, Weapons — Tags: , , , — Nicholas @ 02:00

Frontline Pros
Published 12 Feb 2022

The Type 26 Frigate will become the first dedicated warship Canada has built in decades. Soon the Royal Canadian Navy will take ownership of 15 of these vessels, making them the largest owner of the Type 26 in the world.
(more…)

March 17, 2021

Rebuilding the Royal Canadian Navy

Filed under: Cancon, Military — Tags: , , , , , — Nicholas @ 05:00

I somehow missed this article by Sir Humphrey when he posted it a few weeks back. He’s looking at the Australian and Canadian governments’ respective decisions to use the British Type 26 design to replace their current anti-submarine fleets and considering some of the economic and military concerns that led to the decision.

In both cases there have been media articles in the last week over the programmes and concerns. In Canada, the challenge has been that the cost has grown to a total of $77bn for 15 escorts. There has been cost growth from an originally scheduled $14bn many years ago, and the first of class will not now be delivered until 2031. This has led to suggestions in some media quarters that Canada could do things faster and more cheaply if it simply bought an off the shelf foreign design now and got on with things.

An artist’s rendition of BAE’s Type 26 Global Combat Ship, which was selected as the Canadian Surface Combatant design in 2019, the most recent “largest single expenditure in Canadian government history” (as all major weapon systems purchases tend to be).
(BAE Systems, via Flickr)

[…]

The issue now is that Canada will need to establish, almost from scratch, a frigate construction programme and workforce for a finite period of time without a clear plan of what follows on when the last hull is completed. At the same time it will need to run on ships that are becoming increasingly elderly – it is likely that most of the Halifax class will see more than 40 years of service, and some may approach their 50th birthdays before being replaced – something that will pose an increasing maintenance and resource challenge.

Could things be done more cheaply or quickly? Almost certainly yes, but only if you are willing to make massive compromises. It could be possible, for example, to look to licence build an existing design that is already in service. There are plenty of designs out there that could be licence built and brought into service in the next few years — probably at less cost than the T26 programme.

But while this may sound easy, its also a recipe for disaster. It’s easy to look at country X and say “they’re buying this ship for that much” and assume that Canada is getting a bad deal. But Country X is likely to have a very different set of requirements, and their design will reflect it.

For example, Canada needs a ship able to operate with NATO and 5 EYES as a fully integrated player – this adds cost to fit specific systems and equipment that is compatible. Canada will also want to fit bespoke systems to meet national needs – again this will require design changes, that come at a price. Bolting on all manner of different requirements that Canada needs to meet the unique operational circumstances adds price and complexity to the design.

While you probably could take an off the shelf design and build it now, it would be just that, an off the shelf design. It wouldn’t be optimised for local needs, and it wouldn’t have the right equipment, comms, meet local design standards, or be certified for use with national equipment.

You are then faced with two choices – either bring a cheap ship into service that is entirely unsuitable and not designed for your needs, but is a lot cheaper, or spend an enormous amount of money shifting the design to better reflect your needs. If you choose the latter, then suddenly you are adding cost and time in, and the 2031 date will slip even further.

If you choose the former, then you have to accept that the design is “as it comes” and will have minimal Canadian input – so limited industrial offsets, very little economic benefit, and the long-term support solutions will firmly be tied into the country of origin and not Canada. In other words, Canadian taxpayer dollars will be spent to support a foreign economy.

That last point is really the key. Canadian governments, in my lifetime at least, never look at the military requirement as the top priority and sometimes not even the second or third priority. The economic spin-offs, especially in those cases where the benefits can be allocated to marginal parliamentary constituencies, will be the top priority. As is always a talking point in the case of any major military hardware acquisition, this is going to be the “single largest expenditure in Canadian government history”. Just as the replacement of the RCAF’s aged CF-18 fighters will be the largest expenditure in its turn.

March 2, 2021

Warship purchasing is not for the faint-of-heart

Filed under: Bureaucracy, Cancon, Economics, Government, Military — Tags: , , , , , — Nicholas @ 03:00

Ted Campbell talks about the way the Royal Canadian Navy plans for warship purchases … and how the best-laid plans can be derailed by ignorant political advisors:

An artist’s rendition of BAE’s Type 26 Global Combat Ship, which was selected as the Canadian Surface Combatant design in 2019, the most recent “largest single expenditure in Canadian government history” (until the RCAF gets their replacement for the CF-18 Hornet).
(BAE Systems, via Flickr)

Once upon time,* about 25 to 30 years ago, in the mid 1990s, when I was the director of a small, very specialized team in National Defence Headquarters (NDHQ) in Ottawa, something like this happened: One of my colleague, who had a title like Director of Maritime Requirements or something similar said to one of his principle subordinates, “Look, now that the 280s (Canada had four Tribal Class destroyers with pennant numbers starting at 280, they were often just called ‘280s’) are finished their mid-life refit and now that the new frigates are entering service it is time to put a ‘placeholder’ in the DSP for their eventual replacements.” The DSP was (still is?) the Defence Services Programme, it is the internal document which sets out the long range spending plans (maybe hopes is a better word) for the Canadian Armed Forces.

Anyway, the Navy commander (the officer assigned to write the document, not the Commander of the Royal Canadian Navy who is nicknamed the Kraken (CRCN)) sat at his desk and consulted the most recently approved planning document which, as far as I can remember, called for a surface fleet of 25 combat vessels and four large support ships plus numerous minor war vessels (like minesweepers) and training vessels. The officer then prepared a memorandum for the joint planning staff which said that the Navy would need 25 new combat ships, to be procured between about 2015 and 2035, in five “batches” of five ships each** at a total cost of about $100 Billion, in 2025 dollars. He didn’t say much beyond that, actually, he was just intending to “reserve” some money a generation or so in the future. His memorandum sailed, smoothly, past his boss and the commodore but questions came from a very senior Air Force general: Where he asked, did the $100 Billion come from? That was an outrageous number, he said.

A meeting ensure where the Navy engineering people came and said, “$100 Billion is a very reasonable guesstimate. Our brand new frigate are costing $1 Billion each when they come down the slipway. They will each have cost the taxpayers two to three times that by the time we send them to be broken up thirty or forty years from now. Adding in the inevitable costs of new technology and inflation, which we know is higher for things like military ships and aircraft than it is for consumer goods, then a life-cycle cost of $4 Billion for each ship is very conservative. The admirals and generals huffed and puffed but they didn’t argue ~ they knew that the engineering branch insisted on using life cycle costing, even though no-one but them understood it, and they also knew that arguing with engineers is like mud-wrestling with pigs: everyone gets dirty but the pigs love it.

A decade later, when a new government was planning the National Shipbuilding Procurement Strategy, which was all about making the Canadian shipbuilding industry competitive and had very little to do with ships ~ except they would be the “product” for which the Government of Canada would pay top-dollar, the Navy was told it could have fewer ships, in two classes, and someone ~ NOT the military’s engineering branch ~ assigned a cost figure to the project which was, to be charitable, pulled out of some political/public relations staffer’s arse.

[…]

* The story is true, in general, but I was not directly involved in any of it. I learned about what happened from three main sources: 1. routine briefings that my bosses (directors-general and branch chiefs) gave, regularly, to we directors, dealing with what was going on in the HQ and in the big wide world; 2. periodic chats with my colleagues, after work on Friday afternoons, in the bar of the Officers’ Mess ~ many of us regarded 2. as a more reliable source of information than 1.; and 3. in the case of the story about the Navy engineers and the Air Force general, by a friend and colleague who was in the room.

** The idea, long before the National Shipbuilding Strategy, was to keep shipyards moderately busy on a continuous basis. The 25 ships would all be similar: the first “batch” of five would be identical, one to the other; the second “batch” would be very similar but with some improvements; the five ships of batch 3 would be similar to the ships from the second batch and those from batch 4 would be rather like their batch 3 sisters. Finally, the batch 5 ships would be product improved versions of batch 4 ~ they would still be “sisters” of the batch 1 ships, but not, in any way, twins. The idea was that about the time that the batch 5 ships were being delivered the first of the batch 1 ships would be getting ready for a mid-life refit (after 15 to 20 years of service) which would result in it being much more like the batch 5 ships … and so on.

June 27, 2019

$26B, $56B, $70B, and pretty soon you’re talking real money

Filed under: Cancon, Military — Tags: , , , , — Nicholas @ 03:00

The headline refers to the constant upward movement of various estimates on how much the Canadian government will be required to spend on the Canadian Surface Combatant program. In shorthand, that’s the money required to replace the Royal Canadian Navy’s current fleet of 12 frigates and the Iroquois-class destroyers that have already been retired from service. The Halifax-class frigates began entering service in the early 1990s and were designed to operate for about thirty years, meaning the RCN needs replacements to start coming into the fleet in the mid-2020s. The government initially budgeted around $26B for fifteen ships in 2008, but as with so many military equipment programs, no actual steel has been cut to begin building the new ships … in fact the design was only formally agreed in October 2018 and not signed (due to a lawsuit from one of the losing bidders) until February of this year. We’re still probably 2-3 years away from construction of the first ship in the class beginning, which will mean the Halifax class will have to remain on duty for longer (and older ships require more frequent and more expensive maintenance).

A Chilean navy boarding team fast-ropes onto the flight deck of RCN Halifax-class frigate HMCS Calgary (FFH 335) during multinational training exercise Fuerzas Aliadas PANAMAX 2009.
US Navy photo via Wikimedia.

The Department of National Defence most recently estimated up to a $60B final bill, but the Parliamentary Budget Office estimate was $70B (an increase of $8B over a two-year span), and there’s no reason to assume that things will magically get cheaper between now and whenever Irving Shipbuilding starts construction of the first new ship. David Pugliese reports:

… it could be years before the real cost to taxpayers for the mega-project is actually known as the project is just getting started.

The PBO report warned that any delays in building the first ship will be costly. A delay of one year, for instance, could increase costs by almost $2.2 billion, it added.

The federal government hopes to begin building the ships starting in the early 2020s.

Pat Finn, the head of procurement at DND, said the PBO estimates largely align with what the department figures as the cost of the program. He noted that unlike the PBO, the department does not consider tax in its cost figures. That is because those fees ultimately go back to the federal treasury.

But he also agreed with the PBO on the concern about added cost if the project is delayed. “That is a key one for us. It’s something we’re watching carefully,” said Finn, assistant deputy minister for materiel.

The CSC program is currently in the development phase. The government projects the acquisition phase to begin in the early 2020s with deliveries to begin in the mid-2020s. The delivery of the 15th ship, slated for the late 2040s, will mark the end of that project.

The Liberal government announced in February that it had entered into a contract with Irving Shipbuilding to acquire new warships based on the Type 26 design being built in the United Kingdom. With Canada ordering 15 of the warships, the Royal Canadian Navy will be the number one user of the Type 26 in the world.

The United Kingdom had planned to buy 13 of the ships but cut that down to eight. Australia plans to buy nine of the vessels designed by BAE of the United Kingdom.

The entry of the BAE Type 26 warship in the Canadian competition was controversial from the start and sparked complaints the procurement process was skewed to favour that vessel. Previously the Liberal government had said only mature existing designs or designs of ships already in service with other navies would be accepted, on the grounds they could be built faster and would be less risky. Unproven designs can face challenges as problems are found once the vessel is in the water and operating.

But the requirement for a mature design was changed and the government and Irving accepted the BAE design, though at the time it existed only on the drawing board. Construction began on the first Type 26 frigate in the summer of 2017 for Britain’s Royal Navy, but it has not yet been completed. Company claims about what the Type 26 ship can do, including how fast it can go, are based on simulations or projections.

BAE Systems released this artist’s rendition of the Type 26 Global Combat Ship in 2017, which is the design selected by the Canadian government for the Canadian Surface Combatant program.
(BAE Systems, via Flickr)

Ted Campbell commented on the report:

I’m not sure the new ($70 Billion) figure is a terribly useful number for taxpayers like you or me or for policymakers, either. I’m not convinced that DND, itself, much less the whole of government, including the PBO, has a common, coherent understanding of “life-cycle costs,” and I’m damned sure neither the media nor 99.99% of Canadians has one. I’m glad to see that the government includes “the cost of project development, production of the ships, two years of spare parts and ammunition, training, government program management, upgrades to existing facilities, and applicable taxes” but that’s just the tip of the iceberg. These ships are going to be in service for 35± years and they are going to cost money to own and operate every hour of every day and I hope someone is programming ongoing costs (running costs, routine maintenance, upgrades and refits and life extension projects and even disposal) into the long term defence budget guesstimates.

Good management says that the DND budget should be pretty well fixed for the next year or two, fairly firm (even allowing for a change in government) for four or five years beyond the end of the next fiscal year it should be and a reliable planning guide for the next decade or even two. In other words, DND should have a pretty good idea about what it will cost to operate itself, pretty much as it is now, for a generation. I expect (hope, anyway) that defence planners have a “Christmas wish list” of capabilities they want to add or improve/increase (with costs attached) should a defence friendly government ever materialize in Canada or, sadly but more likely when, not if, the need arises.

He also points out the hidden truism about huge government purchases:

… from 1950 to 1958 the several hundred Canadair F-86 Sabre jets that Canada bought for the RCAF was, probably, “the largest single expenditure in Canadian government history,” then from the early 1950s until 1964 the production of 20 destroyers (DDE and DDH) of the St Laurent, Restigouche, Mackenzie and Annapolis classes (all based on one, baseline, design) was, almost certainly, “the largest single expenditure in Canadian government history,” and I know for a fact that the purchase decision (in 1980) of 138 CF-18 Hornets made it “the largest single expenditure in Canadian government history.” The simple fact is that the costs of high-tech aircraft, howitzers, tanks, radios and, especially, ships, keep climbing far faster than inflation and if, as we must, we want our armed forces to be adequately equipped then we need to accept higher costs … especially if we want to build ships in Canadian yards, employing Canadian workers.

HMCS Annapolis at Pearl Harbour in 1995 (via Wikipedia)

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