Major military hardware is produced in only limited quantities and involves a massive amount of research, development, and engineering before the first unit goes into service. Because of this, the companies that build it are rarely willing to take the risk of paying for the development themselves and recovering the cost from the units that they sell. What if the customer suddenly decides to cut their buy in half? To avoid this problem, development is paid for by the customer separately from procurement of each item. Well, more or less. The actual answer varies with each particular system, accounting method, and time of the month. But in general, costs break down that way.
So why does this cause so much confusion? Well, it all has to do with what gets reported. Someone who is trying to make the case that some program is outrageously expensive and should be cancelled is going to lump together development and procurement, divide by the number of systems involved, and then publish the resulting number. But, particularly when we’re discussing the cost of a system about to enter production, that’s very different from the actual numbers. To give a well-known example, the B-2 is generally reputed to have cost about $2 billion/plane in the 90s. However, this is the total program cost divided by the 21 airframes. If we’d decided to buy 22 B-2s instead of the 21 we did buy, the extra plane would have cost only $700 million or so. Admittedly, the B-2 is a rather extreme case, and usually the share of R&D cost is less than the procurement (flyaway) cost, but it’s illustrative of the power of this kind of framing.
“bean”, “Military Procurement – Pricing”, Naval Gazing, 2018-03-09.
June 27, 2020
QotD: The cost of military equipment
August 5, 2019
How Boeing lost its mojo
Rafe Champion linked to this interesting thumbnail-sketch history of the decline and fall of Boeing:
“Boeing 521 427”by pmbell64 is licensed under CC BY-SA 2.0
Let’s start by admiring the company that was Boeing, so we can know what has been lost. As one journalist put it in 2000, “Boeing has always been less a business than an association of engineers devoted to building amazing flying machines.”
For the bulk of the 20th century, Boeing made miracles. Its engineers designed the B-52 in a weekend, bet the company on the 707, and built the 747 despite deep observer skepticism. The 737 started coming off the assembly line in 1967, and it was such a good design it was still the company’s top moneymaker thirty years later.
How did Boeing make miracles in civilian aircraft? In short, the the civilian engineers were in charge. And it fell apart because the company, due to a merger, killed its engineering-first culture.
What Happened?
In 1993, Clinton’s Deputy Secretary of Defense, Bill Perry, called defense contractor CEOs to a dinner, nicknamed “the last supper.” He told them to merge with each other so as, in the classic excuse used by monopolists, to find efficiencies in their businesses. The rationale was that post-Cold War era military spending reductions demanded a leaner defense base. In reality, Perry had been a long-time mergers and acquisitions investment banker working with industry ally Norm Augustine, the eventual CEO of Lockheed Martin.
Perry was so aggressive about encouraging mergers that he put together an accounting scheme to have the Pentagon itself pay merger costs, which resulted in a bevy of consolidation among contractors and subcontractors. In 1997, Boeing, with both a commercial and military division, ended up buying McDonnell Douglas, a major aerospace company and competitor. With this purchase, the airline market radically consolidated.
Unlike Boeing, McDonnell Douglas was run by financiers rather than engineers. And though Boeing was the buyer, McDonnell Douglas executives somehow took power in what analysts started calling a “reverse takeover.” The joke in Seattle was, “McDonnell Douglas bought Boeing with Boeing’s money.”
[…]
The key corporate protection that had protected Boeing engineering culture was a wall inside the company between the civilian division and military divisions. This wall was designed to prevent the military procurement process from corrupting civilian aviation. As aerospace engineers Pierre Sprey and Chuck Spinney noted, military procurement and engineering created a corrupt design process, with unnecessary complexity, poor safety standards, “wishful thinking projections” on performance, and so forth. Military contractors subcontract based on political concerns, not engineering ones. If contractors need to influence a Senator from Montana, they will place production of a component in Montana, even if no one in the state can do the work.
June 27, 2019
$26B, $56B, $70B, and pretty soon you’re talking real money
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)
May 13, 2019
The political persecution of Vice-Admiral Norman
Conrad Black on the recently stayed prosecution of the former Vice-Chief of the Defence Staff, Vice-Admiral Mark Norman:
The RCMP, the same Palooka force that brought us the ghastly fiasco of the trial and resounding acquittal of Senator Mike Duffy, alleged that Vice Adm. Norman was the source of press leaks, and searched his house with a warrant in January 2017, a fact that was also mysteriously leaked to the press. He was suspended with full pay, and finally, in March of 2018, he was charged with a criminal breach of trust. The government barred him from the benefit of the loan of money for legal fees to accused government employees pending judgment, a capricious attempt to starve him into surrender.
Neither the media, usually pretty quick to jump on the back of any defendant, nor any other serious observers, believed the defendant, who started in the navy as a diesel mechanic and rose for 33 years to commander of the fleet and then serve as vice-chief of the defence staff, would do such a thing, or that the RCMP had any real evidence. It didn’t, inciting the suspicion that the Mounties, if they can’t raise their game, should stick to musical rides and selling ginger ale, and reinforcing the view that the Armed Forces should be funded properly, and not just in phony announcements every few years of naval construction and army and air force procurement programs that don’t happen. And It is, in any case unacceptable that police corporals get warrants to search the home of the second highest military officer in the country on grounds that are eventually shown to be unfounded.
It appears to be clear that exculpatory evidence was withheld by the prosecutors, deliberately or otherwise. Outgoing Liberal MP and parliamentary secretary Lt. Gen. (Rt.) Andrew Leslie (a grandson of two former defence ministers, Gen. Andrew McNaughton and Brooke Claxton), had announced he would testify on behalf of Vice Adm. Norman. The prime minister ducked out of question period for two days as this contemptible abuse of prosecution collapsed. Instead, he should, if conscientiously possible, have blamed it on the former attorney general, Jody Wilson-Raybould. That would have been believable, given some of her other antics in that office.
If he can’t do that, then this rotten egg falls on him and could be a politically mortal blow. The SNC-Lavalin affair was an attempt to save jobs in Canada and avoid over-penalization of a successful international company where there is a legal right for the justice department to choose between a fine and criminal prosecution. It was bungled, a ludicrous amateur hour that brought down senior civil servants and led to expulsions of ex-cabinet ministers as Liberal MPs, but it was not a show-stopper unless the prime minister lied to Parliament.
This appears to be a malicious and illegal prosecution of a blameless senior serving officer, who fought his corner as a brave man must. If that is what it is, heads should roll, not of scapegoats, token juniors, or fall-guys, but of those responsible for this outrage.
May 1, 2019
Feds impose media ban on companies taking part in “the largest single outlay of tax dollars in Canadian history”
Ted Campbell understands that governments need to keep some information secret (like the capability of weapon systems or details of naval radar implementations), but that our current federal government is going far beyond any reasonable definition of secrecy:
Type 26 Global Combat Ship — selected as the Canadian Surface Combatant program’s design winner.
(BAE Systems, via Flickr)
But, that sort of really SECRET stuff aside, we, citizens, do have a right to know how the government is spending our money and that, in my opinion, includes understanding “details about the industrial benefits and jobs supposedly to be created by the surface combatant project.” After all, it was our government, the Harper Conservative government to be clear, that selected, in that case, Irving Shipbuilding (Halifax) to be the supplier of new destroyer-frigate type warships, and they did so after what was described in a 2010 press release by then Public Works and Government Services Minister Rona Ambrose as developing a
Strategy [that] promotes the regional distribution of work and opportunities to shipyards across the country. Shipyards that are selected to build the combat and non-combat packages will have to subcontract vast amounts of work to the broader marine industry and suppliers of this industry. Subcontracting in any of the three streams encompassed by the Strategy will be of notable benefit small and medium enterprises … [and] … The Government of Canada is committed to getting the best value for Canadian taxpayers. Under the Strategy, shipbuilding projects that are similar in nature will be grouped together to reduce production costs. This type of strategic sourcing will create the conditions for the effective and efficient delivery and support of the federal fleet over the long term.
That’s all pretty good stuff and I’m pretty sure that most Liberal ministers are still toeing that same line today. They promised industrial benefits and jobs; we, taxpayers, have a right to know if they are delivering.
But, in an article in the National Post, defence correspondent David Pugliese tells us that
The Liberal government has brought in yet another media ban, this time affecting companies seeking work on a warship project that involves the largest single outlay of tax dollars in Canadian history … [in this case] … In a new directive, firms interested in maintenance work on the $60 billion Canadian Surface Combatant program have been told they can’t talk to journalists and instead must refer all inquiries to Public Services and Procurement Canada … [and] … At the same time, a public interest researcher who is seeking details about the industrial benefits and jobs supposedly to be created by the surface combatant project has been informed by government it will take at least three and a half years to get any such documents under the Access to Information law.
Mr Pugliese says, and these are two very worrying points, that:
- The media ban imposed by Procurement Canada on firms interested in maintenance work on that fleet is the fifth such order in the last year involving the purchase of military equipment or ships, according to documents compiled by Postmedia; and
- Industry representatives have sent the news organization the documents, warning about the growing secrecy at Procurement Canada. The records include a ban on firms talking to journalists about the Canadian Surface Combatants, the purchase of next generation fighter jets, a light icebreaker, a Defence department satellite, as well as a military pilot training contract. Industry executives point out the secrecy is not based on security concerns but on worries the news media will be able to use the information to keep close tabs on the problem-plagued military procurement system.
The Trudeau regime seems obsessed with secrecy and wants to bend all factual information to suit its narrative that it is spending our money as we might wish … which is, of course exactly what the Trudeau campaign said about Prime Minister Stephen Harper
September 23, 2018
The Nimrod MRA4 – the world’s most expensive bad aircraft
Back in 2011, I posted an article about the retirement of the Hawker Siddeley Nimrod from the Royal Air Force inventory. I referred to the Nimrod as
… expensive to buy, eye-wateringly expensive to upgrade, but it must be cheap to operate, right? No:
[…] our new fleet of refurbished De Havilland Comet subhunters (sorry, “Nimrod MRA4s”) will cost at least £700m a year to operate. If we put the whole Nimrod force on the scrapheap for which they are so long overdue right now, by the year 2019 we will have saved […] £7bn
The Register certainly got in the right ballpark with this helpful graphic:
Earlier this month, the Nimrod saga was detailed at Naval Gazing, if only as a way to show that someone can have worse procurement experiences than the United States military. Despite being a military development of a passenger jet famous for crashes, the initial marks of the Nimrod were able to meet the RAF’s needs. The problems began when a requirement was generated for a British AWACS aircraft and the Nimrod was deemed to be the best candidate for conversion (“best” probably meaning “only British competitor”):
Things began to go wrong in the mid-70s, when the British decided to introduce an AWACS aircraft to support their air defense efforts. They had several options. The E-2 Hawkeye and E-3 Sentry were both about to enter service, and were rapidly proving themselves to have excellent radar systems during trials. The British could have had either aircraft, or bought their radar systems to integrate into an aircraft of their own. Or they could have only bought a few subcomponents, like the antenna or the radar transmitter itself, and built the rest domestically.
They decided to take none of these options. Instead, they would produce an entirely new radar system. Instead of an American-style radome, separate antennas would be installed in the nose and tail, and the system would sweep through one, and then the other. This was far more expensive and much riskier than buying from the Americans, but it did produce a lot more jobs in the British defense industry, which was apparently the government’s prime concern. In 1977, a contract was placed, making BAE and GEC-Marconi co-leads on the project to convert 11 surplus Nimrod MR1 airframes to the new configuration.
As might be expected based on that kind of decision-making, the resulting airplane had problems. The computer system chosen wasn’t powerful enough to integrate all of the data, particularly the area where the nose and tail radars overlapped. It was also horribly unreliable, with a mean time between failures of only two hours, in a system which took 2.5 hours to load the mission data from the tape. The Nimrod, considerably smaller than the American Sentry, was unable to carry more equipment to solve this problem. Different electronics racks were earthed to different points in the airframe, and the resulting potential differences caused false tracks to appear, overloading the computer even more. To make matters worse, most of the electronics units weren’t interchangeable for reasons that were never entirely clear. If one unit failed, several spares had to be tried before one that worked was found. The only system that functioned reliably was the IFF system, which could only track friendly aircraft and airliners. This was a major handicap in an aircraft intended to detect incoming Soviet bombers.
It probably isn’t a surprise to hear that the planes were delayed. A lot. And delaying military projects tends to drive the overall price higher. What was anticipated to be a £200-300 million project was over £1 billion before the government of the day came to their fiscal senses and pulled the plug (they ended up buying Boeing E-3 Sentry aircraft instead).
A few years later, the RAF ran a competition to replace the Nimrod MR2 maritime patrol aircraft. Lockheed, Dassault and Airbus entered the competition, but somehow, the RAF ended up selecting BAE’s bid which involved rebuilding 30-year-old Nimrod frames with new electronics and all the modern conveniences.
RAF Nimrod MRA4 on 18 July 2009.
Detail of original photo by Ronnie Macdonald, via Wikimedia Commons.
In 1996, a contract was issued for the new aircraft, designated Nimrod MRA4. 21 aircraft were to be produced at a cost of £2.8 billion, and they would be essentially new airplanes, with only the fuselage structure being retained. The antique Spey engines would be replaced with modern BR700s. These engines were significantly larger, and required much more air, forcing BAE to design a new, larger wing. The combined effect of these two changes was to double the Nimrod’s range and improve performance. Inside, the flight deck was replaced with one derived from the A340 airliner, and the mission systems were to be all-new.
A fuselage was sent to be reverse-engineered for the design of the new wing, and BAE designed and built it, then pulled in another aircraft to make the modification. And discovered that the wing didn’t fit. Apparently, the problem dated back to the initial construction of the aircraft. When positioning the frames, Hawker Siddeley had not done what all sensible manufacturers did, and measured from a common baseline. Instead, they had positioned each frame with a tolerance relative to the previous one, which meant that the position of the wings varied by as much as a foot across the fleet. Worse, the aircraft they had designed the wings for was one of the most extreme in wing position, so the new wings didn’t fit most of the other aircraft. This forced a redesign of the wings, further delaying the program.
Spoiler: they missed their delivery deadline. By nearly a decade. And the original plan to build 21 aircraft shrank to only 4 … but the budget continued to grow, from the original £2.8 billion to over £4.1 billion at cancellation. Each of the surviving airframes had literally cost more than £1 billion. That’s why Bean gave the Nimrod his “Naval Gazing Worst Procurement Ever” trophy, and I think it was very well-deserved.
January 16, 2018
Yet another money squeeze for Britain’s military
At the Thin Pinstriped Line, Sir Humphrey outlines the difficult financial position the British Ministry of Defence (MOD) finds itself in and the very limited options available for the decision makers to choose among:
The Times has broken details of the planned cuts put forward by the MOD to meet the likely scale of budget cuts needed under the ongoing national Security Review being conducted in the Cabinet Office. The planned cuts as leaked to the Times highlight the sheer scale of the challenge facing the MOD at the moment, and seem to resort to many of the ‘greatest hits’ intended to arouse strong opposition, such as ‘merging the Parachute Regiment and Royal Marines’ option.
It is indicated that the Prime Minister has opposed the measures put forward, and that this in turn will lead to a full blown Strategic Defence and Security Review [SDSR], which will look again at force structures and outputs, and hopefully deliver a more balanced force in due course. The challenge is doing this against a budget which reportedly is £20bn in debt, with no meaningful way to find savings without serious pain.
[…]
The difficulty then for Defence is conducting an SDSR in a world where politicians seem unsure as to what their ambition is for the UK in the next 5-10 years, and whether they want to find the money to do this or not. There is probably strong political support for the idea of maritime and air power, both of which can easily be deployed (and recovered) discretely and with no long-term entanglements. It is reasonable to assume that the RN and RAF have a compelling case that they should receive the lions share of investment in the review.
By contrast the Army will find itself facing a difficult time – it is telling that all three options presented in the Times focused on a major loss of Army manpower, and capability reduction. What is also likely is the wider impact of further delays in procurement and reduction of exercises, training and other tools essential to keeping the Army credible. As its vehicle fleet ages, and with almost all of its primary weapon systems verging on becoming near obsolete, politicians face a difficult choice – do they continue to direct funding into high end high capability ground equipment, or do they take the ‘UOR [Urgent Operational Requirement] it on the day’ option of reducing the size of the Army and hope that come the next long-term ground operation, there is enough time to sort a round of UOR purchases out to equip people to the right standard.
At its heart though is the difficulty that the UK seems pathologically incapable of taking and sticking to credible long-term plans on defence and seeing them through to fruition. Strategic now seems to mean ‘two-year horizon’ at best, and there is a real sense that for all the glossy PowerPoint slides and publications, it is a department in a perpetual state of crisis as it struggles to afford the equipment needed to do the tasks asked of it.
This cycle of unaffordability is not new, in fact it seems never ending. There is an occasional period of a few years when things seem a bit better, but then another thing goes wrong and the Department is back to square one. Part of this problem lies in an eternally optimistic set of planning assumptions, coupled with such regular turn over of staff that no one ever has to see through the impact of their work.
The other problem is that rather than bite the bullet, take some incredibly tough decisions and wholesale withdrawal from commitments and capability, the Department lurches on, occasionally being bailed out by some deal that finds a few extra quid to just about see it through. What isn’t happening is systematic and thorough reforms to really grip and address the problems that the Department has got to stop them cropping up time and time again.
At some point the UK must have a serious policy discussion about what it really wants from its defence and national security capability. Does it want to seriously fund it, at a time of economic challenge and government austerity, or does it want to scale back ambition in order to find funding for other national projects? This conversation will not happen though in any meaningful sense, and instead the debate will be shallow, superficial and focus on numbers not outputs and leaked papers warning of an inability to defend the UK if something is cut.
It is all very well having an SDSR again (the third in 8 years), but unless there is a real change in behaviours, there will simply be another one in a couple of years’ time when the new plan proves unaffordable and unworkable. We cannot go on like this indefinitely.
January 9, 2018
The ongoing financial catastrophe that is the National Shipbuilding Procurement Strategy
Ted Campbell rounds up recent discussions of the Canadian government’s farcical National Shipbuilding Procurement Strategy (NSPS):
There is a somewhat biased but still very useful look at the successes of the National Shipbuilding Procurement Strategy (NSPS) in the Ottawa Citizen by Howie Smith who is the Past President of the Naval Association of Canada. Mr Smith is a retired Canadian naval officer who has provided consultancy services to several firms pursuing opportunities within the projects of the National Shipbuilding Strategy, which is why his article is somewhat biased. Mr Smith is responding to a recent report by Professor Michael Byers of the University of British Columbia, who is also a biased commentator on defence issues, which said that the NSPS “was flawed from the outset” and “According to Byers, the Liberal government should open-up the non-contractually-binding umbrella agreements with Irving and Seaspan, then cancel and restart the Canadian Surface Combatant and the Joint Support Ship procurement programs with fixed-price competitions involving completely ‘off the shelf’ designs.”
It is important, I believe, to understand why Canada needed something like the NSPS in the first place. The notion came in about the middle of the Harper government’s term in office – in around 2010. I think that two problems confronted the government:
- The Canadian shipbuilding industry was, once again, “on the ropes;” Davie, Canada’s largest shipyard was in bankruptcy and the other yards were too reliant on government contracts; and
- Both of the major federal fleets (the Royal Canadian Navy and the Canadian Coast Guard) were approaching “rust out,” again.
The solution to the first problem was to modernize the yards and make them internationally competitive … but that would cost money and private investment money is scarce ~ especially for shipbuilding, plus under the international trade rules to which Canada has agreed direct government subsidies to commercial shipyards are prohibited. The solution to shipyards that are too reliant on government contracts was ~ wait for it ~ another big government contract that would allow them to modernize themselves.
That indirect government subsidy is perfectly legal if the contracts are for navy and coast guard ships because “national security” is a big loophole in international trade law.
Both Professor Byers and Mr Smith have some good points … but neither is 100% correct. The NSPS was and remains a sound idea … the costs, which is the real crux of Professor Byers’ complaint, are not relevant because the defence and coast guard budgets are being (mis)used for industrial development ~ those are not the real costs of warships: they are the real costs of warships PLUS the cost of yard modernization.
The new surface combatant project is, as Mr Smith says, the biggest and costliest peacetime military procurement ever … and the NSPS is working just about a well as any “system” would at bringing it to fruition. At some point in the future a government will have to decide if Canada gets fewer ships than it needs or spends more more money than it wants … or, most likely, both.
That last sentence has always been the most likely outcome: the RCN will get fewer ships than it needs, and those ships will be significantly more expensive per hull than they need to be. The need for modern naval vessels isn’t the top priority … it’s probably not even in the top three priorities as far as the government is concerned (directing money to the “right” recipients, pandering to provincial sensibilities, lots of photo ops, and then maybe the actual needs of the RCN and CCG).
Update: Of course, it’s not like Canada is unique in the problems we have in military procurement … Australia is also struggling in a similar way:
The [Royal Australian] Navy’s program to replace the Collins Class submarines is known as SEA 1000. It involves modification of a French Barracuda Class submarine from nuclear to diesel-electric propulsion, plus other changes specific to Australia.
The 12 new submarines, to be known as Shortfin Barracudas, are intended to begin entering service in the early 2030s with construction extending to 2050. The program is estimated to cost $50 billion and will be the largest and most complex defence acquisition project in Australian history.
[…]
Then there’s the decision to build them in Australia. The Abbott government’s 2016 Defence White Paper only committed to building them in Australia if it could be done without compromising capability, cost or project schedule. That changed because of South Australian politics, and the new submarines could now be more appropriately described as the Xenophon class.
Even if all goes well, the cost of building warships in Australia will be 30 to 40 per cent more than if they were built overseas. However, the plan to build them in Adelaide at the Australian Submarine Corporation, the same group currently building the Air Warfare Destroyer, years late and a billion dollars over budget, adds to a sense of foreboding.
This follows the prize fiasco of the Collins Class submarine project. Their construction by the Australian Submarine Corporation ran years behind schedule, many millions over budget, and finally delivered a platform that the Navy has struggled to even keep operational.
And then there is the question of whether the new submarines will arrive before the Collins Class subs are retired, scheduled for 2026 to 2033. Even if delivery occurs on schedule, the first will not enter service until 2033. At best there will be one new submarine in service and a nine year gap between the retirement of the Collins Class and the introduction into service of the first six of the twelve new submarines.
Given this, the government has apparently committed an additional $15 billion to keep the 30 year old Collins submarines bobbing in the water. It’s like refurbishing a World War 2 German U-Boat for the mid-1990s.
The elements are all there for the submarine replacement program to become the procurement scandal of the century. Our Shortfin Barracudas will probably be the most expensive submarines ever built anywhere in the world.
For a lot less money, we could achieve a far more potent submarine capability. For example, off-the-shelf Japanese Soryu submarines cost only US$540 million. Modified to meet additional Navy requirements, they were quoted as costing A$750 million. If we simply bought twelve of those, the total cost to the taxpayer would be less than A$10 billion.
Equally, the existing nuclear Barracudas only cost $2 billion each, so we could get twelve of those for $24 billion.
For such an important defence capability, the government’s failure to guarantee Australia is protected by submarines is nothing less than gross negligence.
August 4, 2017
The recent machine gun purchase is a great example of how broken our defence procurement system
About a week ago, the Department of National Defence announced they were purchasing some new machine guns for the Canadian Army. The new weapon is an improved version of the C6 General Purpose Machine Gun (GPMG) currently in service. The Ottawa Citizen gave the basic information on the deal in this article:
Canadian C6 GPMG. (DND photo)
The Canadian government will purchase 1148 new C6A1 FLEX General Purpose Machine Guns from Colt Canada, Defence Minister Harjit Sajjan announced Wednesday.
The current C6 machine guns were procured over 30 years ago. Some have been removed from service due to wear and tear and others are reaching the end of their service life, according to the Canadian military.
The new C6A1 FLEX (flexible) is designed to be carried by soldiers or attached to vehicles such as the new Tactical Armoured Patrol Vehicle. The new machine gun will feature a durable polymer butt stock instead of the current wooden style, according to the Canadian Forces. Additionally, soldiers will be able to attach pointing devices and optical sighting systems to the new weapon to help increase their operational effectiveness.
Sounds good, right? Not so fast:
On the face of it this is a good news story. The C6, a 7.62-mm is a fully-automatic, air-cooled, gas- and spring-operated medium machine gun that is well liked by the troops of the many western nations which use some version of this weapon. Based on the Fabrique Nationale (FN) MAG it has been used by more than 80 countries, and is made under licence in several countries, most notably the USA where it is known as the M240. It is many ways the standard machine gun, used by all our allies.
A closer look suggests that this announcement reveals everything that is wrong with Canadian defence procurement.
For our $32.1 million we get 1148 new C6A1 machine guns (with cleaning and repair kits, spare parts and carrying slings), 13 jobs which it seems reasonable to assume are for the length of the contract, i.e. two years, and a production line including engineering validation and certifications. Or perhaps more accurately, Colt Canada gets a production line at the Colt Canada plant.
Even if we accept that the implied a cost of nearly $28,000 per weapon should be informed by the fact that about one-quarter of the contract cost goes toward setting up a production line it still means that each weapon is costing almost $21,000 each.
The price of the equivalent US weapon, the M240, is somewhere between $6,600 US and $9,200 US depending on which model is being purchased. This means that, at current exchange rates, if we were to purchase the weapons from FN’s U.S.plant they would cost us about $10,000 each, in Canadian dollars. This in turn suggests that we would save at least $12,628,000. If you assume that in this case we don’t have to buy Colt Canada a new production line it works out to a savings of almost $20 million dollars.
This is the real cost of those 13 jobs for 2 years, over $750,000 for each job per year.
One would think that jobs that cost taxpayers $750,000 per year would raise questions.
Questions like; do we need to make our own machine guns, especially when we consider that they are almost universally available from a number of our allies and that we have the proven ability to maintain them ourselves?
So, it’s not just that we can’t buy ships or fighter aircraft at a competitive price — because our politicians are addicted to using military spending for partisan purposes — we can’t even buy a slight variant on a bog-standard infantry support weapon without paying through the nose.
H/T to MILNEWS.ca for the link (perhaps we should consider changing that standard section heading from “What’s Canada Buying?” to “What’s Canada subsidizing in the form of procurement?” or “What’s Canada being robbed blind over now?”)
January 5, 2017
Canada’s military-industrial complex
Ted Campbell briefly outlines the three tiers of military logistics then discusses the most controversial tier, the national industrial base, in more detail:
Behind it all, unseen, misunderstood, unloved and, in fact, often actively disliked is the national defence industrial base.
There are a great many people, including many in uniform, who object to the cost ~ fiscal and political ~ of having a defence industrial base. Many people suggest that a free and open market should be sufficient to equip all friendly, and the neutral and even some not so friendly military forces.
They forget, first of all, that the defence industries of e.g. America, Britain, France, Germany and Israel are ALL heavily supported by their government and, equally, heavily regulated. It is not clear that we will always be in full political accord with those upon whom we rely for military hardware? What if one country wanted, just for example, to gain an advantage in a trade negotiation? Do you think they might not “decide” that since the government (a minister of the crown) has threatened to use military force against First Nations who protest against pipelines that they will not sell us certain much needed military hardware or licence its use in Canada?
It is always troubling when we see the costs of military hardware increase at double or even triple the general rate of inflation for, say, cars or TV sets or food and heating fuel, but that is not the fault of the Canadian defence industries … it is, in fact, the “fault” of too little competition in the global defence industry market: too few Australian, Brazilian Canadian and Danish defence producers, too many aerospace and defence contractors merged into too few conglomerates that control too much of the market. A robust Canadian defence industrial base, supported by extensive government R&D programmes and by a steady stream of Canadian contracts would help Canada and our allies.
[…]
I am opposed to government supported featherbedding by Canadian unions and companies but we do need to pay some price for having a functioning defence industrial base … the costs of our new warships, for example, are, without a doubt, higher than they would be if we had bought equivalent ships from certain foreign yards, but we need to be willing to pay some price for having Canadians yards that are ready and able to build modern warships when needed; ditto for aircraft, armoured vehicles, radio and electronics, rifles and machine guns, cargo trucks and boots and bullets and beans, too. AND, we need a government that will, aggressively, support that defence industrial base with well funded R&D programmes and by “selling” Canadian made military equipment around the world.
It’s one thing to accept that you’ll need to pay a premium over market cost for built-in-Canada equipment that can’t also be sold to other customers. What is disturbing is discovering that the premium can be up to 100% of the cost for equivalent non-domestic items. For example, this was reported in a CBC article in 2014:
Britain, for example, opted to build its four new naval supply ships much more cheaply, at the Daewoo shipyard in South Korea. The contract is for roughly $1.1 billion Cdn. That’s for all four. By contrast, Canada plans to build just two ships, in Vancouver, for $1.3 billion each. So Canada’s ships will be roughly five times more costly than the British ones.
But there’s a twist. Canada’s supply ships will also carry less fuel and other supplies, because they’ll be smaller — about 20,000 tonnes. The U.K. ships are nearly twice as big — 37,000 tonnes. Canadians will lay out a lot more cash for a lot less ship.
Everything is more expensive to build domestically if you don’t already have a competitive market for that item. The federal government’s long-standing habit of drawing out the procurement process makes the situation worse, as the costs increase over time (but the budget generally does not), so we end up with fewer ships, planes, tanks or other military hardware items that arrive much later than originally planned.
March 1, 2015
“The F-35 will cost more than the Manhattan Project every year for the next fifty years”
Scott Lincicome would like to point out to the contending Republicans hoping to become the GOP’s presidential candidate that defence spending is not immune to the massive overspending problem common to big government:
Over the next 20 months, a clown-car-full of Republican politicians will vie for their party’s presidential nomination. As the candidates crisscross the nation, each will undoubtedly call for smarter, leaner, and (hopefully) smaller government. However, there is one government program that, despite being a paragon of government incompetence and mind-bending fiscal incontinence, will most likely be ignored by these champions of budgetary temperance: the F-35 Joint Strike Fighter. In so doing, these Republicans will abandon their principles and continue a long, bipartisan tradition of perpetuating the broader problems with U.S. defense spending that the troubled jet symbolizes.
During the Obama years, the Republican Party magically rediscovered its commitment — at least rhetorically — to limited government and fiscal sanity. Criticizing the graft, incompetence, and cost of boondoggles like the 2009 stimulus bill, green-energy subsidies, or Obamacare, GOP politicians not only highlighted these programs’ specific failings, but also often explained how such problems were the inevitable result of an unwieldy federal government that lacked discipline and accountability and was inherently susceptible to capture by well-funded interest groups like unions or insurance companies.
They railed against massive bureaucracies, like the Department of Energy, that paid off cronies with scant congressional oversight. And, in the case of well-publicized debacles like the botched, billion-dollar Healthcare.gov roll-out, many Republicans were quick to note that the root of the problem lay not in one glitchy website, but the entire federal procurement process, and even Big Government itself
[…]
One wonders, however, if these Republicans’ philosophical understanding of Big Government’s inherent weaknesses extends to national defense and, in particular, the F-35. According to the latest (2012) estimate from the Pentagon, the total cost to develop, buy and operate the F-35 will be $1.45 trillion — yes, trillion, with a “t” — over the next 50 years, up from a measly $1 trillion estimated in 2011. For those of you keeping score at home, this means that the F-35’s lifetime cost grew about $450 billion in one year. (Who says inflation is dead?)
That number — $1.45 trillion — might be difficult to grasp, especially in the context of U.S. defense spending, so let me try to put it in perspective: the entire Manhattan Project, which took around three years and led to the development of the atom bomb, cost a total of $26 billion (2015), most of which went to “building factories and producing the fissile materials, with less than 10% for development and production of the weapons.” By contrast, the F-35 will cost $29 billion. Per year.
For the next 50 years.
November 9, 2014
A Canadian Mistral (or two)? Not likely say the experts
Remember those palmy days of summer, when the French helicopter carrier Mistral visited Canadian waters for a joint exercise with the Canadian Army? I half-joking referred to it as Canada “kicking the tires” … but the idea hasn’t gone away completely. In the Ottawa Citizen, David Pugliese reported earlier last week that the International Business Times had run an article about it.
Halifax, Nova Scotia. FS Mistral (L-9013) is an amphibious assault ship, and lead ship of her class. She was commissioned in 2006. She features a landing craft dock, and helicopter facilities. Photo: Halifax Shipping News
The deal is worth $1.6 billion to $1.8 billion (different figures are out there) to the French. The Russians are interested in three of the ships. The French haven’t proceeded yet with the sale to Russia because of the situation in Ukraine.
But how probable is it that Canada would buy the Mistral-class ships?
Earlier this year, the Royal Canadian Navy was looking at buying surplus U.S. Navy supply ships. But that is not going to happen, RCN commander Vice Admiral Mark Norman told Defence Watch. What is being examined is the purchase of a commercial oiler (maybe).
The RCN is in dire need of an oiler/supply ship……not, at this point, an amphibious assault ship. So if there is an extra billion dollars or more around, the focus might be on acquiring an oiler/supply fleet to replace the decommissioned AORs.
Mistral-class ships are capable of carrying 16 helicopters, landing barges, up to 70 vehicles and 450 soldiers. They also come equipped with a hospital.
Canadian shipyards could also be expected to oppose such a purchase. There would be little for them (except maybe in-service support) in such an acquisition and they could argue that such a purchase would undermine the National Shipbuilding Procurement Strategy.
In September, I called the idea of Canada buying the Mistrals as the maritime equivalent of “pie in the sky”, despite a passionate article in the US Naval Institute News pushing the idea. They even showed what a Canadian Mistral would look like:
Mistral-class ship, Sevastopol configured as a NATO/Canadian Navy ship. CASR Image
So, on the surface, the idea isn’t likely to go anywhere for practical and economic reasons. But, a couple of days later Pugliese posted another article on the Mistral debate, responding to criticism from University of Ottawa professor Roland Paris:
If the Paris had actually read the articles in question he would have found out that the stories arose not from Hugh Segal’s comments from May but from the fact that the delegation led this week by French President François Hollande to Canada contained a significant contingent of the country’s defence industry representatives, including those from Mistral shipbuilder DCNS. That group included the firm’s diplomatic adviser.
In addition, sources have told Defence Watch that the delegation did indeed try to interest Canada in Mistral-class ships, as well as the FREMM class frigates.
Will they succeed with Mistral? Like I have mentioned a number of times at Defence Watch, including in the posting cited by Paris, the answer is likely no.
[…]
France, over the last two years, has embarked on a significant push into Canada to promote its defence products, particularly in the naval arena. With $35 billion on the table for shipbuilding who can blame them?
There was a specific reason a Mistral-class warship sailed across the Atlantic this summer to take Canadian soldiers on board for amphibious exercises. And it wasn’t about any close relationship between the French and Canadian militaries, although that might have played a minor role.
No, the French are interested in selling. They want to sell Canada warships, warship designs, and naval equipment like that on board the Mistral-class and the FREMM frigates. That is the reason the FREMM ship Aquitaine also visited Canada.
Personally, I’d love to see the RCN acquire a pair of Mistral-class ships, but they would not come cheap, they wouldn’t create a lot of jobs in Nova Scotia, Quebec, or British Columbia (and therefore wouldn’t be useful for gathering votes from those provinces), and they’d require the government to fully equip them … helicopters are extra. And we all know how the Canadian government can’t manage to say the word “helicopter” without wasting millions of dollars, never mind actually buying any.
October 17, 2014
Germany’s arms procurement plight
Peter Dörrie explains the German government’s current embarrassment due to the revelations about the desperate straits of all German military branches. The combination of delivery delays, cost overruns, technical faults, and low equipment availability mean that Germany could not come to the aid of NATO allies in a crisis:
The German armed forces have come clean. They’ve admitted they’re incapable of managing arms procurement — and have systematically neglected the hardware that’s already in service.
Military procurement and management in Germany have been under heightened scrutiny ever since Berlin’s attempt to buy an European version of America’s Global Hawk drone ended in miserable failure in mid-2013.
In late September, the German military sent an explosive report to parliament, confessing that half of the armed forces’ heavy equipment is unserviceable and can’t deploy in a crisis.
The German navy, for example, possesses 15 Sea King helicopters, but 12 of them are grounded. The situation is similar with respect to the naval Sea Lynx helicopter — just four out of 18 can fly — and the heavy-lifting CH-53 helicopter. Sixteen out of 43 CH-53s are functional.
The Luftwaffe can field only 80 Typhoon and Tornado fighters, out of 140 on the books. So short of equipment, at present Germany would be powerless to respond if a fellow NATO member were to ask for military assistance.
And the bad news doesn’t stop there. On Oct. 6, Defense Minister Ursula Von Der Leyen released a report by an outside consultancy analyzing the military’s nine biggest weapons purchases.
The report is damning. Every single procurement effort suffers some combination of cost overruns, delays and technical shortfalls. And owing to the ministry’s unwillingness or inability to negotiate proper contracts, the government has had to pay for the overruns itself. The arms manufacturers waltz away with their full fees.
This is sounding disturbingly similar to Canada’s military procurement problems.
October 2, 2014
On national defence, don’t listen to Harper’s words – watch his actions
At The 3Ds Blog, Jack Granatstein explains why the Canadian Forces are once again being starved of funding:
A few years ago I wrote that no government since that of Louis St Laurent in the 1950s had done more to improve the defence of Canada than Stephen Harper’s Conservatives. The St Laurent Liberals built up the armed forces to deal with the war in Korea and with the defence of North America and western Europe in the face of Soviet expansionism. At its peak, the defence budget took more than seven percent of Canada’s Gross Domestic Product, and the army, navy, and air force had as many as 120,000 men and women in the regular forces.
No one could expect any government in this century to spend on that scale, but the Conservative government did treat defence well in its first years in power. The commitment to the Afghan War, never very popular, was handled capably, and the troops received everything they needed — helicopters, new artillery, upgraded armoured personnel carriers, and tanks, not to mention new transport aircraft. The number of regulars rose slowly and slightly toward 65,000, and the government presented a schematic Canada First Defence Policy in 2008 that listed a range of objectives and equipment acquisitions. The budget projections were colossal, almost $500 billions to be spent over the next 20 years.
But that was then, this is now:
The result was that the defence budget was cut, in substantial part because deficit reduction and a budget surplus were more important than “toys for the boys.” From a peak of $21 billion in 2009-10, the defence budget in this fiscal year is $18.2 billion, about a 13 percent reduction in dollars made worse by inflation. The percentage of GDP spent on defence is now hovering at one percent, the lowest since the 1930s. In 2009, it was 1.3 percent. Making matters even worse, the Department of National Defence somehow cannot spend all the money it gets, returning almost $10 billion to the Treasury since 2006.
Despite Harper’s tough talk on the international stage, his government’s active neglect of the needs of the armed forces means we can’t back up his pugnacious rhetoric with any serious military effort: a frigate in the Black Sea, four CF-18s in the Baltic, a couple of transport aircraft shuttling supplies into Erbil, and a small special forces contingent helping the Kurds … and that’s about our current limit for overseas deployment. The Royal Canadian Air Force is still waiting for new helicopters (after more than 20 years of stop-go-stop procurement disasters) and a decision on replacing the CF-18. The Royal Canadian Navy just announced the immediate retirement of four ships, with no replacements available for years (if ever), and the Canadian Army is struggling to maintain equipment and keep up training schedules due to budget constraints.
And, as Granatstein points out, if the Liberals or NDP win the next federal election, the situation will get worse, not better, as neither party sees the military as any kind of priority — quite the opposite.
Update: Speaking of cheeseparing “economies”, here’s the Department of National Defence’s most recent “saving”.
National Defence slashed its annual order of ammunition this year to save money — a revelation that raised fresh questions Wednesday about just how prepared Canada is to do battle with militants in the Middle East, Murray Brewster of the Canadian Press writes.
More from his article:
The 38 per cent cut was large enough to cause other government departments, Public Works and Industry Canada in particular, to sit up and take stock of the impact, internal documents obtained by The Canadian Press show.
One such document, a memo to Public Works Minister Diane Finley dated Feb. 5, 2014, indicates her department tried to convince defence officials to either abandon the cut or at least spread it out over a couple of years.
Defence officials said that would be impossible, because “they would not allow the department to meet its financial targets.”
As a result, the 2014 ammunition budget was reduced to $94 million from $153 million.
During the early phases of the Afghan war, National Defence was caught similarly flat-footed and had to rush an order through General Dynamic Ordnance, particularly for artillery shells.
The memo surfaced on the same day Prime Minister Stephen Harper told the House of Commons that the cost of deploying special forces to northern Iraq is being taken out of the department’s current budget.
September 15, 2014
RCAF “raids” air force museum for spare parts
We often joke about the “museum pieces” that the Canadian Armed Forces have to operate, due to very long procurement processes and budget shortfalls, but this is the first time I’ve heard of scavenging spare parts from actual museum displays:
The Ottawa Citizen has learned that in July 2012 air force technicians raided an old Hercules airplane that is on display at the National Air Force Museum of Canada because they needed navigational equipment for a similar aircraft still in use.
The revelation highlights the difficulties military personnel have increasingly faced in keeping Canada’s ancient search-and-rescue planes flying after more than a decade of government promises to buy replacements.
The air force museum is at Canadian Forces Base Trenton, Ont., and boasts a large collection of military aircraft that have been retired and subsequently placed on display.
[…]
“They sort of called (Colton) up and said ‘Hey, we have these two INUs that we can’t use. Do you have any on yours?’ ” Windsor said. “Some of the parts are interchangeable. They just kind of got lucky on that.”
Defence Minister Rob Nicholson’s office defended the air force’s decision to ask a museum for parts to keep its search-and-rescue planes flying.
“The RCAF took the initiative to remove these functional, perfectly good parts and use them effectively,” spokeswoman Johanna Quinney said in an email.
But former head of military procurement Dan Ross said it’s “embarrassing” that the air force has to “cannibalize old stuff that’s in museums” to keep its planes flying.
Update, 16 September: The story triggered a question to the minister in parliament.
NDP defence critic Jack Harris: “Mr. Speaker, the government’s failed plans to replace Canada’s aging search and rescue aircraft hit a new low with the news that the RCAF had to source parts from a 50-year-old plane on display at the National Air Force Museum. It would be funny if it were not for the fact that Canadians rely on the Hercules and Buffalo aircraft to respond to thousands of emergencies every year. Though started by the Liberals in 2002, there will not be replacement planes in operation until 2019, at the earliest.
Does the minister simply expect the RCAF to raid other museums in the meantime?
Defence Minister Rob Nicholson responded: “What the honourable member was referring to was a mistake. When it was discovered, the RCAF took the appropriate measures. That being said, this is the government that has delivered 17 new Hercules transport aircraft, four strategic transports, and 15 Chinook heavy-lift helicopters. How did the NDP vote? The NDP voted against all of these; every dollar for the military is opposed by the NDP.”
Not sure what Nicholson meant by “a mistake.” He didn’t elaborate in the House of Commons.
But it’s different than the earlier response from his office, which acknowledged the scavenging and praised it as taking the “initiative.”
