Canada blows its combatant ship budget out of water

31 December 2015

The price of war is set to cost the Canadian tax payer dearly as the cost of building 15 surface combatant ships for the navy balloons more than $16 billion to reach $30 billion. The increase was found following an audit by independent professional services firm A.T. Kearney. One suggested way forward is to reduce the number of ordered ships.

Canada, following continued geopolitical uncertainty and its proximity to the sometimes disputed artic region, has sought to upgrade its navy. 15 newly designed combat ships were ordered in the late 2000s, for the price of $14 billion as part of a wider budget for the navy of $26.2 billion. Yet the federal government recently announced that even that budget has been blown out of the water.

To develop a clearer picture of the total cost of the programme, A.T. Kearney was called in to audit the programme and develop a projection of total costs. The consulting firm was hired to provide a qualitative analysis that examines “the relationship between the project requirements and feasibility, and affordability to provide a solution that allows [the Navy] to fully realise its mission.” The analysis shows that the cost was put at $30 billion for the combat ships, thus $16 billion above budget and pushing the total navy budget to $42 billion.

A.T. Kearney hired for audit

The problem for the Canadian government is a result of a mismatch between expectations, cost and requirements. There were already initial concerns about the $14 billion agreement when it was agreed to. “We had concerns all along,” says Vice-Admiral Mark Norman, Commander Royal Canadian Navy, in an exclusive interview with the CBC. “It is obvious that the concerns were less acute in 2008 and 2009, when the foreclosure process [cost] down was still fresh and the ink was drying. But as we went forward, you know, we had real concerns.”

Concerns about the costs blowout associated with the construction programme were further raised in 2013, when the Auditor General of Canada Michael Ferguson warned that there were considerable unknowns involved in the project, including labour and equipment, inflation and other project uncertainties, placing critical questions about the originally decided budget cap of $14 billion.

The cost explosion has been attributed to a number of factors: the marine requirements did not exist to meet the construction demand and needed to be developed. It was almost impossible to judge the cost of the technology required for advanced war ships, given the pace of development. Even today, the final costs produced by A. T. Kearney remain projections, as the ships are still only in the design phase.

Canadian Halifax class frigate

The programme has been placed under pressure from the Minister of National Defence when Jason Kenney, who in October suggested that, given budget constraints, the number of ships ordered may need to be lowered to 11. “Based on expert advice that we received from the Royal Canadian Navy and after exhaustive analysis the Ministry of Public Works, following the most comprehensive and transparent major process in the history of the Canadian government, we believe that it is possible with a budget of $26 billion to build between 11 and 15 warships surface,” Kenney explains.