The Sixth Estate

I’ve been putting a great deal of thought recently into the likely true cost of the Harper government’s multi-billion-dollar National Shipbuilding Procurement Strategy, aka the plan to shower practically unlimited military construction dollars into Halifax and Vancouver in the hopes that they magically morph into votes for the Conservative Party. The official cost estimates are $25 billion in warship construction, in Halifax, plus $8 billion in other ship construction, in Vancouver. The official estimates are clearly not the whole story.

It’s hard to find more reliable cost estimates online, though. In fact, given the scale of this project, it’s disturbingly hard to find out any substantive information online. This kind of leads me to suspect that defence minister Peter MacKay has applied the same degree of competent and responsible management to the warship construction file as he obviously has to the F-35 file. That doesn’t exactly bode well for taxpayers.

It’s worth hearkening back to 2008, when the Conservatives announced their plans to boost the military budget by 67% in the Canada First Defence Strategy, and along the way, also promised to replace all of the major vehicles in the army, navy, and air force. It would be a simple and cheap move, promised the Defence Strategy. It claimed that the cost of “New Major Fleet Replacements” — which included not just the warships but also the F-35s, the tanks, and some other aircraft — was just $20 billion. $20 billion! Those were the days, weren’t they?

Anyways, the Conservatives followed up with the National Shipbuilding Procurement Strategy, which will spend (supposedly, anyways) $35 billion on 15 new warships to replace our aging destroyers and frigates, 4 new “Arctic offshore patrol ships” to protect us from an as-yet non-existent enemy in the Arctic, two new supply ships for the navy, a $750 million heavy icebreaker, a few new “research” ships for the Coast Guard, and, arguably most insanely of all, 116 unspecified “smaller ships.” I say insane because even in the general context of a “plan” which claims it can specify both total costs and delivery dates for a class of warships that hasn’t even been designed yet, the notion of allocating $2 billion for “small ships” is particularly strange. One government presentation at a trade conference admitted that the $2 billion “small ships” portfolio was so far “only a notional list.” Well, that’s very helpful.

Anyways, the official cost for building all of the ships is $35 billion, so we’ll start with that figure, although it scarcely seems possible. The Arleigh Burke-class destroyers that the U.S. Navy has been building since the late 1980s cost $1.8 billion each. For 15 new warships, that would be $27 billion, which sounds suspiciously like the $26.6-billion figure for the Canadian Surface Combatant project that was making the rounds of the defence news circuit earlier this year. The trouble is, the official value of the “combat package” assigned to the Halifax shipyard is only $25 billion — and that figure includes the construction of the Arctic patrol ship class, too. That works out to an average of just under $1.2 billion per ship. This isn’t an impossible number — you can buy warships for less than that, depending on what you’re looking for — but Minister MacKay’s office doesn’t exactly have a good reputation for keeping costs down.

The question marks don’t stop with the Halifax combat package, though. Vancouver was given a “non-combat package” consisting of 7 ships worth $8 billion. That works out to around $1.15 billion, which means that the non-combat ships are almost as expensive as the combat ships. I admit I’m not an expert on the military, but I’m pretty sure it’s not supposed to work like that. It seems as though one order is suspiciously high and the other is suspiciously low. I have no particular explanation for this.

The next step is to calculate the operating costs. This, if you recall, is the part where the F-35 fighter got into trouble: the Auditor-General reported that MacKay and the military had provided a public cost estimate that failed to include operating costs. But military procurement regulations require that estimates include operating costs. The result was that the cost of the F-35 jumped from $15 billion to over $30 billion overnight. (This was still an undercount, but more on that later.)

How much are the operating costs for warships? That again is not entirely clear. However, Public Works says that the operating and maintenance costs of the four Arctic Offshore Patrol Ships will be $4.3 billion, as against an estimated $3.1 billion to build them. Assuming a similar ratio holds for all of the ships, that comes out to $48.5 billion.

That number too seems rather high, which is why it’s particularly disturbing that it’s not the end of the story. As I predicted earlier this year, the F-35′s costs skyrocketed to nearly $50 billion once the operating costs were calculated over the plane’s true lifespan instead of a truncated 20-year “lifespan” used only for the purposes of making a low-balled calculation. The result was still an under-count because it was only 30 years, whereas the military is planning to use the planes for 36-40 years, as I also pointed out, but anyhow, we’re talking about ships now.

Which may be suffering from the same problem. The Arctic Offshore Patrol Ship operating cost estimate, high as it may seem, is based on using the ships for 25 years. But there’s no reason to believe we’ll be using them for 25 years. The Iroquois-class destroyers are already 40 years old. Assuming we finish the replacement Surface Combatants in the mid-2020s, the Halifax-class frigates will be 35-ish before they get replaced. If we assume that operating costs are steady year over year, then instead of $48.5 billion over 25 years, you get $68 billion over 35 years.

Add that to the $35 billion in ship construction costs, and you get agrand total of $103 billion for the “35-billion” National Procurement Shipbuilding Strategy. Obscene as this may sound, that ratio just happens to be the same basically 3-to-1 ratio as the one between the current KPMG-certified true cost of the F-35 jet fighter ($46 billion) and the original government-certified “fake” cost of the F-35 jet fighter ($15 billion).

Even so, the numbers are so high that I seriously wonder at whether they’re reliable. On the other hand, we can take another run at the same numbers and they come out pretty much the same way. Start with the $35 billion in official procurement costs again. Add on something like $20 million per warship per year for operating costs, which is a little less than the various figures cited for the American destroyers, but still $420 million for 21 ships. Over 35 years, that’s another $15 billion. Plus, Public Works says there will be $500 million annually in repair and refit work. That’s another $17.5 billion. That brings us up to $67.5 billion. Throw in a major mid-life upgrade program, the ones our current frigates are currently undergoing, and you’re up to something like $75 billion over 35 years.

The fact that these numbers are so far apart is an indication of how little I know about the process. To be frank, we don’t even know what ships we’re getting yet, so any cost estimate — either for acquisition or operating costs — is hopelessly preliminary. However, it’s quite clear that we will be spending more than $35 billion on the Conservatives’ new warship plan. A lot more. And they ought to be forthcoming about that.