The National Shipbuilding Shambles
The House of Commons Committee on Government Operations and Estimates held hearings on the National Shipbuilding Strategy (NSS) from February to June 2022. Video records and transcripts of the sessions can be found at https://www.ourcommons.ca/Committees/en/OGGO/Meetings.
Some interesting items can be found among the materials – although very little hard data.
Most of the witnesses were there to promote vested interests and to paint over the cracks in the NSS. As I stated in my own testimony, subsequent to my retirement from a long career in the Canadian marine industry, I am now completely independent of any ties to NSS beneficiaries and gatekeepers, and can thus offer a frank and objective assessment of the status of this important program.
My unbiased assessment is that NSS has failed, is continuing to fail, and needs to be scrapped in order to prevent irreparable damage to the Canadian Navy and Coast Guard.
Two NSS shipyards were selected in 2011, Seaspan on the West Coast for the non-combatants, and Irving on the East Coast for the combatant vessels. Since then, they have delivered a total of five new vessels: three Offshore Fisheries Research Vessels (OFSV) from Seaspan, and two Arctic and Offshore Patrol Vessels (AOPV) from Irving.
Over the same period, Canada has actually acquired more “interim” ships than new ones – one replenishment ship (MV Asterix) and four used icebreakers, both modified/modernized at Davie Shipyards in Quebec and leased to the Government of Canada through Federal Fleet Services; and two emergency towing vessels leased from New-Brunswick-based Atlantic Towing (Atlantic Raven and Atlantic Eagle) operating along the West Coast.
Most recently, the Canadian Coast Guard (CCG) had issued a request for information on possible charters for oceanographic research vessels to fill the capability gap created when CCGS Hudson was declared unseaworthy in January 2022.
In another example, DND is chartering a 45 year old ex-CCG ship to partially fill the gap left by the decommissioning of Canadian Forces research vessel Quest in 2016.
As the condition of the remaining RCN and CCG vessels continues to deteriorate, it seems quite probable that additional band-aid fixes will be sought. Unfortunately, for many of the ships Canada needs, there are few or no appropriate alternatives out there.
What’s wrong with this picture?
With so few ships coming off the line, the NSS is clearly not delivering the ships that the Canadian Navy and Coast Guard need – and the few ships that it has delivered, have cost an indecent amount of money.
Internationally, Canada has become a laughing stock. Broadly speaking, Canada is paying between 3 and 5 times the world price for ships (unconscionable from a taxpayer perspective), but the worst part is that we are taking 2 to 4 times longer to deliver them. This is not opinion – it is fact. The examples I use to show this are all taken from open-source information, with a few elements drawn from my personal experience.
For some examples of comparative programs, I’ll start with the Joint Support Ship (JSS). I was involved with JSS to a greater or lesser extent from 1998 until my retirement in late 2020. In 2011, the project was awarded to Seaspan under NSS. In 2013 the decision was made to select the German Berlin class as the basis for the JSS design. Design work started in 2014 and construction in 2018. As of June 2022, assembly of the basic construction blocks is still not complete.
Neither the shipyard nor the government appears able to commit to a firm estimate for completion of the new Protecteur-class JSS, but my own estimate (based on the rate of progress) is that the first ship may be completed by late 2025 or 2026, with acceptance by the Navy a year later. This was confirmed just a few weeks ago when the projected completion date was pushed from 2023 to at least 2025, and discussions are said to be underway with Federal Fleet Services to extend the lease contract for MV Asterix. The project cost is currently estimated as over $4.1 billion for 2 ships, and likely to escalate further – here again, getting official estimates is remarkably difficult. The first ship alone will have cost at least $2.5 to 2.7 billion.
Modified from a commercial ship, Motor Vessel Asterix has been leased to Canada to fill the replenishment-at-sea gap after Canada's last two remaining Protecteur-class auxiliary oiler replenishment (AOR) ships were decommissioned in 2015 and the new replacements have been delayed until at least 2025.
A quick comparison of new support ship costs from some of Canada's key allies clearly illustrate the cost discrepancy:
- The New Zealand Maritime Sustainment Ship, Aotearoa is a brand new design, unlike JSS. She has a polar ice class, allowing for Antarctic operations, and this year undertook a first resupply mission to McMurdo Station. She is technologically well in advance of JSS, and is roughly the same size and speed. The design and build took almost exactly 4 years from 2016 to 2020. The shipyard contract was $493m New Zealand dollars, with some small additional costs for the RNZN support team. So, the Canadian project is roughly 5 times as expensive for ship 1, and well over 3 times as long.
HMNZS Aotearoa is a Polar-class sustainment vessel built by Hyundai Heavy Industries. Shown here at McMurdo Station, Antarctica, Aotearoa's primary mission is to provide global sustainment to New Zealand and coalition maritime, land and air units, and United Nations security operations through resupply of ship and aviation fuel, dry goods, water, spare parts and ammunition.
- The Italian navy’s new Vulcano-class support ship was awarded in 2015 and commissioned in 2021, despite a major fire during construction. She cost 375 million euros, or roughly $500 million Canadian.
- The John Lewis-class design for the U.S. Navy was awarded in 2016. Construction of the first of class began in 2018 and recently finished her trials. The lead ship cost, including all engineering, was $640 million USD. This is a much bigger and more powerful ship, and U.S. military shipbuilding is itself not considered a byword for speed or efficiency, yet the cost comparisons to Canada are mind-numbing. There are a number of other similar projects underway or recently completed that show similar comparisons.
Most of the ships under the NSS are highly specialized vessels, and it is sometimes difficult to find projects that look as directly comparable as the JSS example. The Canadian Offshore Oceanographic Research Vessel (OOSV) and the South African navy equivalent (Project “Hotel”) are both designs by my ex-employer, with somewhat similar missions. The Canadian OOSV is an 88m ship, with a top speed around 14 kts. South Africa’s Hotel is slightly longer, at 95 m, and faster (with an 18 kt speed), both are ice classed, with similar endurance. And yet the total budget for South Africa is just over $200 m (2.17 billion Rand), while the Canadian ship’s budget is currently officially $966.5 m. The “Hotel” project started in 2016, and is due for delivery in early 2023. OOSV for a roughly equivalent process kicked off in 2015, and is still officially scheduled for delivery in 2025, though as OOSV is behind JSS, this seems highly unlikely. So, for this example, the cost factor is again in the order of 5:1. The delivery comparison is more like 2:1 if current dates hold. For this project, however, it can be noted that South Africa is not a well-known shipbuilding nation, and the project supply chain was subjected to many stringent requirements for ethnic preference, local content, etc.
As for the flagship Coast Guard program under NSS – the Polar icebreakers, CCGS John G. Diefenbaker, and her as yet unnamed sister ship – the plan is to build one of these ships at Seaspan and the second in the intended third NSS shipyard, Chantier Davie, once a similar NSS contractual framework has been established (noting that this has already taken 2 years more than originally estimated). This is a large ship, 150m in length, with a high polar ice class (PC 2) and an installed power of roughly 40 MW to supply both propulsion and ship services. Estimates for both cost and schedule are not readily available from either the government or Seaspan shipyard, but the Parliamentary Budget Officer (PBO) has estimated the two-ship program at $7.25 billion, and CCG “hopes” to get the first ship by 2030. Priorities in Seaspan have shifted several times during NSS, but the yard has been involved with the design since 2012.
Again, let's look around the world. In 2021 Ponant cruise lines of Norway took delivery of Le Commandant Charcot, a ship of almost identical size, power, and ice class to the Diefenbaker design. She has a dual-fuel power plant for low emissions operation in sensitive polar waters, and a large battery system to allow for periods of zero emissions – neither of which are features of the CCG design. She is almost literally gold-plated in terms of the quality of fit and finish of the cabins and other passenger accommodations. This ship was ordered in October 2017, and delivered in July 2021, having been built at the height of the COVID-19 pandemic. The cost was C$386 million. I hope the PBO is wrong, but this leads to a nearly 10:1 ratio for ship cost compared to Diefenbaker, and at least 3:1 on schedule.
Anyone can take a luxury cruise to the North Pole on new icebreaker Le Commandant Charcot for about US$40,000.
Turning to the East Coast, I was the program manager for the design of the AOPV from 2007 to 2010, under contract to DND. AOPV is a cousin of the Norwegian Coast Guard’s Svalbard, which took roughly two years to build in the early 2000s, at a cost of somewhat less than C$100 million. Our design team team had full access to the costing for the Svalbard to support our own cost estimates, particularly for the shipyard labour hours required. We generally assumed three times the European labour content would be needed, based on recent North American experience. These estimates were used in making a range of trade-off decisions to keep the project cost within the approved budget, decisions that included reducing the maximum speed and walking back on various other requirements. In very general terms, the aim was to keep the average unit ship cost below $200 million.
As with all the other NSS programs, it is difficult to get actual numbers for the amounts Canada is paying for NSS projects. At the OGGO hearings, the President of Irving Shipbuilding stated that the average cost per ship for the first six vessels has been around $500 million each. In addition, well over a billion dollars has been spent on design and other associated costs. Adding two additional ships for the Coast Guard is estimated as adding another $1.5 billion to the program, including a very large sum for redesign.
Everyone recognizes that in current market conditions, the cost of equipment is rising, but given that the CCG Arctic and Offshore Patrol Ships should be simpler than the RCN versions in terms of armament and communications, it seems extraordinary that their cost should be so much higher. The original intention for a series of $200 million ships has become at least $5-600 million, remembering that the original budget already aimed to account for low Canadian shipyard productivity. Meanwhile, other countries are taking delivery of comparable or superior vessels for fractions of the cost. Norway’s next generation OPV is a highly capable 10,000 t, 22 kt ice class ship with a cost of roughly $650 million for a class of three, including all design costs.
AOPV 6, 7 and 8 are being built to help keep the workforce at Irving busy until the Canadian Surface Combatant (CSC) Project is ready to go, not because either the Navy or the Coast Guard actually wants these ships. CSC meanwhile is the biggest element of the failure of NSS. Its cost is unknown, but likely to be stratospheric. Perhaps even more importantly, it will not deliver the ships in time to avoid the rust-out of the current fleet of Patrol Frigates (CPF). These ships are getting very tired. A number are already operating under restrictions due to stability and other problems, and the refits needed to keep them acceptably seaworthy are becoming longer and more expensive. It seems CSC 1 is unlikely to be delivered for at least another decade, and the full fleet for nearly 20 years more. Experience with the death of the 280-class destroyers and the AORs (all of which were decommissioned years ago and replacements not yet available) suggests that it will be impossible to keep the CPF fleet running until the CSCs come on line.
Unfortunately, I cannot explain in any detail why the NSS projects are costing so much and taking so long. This is partly because everything about NSS is remarkably secret. Canadians were promised that the programs would be “fair, open and transparent” and that shipyard costs would be “open book”.
In reality, however, even members of parliament cannot get any real numbers about the projects, or even the contract terms. When I was working for one project office to update cost estimates for Treasury Board, my team was not allowed access to any shipyard costs. One large element of cost does however relate directly to time. The NSS yards have built up considerable overhead, which includes the shipyard equipment, the executive suites, the departments for human resources, security, Industrial and Technological Benefits (ITB) obligations, and so on.
As Canada is paying cost-plus for the projects, every year the project runs carries all of these costs – and of course the equivalent government bureaucracies that are nominally overseeing the work. In a commercial world, competitive pressures keep overhead under control. Under NSS, cost control does not seem to be a priority. The government seems to see the NSS as a perfect scenario for political pork barrelling, while for the shipyard owners it is a zero-risk opportunity for huge profits.
Control of the NSS program has, in effect, been contracted out by government to the shipyards. This exemplifies why the NSS has failed, and why it needs to be scrapped – now.
The government’s ships are wearing out, with the Navy leading but CCG not far behind. Canada needs a plan that will actually deliver new ships, at a cost that overall federal budgets can withstand. This will only happen if there is the political will to make it happen, and it can’t involve just going back to pre-NSS procurement approaches – there is just not time for this. I hope, perhaps naively, that our politicians can take a bipartisan approach here, especially as we are a maritime nation surrounded by three oceans, and we are living in scary geopolitical times with an increasingly threadbare capacity for national defence.
Where do we go from here?
What might the solutions look like? I’m not suggesting we abandon building ships in Canada – we have significant capabilities here, if they are marshalled in the right way. But we also need to be realistic about the limitations of those capabilities, and whether some things, or even whole projects, are better outsourced in the near term in the interests of having a sustainable approach for the longer term.
For example, it does not seem sensible for two shipyards each to gear up to build a single polar icebreaker, with no similar follow-on work in prospect. It doesn’t require an economist to point out that all economies of scale, even with only two ships are lost when two shipyards gear up to produce a single version of the same vessel.
The average Canadian can also see that investing hundreds of millions of dollars in upgrading a yard to build CSCs does not make sense if this is not the project that Canada needs.
At the end of the day, we need to decide what level of premium we are prepared to pay for build-in-Canada solutions – 100%, 125%? I don’t believe that 300-500% is either reasonable or sustainable – nor is it responsible.
While I understand the case for spin-off benefits, we are living in a world of skills shortages, not jobs shortages. NSS projects are currently absorbing capacity that could probably be used to greater economic effect in other sectors of the economy, without making a meaningful contribution to safety and security.
I hope this material will encourage objective evaluation of what needs to be done. The timescales for all NSS projects may give the impression that there is still time to solve problems but, in reality, Canadian ship procurement is in a crisis right now, and will only get worse with time.
We need to put an end to the decade of delusion in Canadian ship procurement.
Andrew Kendrick is a naval architect and ocean engineer who has worked in ship design, research, and regulatory development for over 45 years as an engineer, project manager, and company executive. He retired from full-time employment in late 2020, but continues to be active on projects in Canada and internationally, and volunteering for several professional and technical organizations in the marine sector.