Budget battle over Naval resupply ships

24 November 2020

In June 2010, the then Conservative government of Prime Minister Stephen Harper unveiled a plan to replace the Royal Canadian Navy’s auxiliary oil replenishment (AOR) ships. After decades of service, these naval workhorses had “been ridden hard and put away wet.” These vessels were long-overdue for replacement and, being single-skin hulls, were no longer environmentally friendly. Despite major refits, serious safety issues developed, forcing the RCN to pay off both ships, HMCS Preserver in 2015, and HMCS Protecteur in 2016.

With the 2010 plan to revitalize Canada's shipbuilding industry, and with the Proteceur-class AORs already past their best-before dates, a modernized capability was envisioned and a new Joint Support Ships (JSS) project was initiated.

The first phase of project approval was realized in June 2010 to deliver two new platforms under the National Shipbuilding Strategy. They would support naval task force groups, provide limited sealift capacity, be capable of supporting shoreside operations and able to operate in high-threat environments.

Although lumped into the non-combat category of shipbuilding contracts, his new multi-role ship is designed to travel with combat ships to increase the range and endurance of naval task group missions, by delivering fuel and other vital supplies to vessels that venture into harms way. The JSS design also includes facilities for medical and dental services, and essentially a home base for helicopter maintenance repair while at sea.

It was originally expected that the first of three JSS would be operational by 2012.

And yet, although widely acknowledged as a critical element of a modern RCN, what should have been a fairly straightforward procurement has fallen victim to government and industry politics.

It would be June 2013 before the government chose an “off-the-shelf” design from ThyssenKrupp Marine Systems Canada. Based on the German Navy’s Berlin class combat support ship, it ostensibly offered “the best value and overall combination of benefits in terms of capability, risk and affordability” at an original estimate of $2.6 billion each.

In August 2014, Seaspan's Vancouver Shipyards was contracted to review the ThyssenKrupp design, but it would be December 2016, before a preliminary design review (PDR) was completed and Vancouver Shipyards was awarded a design and production engineering contract to get the design to a production-ready state.

Then, in May 2018, the shipyard received approval to start construction, and by December 2019, work had progressed to the point where, in June 2020, a $2.4-billion contract for full-rate construction followed, setting the stage for delivery of the first JSS in 2023 and the second a year or so later. After customary RCN sea trials, full operational capability could be possible in 2026, but that is now under review.

In the meantime, to fill the mission gap between the legacy AORs being scrapped and the arrival of their replacements, the RCN was forced to rely on other navies’ supply ships at significant expense until it was decided that a domestic stopgap was preferable. So the government contracted Federal Fleet Services to convert a commercial vessel, the Asterix, originally built in Germany in 2010, to maintain the replenishment capability. The conversion process quickly commenced at the Davie Shipyard in Quebec and the vessel was delivered on schedule and on budget, it has been operational since 2018.

Federal Fleet offered a second commercial vessel, the Obelix, built in in 2008, but the government announced in January 2018 that it wasn’t necessary. VAdm Darren Hawco, then acting Vice-Chief of the Defence Staff, subsequently told the Standing Senate Committee on National Finance, during hearings on DND’s 2018-2019 budget, that “we never really looked at the need for or validated the need for a second interim AOR.” VAdm Hawco retired last August.

Clearly, the Navy is anticipating the eventual arrival of what is considered the more capable JSS to accompany and support warships on potentially dangerous missions.

However, on 9 June 2020, the House of Commons Government Operations and Estimates Committee asked the Office of the Parliamentary Budget Officer (PBO) to prepare an independent estimate of the JSS costs as well as the Asterix project.

The fiscal analysis report, released 17 November 2020 by PBO Yves Giroux, estimates JSS construction costs at $2.4 billion plus an additional $600 million for “budgetary contingency.” Department of National Defence non-construction costs pushed the total to $4.1 billion, including a 7% provincial sales tax. It also put the potential net cost of the Asterix upgrades at $733 million and that a five-year service contract would cost DND $801 million (both figures also include sales tax).

“As the project costs of the JSS cannot be directly compared to the costs associated with the provision of service contract of the Asterix or any potential similar contract for the Obelix, we opt for a comparison of the JSS project to the cost of the purchase options,” the PBO says. “Our calculations suggest that the Asterix and Obelix replenishment vessels could be obtained […] for a total of approximately $1.4 billion, as compared to our estimated $4.1 billion JSS project cost.”

The report goes on to point out that DND had the option to buy the Asterix in 2018 at a base price of $658 million, not including taxes. Adding that DND could still exercise that option, it estimates that when the five-year contract is up, the ship could be acquired for $633 million, excluding “any operations and maintenance or ancillary project management and administrative costs.”

But DND has defended its procurement process vigorously. In a statement released within hours of the PBO report’s release, DND noted that “a number of key factors” outside the scope of the report had not been taken into account, particularly the “very different” natures of upgraded commercial vessels and the purpose-built JSS platforms.

“When sending our sailors into dangerous situations, we insist on providing them with the best and safest equipment possible,” DND said. “That is always our first priority. […] The Joint Support Ships were designed to be able to deploy into harm’s way, a key element of the military design.”

For example, it says the JSS design includes a mine-avoidance degaussing system and others for detecting and protecting against chemical, biological, radiological, and nuclear threats. They have also been designed with redundant propulsion systems, military-standard damage control, cyber-resistent command management, extensive self-defence capabilities, a hangar and flight deck for the RCAF’s Sikorsky CH-148 Cyclone helicopters, and magazines for transporting munitions such as torpedoes.

“These additional features provide a survivability that is critical to ensure the safety of our sailors in high-risk areas, as the Royal Canadian Navy […] must have the capability to maintain a persistent presence in high-threat areas if the security of Canadians demands it. No modifications to […] Asterix could provide the survivability offered by a built-for-purpose ship.”

DND points out that the PBO’s numbers do not include funds already spent on Asterix, or money that will be needed to be spent going forward. Moreover, the proposed 40-year service life of the converted commercial ship is “unlikely to be realized without significant investments.

“The operational and maintenance costs that would be required […] would not represent value for money,” it says. “Our choice of the Joint Support Ships was made after years of industry consultation and analysis of possible options. […] The Joint Support Ships are the right ship for the Royal Canadian Navy, and will provide the best value for the military, Canada, and the Canadian economy.”

– Ken Pole