PBO says mixed frigate fleet and other designs offer cheaper options to navy program

Canada's budget watchdog predicts construction of the navy's new frigate fleet could cost at least $77.3 billion — a number that could rise even higher if the frequently-delayed program faces any more setbacks.

Yves Giroux, the parliamentary budget officer [PBO], said the overall price tag for building 15 Canadian Surface Combatants could hit $82.1 billion in the event the program is delayed by as much as two years.

The Liberal government is basing Canada's new warships on the design of the British-built Type 26 frigate.

The House of Commons government operations committee asked the budget office to crunch the numbers on other designs, such as the FREMM European multi-mission frigate and the Type 31e, another British warship.

Those estimates show the federal government could save money by dropping the existing program and going with the other designs.

It could also save money by building a fleet that includes two classes of vessel, such as the Type 26 and one of the other warships.

Giroux said the idea of a mixed fleet makes sense from a fiscal point of view, but he couldn't say whether it would agree with the federal government's vision of what it wants the navy to do.

"It's a good way of saving costs, if the government is interested in cutting down on its costs," Giroux said in a virtual media availability following the report's release today.

Depending on the ship, the savings could be substantial.

Deep cuts to construction costs possible: PBO

For example, the budget office estimated that ditching the existing program and switching entirely to the Type 31 frigate would cost $27.5 billion, a projection that includes a four-year delay.

The cost of acquiring an entire fleet of 15 FREMM warships is estimated at $71.1 billion — somewhat comparable to the existing program.

A mixed fleet using either one of the alternate designs and the existing Type 26 also would result in savings. Giroux acknowledged that such a scenario would mean the navy would have to invest in separate infrastructure, support and supply chains — something it is reluctant to do.

But it might be a good idea from a larger perspective, he added, because a mixed fleet means "you don't put all of your eggs in one basket."

As of last fall, the Department of National Defence was insisting it could build all 15 Type 26 frigates, under contract with Lockheed Martin Canada and Irving Shipbuilding, for up to $60 billion.

Giroux said he hopes the department is correct for taxpayers' sake, but his team stands by its numbers.

The department stuck by its estimate in a statement issued today — but acknowledged the difference in the cost estimates could be explained in part by the fact that PBO includes the project's associated provincial sales taxes, while the federal government does not.

The statement said the decision to select the Type 26 design was made based upon the capabilities it will bring to the navy.

"As the PBO noted, the other design options that they examined would have 'more limited' and 'modest' capabilities than our selected design," the statement said. "These reductions would impede the [Royal Canadian Navy's] ability to execute its assigned roles and missions to keep Canadians safe both at home and abroad."

The department also categorically ruled out scrapping the program or going with another design.

"This is not an option we will be pursuing," the statement said. "Selecting a new design at this stage in the project would lead to significant economic loss for Canada's marine industry and those employed in it.

"It would have major operational impacts for the [Royal Canadian Navy], due to associated project delays and life-extension requirements, as well as increasing the costs to operate and maintain more than one class of ships in the future."

In their response, the Conservatives focused on the delays that led to the higher cost projections.

"The increased costs of the Canadian Surface Combatant (CSC) program are a direct result of Justin Trudeau's failures and the Liberals' mismanagement on this important procurement," said the statement, issued on behalf of Conservative defence critic James Bezan. "Conservatives continue to support our plan to revitalize the Royal Canadian Navy and the National Shipbuilding Strategy. But we do not support this ongoing Liberal dithering and costly delays to the CSC procurement."

The latest report builds on an analysis prepared by the PBO office two years ago which projected a construction cost of $70 billion. The new numbers, Giroux said, reflect new information from the defence department about the size of the warships and the capabilities being built into them, as well as anticipated production delays.

The outgoing president of Irving Shipbuilding, Kevin McCoy, told CBC News in an interview recently that the production timeline to build a Type 26 is seven-and-a-half years, which is two years longer than the five year timeline that had been built into the program.

That means the navy won't see its first new frigate until 2031, on the current schedule.

McCoy said in his interview that when the program started out under the previous Conservative government, the intention was to build a warship from scratch. He said it took several years and a change of government to convince Ottawa and the navy that doing so would be extraordinarily expensive — more expensive that the current program.

A question of capabilities

Dave Perry is vice-president of the Canadian Global Affairs Institute and one of the country's leading experts on defence procurement. He said that when you look at the defence department's tax explanation and consider the delays, the projections are not too far apart.

He said he believes the only fair comparison is between the existing Type 26 design and the FREMM frigate because they have similar capabilities.

"To use a boxing analogy, it is in the same weight class," said Perry.

He said the choice to include the less capable Type 31e in the comparison struck him as odd. The PBO report notes the difference and acknowledges that the less expensive Type 31e is designed to operate mostly in conjunction with the larger Type 26, which has air defence capabilities, among other things.

A mixed fleet, he said, is something policy-makers could consider and is something Canada has had in the past — but the notion extends far beyond simple budgeting.

"We would be building a different navy, a significantly less capable navy," Perry said.