Philippe Lagassé: Time to worry about our warships

The question isn’t why we aren’t buying cheaper ships, but whether we’d be prepared to accept less capability to cut costs.

By: Philippe Lagassé

Building warships is an expensive business, especially if you’re getting back into it after a few decades. Take the Canadian Surface Combatant (CSC). Fifteen CSCs will be built at Halifax’s Irving Shipbuilding to replace Canada’s current frigates and decommissioned destroyers. According to a 2022 study by the Parliamentary Budget Officer (PBO), the CSC acquisition will cost $80.2 billion. Given that defence inflation is well above regular inflation, and that regular inflation is running hot, that number isn’t going to go down.  

Canada’s CSC will be a variant of the Type 26 Global Combat Ship originally designed for the Royal Navy. The Canadian variant includes significant changes to the original Type 26 design, notably to the combat systems. With the estimated per unit cost of each ship topping $5.6 billion, the National Post’s John Ivison warns that the CSC is out of control. Ivison notes that the United States Navy (USN) acquired its Constellation-class frigates for $1.66 billion. Why, he understandably asks, is Canada paying so much for the CSC, and to what end?

To answer these questions, we should start with the foundations of any military acquisition: policy, budgets, and requirements. 

Canadian defence policy tells the military what they must be able to do. For instance, Canada’s current defence policy Strong, Secure, Engaged, states that the Department of National Defence (DND) and Canadian Armed Forces (CAF) should “Field advanced capabilities to keep pace with allies and maintain an advantage over potential adversaries.” DND/CAF then takes that direction and develops a capability plan. That plan highlights what capabilities the military needs to fulfil the missions and objectives set by government. A budget is then allocated to acquire these capabilities — though this being defence procurement, everyone who’s being honest knows that it’s a very rough, low-ball estimate. 

Once there’s a budget and capabilities are identified, the requirements for individual projects are prepared. It’s here that the comparison with lower cost, off-the-shelf alternatives runs into difficultly. The USN has lots of different types of ships that do lots of specific things. The above-mentioned Constellation-class is one of many different types of warships that the USN will sail, each with specific mission sets and roles. The Canadian military has only been directed to acquire fifteen CSCs, but the government expects the CAF to do a variety of missions at sea — not as many as the USN, of course, but still a good number. Canada has other military ships, including the Arctic Offshore Patrol Vessels (AOPS) also being built by Irving, but the CSC will be Royal Canadian Navy (RCN)’s primary expeditionary platform. Canadian defence planners, therefore, need those 15 ships to be capable of undertaking various missions and roles. Compounding this challenge are technological changes and the ever-evolving threat. The requirements for the CSC need to be continuously updated, and in some cases expanded, to keep pace with these developments, too.

When looking at alternative ships, then, we should ask whether they could do everything the government has asked the CAF to do. If not, the comparison might not be appropriate. In a 2021 study, the PBO found that the alternative design that best matched the Type 26, a variant of the Franco-Italian FREMM, would have cost Canada $71.1 billion, as opposed to the $77.3 billion it assessed for the Type 26 at the time. The PBO did find that a fleet of 15 less-capable Type 31 general purpose frigates would run about $27.5 billion, however. That’s about what it would cost to acquire the same number of Constellation-class frigates, assuming Canada would get them for the same price as the USN. 

So, comparable ships cost about the same, whereas less capable ships cost less. The question, therefore, isn’t why we aren’t buying cheaper ships, but whether we’re prepared to accept less capability to cut costs. Thus far, we’ve decided that we want to pay more to ensure we get the capability that matches our policy ambitions. That can still change, of course. But until the government announces a rethink, or budgetary pressures impose a capability reduction, defence planners will keep steaming ahead.    

Now, knowledgeable readers will point out that there are other highly capable warships that cost less than $5.6 billion per unit; there’s clearly more than requirements driving up the cost. This is true. The decision to resurrect Canada’s military shipbuilding industry and build the CSC in Canada has increased the cost of the ships, probably by about 30 per cent. 

There are a lot of reason why this is the case, but the most important is time. There’s a saying in procurement circles that captures this reality: schedule is king. The cost of military capabilities goes up every day. If a project is working with a fixed budget, this means that each delay erodes the real funding available, and hence the capability that can be acquired within that budgetary envelope. Simply put, time has a direct impact on cost and capability. Although the CSC’s original cost estimate of $26 billion was fanciful and never realistic, the fact that Canada won’t be building its ships until later this decade has contributed to the ever-increasing cost.  

Why has Canada waited so long to get started on the CSC? First, the government set up a national shipbuilding program and ran a competition more than a decade ago to decide which yard would build the warships. Now called the National Shipbuilding Strategy (NSS), this approach leverages the building of new fleets to create jobs and skills in Canada. The NSS is also meant to avoid a “boom and bust” cycle in military shipbuilding. Rather than reassemble Canada’s naval shipbuilding capacity each time we replace our warships, NSS should keep the Irving yard busy until it’s time to start on the replacements for the AOPS and CSC in the latter part of this century. As importantly, NSS has provided the CSC with political cover. Both the Liberals and the Conservatives support NSS and, so far at least, the CSC has avoided the controversy and confusion that plagued the replacement of the CF-18 fighter aircraft. 

Second, the NSS shipyards had to get reacquainted with building coast guard and military ships, including training and attracting a workforce that can do it. In Irving’s case, this led to the decision to build the AOPS first. Building the AOPS first ensures that Irving will be better prepared to tackle the complexity and precision required to construct the CSC. Despite the expertise Irving is fostering, though, we shouldn’t be surprised if building the first few CSCs is a tough slog.  

Finally, building AOPS first gave the RCN an opportunity to refine the requirements for the CSC. Critics may be right that the RCN should have stuck with an existing design, rather than making significant modifications to the one they chose. But buying entirely “off-the-shelf” wasn’t really an option. Whatever design was chosen would need to accommodate the maritime helicopter the Royal Canadian Air Force already has, ensure seamless interoperability with the wider Canadian Forces and United States Navy, and provide capabilities that fit with the government’s defence policy goals and how the Canadian military conducts operations.

Were Canadian defence planners too cavalier in their requirements and design modifications? Maybe. Looking at it from their perspective, though, we should appreciate that they thinking about capabilities for a ship that Canada will use until the 2100s. 

Doubts about the CSC are going to keep multiplying. The per unit costs can only increase so much before people start seriously discussing reducing how many of them will be built. You can be sure that some within government are already asking “Why 15? Why not 12?” Serious concerns are also being raised about whether the defence budget can afford to maintain CSC and keep them technologically up to date after the fleet is introduced. Given the CAF’s personnel recruitment troubles, moreover, it’s unclear if the RCN will have enough sailors to operate the full fleet. The first CSC that hits the water, furthermore, will have all sorts of kinks and problems that will need to be sorted out. That’s standard for first ships off the line, but you can be sure that every failing will be met with handwringing and charges of incompetence. 

To address these concerns, the government must let DND/CAF better explain what the CSC is designed to do and why it needs to do it. Simply telling Canadians that it’s the right ship isn’t enough when it’s easy to point to lower-cost alternatives. As well, the government needs to be far more transparent about estimates of costs and what’s driving them. Political and public support for the CSC shouldn’t be taken for granted, and growing concerns about the program can’t be simply brushed away. 

Philippe Lagassé is an associate professor at Carleton University. 

Disclosure: The author was an external advisor on the 2012 Office of the Audit General’s audit of military shipbuilding and reviewed the CSC requirements as a member of the Independent Review Panel for Defence Acquisition (2015-2022). 

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