Tag Archives: Canadian navy

That Sinking Feeling: Inflation and the National Shipbuilding Procurement Strategy

This post originally featured on the CDA Institute, and is republished with permission. You can read it in its original form here

CDA Institute guest contributor Ryan Dean, a PhD candidate at the University of Calgary, offers a reminder on the dangers of inflation in Canada’s defence procurement efforts.

A good portion of our future navy has been sunk on the drawing board by inflation.

Inflation is an economic term that encompasses all the variables that lead to a general price increase in a good or service. In the case of warships, inflation includes everything from technical issues related to the design of the ships to increases in the wages of the shipyard workers who build the ships. The longer a budget takes to be spent, the less that budget can buy.

Military inflation rates have a voracious appetite and can eat through capital budgets far faster than their civilian counterparts. American warships have historically inflated at an annual rate of 9 to 11 percent. The National Shipbuilding Procurement Strategy (NSPS), modeled on American shipbuilding practices, could suffer from even higher inflation rates as we are dealing with the additional time and costs of resurrecting a shipbuilding industry and we do not enjoy the same economies of scale as our southern neighbour in sustaining this strategic industry.

Long delays between the allocation of budgets for a class of warship and their actual construction allows for high inflation rates to halve these budgets. This has already happened with the Joint Support Ship (JSS) and the Arctic Offshore Patrol Ship (AOPS) procurements. It is now happening with the Canadian Surface Combatant (CSC) Project.

The time invested in designing the JSS to be a highly capable platform backfired. $2.9 billion was budgeted in 2006 to build three replenishment vessels by 2012. Internal pressure for a very ambitious ship led to sealift and command-​and-​control ashore capabilities being added to the original refueling and resupplies tasks of the proposed vessels. Three “big honking ships,” to borrow the term introduced by General Rick Hillier, with those capabilities could not be delivered within budget and the government rejected bids in 2008. The NSPS effectively pushed things back until 2011, at which time the procurement resumed. In 2013 the “off the shelf” German designed Berlin-​class, capable of refueling and resupplying but not sealift and command-​and-​control, was selected as Canada’s next replenishment vessels with construction beginning in 2016 and deliveries scheduled for 2019 and 2020. Instead of three of these vessels, now only two Queenston-​class ships are promised. The negative effects of inflation resulting from years of delays have sunk one of our replenishment vessels on the drawing board.

The AOPS was announced in 2007. $3.1 billion was budgeted to build six to eight ships with deliveries starting in 2013. Based on the Norwegian Svalbard-​class, much time and money was invested in attempting to increase the capabilities of the design, though it appears these efforts have largely failed. Time spent on this and the development of the NPSPpushed the AOPS delivery date back to 2018. As with the JSS, the years of delay allowed inflation to hollow out theAOPS budget. A report issued late 2014 by the Parliamentary Budget Officer (PBO) found that the AOPS budget could only afford four vessels at that point. In response, the government added an additional $400 million to the project and revised their official number of ships delivered down to five or six, though these numbers remain optimistic. Inflation has sunk nearly half the proposed AOPS.

$26.2 billion is budgeted to build up to 15 CSCs, at best a one-​for-​one warship recapitalization program to replace the Royal Canadian Navy’s destroyers and frigate fleet. Given that the AOPS was placed first in the NSPS construction queue, the first CSC will not be delivered for another 10 years with the rest following over a 2030 year period. This affords inflation plenty of time and opportunity to do its worst. A 2013 PBO report and recent news reports draw attention to this fact, with inflation placing nearly half the future CSC fleet in jeopardy. The financial situation is so grim that, as a cost saving measure, there has even been a proposal to start cannibalizing systems from our current fleet with which to outfit our future fleet.

The thrust of this short piece is that we must stay aware of the negative effects of inflation in our military procurements. Delays come with significant costs. In the cases of the JSS and AOPS, the costs are fewer and less capable ships.

How can inflation be addressed, aside from cutting numbers or capabilities to stay within eroded budgets? The best way is speed, something to keep in mind regarding the CF-​18 Replacement Project and proposals by the Opposition parties to restart an open bidding process. Would any benefits that could result from pressing the reset button on that procurement program again outweigh the high costs of additional time and inflation? Similarly, robbing the CF-​18 Replacement Project to pay for the CSC Project would only magnify the problems of the Royal Canadian Air Force’s recapitalization due to inflation. However, in the case of the CSC, speed is not an option due its place in the NSPS shipbuilding queue.

The other way to address inflation is to simply buy back time by increasing capital budgets. The Trudeau-era’s Defence Structural Review did this, increasing the military’s capital budgets which led to the purchases of the CF-​18s and the Halifax-​class frigates in the 1980s. This has historically been something that Canada has been adverse to do but times could be changing. As noted above, the AOPS budget was increased late last year by $400 million despite constraints on across the board federal spending. Additional monies will preserve not just CSC numbers, but their capabilities as well.

Ryan Dean is the winner of the 2015 Canadian Naval Memorial Trust Essay Competition and is a PhD candidate in the Department of Political Science, University of Calgary. (Image courtesy of the Royal Canadian Navy.)

Canada’s Naval Fuel Crisis

This article originally appeared on the CDA Institute and was republished with permission. You can find the article in its original form here

CDA Institute guest contributor Ken Hansen, a research fellow at Dalhousie’s CFPS, comments on the necessity of logistics in light of the decommissioning of HMCS Protecteur and HMCS Preserver.

The loss of at-​sea replenishment capability has dropped the Royal Canadian Navy’s (RCN) standing from a blue-​water, global force projection navy to an offshore territorial defence organization. The major fire in HMCS Protecteur and the severe rust-​out problems in HMCS Preserver have resulted in the decommissioning of both ships and a logistical crisis that requires corrective action. Some signs for optimism have arisen recently in two contracts with the Spanish and Chilean navies for the use of two of their replenishment ships for a period of 40 days each. The total cost is rumoured to be approximately $160M CAD.

Forty days of sea time will allow each coastal formation to run an exercise involving replenishment at sea training and perhaps a tactical scenario for task group readiness. By doing this, Canadian sailors will get a chance to preserve complex and perishable skills that are vitally important in modern naval operations.

Replenishment at sea involves all of the ship’s departments. Navigation, operations, deck, engineering, and supply must all understand the sequence of events intimately if all is to go as planned. While sailing a ship alongside another at 20 to40 metres distance is demanding in calm seas, at night and in rough weather is no place to be doing this for the first time. The most graphic example of what can go wrong occurred off the coast of South Africa on the night of 18 February 1982, when the South African navy’s replenishment ship SAS Tafelberg rammed and sank the frigate SAS President Krugerafter the latter made the fatal mistake of turning in front of the bigger ship. Sixteen sailors were lost in this incident.

The South African accident occurred due to confusion in close-​quarters manoeuvring during an anti-​submarine exercise. Replenishment is a common activity in multi-​ship exercises and is often scheduled to coincide with other tactical ‘challenges’ to raise the complexity of challenges facing commanders. I have had many first-​hand experiences with these exercises and their hazards. On one occasion, north of Iceland, nearly four hours spent attempting to refuel in stormy winter conditions resulted in a mere 20 cubic meters of fuel transferred, much damage to the equipment, plus lots of frozen fingers and faces from the spray. We nearly lost one sailor overboard from the icy deck before the two captains conferred and agreed to call it off. Another occasion resulted in a side-​swiping by our ship of the much larger oiler. We slid backward along her side, leaving a long smear of distinctive Canadian naval paint on her hull and eventually cleared her stern ignominiously. Everyone knew trying to extricate ourselves by going the other way was potentially fatal.

The history of replenishment at sea training is full of such near misses and embarrassing moments. The calamity that befell President Kruger is actually a rarity. More common are parted fueling hoses and span wires, fouled screws, plus minor dents and scratches. Such tough lessons become legend amongst seafarers and we learned vicariously from these mistakes.

In operations, failure during replenishment at sea takes on a more serious nature. Less well known are replenishment events from the Second World War. Canadian escorts frequently had to abandon their convoys despite the presence of attacking U-​boats, owing to the difficulty of mastering the intricacies of refueling at sea. At one point in the war, the Admiralty forbade Canadian warships from refueling in eastbound convoys due to the amount of damage they were doing to scarce replenishment equipment. A related problem arose during the Cuban Missile Crisis when returning Canadian warships had to pass right through their assigned anti-​submarine patrol stations and carry on to Halifax to refuel. They returned days later. The accompanying aircraft carrier simply did not carry enough fuel to sustain her ‘thirsty’ escorts. Analysis showed that the navy needed a minimum of three replenishment ships to sustain short-​range escorts at a distance of only 250 to 500 nautical miles from base.

Today, the Government of Canada has a penchant for deploying the RCN worldwide. The fuel capacity of our current frigates (.1 tonne of fuel per tonne of displacement) equals historic pre-​war lows. This has forced planners to assume replenishment is a given in fleet operations. That assumption is now false. Without replenishment ships, the navy’s status has fallen and precious seamanship skills are wasting away.

Contracting foreign naval replenishment ships for short-​term training is a necessary expedient but it is only a stopgap measure. It may be that Chantier Davie will be able to produce an interim solution in short order, but if it goes longer than six months you can expect the RCN to re-​contract with the Spanish and Chileans on a regular basis.

The cost of leasing replenishment at sea services must now be added to the construction costs of the two new ships being built at Seaspan plus the cost of the building the interim ship by Chantier Davie. It should have been obvious that delaying the replacements for Protecteur and Preserver would result in added expense and more complexity in operations. It is a sad but entirely predictable mess and there is no real end in sight.

The blame for all this has to lay with the naval leadership. Somehow, generations of Canadian admirals decided that logistics is less important than combat capability. The National Shipbuilding Procurement Strategy (NSPS) is based on a one-​for-​one replacement plan of the Cold War Fleet, with the notable exception of the DeWolf-​class arctic/​offshore patrol ships. The logistical demands of this new security era are vastly greater than they were during the Cold War. The history of the RCN since 1989 has an abundant array of examples to prove this point.

I find it sad that the admirals care more about politics than they do about the history of their own service. A much more robust logistical capacity is needed immediately. They should remember this advice from American General Omar Bradley: “Amateurs talk tactics; professionals study logistics.”

Ken Hansen is an adjunct professor in graduate studies at Dalhousie University and a research fellow with the Centre for Foreign Policy Studies. He served for 33 years as a maritime surface warfare officer with the RCN. (Image courtesy of the Royal Canadian Navy.)