Naval supply ship budget increase of almost $1 billion blamed on problems encountered building vessels, extra labour costs

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The difficulties encountered in building Canada’s new supply ships is behind much of the almost billion dollar jump in price for the two vessels, federal statistics show.

The actual construction of the two Joint Support Ships for the Royal Canadian Navy was supposed to cost taxpayers around $2.5 billion but last month the federal government revealed that cost had now jumped to $3.4 billion.

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The extra labour costs, because of the challenges encountered in construction the ships, accounted for around $500 million of the increase, according to figures provided by the Department of National Defence (DND) to the Ottawa Citizen.

“This is reflective of the challenges associated with building a large first of class warship,” DND spokesman Kened Sadiku said in an email. The increase in labour costs was “exacerbated by the effects of COVID on production efficiency,” he added.

Costs of material also increased because of the COVID-19 pandemic, adding another $260 million, he said.

The rest of the almost billion dollar increase was because of foreign exchange rate fluctuations and adjustments to insurance fees because of the added time needed to build the ships, Sadiku said.

Public Services and Procurement Canada (PSPC) confirmed to the Ottawa Citizen that it signed the contract amendment to give Seaspan — the company awarded the contract to build the ships — the extra money on July 19. But department didn’t make that public until Aug. 2, the Friday before the civic long weekend. PSPC did not explain the reason for waiting until just before the long weekend to announce the significant increase in cost for the ships.

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The additional construction fees means that the entire budget cost for the two ships is now $6 billion, up from the original estimate by DND in 2020 of $4.1 billion. That budget includes additional infrastructure and project management.

PSPC did not rule out further increases in costs.

In an emailed statement from Seaspan, Leo Martin, senior vice president of programs at the shipyards, said the building of the first ship, HMCS Protecteur, has been challenging. He blamed the increase in costs for the taxpayer on the pandemic, labour shortages, inflation and supply chain problems.

He noted the company is on track to launch the first ship this year. However, it won’t be delivered to the navy until next year, he added. The second ship will be delivered in 2027 to the navy.

But the problems and delays with the Joint Support Ship program started long before COVID-19.

At one point, the first ship was supposed to arrive in 2012. That has been changed a number of times with the government later hoping for a 2018 delivery and then a 2019 arrival for the first vessel.

Then DND officials told the Ottawa Citizen in 2018 the first ship was expected in 2022 or 2023.

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The construction of new ships for the Royal Canadian Navy have seen significant increases in costs as well as delays.

The Canadian Surface Combatant (CSC) program, originally budgeted at $26 billion, has increased to at least $60 billion. DND officials insist the costs on that project to deliver 15 new warships will not go up further.

Critics have labelled the CSC project, the largest single purchase in Canadian history, as a bottomless money pit with little accountability or oversight.

The first CSC was originally to be delivered in the early 2020s. In February 2021, DND admitted the delivery of the first vessel wouldn’t take place until 2030 or 2031.

The other key naval program is the Arctic and Offshore Patrol Ship project which is currently delivering vessels. But that project has also faced problems. Some of the vessels have been out of action because of ongoing mechanical failures or have had to return to port because of flooding.

Despite this, defence officials noted the key message to push to the public and news media was that the naval shipbuilding projects were a success, according to a 2020 briefing obtained by the Ottawa Citizen under Canada’s access to information law.

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The briefing written by Tina Raymond, a DND public affairs official, claimed that the negative views of the naval ship programs were because of problems associated with the building of non-military vessels for the federal government. Projects being handled by DND “demonstrate good stewardship of public funds,” she added.

David Pugliese is an award-winning journalist covering Canadian Forces and military issues in Canada. To support his work, including exclusive content for subscribers only, sign up here: ottawacitizen.com/subscribe

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