PBO pushes up cost estimate for Canada's frigate build by $8 billion

Canada's Parliamentary Budget Officehas compiled a revised cost estimate for the navy's new frigates, andpredicts the program will cost closeto $70 billion over the next quarter-century$8 billion more than its previous estimate.

The watchdog is updating its forecast because the Liberal government recently selected the British Type-26 design for the new warships, which are set to replace the existing fleet of combat shipsstarting in the mid-2020s.

The federal government has long pegged the construction costof 15 new frigates at roughly $60 billion, but has acknowledged many times that the price tag could increase because of inflation and other factors.

The PBO, in a 2017 report, challenged those numbers and assumptions and initially predicted the program's costwould come in at $61.8 billion.

Bigger ship, later start

The new estimate, released Friday, adds $8 billion to that projection and notes that the increase is due in part to the fact that production at the Irving Shipbuilding yard in Halifax will begin later than initially planned and the Type 26 is a bigger ship than the budget office originally anticipated.

Parliamentary Budget Officer Yves Giroux said Canadians are paying a slight premium because the Liberal government selected a design for a warship that is not yet in service.

The first-ever Type 26 is under construction for the Royal Navy at the BAE Systems Inc. shipyard in Glasgow, Scotland.

The budget office compared the projected cost of the British design with warships that are already in service in France, Norway and the U.S.

"And it's clear there could have been savings had Canada decided to go for a model or a design that's very similar to what's already in existence," said Giroux. He added that, given the specific operating requirements of the navy the need for ships capable of operating in the Far North, for example Canada is purchasing ships that are "almost custom built," which drives up the cost.

Naval planners and the winning bidder, Lockheed Martin Canada and BAE, are currently looking at what design changes might be necessary in order to deliver on the requirements set down by the navy.

Giroux said his office might take another stab at revising the numbers once the final design is set.

The PBO report looks only at the design and construction costs, not the lifetime sustainment estimates for the warships, which are expected to be in service for up to five decades.

In the spring of 2016, internal federal documents leaked to The Canadian Press estimated the total construction and operating costs (including crewing, maintenance and equipment) over the lifetime of the program would exceed $104 billion. The Liberal government has yet to update those numbers.

In a statement, Defence Minister Harjit Sajjan welcomed the PBO's report and did not quibble with the estimate very much but he did note that the budget officer included taxes the federal government would pay on construction (something that's routine in all defence procurements) and the difference between the PBO and federal government projections is not that large.

Pat Finn, who is in charge of the Department of National Defence's procurement branch, agreed but suggested that the notion that Canada would have paid less for a ship design that is already in the water is not entirely fair.

The other bids that were examined from Alion Science and Technology Corp. and Navantia would have required design changes before construction, he said.

"Those designs have a certain age to them. There would have been changes required to meet out requirements because the [global] threat is changing," said Finn. "It is really not an off-the-shelf build."