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Canada's massive shipbuilding plan headed for stormy seas

On a warm but cloudy afternoon at the beginning of May, Prime Minister Stephen Harper participated in the unveiling of a new monument for the Royal Canadian Navy. Erected within sight of Parliament Hill and symbolically surrounded on three sides by the Ottawa River, the monument was being dedicated to the hundreds of thousands of sailors who have served in the navy during its 112-year history.
"Surrounded as we are by three oceans, it can truly be said that Canada and its economy float on salt water," the prime minister said. "Such a nation must have a navy. A navy that serves, a navy that protects."
The Conservative government has committed $35 billion over 20 years to the largest and most extensive overhaul of Canada's navy and Coast Guard in more than a generation.
It is hoping that massive investment will return Canada to its glory days as a global shipbuilding power, by transforming Halifax and Vancouver into world-class production centres.
Yet while the Harper government has held up the National Shipbuilding Procurement Strategy (NSPS), as the $35-billion plan is dubbed, as a success in the making, significant problems threaten to run it aground.
At issue is a three-way struggle pitting the military's desire to acquire as many state-of-the-art vessels as possible against the government-imposed Defence Department budget cuts - and industry's focus on the bottom line.
These competing agendas already have resulted in a number of delays - the delivery of one ship has been pushed back by three years. There also are indications the total number of ships to be built will be reduced. Some experts worry the political fallout could mirror the government's difficulties with the F-35 fighter jet.
"The costs to industry and government and the Canadian Forces are so enormous," said University of Ottawa military procurement expert Philippe Lagasse. "This has huge implications."
The National Shipbuilding Procurement Strategy is regarded as a godsend for the navy and Coast Guard, which operate fleets of destroyers, icebreakers, frigates and other vessels that are nearing the end of their lifespans and must be replaced.
"We're at a moment of strategic renewal," the navy's deputy commander, Rear Admiral Mark Norman, said recently. "An opportunity that is all but unprecedented in the 110-year history of the Royal Canadian Navy."
The strategy is seen also as a huge winner for Irving Shipyards in Halifax, Seaspan Marine in Vancouver and their respective communities, after a panel of federal bureaucrats announced in October that these companies had been selected as the main production centres for $33 billion in work. (The other $2 billion will go to a number of other shipyards across the country on smaller projects.)
"What this means is we will see thousands of jobs come to British Columbia as a result of this federal money - thousands of high-paid jobs, people who are going to be able to support their kids, solid middle-class jobs," British Columbia Premier Christy Clark said at the time. "I'm absolutely delighted."
Amid problems with the F-35 stealth fighter program and other military purchases, the Conservative government has held up the shipbuilding strategy as an important success for military procurement and a means to leverage tax dollars into massive economic spinoffs.
"The NSPS embodied all of the three principles that are changing the way we do business," Public Works Minister Rona Ambrose said at a recent defence industry conference. "I'm very thankful for the success of this strategy."
Yet for all the high expectations, when the Conservative government tabled documents in the House of Commons in May that showed the majority of the shipbuilding projects under the strategy facing various delays, it set off alarm bells.
The most troubling was a three-year delay in the planned delivery of six to eight armed vessels for the Arctic. These ships, announced by the government in 2007 and to be built by Irving in Halifax, were the furthest along in design and were to be the first produced under the strategy.
At a naval conference in Ottawa on June 1, Commodore Daniel Sing specifically noted the Arctic vessel delay before warning: "I would caution once again that negotiations with Irving Shipbuilding with respect to this plan are not yet concluded and some things can change, and I'll leave it at that."
Indeed, what seems to have been overlooked is that while Irving Shipyards and Seaspan Marine were selected in October to undertake the majority of the work associated with the NSPS, no actual contracts were awarded.
"There's this understanding, or sometimes it's reported in the media, that we've awarded contracts worth $33 billion," said Terry Williston, who headed the group of senior bureaucrats managing the process that selected Irving and Seaspan.
"We haven't awarded any contracts yet. We've selected the two shipyards with which Canada will engage in negotiations for the contracts that are part of the NSPS work packages. But there's a tremendous amount of difficult work to be done in order to get to those contracts."
Retired rear admiral Ed Healey, who oversaw the acquisition of Canada's Halifax-class frigates in the 1980s, said that "the next stage is going to be even more difficult in terms of negotiating contracts with these shipbuilders, and that's when indeed the rubber hits the road."
Irving spokeswoman Mary Keith said in an email that the shipbuilder is "fully focused on the timely completion" of negotiations for the Arctic vessel contract, and all others related to the shipbuilding strategy.
"The importance of expediency in moving NSPS contracts forward as efficiently as possible, as well as looking for ways to sustain a skilled and ready workforce, cannot be undervalued," she added.
There is widespread agreement that the way in which Irving and Seaspan were selected as the primary shipyards ensured the Conservative government could not be accused of picking regional winners and losers. Yet it also cost the government leverage for the negotiations that were to follow.
"It's not impossible," Healey replied when asked how difficult it will be to conclude the negotiations. "But now it's not competitive because you've selected the shipyards."
Meanwhile, the cost of many of the ships to be built under the strategy continues to increase. The Arctic patrol vessels, for example, will cost $40 million more than expected. The military, as a result, is under pressure to lower its expectations for what it wants built into each ship.
"The Royal Canadian Navy, notwithstanding the success to date of the National Shipbuilding Procurement Strategy and its selection of preferred shipyards, is not yet able to determine the exact sweet spot between what is desired in terms of capability and capacity, and the available budget," Sing acknowledged.
As Postmedia News recently reported, National Defence officials told the government as far back as last year that budget cuts had made its multi-billion-dollar shopping list of military equipment - which includes the shipbuilding strategy - "unaffordable."
The Conservative government already had been accused, in 2008, of not providing enough money to replace the navy's aging Protecteur-class supply ships with three new vessels, which the navy says is the bare minimum.
Instead of increasing the funding, the $2.3-billion project was scrapped, then relaunched, with the government agreeing to build two new supply vessels - with an option for a third. The first Joint Support Ship, as they are called, isn't due to hit the water until spring 2018.
"When any project is initiated, there's an estimate provided for it," said retired lieutenant-general George MacDonald, now a defence consultant. "And it's just that, an estimate.
"But over time, the cost of materials changes, perhaps the threat changes and new technology is available. Those sorts of things are always evolving, but it very rarely results in lower costs."
While the $35 billion committed to the National Shipbuilding Procurement Strategy is the single largest pot for any military procurement in Canadian history, MacDonald said the figure was arrived at years ago and is in desperate need of refinement.
The Conservative government has confirmed it is reviewing its long-term plans for the Canadian Forces - yet against a backdrop of fiscal austerity, it is difficult to imagine more money will be provided.
Instead, the government appears content to let the Defence Department and industry argue over the details of the shipbuilding strategy - which the University of Ottawa's Lagasse said is already turning the two sides against each other.
At a recent naval conference, the navy's deputy commander, Norman, acknowledged the frustration that is threatening to boil over. He advised all sides to take a deep breath and begin working together instead of against each other - or risk scuttling what is in truth a once-in-a-lifetime opportunity.
"We're on a PGA course that we've wanted to play all our lives and we're on the first fairway," Norman said. "But let's not forget the fact that there's 17 more holes to go.
"For this NSPS and everything associated with it to succeed, we have to trust each other and we have to move forward together as one team," he added. "If not, this unprecedented opportunity will fail."
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