Building navy ships at home more costly than buying offshore, says PBO

OTTAWA – Two new reports are casting a critical eye on the Harper government’s national shipbuilding strategy, with one suggesting the plan to build the navy’s new supply vessels in a Canadian shipyard could come at a hefty premium.

Analysis by the parliamentary budget office estimates that keeping the joint support ship work at home could add as much as 21 per cent to final price tag, compared with building abroad.

In an earlier report, the budget watchdog pegged the minimum construction cost of the two joint supply ships at $3.2 billion; the office now estimates that could drop as low as $2.5 billion if the vessels were built in U.S.

Both National Defence and Public Works have challenged the budget office’s previous analysis, insisting that the ships — to be built at the Seaspan yards in Vancouver — will cost $2.6 billion.

The Harper government wants the navy’s new warships and planned coast guard vessels built at home to benefit Canadian workers and industry.

The country’s shipbuilding industry has struggled to stay afloat for years. While the government has tacitly acknowledged an additional cost to buying domestically, there’s been no public discussion about how much that premium might be.

The budget office’s analysis is specific to the supply ships and does not look at planned Arctic offshore patrol vessels, nor the planned frigate replacement program, and it’s unclear how much more expensive a build-at-home strategy will be in those cases.

Similarly, a second report released Wednesday attacked the very foundation of the strategy, which saw the federal government form preferred partnerships with two yards — one designated to build combat ships, the other civilian vessels.

Seaspan was awarded the civilian contract and Irving Shipbuilding Inc. in Halifax was designated the other winner.

The report by the Canadian Centre for Policy Alternatives and the Rideau Institute argues the arrangement essentially gives the two companies a “blank cheque” for the decades-long $105-billion program, including construction and lifetime refit.

“The Harper government made a serious mistake by confining the only truly competitive portion of the National Shipbuilding Procurement Strategy to the choice of two shipyards, both of which are now also in the de facto position of ‘prime contractor,'” says the report, written by researcher Stewart Webb and Michael Byers, a University of British Columbia political professor and defence expert.

“The absence of competition from this point onwards creates a significant risk that the shipyards will overcharge for design and construction.”

They argue the only way to ensure fairness to taxpayers would be to return to the previous system of the navy defining what kind of ships it needs and then holding a competition to select a consortium to build the vessels.

In his fall report, auditor general Michael Ferguson noted there is a financial downside, but that “departments have identified and are managing key project risks,” including lack of competition, schedule delays, unaffordable costs and technical complications.

He urged officials to regularly monitor the productivity of shipyards for competitiveness, cost-effectiveness and efficiency.

A spokeswoman for Public Works Minister Diane Finley did not address the substance of the budget office criticism, but took aim at the 40-page policy alternatives study.

Alyson Queen quoted from Ferguson’s report and accused Byers and Webb of ignoring the economic benefits of the strategy.

“The National Shipbuilding Procurement Strategy is the most transparent military procurement in Canada’s history,” she said in an email.

“It is unfortunate that Mr. Byers, a former NDP candidate, failed to mention that industry analysts have estimated that over 15,000 jobs will be created and over $2 billion will be generated in annual economic benefits over the next 30 years.”

The auditor general also urged the Conservatives to show budget flexibility, and to avoid treating preliminary program estimates as hard caps.