Shipbuilding strategy needs work to get ballooning costs under control, ministers told

The government's massive $39-billion national shipbuilding procurement strategy (NSPS) is in need of repair, with costs for some projects soaring by as much as 181 per cent and others on the cusp of being cancelled, according to briefing materials prepared for some Liberal ministers.

CBC News has learned Defence Minister Harjit Sajjan and Public Services Minister Judy Foote were warned the government needed to institute a four-point "action plan" to get the program back on track.

They were told budgets set under the procurement strategy process were out of line and "did not adequately account for risks and uncertainty."

As a result, the government would have to "review costing for all NSPS projects and seek funding decisions where budgets are aligned with cost estimates."

That suggests the $39-billion program could be set to grow even larger, or that parts of it could be cancelled.

New ministers briefed this month

The briefing material, obtained by CBC News, was presented to Sajjan and Foote earlier this month. It was dated November 2015 and was classified secret.

It suggested the price for three coast guard science vessels to be built under the government program had ballooned from an estimated $244 million in 2009 to $687 million in 2015, an increase of 181 per cent.

That project was awarded to the Seaspan's Vancouver Shipyard. The briefing assigned no blame but suggested there were improvements the B.C.-based shipbuilder could make.

"Vancouver Shipyards needed to find skilled staff, establish capability to increase design work and learn how to use new facilities," the briefing material said.

But several sources within industry and government circles suggest there is plenty of blame to be cast at the government's shipbuilding bureaucracy. They say the price assigned to the science vessel was always too low for the capability requested.

$26B not enough for new warships 

There was also a warning that another planned coast guard ship, the offshore oceanographic science vessel (OOSV), would need to have its funding envelope increased, as would the multi-billion-dollar replacement program for Canada's frigates.

The frigate program is for up to 15 so-called Canadian surface combatants (CSC) and has a rough budget of $26.2 billion. Those ships are to be built at the Irving Shipyards Inc. facility in Halifax.  

Government will be asked to make some significant decisions soon— Briefing materials obtained by CBC News

No design has been selected for those vessels and the government has not decided on their intended capabilities. The warning of cost increases so early in development suggests there is some problem other than design.

The OOSV is a one-off design to replace the now 53-year old CCGS Hudson. The venerable science vessel's replacement was once expected to have been in service by 2014.

It's not clear why its cost is expected to rise but the briefing warns the government will soon need to make a decision on whether to proceed with the more expensive program.

"Government will be asked to make some significant decisions soon, including one on whether to approve the [increased] funding of OOSV and additional funding for CSC," the document said, even though neither program has resulted in a completed design.

"In the event of poor shipyard performance off ramps are available," the ministers were told, but the costs of such a major action would vary according to the yard and project affected.

Hire an expert

The briefing warned the government needed to hire new staff to increase its capacity to manage the massive shipbuilding program, and to "hire a senior shipbuilding expert" to advise the government.

It laid out plans to begin to brief Parliament annually and to create new semi-annual reports to the public on the shipbuilding program's progress. Ministers were apparently told the first of those semi-annual reports would follow "refresh of project costing and budgets" in the fall of 2016.

The ministers were also apparently briefed on bureaucratic concerns over media coverage of program delays and increasing costs. The briefing suggested there were good news stories that the government should seek to tell.

The government's shipbuilding program is under scrutiny as years pass and budgets grow without ships being delivered.

The program's two main shipyards, Irving and Seapsan, maintain they're on schedule and on budget.

Not our fault, shipbuilders say

Industry sources suggest there is a difference between the government's budget for a program and what is actually delivered to a yard once contracts are signed.

A source close to one of Canada's large yards said delays and cost overruns could be attributed to the government's overheated expectations.

"Canada as a shipbuilding customer didn't understand because it had been out of the game for decades," the source said. "There was no shipbuilding industry. The government crashed it in the 1980s. The shipbuilding industry has been rebuilt."  

That rebuilding has taken time, the source said.

"I don't think that development time is factored in to any government plan," the source said. The government also had trouble accurately determining the potential costs of the programs it was creating.

"It's based on really immature information from a long time ago. And now we're trying to hold industry accountable for decisions that were made ten years ago in a less rigorous environment," the source said.