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The Defence Budget [superthread]

Excellent article.  Shared under Section 29 of the Copyright Act.

Kelly McParland: Demanding cost certainty for new Navy vessels is an exercise in fantasy
Kelly McParland | 14/11/13 10:23 AM ET
More from Kelly McParland | @KellyMcParland

A news item the other day reported that the federal government had, for the first time, released an all-inclusive figure  giving its best estimate for the total lifetime costs of the new warships it is building.  The bill, it said, “will exceed $100-billion … tens of billions of dollars more than Ottawa has previously disclosed.”

The implication is that the federal Conservatives are involved in another example of financial chicanery, similar to the ever-changing price estimates for the F-35 fighter purchase program. An NDP strategist duly appeared on Wednesday to declare the entire 30-year program (which is in Year Two) had been “bungled” and was “another absolute mismanagement of the procurement process.”

Which is nonsense.

The actual estimated cost for up to 15 surface combat vessels is $26.2 billion, pretty much what it was to begin with. Another $3 billion is budgeted for Arctic offshore patrol vessels. The inclusion of a package on non-combat vessels brings the price tag to $36.6 billion. A spokeswoman for Public Works and Government Services told the Halifax ChronicleHerald (much of the shipbuilding will take place in Halifax) that numbers may move a little now that the program is underway and more refined projections can be made.

What’s changed is this: in order to fend off headlines feigning shock and outrage, the government has made its best guess as to the total costs associated with the project over three decades. In addition to the actual cost to design and build the ships, it consulted its crystal ball and tried to estimated every other possible expense that could possibly relate to the ships over that period, including the running costs, the crew costs, the maintenance costs, the food costs,  repair costs … you name it. The hull gets a bit rusty and you have to scrape it clean … in 2031, say … and gee, what’s that going to cost, do you suppose? First you have to know how wages, benefits, fuel, supplies and general economic trends have changed between now and 2041 or so.  Then  you have to apply it to an entire fleet of  ships, based on how you think they might have been deployed in the interim.  It’s sheer fantasy: governments can barely get economic forecasts right from year to year, so guessing what the world might look like 20 or 30 years down the road is just make believe.

Ottawa needs to have a number to offer when asked, however, so it came up with one: $64 billion. As it noted in the Public Works update:

The Canadian Surface Combatant project is in the very early days of its definition work. At this point, the current preliminary acquisition cost estimate, for planning purposes, is approximately $26.2B. There is an additional early, projected estimate of approximately $64B for personnel, operating and maintenance costs over 30 years. This gives the Canadian Surface Combatant a total preliminary through-life cost estimate in the vicinity of $90B. It is important to note that the initial, rough estimate of $64B is a projection essentially based only on the costs associated with the existing frigate and destroyer fleets, and will be refined over time.
Which, in English, means: “We don’t really know, but you wanted an estimate, so here’s an estimate.” This is the number that has critics salivating in hopes of another F-35 shouting match in Parliament.

There’s nothing clarifying about asking Ottawa to peer into a murky future and anticipate 30 years of costs for $26 billion worth of vessels.
To demand exactitude in a project so large, vast and complex, spread over 30 years, is ridiculous. It’s a bit silly to even expect Ottawa to try.  These are war ships, people: they could go to war. Wars can do damage to ships. Say a shell hits a Canadian ship 20 years from now; you going to call up Stephen Harper in retirement and blame him for getting the estimate wrong?

The equivalent exercise in the non-government world would be to require automobile builders to advertise the price of their vehicles based on the estimated lifetime cost, rather than the amount they actually charge you to buy it.

So, a compact car priced at $25,000 would have to include all the estimated costs for gasoline, oil, repairs, tires, insurance, maintenance, and the possibility that, somewhere down the road, you back it into a tree and need a new bumper, which you decide to pay for yourself rather than risk your insurance rates being bumped. All that, over the entire lifetime of the car, which could vary anywhere from a few years to a couple of decades, depending on how you drive and how well you treat the vehicle.  So now your Honda Civic costs $60,000, even though you’re only going to pay $25,000. Does that make sense?

Everyone wants more clarity from Ottawa, and honesty when it comes to spending. But there’s nothing clarifying about asking Ottawa to peer into a murky future and anticipate 30 years of costs for $26 billion worth of vessels. You might as well ask it to announce the inflation rate 25 years down the road as well, and pick the Stanley Cup winners for 2023 through 2040.

National Post
 
jollyjacktar said:
Excellent article.  Shared under Section 29 of the Copyright Act.


As to his Honda Civic analogy: yes, it does make economic sense to understand and to programme, however roughly, the life cycle costs of a complex system. It makes very, very good sense with big, complex military systems like ships, major army weapon and support systems and aircraft.

But, the Auditor General of Canada, using the best available professional standards, needs to set (and, now and again, update) the rules for life cycle costing and DND, and other government departments and the Parliamentary Budget Officer need to obey those rules. As I understand the latest go 'rounds in Ottawa the AG, DND and PBO all have different systems; that's silly and counter-productive. The AG is the expert, not ADM(Mat) or ADM(Fin) or the PBO. One ring to rule rule to guide them all.
 
E.R. Campbell said:
As to his Honda Civic analogy: yes, it does make economic sense to understand and to programme, however roughly, the life cycle costs of a complex system. It makes very, very good sense with big, complex military systems like ships, major army weapon and support systems and aircraft.

But, the Auditor General of Canada, using the best available professional standards, needs to set (and, now and again, update) the rules for life cycle costing and DND, and other government departments and the Parliamentary Budget Officer need to obey those rules. As I understand the latest go 'rounds in Ottawa the AG, DND and PBO all have different systems; that's silly and counter-productive. The AG is the expert, not ADM(Mat) or ADM(Fin) or the PBO. One ring to rule rule to guide them all.

It would be nice for a standard to be set.
Also it would be nice for the "critics" to acknowledge that wages, rations, O&M (and other costs) are already captured within the yearly budget and that this is not new money that is over and above the yearly cost to operate the CAF. But then it is not sexy to point that out. Although our media outlets should be the ones to point out that fact to the talking heads. Sadly that never happens.
 
FSTO said:
It would be nice for a standard to be set.
Also it would be nice for the "critics" to acknowledge that wages, rations, O&M (and other costs) are already captured within the yearly budget and that this is not new money that is over and above the yearly cost to operate the CAF. But then it is not sexy to point that out. Although our media outlets should be the ones to point out that fact to the talking heads. Sadly that never happens.


Agree! And that's why we need someone like the AG, a real, unbiased, expert accountant, to set a standard, and then we need everyone ~ and governments (politicians and bureaucrats, alike) will hate this ~ to follow the damned rules or have their political and bureaucratic knuckles rapped, in public, for trying to lie to the Canadian people.
 
FSTO said:
It would be nice for a standard to be set.
Also it would be nice for the "critics" to acknowledge that wages, rations, O&M (and other costs) are already captured within the yearly budget and that this is not new money that is over and above the yearly cost to operate the CAF. But then it is not sexy to point that out. Although our media outlets should be the ones to point out that fact to the talking heads. Sadly that never happens.

Mind you, when we asked for a tasking of a CCG ship, they wanted to charge us for every cost, not just the additional ones. The ship sitting at the dock consumes x amount of money a day without a tasking and then they wonder why we hire a commercial vessel instead. Sometimes I wonder if our own management understands such mundane facts as well.
 
Colin P said:
Mind you, when we asked for a tasking of a CCG ship, they wanted to charge us for every cost, not just the additional ones. The ship sitting at the dock consumes x amount of money a day without a tasking and then they wonder why we hire a commercial vessel instead. Sometimes I wonder if our own management understands such mundane facts as well.


My guess, based on 37 years in uniform and another decade in the private sector working very closely with government, is that some, but not most, do not; but even those who do are bound by an incredible array of often contradictory regulations, some dating back to the 19th century, that make financially sound decision making difficult and, sometimes, even impossible.

The add political interference ...
 
I think some of the life cycle costing does have a lot of merit in some respects for looking at things like crew sizes.

It's nice to say we need x crew (which they have pulled a number out of their asses without knowing what the ship looks like, what it will do, or how they will run it), but everytime you add a body onboard, there is a large cost once you get above the critical mass that will fit into the hull you end up with based on the stability/seakeeping requirements.  For every crew member you have growth in the requirement for all habitability systems (sewage, garbage, fridges, HVAC etc) and the various life saving systems (lifeboats, fire escape etc).

It's a good way to keep the good ideas club from arbitrarily pulling a crew size out of their hats, and as we are generally well ahead of other navies in embracing automation with each ship, core crew sizes should be shrinking, not growing.

Some of the other navies now run their CTG staff from a shore unit and use satcomms to pass orders.  When it's working, it's indistinguishable from embarked command staff for all the other ships in consort.  That way the Cmdre can have 30 staff with all their own minions without needing the bunking and infrastructure on the ship. If nothing else, morale on the ships probably improves as you aren't suddenly overrun with the mobile ballast extra personnel that come on board.

You can make the argument that kind of arrangement leaves you vulnerable if comms are down, but I've seen first hand how few of them are actually useful if they are embarked and comms go down (ie about 5 of the 60 were doing anything, the others were hanging out in the messes watching movies).

 
Navy_Pete said:
...

(about 5 of the 60 were doing anything, the others were hanging out in the messes watching movies).

About a year or so ago I was looking at the nominal roles for HMS Victory at Trafalgar.  Of the 1000 or so men on board (primarily gunners and marines with a small cadre of shiphandlers and tradesmen) I could only identify a staff for Nelson of about 7 men.
 
More cuts coming according to this article which is reproduced under the Fair Dealing provisions of the Copyright Act from the Ottawa Citizen:

http://www.ottawacitizen.com/news/national/Troop+reductions+could+table+Canada+defence+chief+says/9185278/story.html
ottawa_citizen_logo.jpg

Troop reductions could be on the table, Canada’s defence chief says

BY LEE BERTHIAUME, POSTMEDIA NEWS

NOVEMBER 19, 2013

9185279.jpg

Chief of Defence Staff Gen. Tom Lawson
Photograph by: Adrian Wyld/The Canadian Press/Files , Postmedia News


OTTAWA – Canada’s top soldier has raised the possibility of cutting military personnel from the Canadian Forces’ ranks to deal with budget cuts.

The federal Conservative government has long said it will not reduce the military’s strength from its current total of 68,000 full-time members and 27,000 reservists despite billions of dollars in spending reductions.

But Chief of Defence Staff Gen. Tom Lawson told reporters Tuesday that cuts could be on the table when military planners present cabinet with options for a new long-term vision for the Canadian Forces in the coming months.

Lawson made the remarks following a speech to the Canadian Club in which he acknowledged the difficulties in dealing with the budget cuts while maintaining the military’s current strength and not cutting the Canadian Forces’ capabilities.

More to come …

lberthiaume(at)postmedia.com

Twitter:/leeberthiaume

© Copyright (c) Postmedia News


Troop reductions would be a very, very good thing if they are applied, 100%, to the too numerous, bloated HQs in and around Ottawa. We can do with several, about ⅓ fewer admirals and generals and far fewer navy captains and colonels, too.
 
OTTAWA – Canada’s top soldier has raised the possibility of cutting military personnel from the Canadian Forces’ ranks to deal with budget cuts.

The federal Conservative government has long said it will not reduce the military’s strength from its current total of 68,000 full-time members and 27,000 reservists despite billions of dollars in spending reductions.

But Chief of Defence Staff Gen. Tom Lawson told reporters Tuesday that cuts could be on the table when military planners present cabinet with options for a new long-term vision for the Canadian Forces in the coming months.

Lawson made the remarks following a speech to the Canadian Club in which he acknowledged the difficulties in dealing with the budget cuts while maintaining the military’s current strength and not cutting the Canadian Forces’ capabilities.

More to come …

lberthiaume(at)postmedia.com

Twitter:/leeberthiaume
 
E.R. Campbell said:
Troop reductions would be a very, very good thing if they are applied, 100%, to the too numerous, bloated HQs in and around Ottawa. We can do with several, about ⅓ fewer admirals and generals and far fewer navy captains and colonels, too.

And you know thats exactly what won't be cut. Would you approve a plan to cut your own job? PYs will come out of operational units, reduced recruiting or another FRP.
 
PuckChaser said:
And you know thats exactly what won't be cut. Would you approve a plan to cut your own job? PYs will come out of operational units, reduced recruiting or another FRP.


I fear you're correct. My statement reflects the triumph of hope over experience.  :dunno:
 
E.R. Campbell said:
I fear you're correct. My statement reflects the triumph of hope over experience.  :dunno:

Unfortunately to quote a motivational poster I saw recently at work, "Hope is not a valid COA." Fingers crossed I'm proven wrong on this, some trades won't survive PY cuts again.
 
So what did FRP entail the last time around? Are there any incentives for those serving on IE25 but not eligible for a pension yet? I have figured something like this would happen in the near future...but I guess they haven't said any specifics yet.

I concur with others that we are in a bloated military that is executive friendly. I don't see the cuts coming in the right places.
 
Well we can hope harper will stick with his commitment and keep personal levels where they are and throw this idea out the door
 
Teager said:
OTTAWA – Canada’s top soldier has raised the possibility of cutting military personnel from the Canadian Forces’ ranks to deal with budget cuts.

( .... )

More to come …

lberthiaume(at)postmedia.com

Twitter:@leeberthiaume
More here at the latest version of the story.
 
MilEME09 said:
Well we can hope harper will stick with his commitment and keep personal levels where they are and throw this idea out the door

With the Pips and Crowns?
 
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