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jollyjacktar
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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
leeberthiaume
