CGAI: “Overcoming ‘Boom and Bust’? Analyzing National Shipbuilding Plans in Canada and Australia”

January 17, 2019 – While both Canada and Australia share similar constitutional frameworks and imperial histories, they are also no stranger to procurement challenges. Cost overruns, delays, regionalism, and protracted intellectual property disputes have all been part of major defence acquisition projects in recent decades.

This Policy Paper analyzes the largest and most expensive procurement projects undertaken by either country, Canada’s $73 billion (estimated) National Shipbuilding Strategy (NSS), launched in 2010, and Australia’s A$90 billion Naval Shipbuilding Plan (NSP), launched in 2017. Each project represents an attempt to implement a rational, multi-decade approach to naval acquisition. Driven by a desire to overcome previous boom-and-bust cycles, the NSS and NSP aim to create a sustainable shipbuilding sector capable of meeting the immediate and future naval demands of Ottawa and Canberra. Neither country has attempted a shipbuilding plan on this scale before.

The NSS and NSP are still in their early stages but some common themes have emerged. On implementation challenges, old problems persist. For one, the rational approach to naval shipbuilding is not devoid of procurement politics and regionalism. Determining which province or state will be home to billions in contracts over many years remains a zero-sum game no matter how arms-length the process of yard selection.

Cost increases also remain a reality. Building domestically can carry a 30 per cent to 40 per cent premium. Project delays increase this premium, something Canada has already experienced when initial NSS acquisition costs, pegged at $37.7 billion nearly a decade ago, jumped to an estimated $73 billion today. Australia’s delays in securing an agreement with France’s Naval Group on its $A50 billion future submarine project could mean additional cost increases.

In this context, schedule is king and avoiding cost increases requires keeping to planned shipbuilding schedules. Failure to do so opens production gaps and necessitates going with alternative options including building overseas (Australia) or converting commercial vessels for naval and coast guard use (Canada).

Prolonged cost sensitivities raise the consideration of trade-offs on committing more money to continuous shipbuilding at the expense of acquiring other military capabilities. Canada, for instance, will need to make decisions at some point on whether to spend billions on replacing the North Warning System in the country’s North. Australia will have to grapple with an Indo-Pacific region proliferating with relatively cheaper but lethal anti-ship missiles. In this context, money spent on surface combatants may be perhaps better spent on other capabilities.

None of this is to say that progress has not occurred in either the NSS or NSP. Ships are getting built, including Arctic Offshore Patrol Ships in Canada, and Offshore Patrol Vessels in Australia. In 2018, both countries selected the British Type-26 as their preferred design for a new generation of surface combatants. It is very possible that these respective strategies will achieve their goals of bypassing the boom-and-bust eras, but ongoing challenges serve as a reminder that even with the best-laid plans, naval shipbuilding is a complicated affair.

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