By PETER CAIRNS
Large military capital programs are under the gun at the moment. The headliner is the F-35 Fighter Aircraft, followed closely by the Close Combat Vehicle for the Army. In contrast, the procurement of ships for the Navy and Coast Guard in accordance with the National Shipbuilding Procurement Strategy (NSPS) is being heralded as the new standard for how complex major capital programs should be procured.
The government is very proud of the success of NSPS, and so it should be. A separate NSPS secretariat was established, third-party expertise was brought in and the overall governance of the program was delegated to a group of departmental Deputy Ministers. The competition to select two shipyards to build the government’s large vessels was considered by all to be devoid of outside influences and thus extremely fair.
The third-party assistance consisted of a fairness monitor, consultants to assist with the evaluation process and a company to do the capability assessment and benchmarking of the yards.
In my view, the benchmarking process proved to be a powerful tool for the shipbuilder. Each yard was scored in various areas as to its ability to meet the requirements of these shipbuilding programs. The bidder was immediately aware of the areas where it met the standard and where it fell short, as was the government. Thus, in response to the request for proposals, the shipbuilder was able to show how he would address these shortfalls. The shipbuilder was not told where he stood in relation to his competition, but he was provided with an excellent tool to guide him in his future planning.
I have been concerned that the success to date of NSPS is producing unrealistic expectations for the remainder of the program, but before new ships are commissioned into the Coast Guard and the Navy, a lot of water needs to flow under the bridge. Can we reasonably expect that over the next 20 years the design, construction, trials and entry of these new ships into the fleet will go as smoothly as the competition to select the successful bidders? It is unlikely.
The Joint Support Ship Project is illustrative. The first attempt at building the Joint Support Ship (JSS) in 2006 was cancelled due to a mismatch between the Navy’s requirements and the funding available. In brief, the shipbuilder could not build the ship for the money that was available. NSPS is an attempt to address this issue. It will allow the shipbuilder and the government to collaborate much earlier in the process so that the resources of all involved can be devoted to solving issues like a funding/requirement mismatch before they become critical.
The shipbuilder and the government can work together to produce a vessel that will fit the funding envelope but that ship may or may not be what the Navy needs. It is the Navy’s responsibility to lay out its requirements clearly and concisely and, in conjunction with other departments, to cost the project. It then becomes the responsibility of the Finance Department and Treasury Board to approve the level of funding needed. If the funding level is not approved, the Navy must either reduce its requirements or the government must increase the funding available.
More often than not the funding levels are assigned very early in the process and except for an inflation factor are resistant to alteration. NSPS funding levels have been set for several years now.
There are other issues that affect projects with fixed funding levels. Former U.S.N. CNO Admiral Vern Clark has testified that ship project costs in general have risen at a rate greater than the rate of inflation. The Congressional Budget Office has established the cost escalator for surface ships over the last 50 years to be between 7 and 11 per cent. This equates to the figure of 10 per cent established for U.S. fighter aircraft.
In its 2011 shipbuilding plan, the U.S. Navy has admitted that the accuracy of its cost estimates diminishes in the second decade of its 30-year plan to no better than notional values.
If we accept that these cost escalations and limits to estimates are similar in Canada, then one may assume that the funding allocated to ship projects in the future will likely be less than required. Recognizing that difficulties can and will arise is one thing but having a plan to deal with them is essential.
Past lessons need to be learned and put into practice. Construction of new vessels should not begin before the design is finalized. This may seem self-evident, but on more than one occasion, driven by the need to maintain the schedule, shortcuts are tried and more often than not, the cost of rectifying the mistakes and the negative effects on the schedule are debilitating. Similarly, the effects of change-orders can be more far-reaching than expected by the initiator. Each change comes with a price that has to be paid by someone. There is no free lunch but government departments, the Navy and Coast Guard pulling together can eliminate bad practices and go a long way to mitigate the negative effects of a crisis situation when it arises.
The situation faced by government and the shipbuilding industry today is similar to that faced by the shipbuilders of the Canadian Patrol Frigate (CPF). New frigates had not been built in 30 years and significant investments in infrastructure and training were required. The first ships of the project were delivered late, but the last ships were delivered on or ahead of schedule, and were built using about half the man-hours of the first ships. The bottom line was that the total program was delivered on time and budget.
The heavy work on the projects is now beginning. We have to recognize that in the near term, both industry and government are not as experienced as they should be in the tasks they will be faced with. That said, there is no reason not to expect similar if not better results from NSPS, as compared to CPF.