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PBO’s latest estimate says warships will cost $77B as estimated price jumps $17B

Shipbuilders look at Lockheed Martin Canada's design of 15 new Canadian Surface Combatants to be built at Irving Shipbuilding's Halifax shipyard in Halifax on February 8, 2019. The Canadian Press/Darren Calabrese

OTTAWA – Parliament’s budget watchdog is predicting another multibillion-dollar increase in the cost of a new fleet of warships for the Royal Canadian Navy, pegging the price for what was already the largest military procurement in Canada’s history at more than $77 billion.

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Parliamentary budget officer Yves Giroux‘s latest estimate is $17 billion more than the government’s stated price for the 15 warships, which are to be built in Halifax over the next two decades and form the navy’s backbone for most of the century.

Giroux’s estimate is in a highly anticipated report released Wednesday that is likely to set the stage for some tough discussions – and heavy industry lobbying – on whether Canada should push ahead on the project or change tack.

Read more: Navy needs to prepare for tough talks over warship delays, cost increases

To that end, the budget officer’s report includes a number of potential scenarios designed to provide a clearer picture of what options are available to the government should it decide to go in a different direction – and how much each would cost.

That includes scrapping the existing plan to base the 15 warships on the British-designed model called the Type-26, which Canadian defence officials have repeatedly described as the right ship for Canada, and choosing a different design for the fleet.

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An infographic showing the findings of the PBO’s looking at the cost of Canada’s Surface Combatants.

Giroux and his team also looked at the idea of a hybrid fleet, in which Canada builds three Type-26 ships and supplements them with 12 other vessels. That would mimic how the Navy was previously built, with three Iroquois-class destroyers and 12 Halifax-class frigates.

To that end, the PBO found that the government could save $40 billion if it built only three Type-26 frigates and supplemented them with 12 smaller, less capable Type-31s, which is similar to what Britain has decided to do.

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Read more: National Defence says $60B warship project delayed until 2030s

Canada could also save $50 billion if it scrapped plans to build any Type-26s and went with an entire fleet of Type-31s, according to the report, though the PBO notes that the Type-31 was “designed to operate alongside the `higher-end’ Type-26.”

The PBO also looked at the potential cost to switch to a type of warship called the FREMM that is currently being built for the United States and which Giroux described as on par with the Type-26 in its capabilities.

Restarting the entire project could also result in a four-year delay to the start of construction.

The budget officer found a revised project would cost around $71 billion whether the government decided to build an entire fleet of FREMMs or three Type-26s and 12 FREMMs.

Irving shipyard hosts graduation ceremony for 20 students – Jun 19, 2020

The warship project was launched in earnest nearly a decade ago when Irving Shipbuilding in Halifax was selected in October 2011 to build the fleet, with the total cost estimated at around $26 billion and the first ship to be delivered in the mid-2020s.

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That vague schedule remained largely unchanged, at least on paper, even as the estimated price tag ballooned to $60 billion and Ottawa ordered several smaller ships so Irving would have work until the surface combatants were ready for construction.

Defence officials revealed to The Canadian Press earlier this month that construction on the first Type-26 is set to begin in 2023-24, with the ship now due for delivery in 2030-31.

Read more: Ottawa buying sixth Arctic and offshore patrol vessel, to be built at Halifax’s Irving Shipbuilding

The new warships are based on the Type-26 frigate, which is also being built by the United Kingdom and Australia, but Canadian officials have been making numerous changes to the design to meet Canada’s unique military and industrial requirements.

Those changes have been made more complicated by the government’s attempts to pack all the capabilities from the Navy’s now-retired Iroquois-class destroyers and existing Halifax-class frigates into one type of ship.

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The destroyers provided air defence while the frigates specialize in hunting submarines.

This report by The Canadian Press was first published Feb. 24, 2021.

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