Irvings ask for subsidy to complete cost-plus Navy contract

Irving Shipbuilding is currently seeking a $300 million government subsidy to upgrade its shipyard in order to build warships the company has already won a contract to build. One would have thought to win a huge contract to build ships, a company would need a shipyard capable of building them without needing further subsidy but expanding the Navy’s capacities to project power abroad has long been exceedingly profitable for corporate Canada.

A decade ago, the Harper government selected Irving to build all 15 surface combatants. The deal gave the firm remarkable control over the entire procurement process, including the ships’ design. The secretive contract made Irving the sole shipyard for the largest ever procurement. Initially pegged at $26 billion, the expected cost of the surface combatants has skyrocketed to $100 billion ($300 billion over their lifecycle).

On top of that boondoggle Irving is asking for at least an extra $300 million to upgrade its shipyard, which the Trudeau government is reportedly considering.

Costs are ballooning partly because of the many high-tech weapons on the new surface combatants. “Canada’s new Frigate Will Be Brimming With Missiles,” is how the Drive described the new vessels. They look set to be equipped with Tomahawk cruise missiles capable of striking land targets up to 1,700 kilometres away.

The new vessels will increase the Navy’s capability to project power to the four corners of the planet. Recently, Canadian frigates have patrolled the Black Sea, which borders Russia, and participated in belligerent “freedom of navigation” exercises through international waters that Beijing claims in the South China Sea. Canadian naval vessels were also deployed to wars in Libya, Yugoslavia and Iraq (1991 and 2003).

Another reason National Shipbuilding Procurement Strategy costs have ballooned is that contracts are largely “cost-plus”. This “provides perverse incentives for industry to increase costs,” according to a 2015 PricewaterhouseCoopers report on the strategy. “If the profit percentage is fixed, increased costs result in increased profits.”

Government officials openly touted the ship purchase as a way to subsidize the sector. A 2012 CBC.ca headline noted: “Shipbuilding deals will stabilize industry, [Prime Minister Stephen] Harper says.” An assistant deputy minister at Public Works and Government Services Canada, Tom Ring wrote, “Canada’s shipbuilding industry is now on the cusp of resurgence thanks to the federal government’s National Shipbuilding Procurement Strategy.”

Since its creation prior to World War I an important objective of the Navy has been to sustain Canadian shipbuilding. Describing initial Royal Canadian Navy (RCN) purchases, naval historian Marc Milner writes, “the government insisted that the ships be built in Canada, at extra cost and with some delay, in part to foster the development of a modern shipbuilding industry.”

World War II was a eureka moment for Canadian shipbuilding. Benefiting from Royal Navy expertise and technology, hundreds of vessels were built at Canadian shipyards during the war. The size of both Canada’s navy and merchant marine exploded.

In the decades after WWII defence expenditures continued to represent at least a fifth of spending on Canadian shipbuilding. During this period naval contracts “stimulated Canadian shipbuilding, electronic and other high-technology industries.’” RCN contracts helped create a domestic computer industry. In the late 1950s and 1960s the ship industry received a major boost from the hydrofoil warship program. According to Tony German in The Sea Is at Our Gates: the History of the Canadian Navy, the initiative “paid for pulling Canadian shipbuilding right into the computer age, brought in sophisticated quality assurance, developed the Marine use of exotic steels and aluminum structures, and introduced gas turbine marine propulsion.”

Shipbuilding continues to have many industrial spinoffs, but most of the value of a vessel is usually produced away from the shipyard. A cruiser or destroyer generally includes missiles, guns, helicopters, etc. as well as a multitude of high-tech gadgets (sonar, radar, weather, communications, tactical display, etc.). Suppliers are military manufacturers around the world, but especially in the United States.

Will the government cough up the extra subsidy on a contract already awarded?

The leading capitalists in New Brunswick, the Irvings have significant influence in Ottawa. The company advertises in publications read by political insiders such as iPolitics, Ottawa Business Journal and Hill Times as well as Canadian Naval Review and Esprit de Corps. Irving also funds the Conference of Defense Associations’ annual conference in Ottawa. Irving lobbies aggressively for government funds. In a “12-Month Lobbying Activity Search” of the Office of the Commissioner of Lobbying of Canada Irving Shipbuilding appears 50 times (other Irving branches had another 50 lobbying meetings). The company hires former military and DND officials to assist its cause. In 2017, for instance, Irving Shipbuilding hired former vice-admiral James King to lobby for Arctic and offshore patrol ship contracts.

The bottom line? Don’t bet against the Trudeau government dishing out more public funds to a firm controlled by one of the country’s richest families to bolster Canada’s contribution to the empire’s armada.

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