Vanguard Magazine

INTERVIEW I 16 AUGUST/SEPTEMBER 2017 www.vanguardcanada.com HMCS Charlottetown crashes through waves during Task Group Exercise. Photo: Cpl Peter Reed, Formation Imaging Services, Halifax, NS dition to that, the assumption is that there are no design changes; that is, we take the ship as it's already scoped and designed and in operation. So, Canada is not going to go in and do a large number of changes. Basically, they've built nine ships, and we're taking the 10th though the 24th ship. You have two things driving the cost saving: one is the learning curve. When Irving starts to build in the Halifax shipyard, clearly they're going to go on a learning curve. And they have two things affecting that learning curve. One is, any time any shipyard builds a new design, there's a lot of churn in the first eight to nine ships. During that time, they learn how to build most efficiently. The other aspect that's driving this is: Irving has not built a surface combatant. Surface combatants are vastly different than what they're building now in the case of the Arctic Offshore Pa- trol ships. They're much denser, much more complicated, and again that also affects the learning curve. So, your first eight ships will be that much more expensive purely because you'll have that much more to learn. Q: So, it takes about nine ships to really get it right? Well, to reach your maximum efficiency. Basically, theoretical anal- ysis has shown that by the ninth ship, you've now reached that point. This is analysis done in the original 2006 RAND report. So yes, it takes nine ships before you get to that maximum efficiency. Q: Recently PwC issued a report on costing for CSC. It says that it's cheaper to build in Canada than overseas. Based on what you've just explained, I can understand why your conclu- sion is dierent. Can you shed some more light, for the benefit of our readers, on the dierence in the two conclusions? We don't comment on other organizations' reports. But what I can say is that we did not consider economic multipliers and the effects in the overall economy, while they looked at that. Q: What are the challenges of building the ships here in Canada? Basically, learning curve is the primary challenge. We have not built surface combatants since the finishing of the Halifax frigates in 1996. All that knowledge has been lost; it has to be relearned. The other challenge is the amount of changes that DND will want to make on the design. If they are to take a design from another country, how much are they going to change that design? It's not like you change 5 per cent and expect the cost to in- crease by the same percentage. In fact, it multiplies. Once you've changed about 20 or 30 per cent, you may as well have redone the design from scratch. It's one of those things – it's very multiplica- tive. These ships are so dense in the sense of so many things are packed in so tightly and so dependent on each other. You make one change, it ends up propagating throughout the whole ship quite often. They have to be extremely careful. Managing those changes will be quite a challenge. Q: If there is any delay in the production start date of 2021, what would the consequences be? What would this cost Canada in dollars? There are two things that one needs to consider with the delay of the program. One is just the absolute inflation cost of the delay. As I mentioned earlier, the inflation rate for surface combatants is higher than just general GDP or consumer price index infla- tion. The cost of moving the ship out by each year will invariably increase the cost by $1.5 billion dollars. The other thing to consider when things are being delayed is that one cannot lose sight that Irving Shipyard is building the AOPS. The assumption is you need effectively about a 4- to 5-year overlap; I wrote down 5-year overlap in the report, minimally, so you do not lose your employees. Then what happens is, you go on an even steeper learning curve, which increases your cost. Q: Well to close o, congratulations on your report, and thanks for sharing the insight into the PBO's costing for CSC with Vanguard magazine. We truly appreciate it. You're welcome and thanks for the opportunity. "The cost of moving the ship out by each year will invariably increase the cost by $1.5 billion dollars. " To get the report, The Cost of Canada's Surface Combatants, go to http://www.pbo-dpb.gc.ca/web/ default/files/ Documents/Reports/ 2017/CSC%20Costing/CSC_EN.pdf

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