NDDN Committee Report

CHAPTER 2: A GOOD DEAL FOR CANADA?

Arguments Supporting View That the Acquisition Was a Good Deal

Almost four years after the 1994 Defence White Paper more or less gave the green light for the replacement of the Oberons and three full years after Mr. Collenette made his presentation to the Cabinet in 1995, the Cabinet finally approved the acquisition of the Upholders. Unfortunately, Canadians are used to long delays in government decisions concerning new equipment for Canada’s military, but the three year delay in the Cabinet decision process experienced by the submarine project is one of the worst examples. It is surpassed perhaps only by the delays in the replacement of the Sea King helicopters. It should not be forgotten that by 1995, almost a decade’s worth of planning and preparations had taken place before the submarine project even reached the stage where contracts were signed. Whether one agrees or not with the need for such equipment, it is frustrating to see so much time and effort deployed to prepare the acquisition of a piece of equipment only to see a question of political timing determine when Canadian military personnel will be able to use it. In any case, the Committee hopes that the procurement process will be shortened and made more efficient by the measures which the Department’s Assistant Deputy Minister (Materiel), Alan Williams, told us have been taken.³⁰

As for the relevance of the capabilities provided by the submarines in a rapidly changing world, the protracted route taken to reach a decision on the acquisition of the Upholders raises a number of questions about the decision-making process. The Special Joint Committee and the 1994 Defence White Paper gave qualified support for maintaining Canada’s submarine capability, as long as it was done at the lowest cost possible.³¹ However, there was still hesitation on the part of government to go ahead with the acquisition process more because of the possible effects on public opinion than because of any changes in the international context. Meanwhile, the Navy appeared to be determined to maintain a submarine capability at any cost. If this meant taking over the British Upholders, whatever their qualities and deficiencies, this was viewed as the only option. As Dr. Richard Gimblett, Research Fellow at Dalhousie University’s Centre for Foreign Policy Studies, pointed out, a navy with many different types of platforms (surface ships, submarines, coastal patrol ships) gives the government a variety of options whenever Canada is called upon to contribute to multinational operations dealing with, for example, an international security crisis.³² In some types of operations, such as the enforcement of sanctions imposed by the United Nations on a rogue state, surface warships are ideal for the interception and inspection of cargo ships while in others, stealthy surveillance by submarines of naval units posing a threat to coalition forces would be more suitable. The wide choice of capabilities made available is in keeping with the commitment stated in the 1994 Defence White Paper to provide multi-purpose combat-capable forces.

Thus, some argue that despite the time it took to obtain Cabinet approval and the delays the project subsequently experienced, the acquisition of the four Upholder class submarines is a good buy for Canada. The former ministers of National Defence who testified before the Committee and others maintain that for a country like Canada with a long coastline and dependent on maritime transport for an important portion of its international trade, providing Canadian maritime forces with multiple capabilities is a necessary step. Submarines are viewed as a versatile element of maritime forces because of their ability to carry out surveillance operations in a stealthy manner, whether to monitor the presence of foreign submarines close to Canadian waters or the activities of foreign fishing boats and other vessels potentially harmful to Canada’s resources and interests. They are also considered the most effective platform for anti-submarine operations because they operate in the same environment as the intruding submarine. The mere existence of a submarine fleet is seen as part of an effective deterrence against any activities in Canadian waters, including those in the north, by some countries wishing to challenge Canadian sovereignty and hamper Canada’s ability to protect its natural resources and environment. The various occasions when submarines have been used in the past to monitor and gather evidence of overfishing or other illegal activities by foreign boats, such as Operation Ambuscade in 1993 where an Oberon class vessel located U.S. scallop draggers in Canadian waters in Georges Bank and monitored their activities, are given as proof of the value of submarines in peacetime surveillance.

The fact remains that submarines are essentially combat capable systems and as defence analysts such as Martin Shadwick and Richard Gimblett have pointed out, they can play an important role in protecting Canadian naval ships participating in multinational security operations far from Canada. In the past, multinational naval operations in areas such as the Arabian and Adriatic seas, including those supporting peacekeeping operations, have monitored the presence of foreign submarines which posed a potential threat to or hindered manœuvres by allied ships. Even if Canada’s submarines are not part of a multinational operation, some experts have noted that they could be used sometime in the future by Canadian, U.S. and other allied air and naval forces to train in anti-submarine warfare prior to the deployment by the coalition task force to a world trouble spot. Indeed, some of the witnesses referred to messages of support from the U.S. military for Canada’s acquisition of submarines given the possibility of their availability for training exercises with U.S. naval forces. The U.S. Navy operates nuclear powered submarines but, according to many defence analysts, it recognizes that diesel-electric submarines can pose a serious threat to its surface fleet, especially in littoral operations. Training exercises with foreign diesel-electric vessels are therefore considered of great value in honing the skills of the crews of patrol aircraft and surface ships. The proponents of the submarine acquisition point to the value of submarines in anti-submarine warfare as well as the firepower they can bring to bear during anti-shipping operations as proof that submarines are a necessary element of a balanced naval fleet. The fact that many countries, big and small, throughout the world operate submarines has been used to support this argument. By the same token, the existence of so many submarines around the world is highlighted in order to illustrate the serious threat Canadian and other allied surface ships could face during multinational operations.³³

For some of those who accept the premise that submarines are an important element of any multi-purpose combat-capable force, obtaining such a capability at a favourable price is proof that it was a good buy. The lease-to-buy arrangement identified in the contract signed by Canada and the United Kingdom on July 2, 1998 was expected to cost no more than $750 million, later adjusted to $812 million to take inflation into account.³⁴ Thus, for some $800 million, Canada obtained four relatively new Upholder class submarines with an advanced design which some defence experts and naval officers compare favourably with similar submarines currently operated by navies around the world. The Upholders have sufficient range to operate for long periods of time in or near Canadian waters or to undertake long deployments in the world’s oceans to reach and operate in distant trouble spots. As Mr. Gimblett pointed out, some of the other types of diesel-electric submarines available on the market today are more suited to coastal operations and, compared to the Upholders, would not meet many of Canada’s requirements in terms of submarine operations.³⁵

The supporters of the acquisition point out that the significant submarine capability provided by the Upholders was obtained at a fraction of the costs Canada would have incurred if it had purchased new submarines from a foreign shipyard or had contracted a Canadian company or a consortium of companies to construct them in this country. The option chosen by Australia which involved the selection of a foreign hull design, in this case Swedish, the construction of the new vessels in Australia, and the design and manufacture by Australian companies of the electronic and other equipment installed in the submarine, with all the integration problems this entailed, has often been cited during the Committee’s meetings on the acquisition. As in Canada, Australia’s acquisition of submarines is very controversial, but for different reasons. Australia has constructed six new Collins class submarines at a total cost of over A$5 billion, but the planned expenditures for 2003-2004 included another A$773.7 million for additional work to correct the shortcomings identified in initial trials and in an Australian government report.³⁶ Indeed, Australia is also receiving help from the U.S. Navy to rectify some of the problems. Thus, Australia has acquired six new submarines at a cost of almost A$1 billion each while Canada acquired four relatively new vessels for $800 million.³⁷ For the advocates of the Upholder acquisition, the low costs of the purchase compared to the significant sums being paid by Australia and other countries to build new submarines from scratch highlights the advantages of this purchase. The problems encountered by the Australians have also been used to illustrate the potential pitfalls of constructing new submarines and the complexity of submarine technology, if only to show that Canada’s submarine problems are not unique.

The acquisition of the Upholders is viewed favourably by its advocates even though these submarines have a very limited ability to operate under large expanses of ice in Canada’s northern waters. When the Canadianized Victoria class vessels become fully operational, these submarines will bolster to some extent the limited Canadian military presence in Canada’s Arctic waters. This could be especially important in the Northwest Passage where Canadian sovereignty could be seriously challenged in the coming decades by countries which view the passage as an international sea lane. Shipping through the Passage is expected to increase in the future since the effects of global warming will likely reduce the extent of the ice blocking navigation and the period of time when it does so. While diesel-electric submarines like the Canadianized Victoria class can perhaps travel submerged under the edges of the ice cover, they cannot venture too far under the polar ice cap without running ever-increasing risks. Much research has been undertaken, notably here in Canada, on fuel cells and other sources of energy which could be used for Air Independent Propulsion (AIP) technology in submarines. Vice-Admiral (Retired) Cairns confirmed that AIP research was undertaken in the early 1990s when the Navy was again looking for a replacement for the Oberons after the cancellation of the proposed purchase of nuclear-powered submarines.³⁸ However, even if AIP technology was developed to a point where it could be installed in the Canadianized Victoria class submarines, something which might be considered in the years to come, the vessels would still have a very limited ability to operate safely while submerged in waters covered with ice.³⁹

Arguments Against the Acquisition of Submarines

While some consider the limited ability of the Victoria class submarines to undertake under ice operations and the possibility of some improvements in under ice capabilities with the installation of an AIP system sometime in the future as an advantage, others view this as another example of the questionable value of these submarines. They remain unconvinced that Canada needs submarines and their limited under ice capabilities, with or without AIP technology. In any case, they do not consider submarines an important asset for asserting Canadian sovereignty in northern waters. The critics argue that the assertion of sovereignty requires a visible military presence in the Canadian North and see little advantage in Canada having submarines which, in any case, would operate most of the time submerged and out of sight. They believe that visible platforms like surface ships and aircraft are a more effective display of this country’s capacity to monitor activities in Canadian waters, although there is concern that the Canadian Forces currently do not have enough resources in northern regions.

The advocates of the acquisition respond by noting that since Canada operates submarines, it is therefore advised by the navies of other countries whenever their submarines must transit in or navigate close to Canadian waters. Such notification is carried out in order to reduce the risks of collisions between Canadian and other submarines. The advocates argue that such an arrangement helps Canada to assert its sovereignty because it is made aware of the presence of any foreign submarine in its waters. However, some of the critics are not convinced that Canada should be part of the club of countries operating submarines simply to be informed about the deployment of foreign submarines close to our waters. Besides, in their view, new technology including uninhabited aerial vehicles (UAVs) could provide improved surveillance capabilities over the wide expanses of Canadian territorial waters for perhaps less than the operating and acquisition costs of the four submarines. However, some defence analysts such as Professor Shadwick cautioned that UAV technology is still in the early development stages and that more work needs to be done to improve their surveillance capabilities.⁴⁰

In any case, the critics of the acquisition project question the extent to which foreign submarines pose a threat to Canada’s interests, either close to Canadian shores or in distant areas where Canadian ships may be operating as part of multinational forces. As Peter Langille asserted, there may have been a number of Soviet submarines close to or possibly in Canadian waters during the Cold war, but the submarine threat is not as significant today.⁴¹ Besides, the critics of the acquisition believe that surface ships and maritime patrol aircraft have sufficient anti-submarine warfare capabilities to detect any submarines intruding in Canadian waters or in the zone of operation of a multinational naval force. In their opinion, Canada does not need its own fleet of submarines to detect intruders in Canadian waters while multinational naval forces can rely if necessary on submarines from other allied countries to provide protection. They also find wanting the evidence brought forward to demonstrate the value of submarines in the surveillance of the activities of foreign fishing and other boats in Canadian waters. The critics conclude that it would have been possible for Canada to decide not to replace its old Oberons and thus avoid all the implications of maintaining a submarine capability including the operating costs in addition to those for the surface fleet and the complex infrastructure, including a training system, needed for their safe operation. Some critics are willing to argue that in order to cut its losses so to speak, Canada should abandon submarine operations altogether and get rid of the four submarines acquired from the United Kingdom.

Some criticize the submarine acquisition project because they have a different perspective of what Canada’s defence priorities should be. They question the purchase of submarines when so many demands have been placed on the Canadian Forces during the last decade in terms of participation in international peacekeeping missions. Some if not all of the funds earmarked for the submarine acquisition, albeit not as significant as those which would have resulted from the construction of new vessels in Canada, could have been better spent, they argue, on the deployment of additional Canadian soldiers for peacekeeping operations and on the support provided to these operations by air and naval units. Other critics suggest that buying additional combat vehicles or heavy lift transport aircraft vital to the success of peacekeeping operations would have better served Canada’s interests and those of the international community than the acquisition of submarines. A number of critics also argue that too much was cut from defence spending during the 1990s and that this put the land, air, and naval capabilities of the Canadian Forces at risk. From their point of view, the debate should not be on whether or not Canada would have been better served if it had purchased additional armoured personnel carriers instead of submarines. The debate should rather be on whether or not defence spending is sufficient to provide the Canadian Forces with all the capabilities they believe necessary to fulfil their commitments and if the policy guidelines are clear enough to guide their selection of equipment.

Submarines and Canadian Defence Priorities as Outlined in the 1994 Defence White Paper

It was not the mandate of the Committee’s study to determine whether or not Canada should keep the submarines. In any case, it is difficult for the members of this committee to reach a consensus on whether or not the acquisition of the submarines was the best use of resources in the absence of a clear and up-to-date defence policy. Much has changed in the world since the publication of the 1994 Defence White Paper, even though the government insists that the essential elements of Canadian defence policy remain the same as in 1994. Determining the extent to which newly introduced equipment provides the capabilities required for a “general-purpose combat-capable force” is complicated when it is not clear what kind of military force Canada needs in the first decade of the twenty-first century. Canadian parliamentarians and analysts have been demanding a review of Canadian defence policy for many years. After long delays, this review has been undertaken and Parliament will have the opportunity to examine the new policy. The fact remains that a full decade after the 1994 Defence White Paper was published, Canada now has the modern submarines which that document more or less called for. However, it is not clear to everyone to what extent Canada needs those submarines in the post-September 11, 2001, world. It is true that Canadians are much more aware of the need to bolster surveillance of the Canadian coastline in response to possible infiltration by terrorists into North America. Submarines can perhaps bolster the surveillance capabilities of patrol aircraft and surface ships, but in 2005, does Canada need submarines to protect its ships during multinational naval operations to the same extent it did in 1995? These are the kind of questions which may be raised during the parliamentary study of Canada’s defence policy and its international policy goals.

In the meantime, the submarine acquisition project has apparently proceeded since 1994 without any second thoughts by the Department of National Defence or the government about the necessity of maintaining a submarine capability or the value of the deal being offered. As a result of the decision by Prime Minister Chrétien to delay the acquisition, three years went by between the publication of the White Paper in 1994 and the signing of the contracts in July 1998. Once the contracts were signed, the process of delivering the submarines, modifying them and working up to full operational status encountered more delays. According to Mr. Alan Williams, Assistant Deputy Minister (Materiel), Department of National Defence, and Captain (Navy) Williamson, Project Manager, Submarine Capability Life Extension project, the fleet of Victoria class submarines will not be fully operational (i.e. fully Canadianized and tested) until about 2008, given the delays in the reactivation and Canadianization process.⁴² However, while the Canadianization of at least one of the submarines, HMCS Corner Brook, was almost complete by the end of 2004, it remains to be seen to what extent the temporary withdrawal of the submarines from operations pending the completion of the Board of Inquiry report into the fire aboard HMCS Chicoutimi and the repairs to that vessel may cause further delay in reaching full operational status. Since the initial and refresher training of submariners relies to some extent on time aboard an operational submarine, as pointed out by a number of witnesses, the delays in the Canadianization process and the temporary withdrawal from operations will inevitably affect training. Thus, it could be almost 2010 before the submarine fleet can contribute on a full-time basis to Canada’s military capabilities, some 15 years after the 1994 policy statement which paved the way for its acquisition.

The Committee would perhaps be more confident about the need for such an acquisition if Canadian defence priorities and the requirement for submarines had been reviewed on a regular basis over this 15 year period. Military planners in Canada and other countries have sometimes been criticized for planning equipment acquisitions based on the last war or on Cold war scenarios rather than on current and future requirements. In the absence of a regularly updated defence policy, military planners may not have the clear guidelines necessary to reassess equipment needs and to make sure that Canada will have the right capabilities at the right time. Now that a review of Canadian defence policy has finally been undertaken, the Committee hopes that the process will provide these clear guidelines for military planners. However, the length of time between the publication of the 1994 Defence White Paper and the currently estimated date when the submarines can achieve full operational status underlines the need for regular updates of Canadian defence policy. Once the current defence review is completed, this country should not wait another decade or so for an update of its defence policy. Our closest allies make it a regular practice of providing their citizens and their parliaments with updates of military policies and defence expenditure plans over two or three years. The United Kingdom Ministry of Defence has issued a number of policy papers in recent years as part of its Strategic Defence Review including the July 2004 document Delivering Security in A Changing World: Future Capabilities which outlined force structure changes and equipment priorities.⁴³ Australia issued in 2004 the document Defence Capability Plan 2004-2014 on its capital equipment plan four years after its Defence White Paper, Defence 2000: Our Future Defence Force and, between these two documents, it prepared others including a defence update in 2003.⁴⁴ Meanwhile, the United States is undertaking in 2005 its Quadrennial Defence Review. Some of the problems encountered with the submarine acquisition project might have been avoided if Canadian defence policy had been updated at a regular interval. It is obviously not sufficient to rely only on Estimates documents and annual departmental performance reports to explain to Canadians to what extent Canada’s defence priorities are in tune with the international security situation. We therefore recommend that:

RECOMMENDATION 1:

The government provide a comprehensive update of Canada’s defence policy at least every four years and report to Parliament in order to clearly identify Canadian defence priorities and the capabilities and equipment the Canadian Forces need to meet their commitments.

The Barter Arrangement: A Source of Confusion

The advocates of the acquisition point out the savings achieved by acquiring the Upholders instead of embarking on a multi-billion dollar project to construct new submarines. However, many critics of the project caution that the full costs of the project must be taken into consideration while evaluating its merits. Mr. Williams, Assistant Deputy Minister (Materiel), stated that it is the United Kingdom which is responsible for the reactivation of the Upholder submarines before their transfer to Canadian ownership.⁴⁵ Thus, the United Kingdom has covered much of the costs of the work done to correct the problems or deficiencies identified during the reactivation period. Mr. Williams also explained that the total cost of the lease-to-buy arrangement is still basically the $750 million initially announced, but the total becomes $812 million when the adjustments for inflation over the course of the project are taken into account.⁴⁶ This total includes the funds paid to the United Kingdom in accordance to the lease payment schedule in the contract for each of the four Upholder submarines, but as Mr. Williams noted, HMCS Victoria was bought out earlier than scheduled. However, he also stated that the costs of a number of small projects related to the submarine acquisition (a total of $85 million), especially in terms of supporting infrastructure, have been added to the total costs for the Submarine Capability Life Extension project, which is the way the project is identified in the Estimates documents such as the Part III — Plans and Priorities for the Department of National Defence.⁴⁷ This measure was recommended by the May 2003 report of the Chief of Review Services of the Department of National Defence who was requested to review the submarine project.⁴⁸ As a result, Treasury Board approved a new ceiling of $897 million for the total expenditures for the Submarine Capability Life Extension project.⁴⁹ However, this is a ceiling and the status report on capital equipment programs in the Part III — Plans and Priorities documents of the 2004-2005 Estimates for the Department of National Defence indicated the currently estimated total costs for the Submarine Capability Life Extension project as $868,422,000. This total, according to Mr. Williams, includes the lease payments for the four submarines of about $360 million plus the costs of the training simulators, the technical data package, the Canadianization process, and the support spares.⁵⁰

Some critics note that the costs of operating and supporting the submarines over their lifespan of 20 or more years must also be taken into account along with the acquisition costs. Others point out that the long-term costs are considered when decisions are reached concerning any equipment acquisitions. Mr. Williams said that in the debate on the submarine issue, putting long-term expenditures with those concerning the acquisition is “adding apples and oranges together.”⁵¹ In any case, many factors have to be considered when taking into account the long-term costs of any acquisition and much speculation is inevitably involved in such a debate because it is difficult to predict accurately issues such as the tempo of operations and fuel costs. Besides, as noted above, it remains to be seen to what extent submarines, along with other pieces of equipment, will provide the capabilities the Canadian Forces need to fulfil the tasks determined by the latest and subsequent reviews of Canadian defence policy. This does not mean that the costs which will be incurred in the coming years for the continued operation of the submarines, including those for major refits and the likely modernization of electronic sensors, are not a source of concern for the Committee. However, the Committee focussed more on what happened with this project rather than on what might happen and is thus in a better position to comment on the acquisition costs than on the long-term expenditures.

Perhaps the debate on the value of the submarines following the incident aboard the Chicoutimi and on the real costs involved would be less virulent if the acquisition of the Upholders had not been portrayed or perceived as a bargain. The emphasis on the possibility of a barter arrangement in the departmental announcements concerning the acquisition of the Upholders left many Canadians with the impression that at least part of the costs would be covered by the funds owed by the United Kingdom for the use of training facilities in Canada by British forces. It may even have given the impression to some Canadians that the barter arrangement guaranteed that the submarines were being obtained at little actual cost to the Canadian treasury, even though the announcements did point out that the submarine project “will cost no more than $750 million — one-quarter of what it would cost to buy or build new submarines.”⁵² There was therefore much surprise when the Committee learned that no barter had actually taken place. Mr. Williams, Assistant Deputy Minister (Materiel), stated that the contract with the U.K. refers specifically to the barter issue in section 27.3 to provide an “accounting efficiency.” However, in actual fact, the barter never became part of the acquisition process because according to Mr. Williams, “at the end of the day people are just allowing each program to operate and be funded on its own.”⁵³ One of the programs referred to is the acquisition of the Upholders where Canada pays funds to the U.K. while the other involves payments to Canada by the U.K. for the training facilities in Canada utilized by British forces. Mr. Pierre Lagueux who was the Assistant Deputy Minister (Materiel) from 1996 to July 1999 stated that he had the impression, when he left the Department, that the barter was still part of the acquisition arrangement.⁵⁴ He did not know why it was not actually used. For his part, Mr. Eggleton stated that he could not recall why the barter arrangement had not been carried out in part or in full.⁵⁵ However, he noted that even if the barter had taken place, Canada still would have spent money for the submarines given its expenditures on the training facilities provided to British forces.

In his second appearance as a witness, Mr. Williams explained that various factors made it impractical to use the barter process including the fact that the dates when Canada made payments for the submarines and the date the U.K. made payments for the training facilities did not coincide. It was also suggested that since the barter was not carried out, the funds paid by the U.K. for the use of training facilities and those paid by Canada for the submarines are clearly indicated in the Public Accounts of Canada and the expenditures are more transparent.⁵⁶ The fact remains that many Canadians were under the impression that the barter arrangement was being used to cover much if not all of the acquisition costs. Besides, it is somewhat disconcerting to observe a process where Canadian and British officials spent much time and effort in negotiating a contract agreement which, among other things, included the possibility of a barter arrangement, but abandoned the barter option almost as soon as the contract was signed without attaching an amendment or other document noting their decision.⁵⁷ While some critics suggested that the possibility of a barter arrangement was used to make the submarine acquisition more acceptable to the Canadian public, others deplored the fact that the absence of the barter arrangement was not announced prior to the revelation in late 2004 during this committee’s study. In hindsight, Mr. Williams stated that the decision not to utilize the barter option should have been announced to avoid the confusion and the controversy which has developed over this issue. However, what really concerns the Committee is that the government did not take any action to correct the perception in the Canadian public that the barter arrangement had been used even in the weeks immediately following the fire aboard the Chicoutimi. It is only on October 25 when Mr. Williams testified before the Committee that Canadians found out that the barter option had not been used. The government should have provided this information to Canadians before that date.

If nothing else, the controversy over the barter option illustrates the need for clarity in discussions about the costs of military equipment acquisitions and support contracts. An acquisition project already described in government and departmental statements as a bargain costing one quarter of the costs of constructing new submarines was given the barter option as another prop besides the lease-to-own arrangement to facilitate its acceptance by public opinion. Admittedly, the project was announced during a period of fiscal restraint in government spending and many other military and social priorities were competing for funds. However, trumpeting the costs savings of the project left it vulnerable to criticism when the difficult task of transferring complex military equipment from one country to another encountered even more problems than expected. Thus, the submarine acquisition is a very good example of the necessity of clearly explaining to Canadians the capabilities the Canadian Forces require to fulfil the commitments assigned to them and how the various pieces of military equipment selected can provide those capabilities. This again highlights the necessity for a clear and regularly updated defence policy. It also demonstrates the need for more and better information on the military equipment Canada acquires, not to mention clarity on the costs involved.

At some meetings, including the one on November 3, 2004 when the Minister of National Defence appeared on the Estimates for the Department of National Defence, it was implied that Canadian parliamentarians should have been aware that the costs for the acquisition of the submarines was $750 million ($812 million with inflation taken into account), whether or not the barter arrangement was involved. It was stated that the information on the costs of the submarine was indicated in the 1998-1999 performance report for the Department of National Defence and in the Part III — Plans and Priorities documents of the Estimates for the Department in subsequent years. However, departmental performance reports are tabled many months after March 31 when the fiscal year in question ends and it is only in the Part III — Plans and Priorities document for the 1999-2000 fiscal year that some information was provided for the first time on the Submarine Capability Life Extension project, the major crown capital project numbered M2549 dealing with the acquisition of the Upholders. In other words, apart from the announcements in mid-1998 about the acquisition and the signing of the contracts, it was only in the fall of 1999 that the costs of the submarine acquisition were indicated in documents on departmental spending tabled in Parliament.⁵⁸ Furthermore, in the 1999-2000 Part III documents and those in subsequent years, there was no indication of whether or not the barter option had been used. Given the limited information made available on this project in the Estimates documents, it was difficult for parliamentarians to know whether or not part of the expenditures for the acquisition of the Upholders were covered by the funds paid by the U.K. for training facilities in Canada as was suggested in the departmental announcements.

Besides, there are many complex issues involved in trying to monitor the spending of the Department of National Defence or any other department or agency. It may be easy to say after the fact that parliamentarians should have known all along every detail about this or that major capital project, but the submarine project is a very good example of how the implications of a major equipment acquisition for the defence budget and military capabilities can be misunderstood. Besides, there is no guarantee of avoiding similar misunderstandings with regards to other major crown projects since the printed version of the Part III — Plans and Priorities document of the Estimates for the Department no longer contains a full status report on major capital projects since it is only available on line through the Internet.⁵⁹ Given the importance of major equipment acquisitions for the effectiveness and transformation of the Canadian Forces and the professionalism and security of its personnel, the information provided on major defence capital crown projects should be substantial. The controversy over the submarine acquisition highlights how important it is to explain the rationale for acquiring major pieces of military equipment and the implications for the defence budget. We therefore recommend that:

RECOMMENDATION 2:

The government inform Parliament when any significant changes are made in the planned expenditures or methods of payment for all major military equipment acquisition and related support projects which have received effective project approval from Treasury Board.

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30	Evidence, Meeting No. 21, February 17, 2005.

31

The parliamentary input was provided by the majority report of the Special Joint Committee on Canada’s Defence policy, although as noted in Chapter One, the Bloc Québécois issued a dissenting report. The Special Joint Committee of 1994 was composed of Members of the House of Commons from the Liberal, Reform, and Bloc Québécois parties and Liberal and Progressive Conservative Senators.

32	Evidence, Meeting No. 20, February 15, 2005.

33	Anti-submarine warfare continues to be an important NATO capability as illustrated by the exercise Noble Marlin 05 held in March 2005 in the Mediterranean involving ships, submarines, and aircraft of 10 NATO countries including Canada.

34	The costs of some submarine-related projects have recently been added to the acquisition costs and Treasury Board has approved a new ceiling for the Submarine Capability Life-Extension project of $897 million, as discussed later in this chapter.

35	Evidence, Meeting No. 20, February 15, 2005.

36

The first Collins class submarine was commissioned in 1996 and the sixth was commissioned in 2003, but it is only in March 2004 that the Royal Australian Navy accepted the “operational release” of the six submarines. This means that the submarines can be used operationally, although upgrades to correct some deficiencies are being carried out.

37	The value of the Australian dollar is currently almost on par with the Canadian dollar.

38	Evidence, Meeting No. 6, November 1, 2004.

39

The installation of an air independent propulsion system might involve cutting the hull of a submarine in order to add a plug or extension of the hull containing a fuel cell or similar power source and welding the hull back together again. Tests and similar installations done in some countries have demonstrated that these modifications are feasible.

40	Evidence, Meeting No. 19, February 10, 2005.

41	Evidence, Meeting No. 20, February 15, 2005.

42	Evidence, Meeting No. 4, October 25, 2004 and again repeated by Captain (N) Williamson at Meeting No. 13, December 6, 2004.

43	See the list of policy papers at http://www.mod.uk/publications/policypapers.htm.

44	See the list of reports at http://www.defence.gov.au/publications.cfm.

45	Evidence, Meeting No. 4, October 25, 2004.

46

The Department originally estimated that a total of $800 million would be required for the acquisition of the Upholders, but given the financial pressures on the departmental budget in 1998, this amount was reduced to $750 million. See Department of National Defence, Chief Review Services, Review of the Submarine Acquisition/Capability Life-Extension Program, 7050-11-33 (CRS), May 2003, p. 7/30.

47	The status report on major capital equipment projects in the Part III — Plans and Priorities document provides a list of the associated projects totalling $84.8 million, including those related to East and West Coasts capabilities, on page 10/51.

48	Department of National Defence, Chief Review Services, Review of the Submarine Acquisition/Capability Life-Extension Program, 7050-11-33 (CRS), May 2003, pages 7/30 to 11/30.

49	Part III — Plans and Priorities of the 2004-2005 Estimates for the Department of National Defence indicates in Table 2a that the Currently Estimated Total Cost of the Submarine Capability Life Extension project was $868,422,000.

50	Evidence, Meeting No. 21, February 17, 2005.

51

Ibid.

52	Canada, Department of National Defence, “Submarines For Canada’s Navy,” News Release NR-98.018, April 6, 1998.

53	Evidence, Meeting No. 4, October 25, 2004.

54	Evidence, Meeting No. 9, November 22, 2004.

55	Evidence, Meeting No. 11, November 29, 2004.

56	Evidence, Meeting No. 21, February 17, 2005.

57	Amendments were made to the contract after July 1998 to indicate changes in the schedule of payments, but no indication was apparently given of the decision not to pursue the barter option.

58	The Supplementary Estimates A, B, and C for 1998-1999 tabled in 1998 or early 1999 made no reference to the submarine acquisition.

59	See for 2004-2005 http://vcds-dev.ottaw-hull.mil.ca/dgsp/pubs/rep-pub/ddm/rpp/rpp_e.asp.