Canada will shell out almost $70 billion for its new warships, PBO report says

OTTAWA -- Canada's 15 new warships will cost almost $70 billion over the next quarter-century, according to Parliament's budget watchdog.

That's up substantially from a Canadian government estimate in 2017 that pegged the price of the project at between $56 billion and $60 billion. The 2017 estimate was itself a revision of the project's original $26-billion price tag.

Also in 2017, the parliamentary budget office estimated the total cost of the ships to be $61.8 billion, but its report released Friday updates that to reflect the specific design of the ships -- frigates known as "Type 26" -- which wasn't known at the time. It also accounts for delays in the project.

The Canadian government will now pay out $69.8 billion over 26 years, the PBO estimates.

In a statement released shortly after the PBO report, the Department of National Defence said the "vast majority" of the difference between the estimates came from the PBO's choice to include taxes in its projections.

"If you remove taxes from the PBO's costing, our estimates are within 10 per cent of each other," the statement said. That gap still amounts to billions of dollars.

The department said it had recalculated its own costs since announcing the design of the ships earlier this year but did not release an updated number. It said the PBO report was a "valuable and independent corroboration of our work."

The Defence Department went on to say that it remained "confident" in its 2017 estimate, but recognized that small disparities in projections mean hundreds of millions of dollars in potential extra costs to taxpayers.

The PBO report says the difference in the estimates is due to new information, specifically the later construction start date and the size of the ships.

The cost of the project will break down to $5.3 billion in pre-production costs, $53.2 billion to build the ships and $11.4 billion in other, project-wide costs, the report estimates.

The report assumes ships will start being built by the 2023-2024 fiscal year, a full three years later than the PBO projected in its 2017 report. This means higher nominal costs for buying materials due to inflation, it says.

The size of the ships, which is larger than estimated in 2017, will also increase costs, the PBO says. The PBO originally projected a weight of 5,400 tonnes for each ship but the Type 26 design is a heftier 6,790 tonnes per ship, an increase of more than 25 per cent.

The report also notes a significant change in the way that the PBO has tallied the costs of spare parts. Instead of accounting for the cost throughout the ships' lifespans, the updated report released Friday includes only the cost for the first two years.

In 2017, the PBO estimated the cost of spares purchased after the first two years at $4.42 billion in 2017 dollars.

The updated report also includes an analysis of what effect further significant delays would have on the project. For a one-year delay, the PBO estimates, an extra $2.2 billion will be added to the project cost, and a two-year delay would cost the government $4.5 billion.