Mind the ‘gaps’ in Canadian defence policy, even after Budget 2015

The budget doesn't answer questions about the government’s commitment to recapitalize and rearm the Canadian Armed Forces.
By: /
April 23, 2015
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Research Manager and Senior Editor at the Conference of Defence Associations Institute

A recent report on defence sustainability by the Parliamentary Budget Office has raised a number of questions about the future direction of Canada’s defence policy and the government’s commitment to recapitalize and rearm the Canadian Armed Forces. Sadly, none of the report’s conclusions are fundamentally new, and spending promises made this week in the 2015 budget don’t provide real answers.

Observers have long questioned whether the 2008 Canada First Defence Strategy’s (CFDS) promise of an annual two percent defence budget increase – the “defence escalator” – was ever really sufficient to cover the cost of increasing personnel numbers and major fleet replacements, especially considering actual inflation rates and possible (and indeed likely) procurement cost overruns.

It was made even more untenable by the government’s effort at deficit reduction through the Strategic Review, Deficit Reduction Action Plan, and two-year Operating Budget Freeze, as well as the deferral of $5 billion in capital funding beyond the Strategy’s 20-year horizon. As defence analyst Dave Perry has noted, the CFDS promise of $490 billion over 20 years has since been effectively reduced to $453 billion. The PBO report reaffirms this general trend, projecting that there will be a “force structure-funding gap the difference between the projected cost of the military and the projected spending to support it – of $33 billion-to-$42 billion by 2025 if the government hopes to maintain its 2012 force structure.

Already, this shortfall in funding has had an impact on the military’s operational readiness and equipment maintenance. If it continues, there will likely be a decline in the number of platforms procured, the capabilities offered, overall personnel levels, or all of the above, in what researcher Martin Shadwick has called an “ambition-capability gap.” One only needs to look at the planned Queenston-class auxiliary ships, which have seen their capabilities pared down and numbers reduced from three to only two, to see the consequences of this gap. It does not bode well for the Canadian Surface Combatants, Arctic Offshore Patrol Ships, or the eventual CF-18 replacement.

It may be tempting to say that the 2015 budget effectively bridges this gap, given its promise to increase the defence escalator to three percent starting in 2017/18 for an additional $11.8 billion over 10 years. Yet this planned increase will only take place in two years from now, making it entirely discretionary as to whether the future government keeps that promise. And even this promised amount falls well short of the missing funds identified in the PBO report, especially if one adds the detrimental impact of continuing procurement delays.

Abetting the affordability problem is the Department of National Defence’s (DND) apparent inability to manage and oversee major procurement projects, which has resulted in procurement delays with real budgetary consequences, including reduced purchasing power owing to inflation and the deferral of capital funds that may not be there in the future. This comes from an internal “workload-capacity gap,” in which a limited number of staff at DND who lack extensive procurement experience must contend with a growing number of large, complex procurement projects taking place at the same time.

Indeed, due to the adoption of accrual accounting methods, the department must contend with the planned simultaneous acquisition of multiple platforms for all three services. To help illustrate this problem, consider the number of individuals at DND’s Material Group working on capital projects, based on their dollar value. In the late 1980s, the number of staff per $1 billion in capital costs was 3,000. It was almost half that number (1,800) in 2009. The government’s deficit reduction efforts have had a direct impact on personnel levels in the Material Group, therefore directly widening this gap.

To be fair, the government has made some effort to reduce this workload-capacity gap with its 2014 Defence Procurement Strategy (DPS), not least in a renewed emphasis on capability prioritization and the creation of an internal third-party in DND to serve as a counterweight to bureaucrats.

Yet the DPS has also not been without its critics. With its emphasis on ensuring economic benefits, the DPS seems to eschew the purchase of cheaper off-the-shelf equipment – especially in light of its recommendation to maintain close relations with and input from Canadian industry. Rather than streamlining procurement, the DPS can also further complicate the process by institutionalizing the role of other stakeholders, whether in the Defence Procurement Secretariat, Working Group of Ministers, or the Defence Analytics Institute.

However, irrespective of these reforms, the government’s apparent inability to rectify the force structure-funding gap – and thereby ensure long-term defence sustainability – means that DND will continue to struggle with ensuring it has enough manpower and personnel to adequately oversee these complex defence procurement projects.

Much of the recent debate on Canadian defence policy has been focused on issues of procurement affordability and mismanagement, and for good reason. But one should not forget that overlaying these largely financial and bureaucratic problems is a more strategic one – namely, what the late Rod Byers had famously dubbed the “capability-commitment gap.”

The Conservative government has unfortunately done little to fundamentally bridge this gap. For example, under its watch, Canada found itself without either naval replenishment ships or most of its destroyers, while efforts to replace both platforms have been consistently delayed. As a result, Canada will have to make do without either an independent blue-water replenishment capability or much of a capacity to protect a naval task force with area air defence, especially when the sole remaining Iroquois-class destroyer is finally retired.

Sadly, even if the process was fixed and platforms were finally acquired in a timely manner, the government’s procurement plans would not necessarily bridge this growing capability-commitment gap. With only two auxiliary ships planned for, the blue-water surface fleet would be left in dire straits indeed if a ship was ever damaged. The same could be said for the original proposal to procure 65 F-35s, which in terms of numbers would mean the Royal Canadian Air Force (RCAF) would be hard pressed to maintain its existing NORAD commitments at the same time that it deploys for operations abroad.

Rather than using Pierre Trudeau’s record to criticize the current Liberal leader, the government would do well to remember that it was under Trudeau that the military started their last major recapitalization effort – and that this only took place at a time of significant defence budget increases in the aftermath of the 1975 Defence Structure Review. The result can be seen in many of the platforms still being used by the CAF, such as the Halifax-class frigates now deployed in the Mediterranean or the CF-18s operating in Iraq/Syria and the Baltics.

To undertake an ambitious procurement plan at a time when the defence budget is being gradually eroded only sets oneself up for failure. The 2015 budget does little to alter this fact, at least in the absence of a more immediate and sizable infusion of resources. In that sense, it can be seen as ‘too little, too late.’ Sadly, we will likely have to mind the gaps in Canadian defence for some years to come.

The views expressed here are those of the author and do not necessarily represent the views of the CDA Institute.