Backgrounder - Understanding the cost of the Joint Support Ship project

Together with the Canadian Surface Combatant and the Arctic and Offshore Patrol Ships, Canada’s two new Joint Support Ships (JSS) will form the core of the future Royal Canadian Navy’s (RCN) surface fleet.

Together with the Canadian Surface Combatant and the Arctic and Offshore Patrol Ships, Canada’s two new Joint Support Ships (JSS) will form the core of the future Royal Canadian Navy’s (RCN) surface fleet. In addition to equipping the RCN with the ships it needs to maintain its critical defence capability, their construction represents an important contribution to the Government of Canada’s efforts to revitalize the Canadian shipbuilding industry.

Shipbuilding is a complex and highly specialized undertaking that requires significant time, effort, and monetary investment, particularly for a first-of-class vessel. As with any large-scale procurement, it is not uncommon for the estimated value to change throughout the duration of the project.

Doing the math

Several different factors are taken into consideration when calculating an estimated project value, including:

• Known costs - These include current market costs for material, equipment, labour and project management required to build the ships. While these costs reflect what data and information is available at the time, it is important to note that minimal data about comparable domestic large-ship building costs was available as Canada had not built a warship at home in more than 20 years and is working to rebuild its industry.
• Unknown costs - Each budget estimate includes contingency funding to account for risks associated with the project, such as rising material costs and labour requirements, and delays. While these factors form a critical part of the budget estimate, it is difficult to accurately account for potential unforeseeable events until they occur. This could include changes in suppliers if a company is no longer able to provide a specific part or material(s), delays in transportation of material imported from other countries, or changes in work conditions.
• Comparable estimates for similar projects - Where possible, data from similar projects is used to inform budget estimates, although it is difficult to effectively compare figures, as different project budgets include different components. For example, the current JSS project value accounts for the entire project, from the very start when the project management office was established, all the way through to the final delivery of the ships and project close-out costs. This also includes the total cost to design and build the ships, as well as all associated costs for bringing them into service. Finding comparable costs can be challenging, as many other countries only take into account costs for the construction of ships, such as the cost estimates provided for Germany’s Type-702 Berlin-class ship.
• Maturity of design - The design phase is when functionality and components required for the ship are determined. These can only be identified once the design has progressed far enough. As a result, it is not uncommon for the cost of these features to evolve as ship design work continues. The JSS is using a hybrid design-then-build approach, which is allowing construction of early build blocks to continue while design work of more complex ship blocks is finalized, helping to maintain the construction schedule. At this time, the project is in its final stages of design work, and its advanced state has provided greater clarity on the associated costs for full-rate construction.
• Rate of production - Unlike the production of aircraft or tanks, ships are produced in smaller numbers and cannot benefit to the same extent from automated production processes. Instead, they require highly specialized work performed by skilled labourers, and potentially millions of hours of labour per ship.

Estimated project cost breakdown

The following is a general breakdown for the Joint Support Ship project.

Acquisition of two JSS	$3.1 billion	Purchase of two new JSS and initial spares, including all material, equipment, labour costs, and financial incentives based on achieving predetermined milestones. Three associated contracts were awarded to Seaspan Vancouver Shipyards to support construction: acquisition of long lead items; early block build; and full-rate construction.
Supporting costs	$1 billion	Includes all supporting design and production engineering work for the ships, project management and associated contingency costs. Also includes historical costs associated with the project leading up to the start of design, including options analysis.
Estimated total project cost	$4.1 billion	Cumulative cost for acquiring and bringing the two new JSS into service.
In-service support budget	$5.2 billion (cost shared with AOPS)	The Arctic and Offshore Patrol Ship (AOPS) and Joint Support Ship In-service Support Contract (AJISS) will provide support for up to 35 years. This support contract is being managed as part of a separate project, with its own budget.

The bottom line

While the cost for the acquisition of the JSS is significant, investing in these new ships will provide an invaluable operational capability to the RCN, and significant investment in local economies from coast to coast. The Department of National Defence remains confident that the refined total project value accurately represents the current cost for the acquisition of these two ships, and all associated costs for equipment, tools, and project oversight required to build and bring them into service. The estimated cost will remain under close review throughout the duration of this project to ensure that the best value is provided to Canadians.