Is Risk Aversion Actually Waning in Military Procurement?

Risk is the price you pay for opportunity – Tom Selleck

Did I actually just pen that subject line?

I have often opined that Canada enjoys the equivalent of master class status in terms of risk aversion, and I am not alone among observers in raising this concerns It is especially prevalent and damaging when dealing with very expensive weapons systems platform acquisition projects.

However, there have been two recent indications that the federal government may be opening a new chapter in this novella, both of which are in the shipbuilding bossiness. One relates to Polar Icebreakers for the Canadian Coast Guard (CCG), and a second involves the Canadian Patrol Submarine Project for the Royal Canadian Navy (RCN).

Admittedly the details in the public domain lack transparency, as briefings to the public seem to have been lacking outside of the announcements by the Minister of Public Services and Procurement Canada (PSPC). Nevertheless, there are indications that we should not ignore.

Polar Icebreakers – Sequentially on 7/8 March 2025, announcements were made about the award of construction contracts to Seaspan’s Vancouver Shipyards and Chantier Davie Canada Inc. valued at $3.15B and $3.25B to build polar-class icebreakers.

Over a decade ago, the Coast Guard provided a design concept to Vancouver-based STX Canada Marine which was supported by the Finnish engineering company Aker Marine. The output was provided soon after to Vancouver Shipyards, but other vessels deemed more urgent under the National Shipbuilding Strategy delayed dedicated design work. The announcement indicated that Seaspan completed the design in February 2024, with funding to the shipyard to that point totaling $1.12B.

As reported, Chantier Davie will leverage their acquisition of the Finnish shipyard in Helsinki to start production work on the hull of the future POLARMAX while implementing upgrades to their shipyard in Canada. This will also enable skills transfer to the workforce in Quebec, the Helsinki shipyard being renowned for decades for their icebreaker production expertise. When the announcement was made, Chantier Davie had received $14.3M, suggesting that they leveraged the Seaspan design but with modifications to address production technology and methods differences between the two yards.

The types of contracts being awarded are not specified by the government, nor are they usually made public. To over-simplify, these can be fixed price contracts or incentive-based, the latter being the preferred type of construction contract employed by our government for building large ships:

• Fixed price contracts typically mean that the supplier is liable for any budget overruns and liquidated damages for delays beyond the contracted terms. It is also routine in such contracts for there to be little insight or involvement by the customer in the work done. That said, the specified commercial construction standards must be met and are overseen by an independent standards regulator.
• Incentive-based contracts identify a target cost and delivery date, with the shipyard losing profit if they exceed the contractual target cost and delivery schedule but sharing in the savings if they are able to deliver under budget and/or early. Canada usually has significant insight throughout the contract work as supported by a detachment onsite.

Recently I watched a Davie video on LinkedIn on this project, as produced at the Helsinki shipyard. In the video, the CEO James Davies stated that the contract was fixed price, implying that the shipyard was more or less taking all the risk. Mr. Davies is rumoured to be a strong advocate of commercial practices such as fixed price contracts.

I do not have insight into the guardrails that Canada has included in the fixed price contract. We certainly would not sign a contract and show up 5 years later for the first time to inspect and man the ship. While taking more risk is desired, there are risk management techniques which better would assure adequate transparency as the ship is constructed, but without meddling in the shipyard’s program of work.

Drawing from a Policy Insights Forum paper published in February 2025 entitled ‘Treating Risks in Complex Projects’,  it would be prudent to have considered the following contractual requirements as a minimum in a fixed price contract for such a complex acquisition:

• Establish the milestones in the supplier’s integrated master plan where reporting is required against an agreed earned value management system.
• Ensure that you can audit the supplier’s advanced risk treatment system by an early milestone date.
• Identify the requirement to be apprised of emergent risks that are assessed as creating delays that breach one or more defined thresholds.
• Require a minimum of agreed collaboration protocols, but which fall short of joint working requirements.
• The offer of incentives can also be advantageous in such a fixed price contract.

One other risk is worth considering. Chantier Davie may face potential risks to their plan posed by an aggressive Russia, which could derail some degree of support from the Helsinki shipyard.

Canadian Patrol Submarine Project – This acquisition project was announced in the last Defence Policy statement ‘Our North, Strong and Free’. It has since been fast-tracked to meet the RCN’s requirements to replace the four Victoria Class submarines now in service with 12 modern replacements.

On 26 August 2025, the government announced that it ‘has identified German company Thyssen Krupp Marine Systems (TKMS) and Korean company Hanwha Ocean Co., Ltd. (Hanwha) as the 2 qualified suppliers’. Furthermore, it was stated that this selection was ‘informed by a thorough assessment of Canada’s requirements for the CPSP, including construction and delivery timelines for the new submarine fleet’, and that Canada also engaged ‘with other governments and militaries to exchange lessons learned and to gain insights into their respective submarine acquisitions, infrastructure and sustainment programs’.

The process between release of the Request for Information and qualification decision took about the usual one year so it is not clear that much time was saved in this initial step. But what did save years was the avoidance of process gaps for a myriad of reasons including changing priorities. Such things as lobbying and consideration relating to the National Shipbuilding Strategy, independent third party ‘honest brokers’ and other risk reduction diversions have been set aside, based on both the Prime Minister’s commitments and the persistence of the Commander of the RCN. This is not a project allowed to languish despite the plethora of risks involved.

What is also unusual from a risk point of view is that the government has settled on two submarine designs for a competition of some form. This introduces a degree of risk that in the past the government has avoided whenever possible. The concern is that one bidder would drop out late in the competition, leaving the remaining bidder with an advantage over Canada in the terms of any subsequent contract. In my experience, PSPC always preferred a minimum of three bidders.

Given the unstable geopolitical situations in Europe and in the Far East, it is not difficult to conjure up emergent scenarios during the bidding process – or even once a construction contract is awarded – that could create potential acquisition project completion challenges. Considering that 12 submarines will take a prolonged period to deliver, such an eventuality cannot be dismissed outright. . Canada may be insisting on the transfer of submarine construction to a Canadian location in time, but that too introduces not insignificant risks to delivery timelines.

One can expect that CPSP will do whatever it can to reduce the number of modifications required to the parent designs. However, this is not something that the Canadian Armed Forces has been inclined to do in the past. For that matter and if the rumours are true, such action may have plagued the River Class Destroyers.

Given the urgency of the RCN’s operational requirements, it may be appropriate after study to accept the first few boats with modifications limited to those that would be inappropriate to delay (e.g. modifying the hull design to meet range requirements between refueling). In addition, these could include design provisions for preferred equipment by the RCN to be ‘fitted for but not with’ the space and system connections for later installation. This would also allow time to perfect the major design changes the RCN requires. Such an approach may be preferable to rushing such modifications and/or delaying delivery of the first boats.

In terms of in-service support, it appears that the bidders may be required to establish qualified Canadian equipment suppliers over time, to reduce the risks during periods of potential disruptions to spares access and equipment factory maintenance as a result of far distant original equipment manufacturers. Such action would best be enabled by acquiring significant intellectual property rights for Canada to be effective, never an easy requirement to achieve.

About now you may be thinking that I am a ‘nut case’. I could be seen as supporting more risk aversion and offering the most pessimistic outcomes possible from the decisions taken. My lived and learned experience over 50 years tends to make me cautious about the risks one chooses to take or might emerge during the life of the project. Where these are major vulnerabilities to the plan, they would be best assessed with clear eyes and scenario analyses upfront. This involves two courses of action:

• For these risks you choose to take, appropriate guardrails are instituted, which include the monitoring of such risks throughout the life of the project to allow early implementation of workarounds.
• For those risks that might unexpectedly emerge in this VUCA world, workaround options for potentially disastrous scenarios are prepared.

To sum up, the ancient Greek story told by the Roman poet Ovid about Daedalus and Icarus reminds us that we must often take risks, but we must also always employ sensible precautions.

Let me finish with kudos to the government (especially PSPC) in embracing more risks, and apologies if I have missed important details published by Canada that have would confirmed that the risks discussed above are already being as well managed as possible.

And if I got the suggested contractual attributes wrong, it would be nice to hear from PSPC.