Planned Capital Spending under Strong, Secure, Engaged: 2020 Update

The Government of Canada’s 2017 Defence Policy, Strong, Secure, Engaged (SSE), called for significant increases in funding for the Department of National Defence (DND). In total, the policy projected departmental expenditures of $553 billion over 20 years, beginning in 2016–17. An estimated $164 billion, calculated on a cash basis, was earmarked for the development and acquisition of capital equipment.

The PBO has been monitoring SSE’s planned capital spending with the support of DND. In 2018 the PBO received financial projections for 329 capital projects planned under SSE. This snapshot accounted for all major projects with planned or ongoing spending. [1] In addition, the PBO received updates on planned cash expenditure for 24 projects in July 2019 and 23 projects in June 2020. [2],[3]

SSSE Project and Cash Flow Updates
Table 1-1
Number of Projects 20 Year Cash Flow Total (Billion)
Total, 2018 Snapshot 329 $144.7
Total, 2018 Snapshot with 2019 Updates 330 $147.9
Total, 2018 Snapshot with All Updates 330 $149.7
Source: PBO, DND
Note: Cash profile only.

Totalled, the PBO has received updated information on the expenditure profiles of 45 of the 330 unique projects currently tracked in SSE, representing approximately $48 billion of the $144.7 billion total tracked SSE capital expenditure. This total planned increase of $5.1 billion represents 3.5% cumulative growth over the 20-year period.

SSE 20-year Planned Cash Flow
Figure 1-1
Source: PBO, DND

Figure 1-1 illustrates that DND’s most recent planned capital expenditures across the 20-year period roughly follow the initial projections. It is important to note that all figures are the aggregation of investment plans for individual projects and do not reflect actual expenditures, even for past years.

Capital Expenditures and the Estimates

All DND capital expenditures are approved under Vote 5 of the Estimates. [4] Spending less than requested in the Estimates, commonly known as lapsed spending, is a regular occurrence for DND and other departments. Lapses in spending do not necessarily result in a decrease in planned long term spending; rather, the SSE policy itself acknowledged the potential need to occasionally adjust, or re-profile, accrual funding as a result of inevitable changes in project scope, delays in project schedules, and changes to cost estimates. [5]  

Figure 1-2 illustrates the gap between Vote 5 capital spending approved in the Estimates (“Authorities Available for use”) and actual expenditures. Planned SSE capital expenditures for 2017-18 through 2020-21 are included for comparison. While actual expenditures have risen both nominally and as a percent of authorities available for use, they are well below the SSE spending plan provided to the PBO. One potential explanation for this phenomenon is that DND does not provide updates to projects until their new funding profiles have obtained all necessary approvals from government agencies. As a result, the planned SSE capital expenditures reported to the PBO are not fully reflective of each project’s current status.

DND Capital Expenditures; Approved, Actual, and Planned under SSE
Figure 1-2
Source: Public Accounts of Canada, DND
Note: The 2020-21 “Authorities available for use” include only the main estimates. DND often requests additional funding in the supplementary estimates.

The 2020-21 main estimates remain in line with historic spending, and well below the SSE spending plan. Despite this trend, DND’s 2018-19 departmental plan stated that 81% of capital equipment projects remain on their approved schedules.

Lacking updates on the full suite of SSE projects, it is not possible for the PBO to reconcile SSE’s capital expenditure plan against actual amounts reported in the Public Accounts. The PBO will continue to work with DND in order to monitor SSE capital expenditures.

 

[1] The PBO did not receive information on minor capital investments (projects under $5m) and cannot reconcile project spending with the $164 billion in total capital expenditures cited in SSE.

[2] There were two projects for which the PBO received updates for in both years.

[3] The Department of National Defence provided this data to the PBO in response to information requests IR0351, IR0427, and IR0446.

[4] See the Library of Parliament’s Parliamentary Financial Cycle research paper for an explanation of the process.

[5] See Strong, Secure, Engaged pages 98-100 for discussion on reasons for, and examples of, project reprofilings.