McG has a useful point.
Now, with the programme 300 MCAD over budget, the programme can be folded and the SMP requirement blended into the LVM programme and relaunched as the LVM(M) to go along with the LVM (H) and LVM (L) programmes.
By the way... who decided there was enough change in the kitty to buy extra 500 MSVS-MilCOTS in the early stages of this project?
There are two issues here: Budgeted funds (department says "Hey, we've got money") vs expenditure authority (Government says "You can spend this much.")
So, my understanding is that the department identified more money to spend to buy more MilCOTS, and went back to Government to get increased expenditure authority. All is good - the money DND has earmarked is the same amount that the Government has approved to spend.
Now, for the SMP, over time, more requirements have been added - borrowing money from other projects (the department therefore has the money). However, the overall expenditure authority had not been raised - no one went formally back to Government to get it increased.
That's where the problem comes in - Government has only approved so much money for all the elements of the MSVS program (MilCOTS, SMP, shelters, project management). The proposed acquisition would have been within the funds DND has budgeted, but not within the amount Government had approved.
I think this is a case of poor sequencing - the proper sequence would have been to go back to Government, get approval for the increase in expenditure, then go out to industry.