Question Period Note: National Shipbuilding Strategy

The National Shipbuilding Strategy (NSS) is a long-term commitment to renew the vessel fleets of the Royal Canadian Navy (RCN) and Canadian Coast Guard (CCG), create a sustainable marine sector, and generate economic benefits for Canadians.

• The NSS is about Canadians and Canadian businesses working together to strengthen and renew our Naval and Coast Guard fleets
  • So far, 4 large vessels have been delivered, and many more are under construction
  • We have awarded $17.49 billion in NSS contracts to businesses throughout the country
  • These contracts are estimated to contribute approximately $20 billion ($1.82 billion annually) to Canada’s gross domestic product, and create or maintain more than 16,930 jobs annually, through the marine industry and its Canadian suppliers and consumer spending, between 2012 to 2022
  • The NSS is a long-term investment that is delivering resulting now: ships for the Navy and the CCG and jobs and economic growth for Canada

Progress on current work

• At Seaspan’s Vancouver Shipyards, all 3 Offshore Fisheries Science Vessels have been delivered to the CCG, marking the completion of the first class of large ships built under the National Shipbuilding Strategy. Work is ongoing on the first Joint Support Ship. The Offshore Oceanographic Science Vessel construction contract was announced in February 2021 and construction began in March 2021. Early design work for the Multi-Purpose Vessels has commenced
• At Irving Shipbuilding, the first Arctic and Offshore Patrol Ship, the HMCS Harry DeWolf, was delivered and accepted by the RCN on July 31, 2020. Three other vessels are currently under construction. Design work on the Canadian Surface Combatant is advancing
• Irving Shipyard has reported some delays resulting from COVID-19; however, given the uncertainties associated with the duration of the pandemic, the full extent of these schedule impacts is unknown. Measures taken to mitigate these impacts include considerations to reduce layoffs and avoid delays
• PSPC has recently authorized Irving Shipbuilding to acquire design documentation from JSK Naval Support Inc. on the JSK Torpedo Launcher System selected by Lockheed Martin Canada for incorporation into the Canadian Surface Combatant design. JSK Naval Support Inc. is located in Pointe-Claire, Quebec
• PSPC is assessing marine infrastructure across the country to ensure the federal fleets can be sustained through the anticipated lifespan of the vessels built under the National Shipbuilding Strategy

If pressed on Offshore Oceanographic Science Vessel increased budget:

Note: Questions on budget, requirements, timelines, international comparisons, project management should be directed to the Minister of Fisheries and Oceans and the CCG.

• Original budgets for this project and other large vessel construction projects were set many years ago and were guided by limited experience and projections. Shipbuilding is highly complex and we continue to build on lessons learned to ensure future project projections are realistic and achievable
• The Government is committed to ensuring best value for money. We will continue to work closely with Vancouver Shipyards to manage the OOSV project within the allocated budget

If pressed on Canadian Surface Combatant project delays:

Note: Questions on budget, requirements, estimated timelines, international comparisons, project management should be directed to the Minister of National Defence.

• PSPC works with other departments to support effective, open and transparent processes that provide value for Canadians. The competitive process aims to get the best value for Canadians while enhancing access, competition and fairness
• Building a new class of ships is complex, and project timelines evolve as engineering and production schedules are developed during the design phase
• The construction of the first ship is now expected to begin in 2023/2024, and the first ship is expected to be delivered in the early 2030s
• We are working closely with our industry partners to find efficiencies and accelerate these timelines

If pressed on the Navantia CSC court challenge:

• With respect to Section 38 in the Navantia application for Judicial Review, this is a statutory obligation and not a discretionary decision by government officials
• Beyond this explanation of the application of Section 38, we are not able to comment on the matter as it is before the courts

If pressed on COVID-19 impact on shipbuilding:

• The Government of Canada is committed to protecting the health and safety of Canadians and keeping our workforces safe, while ensuring a safe and sustainable economic recovery
• Canada continues to monitor the situation, analyze potential impacts and explore all possible financial measures available to support the marine industry and protect Canada’s long term national security interests
• We are continually assessing the impact of COVID-19 on the delivery of ongoing and future major procurement projects, including those under the NSS

If pressed on the Report from the Office of the Auditor General (OAG) of Canada:

• We welcome the report of the Auditor General, and accept all of the recommendations. As the Auditor General acknowledges, shipbuilding is complex and challenging work, and we continue to seek opportunities to improve the Strategy
• We will continue to work closely with our shipyard partners so that ships can be delivered as quickly as possible and important economic benefits and jobs continue to be provided for Canada
• To date, the NSS has delivered 4 large vessels, while contributing an estimated $20 billion to the Canadian economy and creating and maintaining more than 16,930 jobs annually across the country between 2012 and 2022
• We made key decisions to place the NSS on a more viable path. Today, we have a much more evidence-based and reliable understanding of the time, effort and expenditures required to build world-class vessels

If pressed on Parliamentary Budget Officer report (Canadian Surface Combatant):

Note: Questions on budget, requirements, estimated timelines, international comparisons, project management should be directed to the Minister of National Defence.

• The Parliamentary Budget Officer’s report on the Canada Surface Combatant was published on February 24, 2021
• Over the past several years, significant progress has been achieved on the Canadian Surface Combatant project
• The competitive process used to select Canadian Surface Combatant has been fair, open and transparent and will ensure not only a capability-to-build that meets the RCN’s needs but also will strengthen Canada’s shipbuilding industry while generating jobs for many decades to come
• Since the Canadian Surface Combatant Definition contract was issued to Irving Shipbuilding Inc. in February 2019, the first phase of the design process has been substantially progressed and work continues on the next phase: preliminary design
• Progress and successes are being achieved. However, shipbuilding is highly complex, and we must continue to work with shipyards and industry to address ongoing challenges, including costs, estimated timelines and productivity

If pressed on the Parliamentary Budget Officer report (Joint Support Ship):

Note: Questions relating to vessel capabilities should be referred to the Minister of National Defence.

• The MV Asterix is meeting short-term requirements for basic at-sea replenishment duties, but is not equipped to conduct the full spectrum of military activities required by the RCN
• The Joint Support Ship will be able to carry out at-sea replenishment capabilities as well as the full spectrum of military activities required for the Navy’s operations
• The cost of the MV Asterix contract covers the provision of service over a limited number of years, and does not represent the cost of purchasing the ship outright
• The contract includes options to purchase, or to extend the MV Asterix Period of Service by up to 5 additional 1 year increments. The contractor must be notified at least 180 calendar days before the expiry date of the contract to exercise these options

If pressed on Esquimalt Graving Dock:

• The Government of Canada is committed to renewing vital marine infrastructure to support the long-term growth and development of our coastal communities in British Columbia and across Canada
• Esquimalt Graving Dock is a strategic asset that serves the federal fleet as well as supporting and strengthening the west coast industrial marine sector in a secure, public-owned, open-access, multi-user facility. The Government has no plans to build vessels at the facility
• Planning is underway to assess a potential expansion of the facility so that it can continue to accommodate existing and future federal fleet vessels, as well as other tenants that lease space for repair, refit, and maintenance
• The facility supports about 3,000 full-time highly-skilled, high-paying trades jobs, and is an economic generator for the local and regional economies, contributing close to one billion dollars of economic output and over $30 million in taxes to all levels of government

Third yard

• Chantier Davie has pre-qualified to become the third strategic partner under the NSS
• Canada and Chantier Davie are now going through the steps of the process which include a third-party assessment of the shipyard’s infrastructure, submission of a formal proposal, and a due diligence process to ensure the shipyard is financially capable of performing the work and making any necessary upgrades to its infrastructure
• Subject to successful negotiations, Canada intends to enter into an Umbrella Agreement with the third yard by late fall 2021
• The third yard will build 6 Program Icebreakers for the CCG
• The entire Invitation to Qualify process was overseen by an independent fairness monitor

Opportunities for other yards / Chantier Davie

• Across the country, opportunities exist for Canadian shipyards and businesses to win contracts for small vessel construction, repair, refit and maintenance
• On February 17, 2020, following and open and competitive process, we announced the awarding of a $12.1-million contract to Shelburne Ship Repair for a Vessel Life Extension on the CCGS Edward Cornwallis, soon to be renamed ‘Kopit Hopson 1752’, a high-endurance multi-tasked vessel and light icebreaker in the CCG fleet. This contract will help create or sustain approximately 100 jobs in Shelburne, Nova Scotia
• On July 21, 2020 the first Royal Canadian Navy frigate arrived at Chantier Davie for repair and maintenance. It is the first vessel to be re-furbished under 1 of the 3 Halifax Class Docking Work period contracts awarded to Chantier Davie (1 of the 3 shipyards selected for the work) in July 2019
• On August 26, 2020, following an open and competitive process, we announced the awarding of a $4-million contract to Heddle Shipyards for dry-docking work on the CCGS Griffon, a high-endurance multi-tasked vessel and light icebreaker in the CCG fleet. This contract will help create or sustain 80 jobs in Hamilton, Ontario
• On November 6, 2020, we announced the awarding of a $182-million contract to General Dynamics Mission Systems–Canada, of Ottawa, Ontario, for in-service support on 6 Halifax-class combat systems. The initial contract amount may increase over the next 6 years as work progresses, and will maintain up to 106 jobs
• An Advance Contract Award Notice (ACAN) signaling our intention to enter into a contract with Chantier Davie for required vessel life extension work on the CCGS Louis S. St-Laurent, Canada’s largest icebreaker, closed November 19, 2020. Chantier Davie has been identified as the only facility in Eastern Canada capable of performing this work during the specified time period. Contract award is anticipated for mid-summer 2021 with work scheduled to begin in spring 2022
• On December 24, 2020, the contract with Federal Fleet Services for provision of an interim Auxiliary Oiler Replenishment capability for the RCN was amended to $691.6 million. This amendment follows a thorough review of the budget forecast, as well as all costs incurred since MV Asterix was put into service, and remains within the approved budget ceiling for the program. This will provide the Navy the deployed operational support it needs for its assigned missions through the contract’s full 5-year service period
• Since 2012, Chantier Davie has been awarded more than $19 billion in NSS contracts. They are presently converting medium icebreakers for the CCG, and are undergoing a process to become the third shipyard under the NSS
• On March 18, 2021, following an open and competitive process, we announced the awarding of a $20.7-million contract to St. John’s Dockyard Limited (NewDock) for the Vessel Life Extension of the CCGS Roger and CCGS Cygnus, both offshore patrol vessels in the CCG fleet. This contract will help create or sustain approximately 40 jobs in St. John’s, Newfoundland

If pressed on the Polar Icebreakers:

• The government explored procurement options to ensure the Polar icebreakers are built in a timely manner to support the CCG
• A Request for Information was issued on February 28, 2020 to obtain information on domestic shipyard capability and capacity to build a Polar icebreaker which closed on March 13, 2020On May 6, 2021, the Government of Canada announced that it will move forward with the construction of 2 Polar icebreakers
• Seaspan’s Vancouver Shipyards will engineer and construct one vessel while the other will be engineered and constructed at Chantier Davie, pending the successful completion of the ongoing selection process to select it as the third strategic partner for large ships construction under the NSS

If pressed on the Chantier Davie National Icebreaker Center:

• The Government of Canada is not involved with the Chantier Davie National Icebreaker Center, and the Center is not a part of the NSS

If pressed on Interim Icebreaker Capacity for CCG:

• The current value of the contract with Davie for the acquisition and conversion of the 3 medium icebreakers is $843 million (including taxes)
• The first vessel began operations in December 2018, the second vessel CCGS Jean Goodwill was delivered to the CCG in November 2020 and the third vessel CCGS Vincent Massey is expected in 2021

If pressed on Emergency Towing Vessels:

• A three-year contract worth $67 million was awarded to Atlantic Towing Ltd. of Saint John, New Brunswick, for the services of 2 fully-crewed Emergency Towing Vessels
• PSPC is currently reviewing the Federal Court of Appeal judicial decision delivered on February 10, 2021, regarding complaint 5 to the Canadian International Trade Tribunal challenging contract award to Atlantic Towing Ltd.
• The contract with Atlantic Towing remains in place given the importance of the services provided by the Emergency Towing Vessels in the context of Canada’s Oceans Protection Plan

Canadian Surface Combatant – Navantia Court Challenge

Navantia was an unsuccessful bidder for the competitive Canadian Surface Combatant Request for Proposals which was won by Lockheed Martin Canada. Navantia has applied to the Federal Court for a Judicial Review of the results of the bid evaluation.

Navantia contends the BAE Type 26 ship selected for the Royal Canadian Navy's new fleet failed to meet Canada's requirements.

As part of the judicial process, the Attorney General of Canada received notice under Section 38.01 of the Canada Evidence Act that sensitive or potentially injurious information was contained in the Certified Tribunal Record. On January 20, 2021, the Attorney General of Canada filed a confidential section 38 Canada Evidence Act application in Federal Court. When filing this application the Attorney General of Canada expected that the application would be made public.

With respect to Section 38 in the Navantia application for Judicial Review, this is a statutory obligation and not a discretionary decision by government officials.

Section 38.01 requires every participant in a proceeding to advise the Attorney General in writing where there is a possibility of disclosure of sensitive or potentially injurious information.

Beyond this explanation of the application of Section 38, the Government is not able to comment on the matter as it is before the courts.

Canadian Surface Combatant – Parliamentary Budget Officer Report

The Canadian Surface Combatant project represents the largest procurement under the NSS and is part of the work package to be built by Irving Shipbuilding Inc. The 15 CSC will replace the Royal Canadian Navy’s existing fleet of frigates and retired destroyers at an estimated cost of $56 billion to $60 billion.

The Parliamentary Budget Officer (PBO) reported on the CSC projected costs in 2017 and 2019. In 2017, the PBO estimated the cost of 15 CSCs at $61.82 billion. In 2019, the PBO revised the cost to $69.8 billion. While the final design and build strategy is yet to be completed, the PBO observed that project delays would further increase the cost of the project.

The PBO published a report on February 24, 2021, entitled “The Cost of Canada's Surface Combatants: 2021 Update and Options Analysis” that now estimates the cost of the CSC project at $77.3 billion. The PBO also provides cost forecasts for alternative procurement scenarios that assume a 4-year delay to the overall project should a new design be selected to replace the Type 26.

Esquimalt Graving Dock

Other Canada-owned graving docks were divested in the 1990s as part of the effort to divest of over 30 engineering assets and well over 100 marine assets as a result of the Nielsen Report (Government of Canada Program Review) in 1985.

Esquimalt Graving Dock was removed from the 1985 direction to divest in 2008 as it was recognized as a key strategic asset for federal fleet sustainment, as well as for support of the west coast industrial ship repair industry. Tenant ship repair companies at the Dock repair and sustain not only Royal Canadian Navy frigates, but cruise ships, domestic barges/tugs, BC Ferry vessels, and cargo tote ships among others.

The purpose of the planned expansion is to ensure the federal fleet can be sustained well into the future. With redevelopment, the facility would be able to accommodate existing and future federal fleet vessels. The redevelopment would also attract additional tenants and add hundreds of highly-paid, skilled trades jobs, and reduce ‘whole of government’ costs to sustain federal fleets.

In parallel with planning and decisions to be made regarding redevelopment, PSPC is again examining the fee structure – both leases and dock charges under the EGD Regulations – which it reviews periodically, to ensure the rates are fair and contribute to a financially sustainable facility. An independent study will provide options for the revenue model to PSPC in early 2022. Once an option is selected, PSPC will launch a full consultation process, review rates and undergo the regulatory process. The review is expected to take 3 years to complete.

An amount of $3 billion for the redevelopment has been quoted in the media in winter 2021 – this information is incorrect. The cost of the redevelopment is under assessment.

Contracts under the National Shipbuilding Strategy

From 2012 to the end of 2020, the Government signed approximately $17.49 billion in new NSS contracts throughout the country. In terms of economic impacts of the NSS, since its inception, NSS contracts are estimated to contribute approximately $20 billion ($1.82 billion annually) to Canada’s gross domestic product, and create or maintain, more than 16,930 jobs, annually, through the marine industry its Canadian suppliers and consumer spending, between 2012 and 2022.

National Shipbuilding Strategy contracts awarded from 2012 to the end of 2020

Irving Shipbuilding: $5.11 billion

Vancouver Shipyards: $4.41 billion

Chantier Davie: $2.19 billion

Other shipyards/Companies: ‎$5.78 billion

National Shipbuilding Strategy contracts awarded by province to the end of 2020 (Total $17,493,335,911)

• Alberta
• Total Contract Value: $22,528,362

• Percentage of Grand Total Contract Value: 0.129%

• British Columbia

• Total Contract Value: $5,708,632,291

• Percentage of Grand Total Contract Value: 32.633%

• Manitoba

• Total Contract Value: $701,877

• Percentage of Grand Total Contract Value: 0.004%

• Newfoundland and Labrador

• Total Contract Value: $216,917,382

• Percentage of Grand Total Contract Value: 1.240%

• Northwest Territories

• Total Contract Value: $1,731,755

• Percentage of Grand Total Contract Value: 0.010%

• Nova Scotia

• Total Contract Value: $5,418,361,632

• Percentage of Grand Total Contract Value: 30.974%

• Ontario

• Total Contract Value: $3,618,548,097

• Percentage of Total Contract Value: 20.685%

• Quebec

• Total Contract Value: $2,505,914,515
• Percentage of Total Contract Value: 14.325%

Project budgets and delivery dates

Vessel: Offshore Fisheries Science Vessels (OFSV)

• OFSV 1 (delivery date: June 27, 2019)
• OFSV 2 (delivery date: November 29, 2019)
• OFSV 3 (delivery date: October 9, 2020 )

Budget: $788.5 million

Vessel: Joint Support Ship (JSS)

• JSS 1 (delivery date: 2023)
• JSS 2 (delivery date: 2025)

Budget: $4.1 billion

Vessel: Offshore Oceanographic Science Vessel (OOSV)

Delivery date: 2024

Budget: $996.5 million*

*Includes $453.8 million for OOSV build contract, announced February 18, 2021.

Vessel: Arctic and Offshore Patrol Ship (AOPS)

• AOPS 1 (delivery date: July 31, 2020)
• AOPS 2 (delivery date: Spring 2021**)
• AOPS 3 (delivery date: Spring 2022**)
• AOPS 4 (delivery date: Winter 2023**)
• AOPS 5 (delivery date: Winter 2024**)
• AOPS 6 (delivery date: Fall 2024**)
• AOPS 7 (delivery date: Summer 2025**)
• AOPS 8 (delivery date: Spring 2026**)

AOPS 1 to 6 budget: $4.3 billion

AOPS 7 and 8 budget: $1.5 billion (estimate)

**Incorporates current estimated delays due to COVID-19. For AOPS 2 to 6, there is also a 3-month risk window in addition to these targets due to continued uncertainty surrounding the pandemic.

Vessel: Canadian Surface Combatant (CSC)

Delivery date: 15 CSCs beginning early 2030s

Budget: $56 to 60 billion (estimate)

Vessel: Multi-Purpose Vessel (MPV)

Delivery date: Up to 16 MPVs starting in late 2020s

Budget: $14.2 billion (estimate)

None