Question Period Note: National shipbuilding strategy

About

Reference number:
PSPC-2022-QP-00009
Date received:
Jun 9, 2022
Organization:
Public Services and Procurement Canada
Name of Minister:
Tassi, Filomena (Hon.)
Title of Minister:
Minister of Public Services and Procurement

Issue/Question:

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.

Note: Questions on budget, requirements, timelines, international comparisons, and project management should be directed to responsible ministers, the Minister of Fisheries and Oceans and the Canadian Coast Guard or the Minister of National Defence, as appropriate

Suggested Response:

  • The National Shipbuilding Strategy is about Canadians and Canadian businesses working together to strengthen and renew our Naval and Coast Guard fleets
    • So far, 5 large vessels and numerous small ships have been delivered, and many more are under construction across Canada
    • We will continue working closely with industry to manage cost and schedule and ensure the best value is provided to Canadians throughout the duration of these projects
    • As of December 31, 2021, we have awarded over $21 billion in contracts under the National Shipbuilding Strategy to businesses across the country and of these, close to $1 billion went to small businesses with less than 250 employees
    • National Shipbuilding Strategy contracts awarded between 2012 and 2021 are estimated to contribute close to $21.26 billion ($1.93 billion annually) to Canada’s gross domestic product, and create or maintain 18,239 jobs annually between 2012 and 2022
    • The National Shipbuilding Strategy is a long-term investment that is delivering results now: ships for the Navy and the Canadian Coast Guard and jobs and economic growth for Canada

If pressed on Irving Shipbuilding infrastructure:

  • We remain committed to working with our shipbuilding partners to ensure NSS projects are delivered in a timely and efficient manner
  • This includes continuously assessing potential risks facing shipbuilding projects, and putting in place effective mitigation strategies where needed

If pressed on the Third Yard:

  • The Government of Canada remains committed to delivering on the Canadian Coast Guard’s fleet renewal plan, which includes selecting a third shipyard as a strategic partner under the National Shipbuilding Strategy to support this work
  • Following the successful completion of the Request for Proposal and evaluation stage, Canada will now begin negotiations with Chantier Davie for an umbrella agreement to become the third strategic shipbuilding partner under the National Shipbuilding Strategy
  • Pending successful negotiations, an Umbrella Agreement is expected to be in place with the shipyard by the end of 2022
  • The third shipyard will build 1 of 2 Polar Icebreakers and 6 Program Icebreakers for the Canadian Coast Guard
  • Contracts for each project will be negotiated with the shipyard following the signature of an Umbrella Agreement
  • This is a complex, multi-step qualification process and it is imperative that we get it right, therefore we are making every effort to finalize this process while ensuring value for the Government of Canada and all Canadians

If pressed on the Polar Icebreakers:

  • On May 6, 2021, the Government of Canada announced its intention to move forward with the construction of 2 Polar Icebreakers
  • Seaspan’s Vancouver Shipyards will engineer and construct one vessel while the other vessel 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 ship construction under the National Shipbuilding Strategy

If pressed on the Navantia CSC court challenge:

  • In the Navantia application for Judicial Review, the Attorney General of Canada had a statutory obligation to file a notice pursuant to Section 38 of the Canada Evidence Act because of the documents requested; it was 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 reports from the Office of the Auditor General of Canada and the Parliamentary Budget Officer:

  • Shipbuilding is complex and challenging work, and we continue to make improvements to ensure we meet the important objectives of the National Shipbuilding Strategy
  • The Auditor General and the Parliamentary Budget Officer have both tabled reports that offered recommendations and perspectives that will guide our work going forward
  • As with all large-scale procurement projects, the cost and timelines for National Shipbuilding Strategy projects will be closely managed, and we will continue working closely with industry to ensure the best value is provided to Canadians throughout the duration of these projects
  • The Government of Canada remains committed to the National Shipbuilding Strategy, and we are working hard to ensure it continues delivering important benefits for Canada

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
  • Due to COVID-19, several defence procurement projects have slowed, including the construction and maintenance of ships/submarines
  • We are continually assessing the impact of COVID-19 on the delivery of ongoing and future major procurement projects, including those under the National Shipbuilding Strategy

If pressed on ‘excusable delay’ requests:

  • In order for Canada to consider excusable delays, certain conditions set out in the contracts must materialize, including a requirement for contractors to notify Canada and to submit a work around plan
  • Therefore, in the specific context of COVID-19, contractors wishing to submit an excusable delay claim to Canada should review their contracts and proceed in accordance with the provisions they contain

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 under the National Shipbuilding Strategy, as well as other tenants that lease space for repair, refit, and maintenance
  • The facility supports about 3000 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

If pressed on National Shipbuilding Strategy communications:

  • Given the significance of the National Shipbuilding Strategy, both from an investment and outcome perspective, ongoing communication efforts have been undertaken to provide Canadians with information about the Strategy and its progress
  • As part of this effort, on January 7, 2022, Public Services and Procurement Canada sent an email to various stakeholders asking if they would be interested in receiving information about the National Shipbuilding Strategy, so that, if they chose, they could share this material via their social media networks, publications or other venues
  • Contrary to what some have suggested, there was no offer, nor intent, to pay for any of this information sharing and furthermore, our expectation was that all information shared through this initiative would be clearly labelled as coming from the Government of Canada, so as to avoid any confusion regarding authorship
  • The National Shipbuilding Strategy is a long-term endeavour, and we will continue to seek opportunities to communicate openly and transparently about this important initiative

Background:

Progress on current work

Seaspan’s Vancouver Shipyards

  • All 3 Offshore Fisheries Science Vessels have been delivered to the Canadian Coast Guard (CCG), marking the completion of the first class of large ships built under the NSS. All 3 of the ships are now in-service with the CCG. As new equipment and systems are being operated for the first time, technical issues have arisen and have required repairs. The CCG is monitoring the situation closely
  • Work is ongoing on the first Joint Support Ship, and construction of the second ship began in May 2022
  • Construction of one Offshore Oceanographic Science Vessel began in March 2021
  • Early design work for the Multi-Purpose Vessels and the Polar Icebreaker has commenced

Irving Shipbuilding Inc.

  • Canada’s lead Arctic and Offshore Patrol Ship, the HMCS Harry DeWolf, was delivered and accepted by Canada on July 31, 2020 and the ship was commissioned into the RCN on June 26, 2021
  • The second Arctic and Offshore Patrol Ship, future HMCS Margaret Brooke, was delivered and accepted by the RCN on July 15, 2021
  • Three Arctic and Offshore Patrol Ships for the Royal Canadian Navy are currently under construction, including the third Arctic and Offshore Patrol Ship, the HMCS Max Bernays, which was launched on October 23, 2021, and is expected to be delivered in summer 2022
  • Cut steel for Arctic and Offshore Patrol Ship 6 is targeted to begin in August 2022
  • Design work on Arctic and Offshore Patrol Ships 7 and 8 for the Canadian Coast Guard is also advancing
  • Design work on the Canadian Surface Combatant is advancing and is now in Preliminary Design Review

Chantier Davie Canada Inc.

  • From 2012 to end of December 2021, Chantier Davie was awarded approximately $2.26 billion in NSS contracts
  • The shipyard is presently undergoing a process to become the third shipyard under the NSS
  • Chantier Davie is also converting 3 medium icebreakers for the Canadian Coast Guard. The first vessel, CCGS Captain Molly Kool, began operations in December 2018, and the second vessel, CCGS Jean Goodwill, was delivered to the Canadian Coast Guard in November 2020. The third vessel, CCGS Vincent Massey, is expected to be in service in summer 2022
  • On July 21, 2020 the HMCS St. John’s arrived at Chantier Davie for repair and maintenance. It is the first vessel to be re-furbished under the Halifax Class Docking Work period contract awarded to Chantier Davie in July 2019. The work with HMCS St. John’s continues and is expected to be completed later in 2022
  • On March 8, 2022, the Government announced that a $14.36-million contract ($16.5 million including taxes) was awarded to Chantier Davie for vessel life extension work on the CCGS Louis S. St-Laurent, Canada’s largest icebreaker. This follows an Advance Contract Award Notice issued on October 29, 2020, in which Canada signaled its intention to enter into a contract with Chantier Davie. The shipyard was identified as the only facility in Eastern Canada with a dry dock large enough to perform this work. Work began in April 2022 and will include inspections, regulatory maintenance and equipment upgrades to extend the operational life of the CCGS Louis S. St-Laurent until a new ship comes into service. The scheduled work will take place over a 5-month dry-docking period in 2022

Parliamentary Budget Officer Report on Polar Icebreakers

On December 16, 2021 the Parliamentary Budget Officer (PBO) released a report on the Fiscal Analysis of the Polar Icebreaker Project. According to their independent estimate, the project cost of the Polar Icebreakers is approximately $7.25 billion (excluding tax). PBO estimates that construction for the first of the two ships will begin within the 2023-2024 fiscal year, with the second beginning in the 2024-2025 fiscal year.

Third yard

On May 22, 2019, the Government of Canada announced its intention to add a third Canadian shipyard as a partner under the National Shipbuilding Strategy (NSS), and on August 2, 2019, Canada launched the competitive process to select the new shipyard.

On May 6, 2021, the Government of Canada announced it was moving forward with the construction of 2 polar icebreakers under the NSS. Seaspan Shipyards in Vancouver, British Columbia, will build one of the polar icebreakers, while the other will be built at Chantier Davie in Lévis, Quebec, pending the successful completion of the ongoing selection process.

On July 14, 2021, the Government of Canada announced it had received Chantier Davie’s supporting materials to become the third shipyard under the NSS.

On June 8, 2022, the Government of Canada announced that it will begin negotiations with Chantier Davie for an umbrella agreement to become the third strategic shipbuilding partner under the NSS. Pending successful negotiations, an agreement is expected to be in place by the end of 2022.

Chantier Davie submitted a proposal as part of the Request for Proposal process for the selection of a third shipyard. This included a third-party assessment of the shipyard’s infrastructure; submission and evaluation of a formal proposal from the shipyard; and a due diligence process to ensure the shipyard is financially capable of performing the work and making any necessary upgrades to its infrastructure.

Chantier Davie will continue work under programs such as medium icebreakers conversions, Halifax-Class Work Period Contract, and Transport Canada ferries in parallel with the third shipyard selection process.

Increased budgets and project delays

Original budgets for 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 budget and timeline projections are realistic and achievable. We continue to work closely with the shipyards and industry to address ongoing challenges, including costs, estimated timelines and productivity.

Maritime Infrastructure

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 3,500 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 $33 million in taxes to all levels of government.

Opportunities for other shipyards

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 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 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
  • On September 23, 2021, following and open and competitive process, we awarded a $12.2-million (including taxes) contract to Heddle Marine Shipyard for a Vessel Life Extension on the CCGS Amundsen, a medium icebreaker that is also charted by a scientific consortium during the summer. This contract will help create or sustain approximately 100 jobs in Port Weller, Ontario
  • On October 5, 2021, following an open and competitive process, we awarded more than $77 million (including taxes) for 4 regional contracts for the Vessel Life Extension of the CCG’s Motorized Life Boats. These companies are Hike Metal Products Ltd. of the Great Lakes region, Industries Ocean Inc. of the Quebec region, ABCO Industries Inc. of the Atlantic region, and Ocean Pacific Marine of the Western region

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 challenging the award to Lockheed Martin Canada and the evaluation of its bid.

Navantia contends that the design proposed by Lockheed Martin Canada, based on the BAE Type 26 ship, failed to meet the requirements of the Request for Proposal such that its bid was improperly evaluated and the contract improperly awarded.

As part of the Judicial Review, Navantia sought disclosure of documents that contained sensitive or potentially injurious information. The Attorney General of Canada filed a Section 38 Canada Evidence Act application in Federal Court on January 20, 2021.

The Attorney General of Canada had a statutory obligation to file the Section 38 application, and it was not a discretionary decision made 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.

Impact of COVID-19 on shipyard operations

Irving Shipbuilding

In response to COVID-19, Irving Shipbuilding Inc. (ISI) suspended most industrial operations as of March 20, 2020, with special measures for working from home or within ISI’s offices implemented where possible. Most of the workforce is now back in the shipyard while also ensuring physical distancing. COVID-19 safety measures have been implemented, including temperature screening for all individuals entering the site.

ISI is working at reduced levels due to COVID-19, with inefficiencies stemming from social distancing, staggered shifts, and challenges related to supply chain/vendor support. In spite of these challenges, important milestones have been reached. Delivery and acceptance of the first Arctic and Offshore Patrol Ship (AOPS) took place in July 2020, followed by completion of maintenance of the HMCS Charlottetown in March 2021, and delivery and acceptance of AOPS 2 in July 2021. ISI has indicated a delay to future AOPS due to COVID-19 related disruptions and other slippage, with these timelines at least partly dependent on whether COVID-19 measures are continued or enhanced.

Vancouver Shipyards

Operations at Vancouver Shipyards (VSY) continue during COVID-19 but are being closely monitored. A number of non-production staff have returned to the office while others continue to work from home. Measures being taken include following self-isolation guidelines, additional social distancing measures, cancelling large gatherings and increased cleaning. VSY has been working closely with WorkSafeBC in implementing these practices, and has adjusted and escalated actions in response to new regulations and guidance.

This approach has allowed VSY to continue construction at a reduced rate of production for the first Joint Support Ship (JSS) and final Offshore Fisheries Science Vessel, the latter of which was delivered in October 2020. However, VSY has experienced significant COVID-19 impacts during the more recent waves of the pandemic which is affecting schedule and costs of the JSS and Offshore Oceanographic Science Vessel. VSY is working to mitigate these impacts.

Chantier Davie

On March 24, 2020, in response to COVID-19, the Quebec Government published a list of essential industrial sectors, under which Chantier Davie qualified. Chantier Davie has conducted on-site training for dealing with COVID-19, implemented a set of strict directives, and negotiated with their union to maintain intact squads instead of rotating employees through different teams. Nonetheless workforce numbers and capacity have diminished to accommodate social distancing.

Contracts under the National Shipbuilding Strategy

From 2012 to December 31, 2021, the Government awarded approximately $21.05 billion in new NSS contracts throughout the country. Of these contracts, $979.59 million went to small businesses with less than 250 full-time employees. In terms of economic impacts of the NSS, contracts awarded in the period of January 1, 2012 to December 31, 2021 are estimated to contribute close to $21.26 billion ($1.93 billion annually) to GDP, and create or maintain close to 18,239 jobs annually, through the marine industry and its Canadian suppliers between 2012 and 2022.

National Shipbuilding Strategy contracts awarded from 2012 to 2021

  • Irving Shipbuilding - $6.52 billion
  • Vancouver Shipyards - $5.26 billion
  • Chantier Davie - $2.26 billion
  • Other shipyards/Companies - $7.01 billion

National Shipbuilding Strategy contracts awarded by province from 2012 to December 31, 2021

  • Alberta had a total contract value of $27,460,551 with 0.13% of the grand total contract value
  • British Columbia had a total contract value of $6,579,275,879 with 31.26% of the grand total contract value
  • Manitoba had a total contract value of $4,623,463 with 0.02% of the grand total contract value
  • Newfoundland and Labrador had a total contract value of $265,835,525 with 1.26% of the grand total contract value
  • Northwest Territories had a total contract value of $2,084,586 with 0.01% of the grand total contract value
  • Nova Scotia had a total contract value of $6,885,627,596 with 32.71% of the grand total contract value
  • Ontario had a total contract value of $4,672,792,760 with 22.20% of the grand total contract value
  • Quebec had a total contract value of $2,611,621,889 with 12.41% of the grand total contract value
  • The grand total contract value is $21,049,332,249

Large ships and their status

  • Arctic and Offshore Patrol Ships (AOPS): 6 vessels (AOPS 1 to 6) for the Royal Canadian Navy (RCN) (note: the ongoing COVID-19 pandemic will have an impact on project timelines, the extent of which has not yet been fully determined)
    • First 2 AOPS delivered to RCN in July 2020 and July 2021; next 3 AOPS under construction with AOPS 3 delivery expected in summer 2022 and cut steel for AOPS 6 targeted in August 2022
    • Project budget: $4.3 billion
  • AOPS: 2 vessels (AOPS 7 and 8) for the Canadian Coast Guard (CCG) (note: the ongoing COVID-19 pandemic will have an impact on project timelines, the extent of which has not yet been fully determined)
    • Work underway to modify design to meet CCG requirements
    • Project budget: $1.5 billion (estimate)
  • Canadian Surface Combatants (CSC): 15 vessels for the RCN
    • Currently in Preliminary Design phase
    • Project budget: $56 - $60 billion (estimate)
  • Joint Support Ships (JSS): 2 vessels for the RCN (note: the ongoing COVID-19 pandemic will have an impact on project timelines, the extent of which has not yet been fully determined)
    • Both JSS under construction
    • Project budget: $4.1 billion
  • Multi-Purpose Vessels (MPV): Up to 16 vessels for the CCG
    • Construction is expected to begin in the mid-2020s
  • Project budget: $14.2 billion (estimate)
  • Offshore Fisheries Science Vessels (OFSV): 3 vessels for the CCG
    • All 3 vessels delivered to the CCG in 2019-2020, marking completion of first class of large ships built under NSS
    • Project budget: $788.5 million
  • Offshore Oceanographic Science Vessel (OOSV): 1 vessel for the CCG
    • Construction started in March 2021
    • Project budget: $966.5 million
  • Polar Icebreakers: 2 vessels for the CCG
    • Engineering and construction of 2 Polar Icebreakers announced in May 2021
    • Project budget: To be determined

Marine services and small vessels and their status

  • Several key marine service contracts
    • AOPS/JSS In-Service Support (AJISS) contract – estimated at $5.2 billion for up to 35 years
    • Halifax-class Frigates Maintenance – up to $7.7 billion; work on the first vessel HMCS St. John’s was completed in spring 2022; the second East coast frigate, HMCS Toronto, arrived at Chantier Davie for repair and maintenance on May 4, 2022
    • Competitive process underway to extend the contract for the maintenance and support of approximately 70 Minor Warship Auxiliary Vessels ranging from small boats to the Maritime Coastal Defence Vessels and associated equipment
  • Repair, refit and maintenance work completed and underway
    • Following an open and competitive process:
      • Contract awarded for the Vessel Life Extension (VLE) of 2 of CCG’s fisheries patrol vessels (CCGS Cape Roger and CCGS Cygnus)
      • 4 regional contracts awarded for the VLE of the CCG’s Motorized Life Boats
      • Contract awarded for the VLE of 3 CCG Jet Boats
      • Contract awarded for the VLE of a CCG medium icebreaker (CCGS Amundsen)
      • Contract awarded for the VLE of a CCG high endurance multi-tasked vessel (CCGS Kopit Hopson 1752)
      • Contract awarded for the vessel life extension of the CCGS Louis S. St-Laurent
    • A competitive processes currently underway for vessel life extension contracts anticipated in 2022:
      • CCGS Terry Fox (icebreaker)
      • CCGS George R. Pearkes (high-endurance multi-tasked vessel
    • The Victoria-class In-Service Support Contract (VISSC), as awarded in 2008, was recently extended to allow for work on the RCN’s 4 submarines to continue up to 2027
    • A competitive process for the follow-on sustainment solution to the VISSC, known as VISSC II, is currently underway. Upon the VISSC’s expiry in 2027, the VISSC II will provide support until the submarines are decommissioned
  • Construction and delivery of small vessels is underway
    • All 7 Hydrographic Survey Vessels delivered to the CCG as of June 2017
    • 2 Channel Survey and Sounding Vessels delivered to the CCG in October 2018
    • The CCG has requirement for 20 Search and Rescue (SAR) lifeboats; design, build, and delivery are underway; 12 vessels have been delivered so far
    • Contract awarded for the acquisition of 30 new multi-role boats expected to be delivered to the RCN by spring 2024
    • Acquisition of 3 medium commercial icebreakers and conversion work, valued at $843.47 million (value increased to $912 million in July 2021); 2 vessels have been delivered and the third is expected in summer 2022
    • Construction underway on 2 of 4 naval large tugs for the RCN; delivery expected in 2022
  • Small vessel construction and repair, refit and maintenance program strategies
    • Opportunities to improve and streamline procurement are being implemented
  • Two ferries for Transport Canada to be built by Chantier Davie (not part of NSS)
    • Chantier Davie Canada Inc. (CDCI) will design and construct 2 new ferries for Transport Canada to replace aging vessels (41-year-old Motor Vessel (MV) Madeleine, now retired, and 51-year-old MV Holiday Island)
    • In July 2020, a ferry was purchased and entered into service in June 2021 as an interim measure to replace the MV Madeleine until the new vessel being built at CDCI is ready for service

Additional Information:

None

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