Frequently asked questions on the National Shipbuilding Strategy
1. What is the National Shipbuilding Strategy?
In June 2010, the government announced the National Shipbuilding Strategy (NSS) following extensive consultation with the marine industry. The strategy is designed to meet Canada’s requirements for much-needed ships, including the construction of both large and small ships, as well as ship repair, refit and maintenance.
The objectives of the strategy are to:
- provide timely and affordable delivery of ships for the Royal Canadian Navy and the Canadian Coast Guard
- sustain a strong and viable Canadian marine industry
- provide economic benefits for Canadians
A competitive process was launched to select two shipyards to build large federal ships for a non-combat package, including up to seven vessels for the Canadian Coast Guard and the Royal Canadian Navy and a combat package that includes from 18 to 21 vessels for the Royal Canadian Navy.
Once the competitive process was concluded, the government established a strategic relationship, through umbrella agreements, with the two winning shipyards and designated them as Canada’s sole sources of supply.
Vancouver Shipyards Co. Ltd. of Vancouver, British Columbia was selected to build non-combat vessels. Irving Shipbuilding Inc., of Halifax, Nova Scotia was selected to build combat vessels. Umbrella agreements were signed with both shipyards in February 2012.
Small vessel construction (below 1,000 tonnes in displacement) are set aside for other shipyards. Regular maintenance, refit, life extension and repair work are not included in the umbrella agreements and will be competed among Canadian shipyards, including both Vancouver Shipyards Co. Ltd. and Irving Shipbuilding Inc.
2. What is the status of the shipbuilding projects?
Construction work on the large vessels is ongoing at Irving Shipbuilding Inc. and Vancouver Shipyards Co. Ltd. Construction work on the small vessels and on the repair, refit and maintenance projects are also taking place across Canada.
3. What were the enhancements made in May 2016 to strengthen the National Shipbuilding Strategy?
While addressing representatives from the defence and security industries at CANSEC 2016, the Honourable Judy M. Foote, Minister of Public Services and Procurement, reaffirmed the government’s commitment to the strategy. Minister Foote acknowledged the needed improvements that are planned or underway.
Consult the following news release to learn about the five enhancements:
4. How are Irving Shipbuilding Inc. and Vancouver Shipyards Co. Ltd. being incentivized to deliver the requested ships?
The shipbuilding contracts are performance-based, and are structured to:
- motivate the shipyards to maximize efficiencies
- increase productivity rates
- achieve cost savings that can be directed into the construction of ships
Incentives are used by the government to:
- encourage cost reductions
- keep the building of ships on schedule
- increase scope and quality
These contracts provide the predictability that Canada is seeking, while also providing incentives for the shipyards to reduce costs and earn more profit. A ceiling price, which determines the maximum amount that will be paid, protects Canada’s interest.
5. What is the difference in cost between building the vessels in Canada versus building them elsewhere?
It is very difficult to compare the cost of a vessel built in Canada with a similar one built offshore (assuming such a similar ship can be identified). This comparison is complicated by the necessity of taking into consideration several country-specific variables such as:
- labour, material and equipment costs
- timing of the build (such as inflation, shipbuilding market and commodity pricing)
- number of ships produced
- government investments and subsidies, both direct and indirect
Independent studies indicate that any premium from constructing ships in Canada would be offset by the jobs created and tax revenues drawn by all levels of government due to the increased level of economic activities. In addition, the development of a Canadian-based supply chain to support the construction and refit, repair and maintenance of the Royal Canadian Navy and Canadian Coast Guard ships will generate socio-economic benefits in all regions of Canada, allowing for the development of valuable technologies that could be exported to foreign markets.
We estimate that contracts awarded through the National Shipbuilding Strategy will:
- contribute nearly $6 billion of gross domestic product
- create or maintain an average of nearly 6,100 jobs per year between 2012 and 2022
This impact will continue to grow over time as new contracts are awarded by Canada.
6. Why are shipyards allowed to subcontract to foreign companies?
It is important to use the most suitable technologies available while achieving best value for Canadian taxpayers. For example, certain technologies may not be competed or sourced in Canada particularly if there is a need for interoperability with other fleet assets and with our North Atlantic Treaty Organization (NATO) allies.
Under the National Shipbuilding Strategy, both shipyards are required to follow the policy framework known as Canada’s Shipbuilding and Industrial Marine Policy. Also known astheBuy-in-Canada policy, this policy framework states that federal repairs and new build contracts must be awarded on a national competitive basis whenever feasible. It also supports the former Industrial and Regional Benefits obligations and the Industrial Technological Benefits Policy, including a weighted and rated Value Propositions. These policies ensure that the Canadian industry:
- benefits from Canada's defence and security purchases
- maximizes employment opportunities for Canadians
Learn more about the progress of all policy obligations, including those for National Shipbuilding Strategy contracts:
7. Why is the government not considering unsolicited proposals from other Canadian shipyards to meet current Canadian Coast Guard and Royal Canadian Navy needs?
The government at times receives unsolicited proposals. While we welcome business innovation and creativity, any consideration of a procurement strategy to support our requirements will be done in an open engagement with industry and in the context of operational requirements and a broader fleet renewal plan. We are committed to the National Shipbuilding Strategy and its program of work with:
- large vessel construction in two competitively selected Canadian shipyards
- small vessel construction open for competition to other Canadian shipyards
- repair and maintenance open to all to bid
Any potential requirements will be addressed through industry engagement and will follow the government’s regulations and practices, including fair, open and transparent procurement processes.
8. Will there be any opportunities for small and medium enterprises?
Like any shipbuilding project, there will be opportunities for small and medium enterprises (SMEs) to provide goods and services to the selected shipyards and other suppliers involved in shipbuilding. For the large vessels to be built by Vancouver Shipyards Co. Ltd. and Irving Shipbuilding Inc., SMEs will have the opportunity to become part of the shipyards’ supply chain. The Industrial and Regional Benefits Policy encourages shipyards to commit to provide a level of work to SMEs. As of November 2016, up to 491 SME suppliers have received contractual value of close to $478 million.
9. How does the government intend to address the need for interim capability?
Interim capability requirements are determined on a case-by-case basis, responding to new and evolving federal marine needs, particularly those that may have an impact on Canadians or Canada’s economic interests. Exploring and using interim measures to address capacity gaps does not lessen the Government of Canada’s commitment to the National Shipbuilding Strategy or the two shipyards that have been selected to be the strategic source of supply for the construction of new large ships for the Canadian Coast Guard and the Royal Canadian Navy.
By addressing interim requirements as they arise, we demonstrate that the National Shipbuilding Strategy provides sufficient flexibility to respond to new requirements as necessary.
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