Speaking notes for National Shipbuilding Strategy technical briefing on Canadian Surface Combatant request for proposal

Ottawa ON
October 27, 2016

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Good morning,

As you know, the National Shipbuilding Strategy is now in its fifth year, and we’ve celebrated great achievements in terms of job creation and milestones. We continue to work with shipyards and the marine industry across Canada to build large and small vessels and provide in-service support, in order to meet the Royal Canadian Navy’s and the Canadian Coast Guard’s operational requirements. We are also proud of the major investments the two shipyards responsible for build programs have made, both in improving their facilities and processes and in augmenting their workforces. These two world-class shipyards are currently building ships for our Canadian Coast Guard and Royal Canadian Navy.

Irving Shipbuilding Inc. was competitively selected as the strategy’s Combat package shipyard and has been confirmed as the prime contractor for the Canadian Surface Combatant project. 

Since creating the National Shipbuilding Strategy, there has been considerable discussion on budgets for the shipbuilding programs, particularly for Canadian Surface Combatant. We have acknowledged that budgets were set early in the process and that they will need to be revisited. The government has committed to improving costing for shipbuilding programs and work is underway to ensure more robust cost estimates support us in obtaining best value for Canadians. This costing approach, informed by engagement with the industry, will enable standardization and more accurate budgeting, as well as regularly refreshed estimates.

We are committed to improving the strategy and looking for opportunities to enhance it as we move forward. In June, we announced a streamlined procurement strategy for the Canadian Surface Combatant, which represents the largest and most complex procurement project in Canadian history. It is worth keeping in mind that these ships will form the core of the Royal Canadian Navy for generations to come, into the 2070’s.

For CSC, we are using a single open, competitive process to select an existing warship design and design team and, to a large extent, the original systems and equipment that have been designed into the ship. This approach will reduce integration and schedule risks, as well as bring greater cost certainty.

The competitive procurement process will create opportunities for Canadian industry to secure high-value work on the Canadian Surface Combatant (CSC). The procurement will also generate economic opportunities for Canada in other sectors of the economy.

This procurement is about selecting the design that is best for Canada. 

All potential designs will need to be revised in a controlled manner to reflect Canadian requirements, to integrate Canadian content and to make any required updates due to technology refreshes, particularly since the CSC ship construction will not start until the early 2020’s. The end result of this process will be a modified CSC, based on an existing design.

Through this process, we will also choose an experienced and capable design team to ensure that these changes are made as effectively and efficiently as possible.

We are committed to a fair, open and transparent competitive procurement process for CSC.

Canada and Irving Shipbuilding Inc. conducted extensive industry engagement to inform the development of the strategy and the request for proposal.

Twelve firms have prequalified as potential bidders. There have been six engagements with these companies over the past year. We also engaged directly with the Canadian supply chain and original equipment manufacturers—this included meetings between Canada and over 80 companies.

The feedback provided from these industry engagements significantly influenced project decisions, particularly with respect to our requirements regarding economic benefits to Canada and intellectual property rights.

Today, Irving Shipbuilding Inc. issued a request for proposal (RFP) designed to achieve our objectives. The RFP was issued to the twelve companies that prequalified to participate in this procurement as potential bidders.

The Government of Canada and Irving Shipbuilding Inc. have given potential bidders six months to prepare their proposals in response to the RFP. This bid period balances the needs for suppliers to have time to prepare their bids, while recognizing the Royal Canadian Navy’s need to get ships in a timely manner.

Once the bids are submitted to Irving Shipbuilding Inc., Canada and Irving Shipbuilding Inc. will work together to evaluate the bids in accordance with the evaluation plan included in the RFP and select the proposal that provides the best overall value for Canadians.

The evaluation will be conducted in multiple stages. The first step will be to review the proposals to ensure that they meet a relatively small number of key mandatory requirements: these are requirements the existing ship design must currently meet. Compliant bids will then enter the first pass of the evaluation in which they will be scored in two key areas:

  1. technical (how well the proposals meet Canada’s technical requirements)
  2. value proposition (the quality of the bidder’s commitments to bring benefits to Canada and to Canadian industry in particular)

The two highest scoring bids, plus any other bids within five points of the second highest scoring bid, will advance to the second pass.

In the second stage, the bids will be scored against technical and value proposition, as well as the remaining three evaluation areas: design maturity, software development capability and finance. The bidder’s scores from the first pass for the technical and value proposition components will be combined with these scores to compute the total evaluation score for each bidder.

The bid with the highest total score will be selected.

In addition to the expertise available from Irving Shipbuilding Inc. and Canada, when we conduct the evaluation, we will also use external subject matter experts.

The size, complexity and importance of this procurement has required us to develop some innovative approaches. One area is the way that Canada, and by this I mean all three involved departments (National Defence, Public Services and Procurement Canada and Innovation, Science and Economic Development Canada), and our prime contractor, Irving Shipbuilding Inc., are working together throughout the procurement process.

In other, less complex procurement processes, we have used a model where Canada instructs its prime contractor about what it needs and then leaves it up to the contractor to work out the “how”—the processes it would follow to satisfy Canada’s needs.

For CSC, Canada has not only defined the “what,” but has also been very involved in the development of the “how.”

The roles and responsibilities of Canada and of Irving Shipbuilding Inc. have been clearly established and documented.

Canada is responsible for setting the CSC requirements and evaluation criteria, approving the evaluation plan, participating in industry engagements, leading the economic benefits evaluation, co-leading the technical evaluation, and participating in all aspects of the evaluation process.

Irving Shipbuilding Inc. is responsible for developing the request for proposal and evaluation plan for Canada’s approval, conducting the request for proposal process, co-leading the technical evaluation, leading the financial and design maturity evaluation and participating in all aspects of the evaluation.

To help ensure the fairness, openness and transparency of the procurement process—starting with the first preliminary engagements with industry and continuing through to completion of the evaluation, Canada has engaged an independent fairness monitor to provide assurance that decisions are made objectively and encompass the elements of fairness, openness and transparency.

The Canadian Surface Combatant is among the largest defence procurements in Canadian history, resulting in high expectations that it will generate significant and sustainable economic opportunities for Canada.

The Industrial and Technological Benefits Policy will apply to this procurement. This means our prime contractor, Irving Shipbuilding Inc., will be required to invest an amount in Canada equal to 100% of the funds it receives for its scope of work, with requirements for Canadian content, including work for small and medium-sized firms in Canada. In addition, Irving Shipbuilding Inc. will be contractually required to deliver on its National Shipbuilding Strategy value proposition by investing an additional 0.5% of the total Canadian Surface Combatant contract value to support the growth of a sustainable marine industry in Canada.

The winning bidder will undertake a major portion of the design, engineering and integration work and bid the high-value systems and equipment that will go on the ships.

The winning bidder will also have a contractual obligation, under the Industrial and Technological Benefits Policy, to invest an amount in Canada equal to 100% of the funds it receives for its scope of work. Ten percent of this obligation must involve work with small and medium-sized Canadian firms. 

We conducted extensive industry engagement with bidders, as well as with Canadian firms seeking to secure work on the ships, to develop the approach to leveraging economic outcomes from this procurement. Canadian industry asked us to develop value proposition criteria that strongly motivates bidders to incorporate Canadian content in high-value areas, including design, engineering, integration and the supply of systems and equipment.

In response, the value proposition will account for 25% of the overall score in the first pass of the evaluation process. This is the highest weight put on a value proposition for any Canadian defence procurement to date. 

The value proposition criteria are designed to achieve the following outcomes:

With the high weighting for the value proposition, the request for proposal is expected to result in high-value work for Canadian firms over the life of this long-term procurement, support the growth of a sustainable marine industry in Canada, and attract meaningful investments in other sectors of Canada’s economy.

In mid-2017, following selection of the successful bidder and an appropriate due diligence period, Irving Shipbuilding Inc. will prepare its proposal to Canada for the CSC definition contract. National Defence and Public Services and Procurement Canada will seek the required government approvals to award the prime definition contract to Irving Shipbuilding Inc. Following that, Irving Shipbuilding Inc. will award its sub-contract to the selected bidder who will, in turn, sub-contract with its team members.

The integrated team will then begin the requirements reconciliation and preliminary design processes, which will continue through functional and detailed design, including the development of a detailed 3-D model of the ship. During the later stages of this process, Irving Shipbuilding Inc. will deliver to Canada a proposal for building the Canadian Surface Combatant ships.

The CSC build contract will be negotiated and awarded based on the work done in the definition contract. It is expected that the construction of the first CSC will begin following completion of construction of the Arctic and Offshore Patrol Ships. We expect that Irving Shipbuilding Inc. will start cutting steel for CSC in the early 2020’s and that the first ship should be delivered in the mid-2020s.