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

Ottawa ON
November 27, 2017

Good afternoon. I am joined here today by Pat Finn, Assistant Deputy Minister materiel Department of National Defence; Eric Dagenais, ADM ISED, and Kevin McCoy, President of Irving Shipbuilding.

I will try to be as brief as possible, as we want to give you enough time to ask questions. Having said that this is going to be a particularly technical briefing so please bear with me.

We are here today to brief you on the next steps of the competitive process to select a warship design and associated design team for the future fleet of Canadian Surface Combatants. We think that it is important that we are very open and transparent regarding how the winning bidder will be selected.

As you know, the National Shipbuilding Strategy is now in its seventh year, and we’ve celebrated great achievements in terms of job creation, economic benefits and shipbuilding progress. 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.

As you all are aware Irving Shipbuilding Inc. was competitively selected as the Strategy’s Combat package shipbuilder and has been confirmed as the prime contractor for the Canadian Surface Combatant project.

Since the establishment of the National Shipbuilding Strategy, there has been considerable discussion on budgets for the shipbuilding projects, particularly for Canadian Surface Combatants, which represent the largest and most complex procurement project in Canadian history. It is also worth keeping in mind that these ships will form the core of the Royal Canadian Navy into the 2070’s. We acknowledged early on that budgets were set early in the process and that they would need to be revisited. In June, the Department of National Defence’s Strong, Secure, Engaged Defence Policy confirmed that the government would acquire the full complement of 15 Canadian Surface Combatants with a project budget of 56 to 60 billion dollars.

For Canadian Surface Combatants (CSC), we are using a single transparent, 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 is designed to reduce integration and schedule risks, as well as bring greater cost certainty earlier in the process.

We have ensured that the competitive procurement process has created opportunities for Canadian industry to secure high-value work due to the Canadian Surface Combatants. The procurement will also generate economic opportunities for Canada in other sectors of the economy, such as cyber security, clean technology and marine.

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

To be clear there is no proven off-the-shelf design that will satisfy our requirements without modification. All the potential designs will need to be revised to reflect Canadian requirements, to integrate Canadian content and to make required updates due to technology refreshes.

Through this competitive process, we will 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 conducted extensive industry engagements to inform the development of the strategy and the Request for Proposal.

Twelve firms qualified as potential bidders. Canada and Irving Shipbuilding also engaged directly with the Canadian supply chain and original equipment manufacturers—this included meetings with 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.

This is a very complex requirement and a very complex solicitation.

In an acknowledgement to that complexity and in accordance with modern procurement practices we decided to give bidders an opportunity to submit draft versions of portions of their bids and receive feedback from the evaluators regarding whether or not they have demonstrated compliance.

This Compliance Review was also an opportunity for Canada and Irving Shipbuilding to conduct a “dress rehearsal” of the evaluation process.

No financial information was submitted nor were bids scored.

This was an optional process where bidders could decide if and to what degree they would participate.

Draft bids were submitted on June 15 and feedback was provided to the participating bidders over the course of the summer.

I think that everyone found this process to be very worthwhile and we learned some important lessons. As a result a number of changes have been made to the Request for Proposal and in particular to the evaluation process. The bid closing date was extended to provide for these changes.

To be clear, these evaluation process changes have not relaxed or diminished the ship requirements. All requirements must still be met during the performance of the work, but not all requirements will now need to be verified during the evaluation process.

Given the magnitude and importance of this project, we are making every effort to ensure that this procurement is effectively executed and we have maximum competition. We’re applying procurement modernization practices and ensuring best value to Canada.

We want bidders to have the best possible opportunity to demonstrate the full potential of their proposed solution to satisfy Canada’s requirements and to bring economic benefits to Canada.

The changes made to the RFP primarily focused on two areas. The first is Simplification; that is, simplifying what bidders need to demonstrate in their bids and simplifying how the evaluation is conducted. The second area is Bid Cure; that is, providing bidders with opportunities to correct deficiencies in their bid such that only bids where the bidder has been unable to correct a serious deficiency are eliminated from consideration.

On November 30, the solicitation of bids from the twelve qualified firms will close and the bids will be received by Irving Shipbuilding in Halifax. As I’ll explain later bidders will not be required to submit their financial bids at this time.

Once the bids are submitted to Irving Shipbuilding, Canada and Irving Shipbuilding 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 as fully described in the RFP. The evaluation plan is a detailed document laying out exactly what will be evaluated, how the process will be conducted and how the final selection will be made.

The evaluation plan has been designed to identify the best valued bid while ensuring fairness, openness and transparency.

All the evaluation teams include members from both Canada and Irving Shipbuilding, except where government-to-government restricted information is involved which will be restricted to Government personnel only.

The evaluation teams will work in a dedicated, secure environment with strict protocols in place to ensure that information is not exchanged amongst the various teams.

The evaluation results for each criteria will be established on a team consensus basis with a Fairness Monitor overseeing all consensus meetings. Teams will not be aware of the results of other areas of evaluation and only the financial evaluation team will see the financial bids.

In addition to the expertise available from Irving Shipbuilding and Canada we will also use external subject matter experts to advise the evaluators as appropriate.

The evaluation of the bids will be multi-staged.

The first stage is a completeness check where bids will be reviewed to ensure that they are complete and nothing has been missed. Bidders will be given an opportunity to replace any missing elements.

The first pass of true evaluation comes in Stage 2.

In this Stage bids will be evaluated with respect to the Technical (how well the proposals meet Canada’s technical requirements) and Value Proposition (the quality of the bidder’s commitments to bring benefits to Canada and to incorporate Canadian content into the CSC design) elements of their bids.

During this evaluation bidders will need to demonstrate compliance with the identified Mandatory Compliance criteria and conformance with the other required criteria. Bids will be scored in accordance with the Evaluation Plan.

Again in the interests of maximizing the competition we will give any bidder that has not demonstrated compliance or conformance an opportunity to fix their proposal, a process we refer to as the Cure Process. This Cure process will be conducted in the following manner:

Any bidder that is still deemed non-compliant with any of the identified Mandatory Compliance criteria after the Cure Period will be eliminated from the competition.

If at least one bidder is compliant and has demonstrated conformance with all the other required criteria then those bidders’ scores will be considered final and the evaluation process will continue with Stage 2 score weighting using these scores. In this scenario any non-conforming bid will be set aside.

However, if after the Cure Process none of the compliant bidders have demonstrated full conformance with all the required criteria then non-conformance adjustments will be made to each of the compliant bids’ corresponding technical risk scores and the evaluation process will continue with Stage 2 score weighting using these adjusted scores.

The resultant Stage 2 scores of compliant bids will be weighted 75% Technical /25% Value Proposition (the highest Value Proposition weighting to date) and the top 2 bids (plus any that are very close) will move on to the next stage of evaluation.

The other bids will be set aside.

Those bids that have passed through will be scored for the remaining evaluation elements of Design Maturity, Software Capability and Financial.

Each bid’s raw scores for Technical and Value Proposition from the earlier stage will be retained and reweighted.

All the Stage 3 scores will be weighted and added together to get the bidder’s Total score. The final weightings will be Technical 42%, Value Proposition 15%, Design Maturity 19%, Software 1%, and Financial 23%.

The bid with the highest total score will be the Preferred Bidder and we will enter into a period of due diligence where we will examine the details of their Combat System performance, IP rights proposals, etc. If the Preferred Bidder is not able to satisfy all the required conditions precedent to contract its bid will be set aside and the due diligence process will be repeated with the next highest scoring bidder.

Following the successful conclusion of the due diligence process Irving Shipbuilding will present its Prime Contract proposal based on the winning bid and Canada will award the Prime Definition Contract to Irving Shipbuilding who will in turn award the subcontract to the winning bidder.

To help ensure the fairness, openness and transparency of the procurement process 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 Fairness Monitor has been on board since the first industry consultations.

As I mentioned earlier the evaluation process will begin in Halifax shortly after the bid closing on November 30. The amount of time that will be required to finish the evaluation will be highly dependent on the number and quality of the bids we receive but we are assuming that the Preferred Bidder will not be identified until Spring 2018.

As I am sure you can understand we will not be providing interim status updates during the evaluation process. Since the Technical Submission on November 30 will not include the complete bid we will not be releasing the number of bids received at that time. However once we have completed the Cure Process and have received the Final Bids we will be able to advise you regarding how many bids we received.

We do not expect to make any further announcements on the status of the CSC procurement process until the selection of a Preferred Bidder and then until the completion of the due diligence process and the award of the resultant contracts later in 2018.

On that topic this single competitive solicitation process is actually expected to result in the award of two contracts.

The primary contract will be the CSC Definition Subcontract. This contract will be awarded by Irving Shipbuilding after Canada has awarded Irving Shipbuilding the prime Definition contract.

The Definition contract will be the vehicle for procuring the required design license rights and for conducting the design work.

The second contract will be the Combat Management System Software Support Contract, which will be awarded directly by Canada to the supplier. The Combat Management System is the backbone of the Combat System and DND needs to ensure that it is in a position to properly maintain and support the system. Canada is taking advantage of the RFP’s competitive pressures to establish the basis for this important contract.

Due to security restrictions this contract will only be awarded to a Canadian company and almost all of the work must be done in Canada.

Following award of the Definition Contract the integrated team will 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 will deliver to Canada a proposal for building the Canadian Surface Combatant (CSC) ships.

Canada and Irving Shipbuilding remain committed to the Design-then-Build principle. Under this principle the design of the CSC ship will be completed before construction begins.

Following completion of the last Arctic and Offshore Patrol Ship, Irving Shipbuilding will cut steel for CSC in the early 2020’s and the first ship should be delivered in the mid-2020s. It should be noted that the timing of the cutting of steel and delivery of the first ship is highly speculative at this point, we will have a better idea once the design is selected and the amount of change required is understood.

We understand that not knowing the timing of production brings up more questions, such as the possibility of a potential production gap between the final Arctic and Offshore Patrol Ship and the first Canadian Surface Combatant ship. Both the Government of Canada and Irving Shipbuilding are well aware of these possibilities, as well as the consequences they present.

Managing these risks is a complex challenge involving multiple variables.

Canada and Irving Shipbuilding are working together with independent third party experts to better understand the timing, nature and implications of a late production, as well as to define potential mitigating actions.

My colleagues and I are happy to answer your questions now.