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Backgrounder: A Unique Process

History

The Royal Canadian Navy and the Canadian Coast Guard fleets are aging and require renewal to ensure that operations can continue. The Canadian Government's objectives with respect to security, sovereignty and the North - as outlined in the Canada First Defence Strategy and Canada's Northern Strategy - cannot be met by the existing fleets.

Most allied nations have simplified their shipbuilding procurement processes through consolidation within their domestic shipbuilding industry. This trend has resulted in fewer shipbuilders established in strategic partnerships with their respective governments.

Multiple studies - including research conducted by the Canadian Association of Defence and Security Industries, the Shipbuilding Association of Canada, Canadian industry; and Mott McDonald, a subject matter expert on maritime projects - have concluded that a new approach to ship procurement in Canada was required.

In the summer of 2009, the Government indicated a willingness to establish a new strategic approach to federal shipbuilding by launching a broad consultation with industry. Industry input was then considered in the formulation of the shipbuilding procurement strategy. These consultations confirmed the need for a more strategic approach to shipbuilding. Industry expressed support for the development of a long-term strategy. Most respondents supported establishing a strategic relationship with two shipyards to build all large ships, as there was insufficient work to create and sustain employment in more than two locations over the long term.

On June 3, 2010, the Government announced the National Shipbuilding Procurement Strategy (NSPS). The Strategy was an historic and important shift in shipbuilding procurement, moving from a project-by-project basis to a long-term strategic approach. This approach will generate enhanced regional and industrial benefits and engages Canada's world-class industrial skill-base.

Under the NSPS:

  • Large ship construction (28 vessels): Canada will establish a strategic relationship with two Canadian shipyards, selected through an open and fair national competition, and designate them as sources of supply - one for combat vessels and the other for non-combat vessels.
  • Smaller ship construction (116 vessels): These vessels will be set aside for competitive procurement amongst other Canadian shipyards.
  • Ship repair, refit and maintenance: These requirements will be competed separately through a publicly announced Request for Proposal.

Canada is a maritime nation with the longest coastline of any country in the world. The shipbuilding strategy establishes strategic relationships with Canada's marine industry to deliver modern, multi-purpose Royal Canadian Navy and Canadian Coast Guard fleets. This is essential to sustaining Canada's sovereignty and prosperity by safeguarding international trade, as well as enforcing Canadian law.

Next Steps

The next step in the implementation of the National Shipbuilding Procurement Strategy is the finalization of strategic sourcing arrangements, called Umbrella Agreements (UA), with the selected shipyards.

The Umbrella Agreements are arrangements under which the government will negotiate fair and reasonable individual contracts with the selected shipyards to build the ships for each project. The UAs highlight the principles and general intent of the relationship between Canada and the shipyard. They describe certain preconditions to contract awarding and other specific terms to be included in the contracts. Examples of these preconditions include (but are not limited to) the following:

  • that negotiations for the resultant contracts will be conducted on an open-book basis, with Canada having full and free access to the shipyard's books and records of account;
  • that the shipyard will cooperate with a third party's periodic benchmarking of the shipyard's shipbuilding activities to assess the shipyard's capability and productivity improvements and whether the shipyard has met its target state commitments;
  • that the resultant contracts will include Value Proposition and Industrial Regional Benefits requirements;
  • that the shipyard's Value Proposition commitment will be paid for by the shipyard entirely at its own expense;
  • that the shipyard will be obligated to remedy any failure to meet its Value Proposition commitment and its target state commitment, as conditions precedent to Canada awarding any resulting contract;, and,
  • the inclusion of certain requirements relating to financial undertakings, letters of credit and/or step-in rights to protect Canada's interests during the performance of any resulting contract.

The general terms and conditions of the UA were crafted in consultation with the shipyards and included in the Request for Proposals (RFP). The acceptance of the terms and conditions was a requirement for each bid. The UAs will be reviewed annually to monitor progress, coordinate project workload, address emerging issues and adopt measures to jointly reduce costs and risks.

Following the finalization of the UAs, negotiations will begin for the first project in each work package: National Defence's Arctic Offshore Patrol ships in the combat package and the Canadian Coast Guard's Offshore Science vessels in the non-combat package.

National Shipbuilding Procurement Strategy Website

For further information regarding the NSPS procurement process please visit the Military and Marine Procurement > NSPS website.