Speaking notes for National Shipbuilding Procurement Strategy technical briefing - Updates on shipbuilding projects

June 28, 2013

Check against delivery

1. Introductory remarks (Public Works and Government Services Canada)

Good afternoon.

My colleagues and I are pleased to be here this afternoon to discuss with you the shipbuilding projects that we are carrying out through the National Shipbuilding Procurement Strategy (NSPS).

We will focus on updating you on progress made since the last NSPS technical briefing, which was held in February of this year.

Today, we will discuss the status of the Arctic/Offshore Patrol Ship (AOPS) and Joint Support Ship (JSS) projects, the JSS and Polar Icebreaker sequencing decision process; report on our industry consultations for the Canadian Surface Combatant project and in-service support for the AOPS and JSS. We will also touch on progress made by the Canadian Coast Guard on the procurement of large vessels; and opportunities for Canadian shipyards. There is some important context to discuss with respect to the NSPS. When we launched the NSPS, Canadian shipyards lacked modern physical infrastructure, design capacity, world-class productivity, and a cost-effective skilled labour force. The NSPS will create high skill jobs across Canada and provide much-needed ships for the Canadian Navy and the Canadian Coast Guard, all through a transparent procurement process. We are working with the Canadian marine sector to address each of these opportunities for improvement.

I'll start by discussing the AOPS definition contract.

2. Arctic/Offshore Patrol Ship definition contract (Public Works and Government Services Canada Senior Government Official)

The awarding of the Arctic/Offshore Patrol Ship definition contract in March 2013 is an important milestone for the NSPS combat work package.

The definition contract tasks are designed to prepare for the efficient construction of the AOPS.

In the past the design process was the development of preliminary design and detailed design work was done once the construction contract was signed. The result was that steel was cut, and assembled, then redesigning took place, and the steel would have to be re-cut. It was an inefficient approach with unpredictable costs.

The approach we are using is "design-then-build". This is to ensure we get the designs and production details right before the shipyards cut steel. This costs more up front but reduces the risk of cost uncertainty in the actual ship construction process. This also includes the securing of long lead items – items that would take considerable time to be delivered after being ordered (such as main engines and gear boxes) – and 3D modeling that can significantly enhance the quality and the detail of a ship's design, thereby resulting in a more cost effective build phase. The early investment made during the definition phase mitigates future cost and scheduling risks that can arise during the build phase.

We are working with Irving Shipbuilding to establish the processes that will be used for not only the construction and delivery of the AOPS fleet but as stepping stones to the much more complex design-then-build of the follow-on Canadian Surface Combatant ships.

In addition to the work being done by Irving under the AOPS definition contract to mature the ship design, there are other areas required to support the follow-on shipbuilding process that are also included in the definition contract, such as:

We've estimated that the total scope of work covered by the definition contract could be a maximum value of approximately $288 million, should all the tasks be authorized.

The AOPS definition contract work will be conducted over 30 months. In addition to the 200 jobs at Irving Shipbuilding, as many as 120 professionals from its subcontractors could be dedicated to the AOPS project during the course of this contract.

I will now ask my colleague to speak to the projects we are undertaking for the Navy more specifically…

3. Arctic/Offshore Patrol Ship Vessel (Senior Government Official)

Thank you. Indeed, I'm pleased to say that there is progress on each of our projects.

I'd like to start by highlighting a significant Joint Support Ship project milestone.

The selection of the JSS design was conducted through a transparent assessment process, involving multiple government departments and third party advisors. The selection was based on three criteria:

  1. operational capability
  2. affordability
  3. the cost and schedule risks associated with building the ship

As many of you know, earlier this month we announced the selection of the ship design, a proven, off-the-shelf design from ThyssenKrupp Marine Systems Canada.

Turning to the Arctic/Offshore Patrol Ships…

We completed an extensive analysis of the various options available to us to deliver the ships. The analysis involved a number of steps.

  1. We considered carefully the distinct Canadian Arctic operating environments of the Royal Canadian Navy and consulted the Canadian Coast Guard.
  2. We engaged with our allied navies to learn from their experiences operating vessels in ice, which included the Norwegian government on the Svalbard, to determine if any of their existing designs could affordably meet Canada's needs.

As ministers announced this past March, we have passed the preliminary ship design to Irving Shipbuilding to further develop the design to a production-ready state. This is being done in the context of the broader definition contract described by my colleague.

An analogy for this work would be taking an architect's plan or sketch for a building and giving it to a building contractor to turn it into an electronic 3D model, with walls, doors, windows, electrical wiring and ventilation ducts all identified.

I would also like to take a moment now to address some recent reports that have compared the Norwegian Svalbard with Canada's Arctic/Offshore Patrol Ships. There are some important differences to talk about between these two ships.

First, the available equipment and technologies have advanced by a generation since Norway built the Svalbard around the year 2000.

Second, while the Svalbard is designed to operate specifically in and around the Norwegian Sea, Canada's Arctic/Offshore Patrol Ship is being designed to have the flexibility, to operate safely in the Canadian Arctic, in addition to conducting surveillance in the North Atlantic, and the waters of our Pacific region. This introduced the need for a unique hull design and ship system quite different from that of the Svalbard.

In addition, preliminary information indicates the cited costs for the Svalbard may not include the full cost of ship design and some equipment systems fitted in the ship. Nor is it clear whether the benefits of subsidies to Norwegian shipyards, which was prevalent when the Svalbard was constructed, may have played a role in offsetting the costs to deliver that ship. Taking that under consideration, when escalated to current Canadian dollars, the cost would be almost three times more than the cost quoted by some.

All of this to say that it is indeed challenging to compare the costs of designing and building two ships more than a decade apart, and intended to operate in different environments.

Turning to planning for maintenance of these ships, after their delivery…

In the fall of 2012, we began consultations with industry on options for providing in-service support to the AOPS and JSS.

Based on the feedback received following the consultation, we signalled to industry last month that we are examining options for a single, through-life contract that combines AOPS and JSS in-service support.

A single, through-life in-service support contract will mean an approximate 35-year period of large volume long-term work for the successful contractor.

This economy of scale will result in greater efficiencies and lower overall costs, compared with issuing two separate contracts.

A Request for Proposals for this work is expected to be issued in the 2015 timeframe.

On a final note, while we are preparing to build these new ships, we are also working on both coasts to refit elements of the current fleets. Skilled employees at both Victoria and Halifax shipyards are busy refitting our fleet of 12 Halifax-class frigates; building Mid-Shore Patrol Vessels for the Canadian Coast Guard (CCG); and conducting refits periods on our submarines.

Their experience is making their current work more efficient, and will also benefit the building and maintenance of our future fleets, as the shipyards will be able to retain and build on their skilled teams moving forward.

Thank you. I'll ask my colleague to provide an overview of the Coast Guard's fleet renewal.

4. Canadian Coast Guard Update (Canadian Coast Guard Senior Government Official)

Thanks. Good afternoon. Over the last year, the Canadian Coast Guard celebrated 50 years of service; this was a milestone for the Coast Guard that was marked with a $5.2 billion investment from Economic Action Plan 2012.

This investment will enable us to acquire new large and small vessels to renew our fleet.

I will begin with a brief summary of our progress on the larger vessels which include our offshore fisheries and oceanographic science vessels and Canada's first Polar Icebreaker. I will then outline recent announcements on new vessels and investments in repairs and maintenance of our fleet.

The science vessels will be the first vessels built by Vancouver Shipyards under the NSPS. The science vessels will enable the department to continue conducting important science and research work on the Atlantic and Pacific coasts.

In February 2013, we signed a construction-engineering contract with Vancouver Shipyards for the Offshore Fisheries Science Vessels. We expect the first ship in 2015.

Vancouver Shipyards will refine the Offshore Fisheries Science Vessel design and specifications, produce construction plans and determine requirements for material, subcontractors and labour, and provide cost estimates.

This project will be followed immediately by the Offshore Oceanographic Science Vessel. That vessel construction is scheduled to begin in 2015, with delivery of the ship in 2017.

As Canada's first Polar Icebreaker, the Canadian Coast Guard Ship (CCGS) Diefenbaker will be the centerpiece of Canada's Northern Strategy.

The vessel will provide the Coast Guard with increased coverage in the Canadian Arctic and adjacent waters and will be capable of unrestricted operations for a nine month period and in more difficult ice conditions than current capability allows including through thick ice ridges.

The icebreaker is currently being designed in Canada by STX Canada Marine and will be built in Vancouver; this $9.5 million contract was awarded in February 2012. In February of this year, the Government of Canada announced an engagement valued at 1.1 million as part of a task-based contract with Vancouver Shipyards.

While the focus to date has been on the large shipbuilding projects, smaller shipyards across the country will have significant interest in these smaller scale projects of the NSPS.

As announced by Minister MacKay this week the Government of Canada is investing up to $488 million in 18 to 21 new vessels and lifeboats for the Coast Guard fleet. The announcement was held at the Procurement Outlook Conference which took place in conjunction with Maritech, a marine industry conference and trade show. Our first engagement sessions proved successful and industry expressed significant interest in these new vessels. 300 industry members attended and the Canadian Coast Guard held over 40 one-on-one sessions with shipbuilders and suppliers. The vessels will be of various designs and crew complements and will fulfill a number of tasks. For the most part, these vessels are generally less than 50 metres in length and weigh less than 1000 tonnes. They will operate across the country and will be used for a range of activities, such as search and rescue, marine and fishery research, fisheries enforcement and maintaining and placing aids to navigation.

Construction of these new vessels is expected to start in 2014 and will take place over the next seven years. Contracts will be available for competitive bids by Canadian shipyards that were not selected under the National Shipbuilding Procurement Strategy for the construction of the larger shipbuilding packages.

In part, we are also addressing our aging fleet with the vessel life extension and midlife renewal programs that are already under way.

In February 2013, Minister Ashfield announced the Government's investment of $360 million to extend the life of the Coast Guard fleet. Extending the lives of vessels in the Coast Guard fleet will be completed through publicly announced Requests for Proposals within the context of the NSPS and work will be open to all Canadian shipyards.

Vessel life extensions typically involve repairs to improve vessel reliability and extend their operational life. Work conducted on these 18 vessels will vary according to vessel, but may include general repair and maintenance, structural repairs, and improvements to communications and navigation equipment.

Vessel life extension has been completed on the CCGS Amundsen which will head up to the Arctic shortly. Additional work on this vessel and work on other vessels will begin as early as 2014.

The Coast Guard will continue to implement future phases of fleet renewal through a process that yields the greatest value for Canadians.

The approach to fleet renewal is not a one-for-one replacement for the existing fleet. Rather, new vessels will be designed for multiple functions and will also be adaptable to future needs.

This method is cost effective. It will allow for optimum usage of vessels in a wide range of situations, and provide the flexibility to adapt to changing program requirements over the long operational life of the vessels.

There are many benefits to having fewer classes, both for the Coast Guard and for Canadian taxpayers, including:

This class approach will also facilitate procurement, as vessels will be purchased by class, rather than the vessel-by-vessel approach of the past. Designing and building in sequence by class will allow shipyards and the Coast Guard to take advantage of economies of scale and ensure value for money.

Shipboard technology and ship design have evolved considerably since the last large vessels were built for the Coast Guard more than 25 years ago. That means that new vessel classes will be more versatile, able to carry out a wider range of duties and do it all more efficiently than previous Coast Guard vessels.

As the renewal of the Coast Guard fleet progresses, the focus continues to be on sustainability, affordability and value for money of our fleet, while ensuring we provide the men and women of the Coast Guard with the equipment they need.

Thank you. Now back to my colleague from PWGSC for an overview of the industry engagement on small vessels.

5. Small Vessels (Public Works and Government Services Canada, Senior Government Official)

Thanks. While the focus to date has been on the large shipbuilding projects, there is clearly significant interest in the small vessel projects and the repair and refit work. In addition to CCG, Public Works and Government Services and the Department of National Defence (DND) have already engaged with industry on the replacement of DND's large tugboats, while the Canadian Coast Guard two days ago announced their small ship requirements.

These initial engagements will assist in establishing the requirements, the procurement approach and the timelines for the ensuing solicitation.

Engaging early with industry helps all parties better understand market realities such as industry capacity and capability, today's design and construction requirements, as well as market prices. Early and proactive engagement of the shipbuilding industry is a key best practice in vessel procurement worldwide.

I want to remind you all that the competition for the small vessel construction will be open to Canadian shipyards other than Irving Shipbuilding and Vancouver Shipyards or their affiliates.

Finally, the Industrial and Regional Benefits Policy will apply to the large shipbuilding contracts and many of the others, ensuring the full value of the contracts is leveraged back into high-quality economic activity for Canadian industry. In addition, Value Proposition investments will benefit the greater Canadian marine industry over the long term. The shipyards will be required to invest a portion of their profits into three key areas: human resources, technology development and industrial development.

6. Polar Icebreaker / Joint Support Ship sequencing decision criteria (Public Works and Government Services Canada - Senior Government Official)

I will now discuss the Polar Icebreaker and the JSS sequencing decision.

The designs for DND's Joint Support Ship and the Canadian Coast Guard's Polar Icebreaker are progressing on very similar schedules, and could both be ready for construction at the same time. These vessels will be built at Vancouver Shipyards.

In the fall, we expect to make a decision as to which will be built first, either the Polar Icebreaker or the JSS. The decision will be based on a comprehensive assessment that will consider operational impacts, such as the need to include ship life extension and refit costs for existing vessels. The assessment will also include the readiness of each ship's design, schedule optimization, and risks. Vancouver Shipyards will be consulted and a third party expert will be retained. It is clear that the decision will require that the production and delivery schedule for one of the projects be adjusted to accommodate the construction of the other.

The final decision as to which project goes first will be made in the fall of 2013.

7. Canadian Surface Combatant (Public Works and Government Services Canada – Senior Government Official)

I'd now like to touch on the progress of the Canadian Surface Combatant Project.

The Canadian Surface Combatant Project is one of the most significant projects undertaken by the Government of Canada in decades. Its objective is to deliver a new surface combat fleet to replace the capability currently at sea in destroyers and frigates of the Royal Canadian Navy.

We are currently in the first phase of project definition, where we are consulting with industry to help us determine the best approach to competitively procure the combat systems. We are also consulting industry to help us refine the technical requirements. In the second phase of project definition, we will develop the design and cost of the ships to be built.

Industry engagement commenced last November. Additional industry input was sought in May to further assist Canada's decision on the best approach to procuring the Canadian Surface Combatant (CSC).

A recommendation on the way forward for the CSC is expected in the fall of 2013.

8. Conclusion

In conclusion, let's not forget that the Government of Canada has not engaged the Canadian shipbuilding industry in a major build initiative since the Canadian Patrol Frigates were built in the 1990s. As a result, the Canadian shipbuilding industry rationalized and downsized its capacity over the subsequent 15 to 20 years. So, boom went bust.

The NSPS is the result of extensive consultations with industry, and, in June 2010, the Government made the decision to support the Canadian marine industry, to revitalize Canadian shipyards and to build ships for the Navy and Coast Guard here in Canada.

Through the Strategy, the Government has seized the opportunity to leverage its investment in federal fleet shipbuilding into enduring job creation and broad economic benefit across Canada.

It is important to remember that the NSPS is a program of work spanning decades; we want to sustain jobs and shipbuilding activities over the next 30 years. We are in year two! We cannot nor do we want to build all the vessels this year. The shipyards need to complete significant infrastructure upgrades before they are ready to cut steel. These upgrades alone represent hundreds of millions of dollars of investment.

We expect to begin construction on the AOPS in 2015, with delivery of the first ship expected in 2018. The Canadian Surface Combatant is next. It will replace the existing frigates and destroyers. The first ship is expected to be delivered in approximately 2025.

In February 2013, we signed a construction-engineering contract with Vancouver Shipyards for the CCG's Offshore Fisheries Science Vessels. We expect the first ship in 2015.

This project will be followed immediately by the CCG's Offshore Oceanographic Science Vessel. That vessel construction is scheduled to begin in 2015, with delivery of the ship in 2017.

The NSPS represents a total investment of some $35 billion in new ships during the coming decades.

Industry analysts have estimated that government shipbuilding projects could contribute, directly and indirectly, approximately 15,000 jobs across the country, and more than $2 billion in annual economic benefit over the next 30 years. In other words, in the ball park of $60 billion.

I hope that this briefing has given you some sense of the progress we have made over the past four months. As you heard, cutting steel is not what we do first. It is what we do when we know exactly what we have designed to build.

This concludes the briefing and I believe we can take some questions.

9. Questions and answers (open format) and closing remarks by moderator