The year in review—National Shipbuilding Strategy: 2016 annual report
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During the reporting period, progress on the National Shipbuilding Strategy has been made in the following areas:
- $472.3 million in new National Shipbuilding Strategy contracts were awarded throughout the country. Since the introduction of the strategy in 2012, National Shipbuilding Strategy-awarded contracts are estimated to create or maintain close to 7,350 jobs on an annual average during the 2012 to 2022 period
- $243.8 million in contracts were awarded by National Shipbuilding Strategy shipyards to Canadian suppliers, of which $185.5 million were awarded to small and medium-sized enterprises (SMEs)Footnote 1. During the reporting period an additional 129 new Canadian firms, three-quarters (99) of which are SMEs, were engaged by the shipyards for work on strategy-related projects
- 5 key enhancements were announced and implemented to help strengthen approach and delivery of the National Shipbuilding Strategy
- a streamlined procurement strategy was announced and a request for proposal released for the Canadian Surface Combatant, calling for a single open and competitive process to select an existing warship design and design team to work with Irving Shipbuilding's Halifax Shipyard and Canada
- a performance measurement framework is being developed and is expected to be implemented in 2017 to determine if the objectives of the strategy are achieved
Large ship construction
- $270.8 million of new large-ship construction was contracted in 2016 to both the Irving Shipbuilding's Halifax Shipyard and Seaspan’s Vancouver Shipyards
- Construction began on a second Offshore Fisheries Science Vessels. These will be the first large vessels to be delivered by Seaspan’s Vancouver Shipyards under the strategy
- Construction continued on the first 2 Arctic and Offshore Patrol Ships at Irving Shipbuilding’s Halifax Shipyard
Small ship construction
- In 2016, $12.9 million in new small ship construction activity was awarded to Canadian shipyards
- A $5 million contract was awarded to Kanter Marine of St. Thomas, Ontario, to build 2 Channel Survey and Sounding Vessels for the Canadian Coast Guard
- Construction is underway to build and deliver 6 Search and Rescue (SAR) Lifeboats for the Canadian Coast Guard, valued at a total of $89 million (contract awarded in 2015)
Repair, refit and maintenance
- Ship repair, refit and maintenance accounted for $188.6 million of new contracts awarded or amended for the Canadian Coast Guard and the Royal Canadian Navy, including:
- Babcock Canada Inc. of Victoria, British Columbia, awarded $17 million in contracts for submarine maintenance
- Verreault Navigation Inc. of Les Méchins, Quebec, awarded a $8.9 million contract for vessel life extension work for the Canadian Coast Guard Ship (CCGS) Pierre Radisson
- Heddle Marine Services of Hamilton, Ontario, awarded contracts valued at $4.1 million for repair, refits and conversions, including dry docking of the CCGS Hudson Docking
- Canadian Maritime Engineering of Dartmouth, Nova Scotia, awarded a $400,000 contract for repair, refit and maintenance activities on the CCGS Needler
Enhancements to the strategy
The National Shipbuilding Strategy introduced a more effective, well-planned and structured approach to shipbuilding, but transitioning to this model has been complex and difficult. There were a number of challenges and growing pains related to the implementation of the strategy, including:
- ineffective decision making and lack of expert advice needed to guide decision-makers
- government shipbuilding teams that were too small and lacked sufficient expertise to deliver the strategy
- budgets were set in the previous decade using non-standardized approaches and never updated to reflect inflation, significant changes in exchange rates or material costs
- lack of formalized comprehensive mechanisms in place to measure progress and results
- insufficient communications with Canadians on the cost, timelines and progress of various builds
However, a 2016 government review of the strategy identified a number of these problems and in May 2016, the Minister of Public Services and Procurement announced a series of significant enhancements to ensure the strategy effectively meets its objectives and addresses these challenges.
The enhancements to the strategy are in 5 key areas:
- greater expertise and stronger oversight
- increased internal capacity
- more accurate planning
- detailed monitoring
- increased transparency and accountability
Greater expertise and stronger oversight
To complement existing external expertise and oversight measures, such as independent reviews of costing and the productivity and performance of the shipyards, the government secured an expert advisor who provides advice on multiple facets of the strategy, including risk and program management, construction benchmarking and competitiveness, as well as performance and operational improvements.
Several mechanisms were already in place to ensure the effective management of the strategy, including integrated program schedules and independent reviews of requirements, costing and the productivity and performance of the shipyards. However, given the importance of the strategy, oversight and governance were enhanced through the creation of the Cabinet Committee on Defence Procurement and the reinvigoration of the Deputy Ministers Governance Committee (DMGC).
Increased internal capacity
After years of relative inactivity in shipbuilding procurement, the government’s internal capacity to manage shipbuilding projects is not as robust as it needs to be. Shipbuilding is a complex, long-term endeavour, it requires the involvement of dedicated and highly skilled individuals. As such, the government plans to address this challenge by doubling the size of the workforce by recruiting additional employees with the skills required to manage all aspects of the strategy, including negotiations, contracting and project management, procurement experts and engineers within strategy procurement project offices by 2019. The recruitment of additional staff, increased training and external support has already begun and future efforts will ensure that required skills are in place to support the successful delivery of the strategy.
More accurate planning
In order to manage a project on the scale of the National Shipbuilding Strategy, new approaches to costing and more accurate planning are being developed to ensure efficiencies and on-time delivery of the vessels.
Revised costing estimates for the National Shipbuilding Strategy are in development and, once implemented, will improve the quality of information available to better present the impact of uncertainties and risks on cost estimates. More accurate cost estimates with built-in contingencies will support better informed investment decisions. Moreover, the regular reporting of this information will help Ministers to stay abreast of the cost estimates as programs and projects evolve.
In support of the strategy, a number of third party experts have been engaged by the government to help assess cost proposals related to implementation of the strategy’s projects and provide, as required, advice, assistance and leadership on the negotiation and execution of complex contracts and agreements.
Through the use of extensive industry engagement and collaboration, innovative measures are being put into place. Consultations with industry on contracting the in-service support for the Arctic and Offshore Patrol Ships (AOPS) and the Joint Support Ships (JSS) resulted in the integration of the in-service support for the AOPS and the JSS into one, thereby reducing overall costs and benefitting the marine industry through increased workforce stability.
As well, the Canadian Surface Combatant project, the largest within the strategy, in 2016, announced a single open and competitive procurement process to select an existing warship design and design team in order to reduce integration and schedule risks and bring greater cost certainty to the project.
All of these measures will result in a faster, streamlined approach to procure the next-generation fleet of warships.
To ensure the strategy remains on-track to meet its objectives, the government is working closely with third party experts and the shipyards on measures to assess performance. Assessments will be made on numerous factors, including the timeliness of projects and measures designed to support assessment of shipyard production performance. Furthermore, monitoring of projects and their economic benefits will permit the Government to track the progress of the strategy, identify gaps, and address them promptly.
As part of a broader approach to looking at defence procurement performance overall, a performance measurement framework is being developed and is expected to be implemented in 2017 to enable the collection and integration of information and analysis required to answer fundamental questions about the performance of the strategy in achieving its key objectives. This performance measurement framework is built around the objectives of the strategy and performance will be measured against schedule, budget and scope; production performance and the status of the marine sector overall; and the direct and indirect economic benefits resulting from shipbuilding and related activities. Full implementation is expected by the fall of 2017.
Increased transparency and accountability
The government is committed to open and transparent communications with Canadians on the strategy. This includes new public reporting on progress the primary contractors are making in meeting their economic obligations to Canada. To ensure Canadians and stakeholders are kept informed of plans and progress, annual reports and regular updates will be provided, tracking the successes, milestones, and challenges of the strategy.
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