Defence and Marine Procurement: Standing Committee on Government Operations and Estimates—May 15, 2020
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Impact of COVID-19 on defence and marine sectors
In this section
Key messages
- Our government is taking strong action to protect our economy, jobs, and the health and safety of Canadians during the global COVID-19 outbreak
- We are currently assessing the impact of the pandemic on delivery of ongoing and future major procurement projects
- We are working through the implications of these circumstances, and to mitigate any budgetary and schedule impacts due to the COVID-19 situation
Defence sector
Key message
Canada will continue to monitor the situation, analyze potential impacts and explore all possible financial measure available to support the defence industry and protect Canada's long term national security interests.
If pressed on jet 1-month extension:
- the government is committed to ensuring that members of the Canadian Armed Forces have the equipment they need to do their jobs and protect Canadians, while maximizing economic benefits for the country
- the government delivered on its promise to launch an open and transparent competition to replace Canada's fighter fleet with 88 advanced jets, and we are making great progress
- at the request of industry, Canada has granted a 1-month extension to the June 30 proposal submission deadline, in the wake of the COVID-19 pandemic
- the pandemic has impacted numerous businesses in various capacities, and the eligible suppliers are no exception
- the proposals are now due on July 31, 2020
- this extension supports the government's commitment to conduct an open, fair, and transparent competition, maximizing the likelihood that Canada will receive competitive proposals that meet Canadian requirements
- we continue to anticipate awarding a contract in 2022, with delivery of the first replacement aircraft as early as 2025
If pressed on which supplier requested an extension, we do not disclose information about which suppliers make requests during active procurements
Context
Defence suppliers contribute to economic development and to strengthening the country's security. Like many industries facing the pandemic, defence industry activities are impacted, which can affect the delivery of goods and services and the employment status of some workers.
Unlike other industrial sectors in Canada, defence suppliers have a limited number of clients and strongly depend on the Government of Canada. In these conditions, and within a pandemic context, it is highly unlikely that these suppliers will be able to find new clients and develop new markets. As Canada's operational and industrial capabilities needs to be maintained, it is in the interest of the government to ensure the financial viability of its suppliers.
A number of Canadian defence suppliers have reached out to government officials identifying the need for urgent support, as they are experiencing serious cash flow difficulties resulting from reduced activities in light of the COVID-19 pandemic situation.
In collaboration with other government organizations and central agencies, Public Services and Procurement Canada (PSPC) is currently exploring measures to support the defence industry.
Marine sector
Key messages
- We urge all employers during this critical time to follow the recommendations of public health officials, to go above and beyond standard health and safety measures to make sure that workers are safe in this extraordinary situation
- We are in direct contact with our shipyards, monitoring the ongoing situation, and our government is taking strong action to protect our economy, jobs, and the health and safety of Canadians during the global COVID-19 outbreak
- Due to COVID-19 to date, Irving Shipbuilding Inc. (ISI) has suspended most industrial operations, production at Vancouver Shipyards (VSY) remains ongoing and the Province of Quebec has declared Chantier Davie an essential service
- The shipyards are responsible for their operations and have implemented measures to ensure their compliance with the direction of Public Health and government authorities
- We are currently assessing the impact of the pandemic on delivery of ongoing and future major procurement projects
- Canada will work with the shipyards to mitigate any budgetary and schedule impacts of the COVID-19 response
- Canada will work through the contractual and financial implications of these circumstances to find resolutions acceptable to both Canada and sectors
Context
Canada's National Shipbuilding Strategy is a long-term plan to renew the fleets of the Royal Canadian Navy and the Canadian Coast Guard, build a sustainable domestic marine sector, and generate economic benefits for Canada. In response to COVID-19, ISI has suspended most industrial operations, production at VSY remains ongoing and the Province of Quebec has declared Chantier Davie an essential service.
Irving Shipbuilding Inc.
ISI suspended most industrial operations as of March 20, 2020. The initial 3-week pause has since been extended. The suspension impacts about 1,100 employees, while special measures for working from home or within ISI's offices have been implemented for the remaining 650 to 700 employees. Design work for the Canadian surface combatant continues through the suspension, along with limited work for the Arctic and offshore patrol ships (AOPS). ISI has commenced a gradual return-to-work, with a limited number of production employees now in the shipyard to ensure that physical distancing can be maintained.
Canada is working closely with ISI to monitor the financial impact of the suspension and negotiate a plan for COVID-19 related delays. While we do expect the delivery of the first AOPS to be delayed due to COVID-19, it is too soon to tell exactly when we can expect the first delivery, or how it might impact the overall project timeline.
Vancouver Shipyards
Operations at VSY continue but are being closely monitored. White collar workers not in direct support of production are working from home, while other measures being taken include following self-isolation guidelines, additional social distancing measures, cancelling large gatherings and increased cleaning. VSY has been working closely with WorkSafeBC in implementing these practices, and adjusting and escalating actions in response to new regulations and guidance.
This approach has allowed VSY to continue construction of the joint support ship (JSS) and final offshore fisheries science vessel, albeit at a reduced rate of production. The terms and conditions of the JSS build contract are being finalized between Canada and VSY with the goal of awarding the contract in the near future.
Canada is working closely with VSY to monitor the impact of COVID-19 and associated measures. Given the uncertainties associated with the duration of COVID-19 and related strategies, it is premature to assess overall schedule implications for the projects at VSY.
Chantier Davie
On March 24, 2020, in response to COVID-19, the Quebec Government published a list of essential industrial sectors, under which Chantier Davie qualified. Chantier Davie has conducted on-site training for dealing with COVID-19, implemented a set of strict directives, and negotiated with their union to maintain intact squads instead of rotating employees through different teams. Nonetheless the workforce numbers and capacity have diminished to accommodate the social distancing measures implemented.
Support for the defence industry
Key message
Canada will continue to monitor activities taken by our like-minded allies insofar as support for their respective defense industries.
Context
In Canada, as with our allies, defence contractors are an essential part of the maintenance of safety and security of our respective nations. As with many industries, the COVID-19 pandemic has meant that these contractors have had to make significant layoffs to respect the operational closures required. Unlike in some other industry sectors, for a number of defence contractors the government is their primary or only client. If current domestic capability is to be maintained, and critical operational needs are to be met, the government has a vested interest in the financial viability of these companies.
United States of America
Following the declaration of defense contractors as essential and to minimize the financial impact on the base itself. A new task force has been put in place to coordinate and maximize acquisitions flexibility, provide guidance, and leverage existing tools (for example, contract flexibility, increasing progress payments, releasing withheld contract funds) and partnerships (for example, national defence industrial association) to assess the impact, to protect and incentivize industry, and to promote the base's capabilities to aid in a government-wide response.
The USD$2 trillion stimulus package, the Coronavirus Aid, Relief and Economic Security Act (CARES Act), included a USD$17 billion federal loan program for businesses deemed "critical to maintaining national security". In addition, the CARES Act contains a provision enabling contractors to be paid by the government, and for compensating workers to be kept in a ready state if they are unable to work due to the pandemic. Additional funding is being considered, including investment in those industries that support classified work.
Five defence industry chief executives are on the White House's list of business leaders who will be consulted on restarting a coronavirus-hit economy.
United Kingdom
The United Kingdom (UK) has developed a policy to continue to pay their suppliers as expected before the pandemic (even if service delivery is disrupted or temporarily suspended) until at least the end of June to ensure service continuity during and after the current COVID-19 outbreak. This may include a range of approaches such as forward ordering, payment in advance/prepayment, interim payments and payment on order (not receipt). To qualify, suppliers should agree to act on an open book basis and make cost data available to the contracting authority during this period.
To date, the UK has issued £65.5 billion in emergency spending measures to prop up businesses and jobs.
UK's fourth emergency package of measures announced Thursday March 26, 2020, £9 billion (CAD$11 billion) of support for the self-employed, brings the total aid announced since March 11, 2020 to £65.5 billion.
Australia
Australia has announced they will proceed with advance payments of more than A$500 million to its defence industry, stating the important contribution to their economy, security posture and safety. As a whole, the Australian Government has injected a total of A$189 billion (CAD$128.6 billion) into its economy via 2 stimulus packages. To combat rising unemployment, it also earmarked A$130 billion (CAD$88.4 billion) towards wage subsidies over the next 6 months.
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