Defence and Marine Procurement: Standing Committee on Government Operations and Estimates—June 16, 2020
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Status of defence procurement projects
Context
Due to COVID-19, several defence procurement projects have halted or slowed, including the construction and maintenance of ships.
Note
All questions related to the challenger jets will be referred to the Minister of National Defence.
Suggested response
- Our government is taking strong action to protect our economy, jobs, and the health and safety of Canadians during the global COVID-19 outbreak
- Canada will continue to monitor the situation, analyze potential impacts and explore all possible financial measures available to support the defence and marine industry and protect Canada’s long term national security interests
- We are currently assessing the impact of COVID-19 on the delivery of ongoing and future major procurement projects
- We urge all employers during this critical time to follow the recommendations of public health officials, and to go above and beyond standard health and safety measures to make sure that workers are safe in this extraordinary situation
If pressed on the budget, delays and impact:
- procurements are proceeding as planned, barring any issues faced by industry, which we will examine with companies on a case-by-case basis
- Canada will work through the contractual and financial implications of these circumstances to find resolutions acceptable to both Canada and industry
- we will work with the defence and shipbuilding industry to mitigate any budgetary and schedule impacts of the COVID-19 response, given the uncertainties associated with the duration of COVID-19 and related strategies, it is premature to assess the overall schedule impact to projects
If pressed on challengers:
- on June 5, 2020, PSPC awarded a 75 million US dollars (plus applicable taxes) non-competitive contract to Bombardier Inc. for the acquisition of 2 new Challenger 650 aircrafts including initial training, publications, maintenance equipment, spare parts to sustain 3 years of in-service support, and additional operational equipment. The contract does not include options to support the aircraft’s full life-cycle costs or any additional scope that would increase the value of the contract in the future
- these aircrafts will replace the Royal Canadian Air Force’s (RCAF) 2 oldest challenger jets, which are facing obsolescence. Procured in the early 1980s, they served multiple purposes for the Government of Canada, such as medical evacuation, and military transportation, and have assisted on multiple humanitarian relief and disaster assistance operations
- following changes to international airspace regulations that began in January 2020, these 2 older aircrafts are no longer compliant with certain regulations. As such, operation of these aircrafts outside of Canada requires additional efforts to seek exemptions or reroute flights
If pressed on the challenger contract:
- the Challenger 650 aircrafts were acquired on a non-competitive basis. Factors considered in this decision included commonality with the existing fleet, timeliness in delivery and operational readiness of the challenger fleet
- to ensure that Canada obtains value for money, PSPC conducted a thorough cost analysis using supporting information from Bombardier as well as a third party market analysis
If pressed on the sale of light armoured vehicles (LAVs) to Saudi Arabia:
- Canada has taken firm action to strengthen our export controls system by passing legislation that enshrines the United Nations Arms Trade Treaty assessment criteria, including human rights, into our export laws
- experts from across the Government of Canada evaluate every export permit application on a case-by-case basis to determine what the goods or technology will be used for, where they will be used and by whom, among other factors
- permits will not be issued where the Minister of Foreign Affairs determines there to be substantial risk that they could be used to commit or to facilitate serious violations of international humanitarian law, international human rights law, or serious acts of gender-based violence
If pressed on the sole-source of armoured combat support vehicles (ACSV) or LAVs to General Dynamics Land Systems Canada:
- the ACSV contract is a sole-source contract that was awarded on September 5, 2019 to replace current armoured support vehicles, which have exceeded their original life expectancy
- the scope of work includes the design, build and delivery of 360 ACSVs in 8 variants along with kits, training, spares and support
- the exception to the default competitive procurement approach was justified by the operational advantages of having a common LAV 6 platform with the majority of the Canadian Army’s existing vehicles, maintaining a strategic source of supply and supporting key industrial capabilities in Canada
- this approach also leverages the existing supply chain, facilitates training for the Canadian Army and fully meets the operational requirements of new ACSV while integrating very well with the existing fleet of LAV 6s
If pressed on the third yard:
- Chantier Davie has pre-qualified to become the third strategic partner under the National Shipbuilding Strategy
- Chantier Davie is now going through the next steps of the process which will include a third-party assessment of the shipyard’s infrastructure, submission of a formal proposal, and a due diligence process to ensure the shipyard is financially capable of performing the work and making any necessary upgrades to its infrastructure
- subject to successful negotiations, Canada intends to enter into an umbrella agreement with the third yard in early 2021
- the third yard will build 6 program icebreakers for the Canadian Coast Guard
- the entire invitation to qualify process was overseen by an independent fairness monitor
If pressed on the Future Fighter Capability Program:
- at the request of industry, Canada has granted one-month extension to the June 30, 2020 proposal submission deadline. Canada has therefore requested that all suppliers inform Canada by July 1, 2020 regarding their intention to submit a proposal
- Canada is actively planning for the upcoming bid evaluation once proposals are received on July 31, 2020
If pressed on ‘excusable delay’ requests:
- in order for Canada to consider a delay excusable, certain factors set out in the contracts must be met, including a requirement for contractors to notify Canada and to submit a work around plan
- therefore, in the specific context of COVID-19, contractors wishing to submit an excusable delay claim to Canada should review their contracts and proceed in accordance with the requirements they contain
- industry may review their own specific contract and submit an excusable delay request according to the provisions of their respective contract
Background
Irving Shipbuilding
In response to COVID-19:
- Irving Shipbuilding Inc. (ISI) suspended most industrial operations as of March 20, 2020, with special measures for working from home or within ISI’s offices implemented where possible. ISI has since commenced a gradual return-to-work, with a reduced number of production employees now in the shipyard to ensure physical distancing. COVID-19 safety measures have been implemented, including temperature screening for all individuals entering the site
- design work for the Canadian surface combatant continues to progress, along with limited but increasing work on the arctic and offshore patrol ships (AOPS). ISI intends to continue gradually ramping up the number of tradespeople in the yard provided that physical distancing can be maintained
Vancouver Shipyards
Operations at Vancouver Shipyards (VSY) continue but are being closely monitored. Staff not in direct support of production are working from home, although return to work planning has begun, while around 95% of tradespeople are working in shifts at the shipyard. 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 first joint support ship (JSS) and final offshore fisheries science vessel (OFSV), albeit at a reduced rate of production.
Current status on joint support ships
The joint support ships build contract, which will allow the transition to full-rate construction of the first ship, the construction of early blocks for which began in June 2018, and then the second ship, was awarded on June 10, 2020 and announced on June 15, 2020. The impact of COVID-19 on the JSS project has thus far been minimal. Early block construction of the first vessel has continued throughout the pandemic.
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.
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.
Challenger jets
To ensure that Canada obtains value for money, PSPC conducted a thorough cost analysis using supporting information from Bombardier as well as a third party market analysis. The price was deemed to be fair and reasonable.
Acceptance and title transfer of the aircraft are expected to occur on June 30, 2020, and July 3, 2020. Aircrew started training at CAE facilities in Montréal, Quebec on June 8, 2020. Both aircrafts will undergo 2 post-delivery retrofit periods, the first in mid-July to mid-August 2020 and the second in December 2020 and January 2021. The RCAF will be able to operate the aircrafts starting mid-August 2020.
National Shipbuilding Strategy
Context
The National Shipbuilding Strategy (NSS) is a long-term commitment to renew the vessel fleets of the Royal Canadian Navy (RCN) and Canadian Coast Guard (CCG), create a sustainable marine sector, and generate economic benefits for Canadians.
Suggested response
The government is delivering on its commitment to continue to renew the RCN and the CCG fleets, revitalize the shipbuilding industry across Canada, create middle-class jobs, and ensure Canada’s marine services have the modern ships that they need.
Progress on current work
- At Seaspan’s Vancouver Shipyards (VSY), the first 2 offshore fisheries science vessels have been delivered to the CCG, with delivery of the third vessel expected in summer 2020. Work is ongoing on the first joint support ship (JSS)
- At Irving Shipbuilding, 4 arctic and offshore patrol ships are under construction with the first to be delivered to the RCN in 2020, design work on the Canadian surface combatant is advancing
Third yard
- Chantier Davie has pre-qualified to become the third strategic partner under the NSS
- Chantier Davie is now going through the next steps of the process which will include a third-party assessment of the shipyard’s infrastructure, submission of a formal proposal, and a due diligence process to ensure the shipyard is financially capable of performing the work and making any necessary upgrades to its infrastructure
- Subject to successful negotiations, Canada intends to enter into an umbrella agreement with the third yard in early 2021
- The third yard will build 6 program icebreakers for the Canadian Coast Guard
- The entire invitation to qualify process was overseen by an independent fairness monitor
Opportunities for other yards / Chantier Davie
- Across the country, opportunities exist for Canadian shipyards and businesses to win contracts for small vessel construction, repair, refit and maintenance
- Since 2012, Chantier Davie has been awarded $2.1 billion in NSS contracts, they are presently converting 2 icebreakers for the CCG, and are undergoing a process to become the third shipyard under the NSS
If pressed on the polar icebreaker:
- the government is exploring procurement options for construction of the polar icebreaker, no decisions have been taken
- a request for information was issued on February 28, 2020 to obtain information on domestic shipyard capability and capacity to build a polar icebreaker which closed on March 13, 2020
If pressed on interim icebreaker capacity for Canadian Coast Guard:
- the government awarded $817 million in contracts to Chantier Davie for the acquisition of 3 medium commercial icebreakers and conversion work. The first vessel began operations in December 2018, with the second vessel CCGS Jean Goodwill and third vessel CCGS Vincent Massey available by fall 2020 and spring 2021 respectively
If pressed on joint support ships [note: questions related to the budget for the project and technical requirements (including the design requirements) should be referred to the Minister of National Defence]:
- the Government of Canada is committed to the NSS and providing members of the RCN with the equipment they need to ensure their future operational effectiveness
- under the strategy, we are building whole new classes of ships, in new shipyards, with new workforces, the construction of a new class of ships is a complex endeavour and cost and schedule estimates are prone to fluctuations as the design of the JSS is finalized
- construction of the first JSS that began in June 2018 is ongoing
- the impact of COVID-19 on the JSS project has thus far been minimal, early block construction of the first vessel has continued throughout the pandemic
- award of the JSS build contract was announced on June 15, 2020. This contract will allow the transition to full-rate construction of the first ship, the construction of early blocks for which began in June 2018, and then the second ship
Background
Contracts under the National Shipbuilding Strategy
From 2012 to the end of 2019, the government signed approximately $13.78 billion in new NSS contracts throughout the country. These contracts are estimated to contribute over $17.04 billion ($1.54 billion annually) to gross domestic product (GDP), and create or maintain more than 15,521 jobs annually, through the marine industry and its Canadian suppliers between 2012 and 2022.
Irving Shipbuilding Inc. |
VSY |
Davie |
Other shipyards / companies |
---|---|---|---|
$4.74 billion |
$1.84 billion |
$2.05 billion |
$5.14 billion |
Vessel |
Delivery date |
Budget |
---|---|---|
Offshore fisheries science vessel (OFSV) 1 |
June 27, 2019 |
$687 million |
OFSV 2 |
November 29, 2019 |
$687 million |
OFSV 3 |
Summer 2020 |
$687 million |
Joint support ship (JSS) 1 |
2023 |
$3.4 billion (under review) |
JSS 2 |
2025 |
$3.4 billion (under review) |
Offshore Oceanographic Science Vessel (OOSV) |
2024 |
$331 million (under review) |
Arctic and Offshore Patrol Ship (AOPS) 1 |
2020 |
$4.3 billion |
AOPS 2 |
Late 2020 |
$4.3 billion |
AOPS 3 |
Fall 2021 |
$4.3 billion |
AOPS 4 |
Fall 2022 |
$4.3 billion |
AOPS 5 |
Summer 2023 |
$4.3 billion |
AOPS 6 |
Winter 2024 |
$4.3 billion |
AOPS 7 |
Winter 2025 |
$1.5 billion (estimate) |
AOPS 8 |
Fall 2025 |
$1.5 billion (estimate) |
Canadian Surface Combatant (CSC) |
15 CSCs between 2020s to 2040s |
$56 to 60 billion (estimate) |
Multi-Purpose Vessel (MPV) |
Up to 16 MPVs starting in late 2020s |
$14.2 billion (estimate) |
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