Defence and marine procurement: Standing Committee on Government Operations and Estimates—March 4, 2022
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National Shipbuilding Strategy
- The National Shipbuilding Strategy (NSS) is about Canadians and Canadian businesses working together to strengthen and renew our Naval and Coast Guard fleets
- It is a long-term investment that is delivering ships for the Navy and the Canadian Coast Guard and jobs and economic growth for Canada
- As with all large-scale procurement projects, the cost and timelines for National Shipbuilding Strategy projects will be closely managed, and we will continue working closely with industry to ensure the best value is provided to Canadians throughout the duration of these projects
Key data points
- As of December 31, 2021:
- Canada has awarded approximately $21.07 billion in NSS contracts to businesses throughout the country
- of these, $975.93 million went to small businesses (less than 250 employees)
- NSS contracts awarded between January 1, 2012 and December 31, 2020 are estimated to:
- contribute approximately $20 billion ($1.82 billion annually) to Canada’s gross domestic product (GDP)
- create or maintain approximately 16,931 jobs annually
- NSS contracts awarded from 2012 to 2021:
- Irving Shipbuilding: $6.52 billion
- Vancouver Shipyards: $5.26 billion
- Chantier Davie: $2.26 billion
- other shipyards/companies: $7.03 billion
Large ships and their status
- Arctic and offshore patrol ships (AOPS): 6 vessels (AOPS 1 to 6) for the Royal Canadian Navy (RCN) (note: the ongoing COVID-19 pandemic will have an impact on project timelines, the extent of which has not yet been fully determined)
- first 2 AOPS delivered to RCN in July 2020 and July 2021; next 3 AOPS under construction
- project budget: $4.3 billion
- AOPS: 2 vessels (AOPS 7 and 8) for the Canadian Coast Guard (CCG)
- work underway to modify design to meet CCG requirements
- project budget: $1.5 billion (estimate)
- Canadian surface combatants (CSC): 15 vessels for the RCN
- currently in design phase
- project budget: $56 to $60 billion (estimate)
- Joint support ships (JSS): 2 vessels for the RCN (note: the ongoing COVID-19 pandemic will have an impact on project timelines, the extent of which has not yet been fully determined)
- JSS 1 under construction
- JSS 2 expected to begin construction in early 2022
- project budget: $4.1 billion
- Multi-purpose vessels (MPV): up to 16 vessels for the CCG
- construction is expected to begin in the mid-2020s
- project budget: $14.2 billion (estimate)
- Offshore fisheries science vessels (OFSV): 3 vessels for the CCG
- all 3 vessels delivered to the CCG in 2019 to 2020, marking completion of first class of large ships built under NSS
- project budget: $788.5 million
- Offshore oceanographic science vessel (OOSV): 1 vessel for the CCG
- build contract awarded in January 2021; construction started March 2021
- project budget: $966.5 million
- Polar icebreakers: 2 vessels for the CCG
- engineering and construction of 2 polar icebreakers announced in May 2021
- project budget: to be determined
Marine services and small vessels
- Several key marine service contracts:
- AOPS/JSS in-service support (AJISS) contract: estimated at $5.2 billion for up to 35 years
- Halifax-class frigates maintenance: up to $7.7 billion
- industry engagement underway for future maintenance and potential disposal of minor warships and auxiliary vessels and associated equipment
- Construction and delivery of small vessels is underway:
- all 7 hydrographic survey vessels delivered to the CCG as of June 2017
- 2 channel survey and sounding vessels delivered to CCG in October 2018
- CCG has requirement for 20 search and rescue (SAR) lifeboats; design, build, and delivery are underway; 10 vessels have been delivered so far
- acquisition of 3 medium commercial icebreakers and conversion work, valued at $843.47 million (value increased to $912 million in July 2021); 2 vessels have been delivered and the third is expected in 2022
- construction underway on 2 of 4 naval large tugs for the RCN
- Small vessel construction and repair, refit and maintenance program strategies
- opportunities to improve and streamline procurement are being implemented
- 2 ferries for Transport Canada to be built by Chantier Davie (not part of NSS)
- Chantier Davie Canada Inc. (CDCI) will design and construct 2 new ferries for Transport Canada to replace aging vessels (39-year-old motor vessel (MV) Madeleine and 49-year-old MV Holiday Island)
- in July 2020, a ferry was purchased and entered into service in June 2021 as an interim measure to replace the MV Madeleine until the new vessel being built at CDCI is ready for service
- Chantier Davie has pre-qualified to become the third strategic partner under the National Shipbuilding Strategy. The entire invitation to qualify process was overseen by an independent fairness monitor
- Canada and Chantier Davie are now going through the steps of the process which include a third-party assessment of the shipyard’s infrastructure, submission of a formal proposal, and a due diligence process
- This is a complex, multi-step qualification process and it is imperative that we get it right, therefore we are making every effort to finalize this process, while ensuring best value for the Government of Canada and all Canadians
Key data points
- Canada intends to enter into an umbrella agreement with the third yard in 2022
- Package to include 6 program icebreakers and 1 Polar icebreaker
In May 2019, Canada identified the need to select a third Canadian shipyard under NSS. The selected yard will build 6 program icebreakers and 1 polar icebreaker for the CCG.
Following the invitation to qualify, Chantier Davie was the only shipyard that pre-qualified to the next stage of the selection process (request for proposal stage). Before Chantier Davie can be confirmed as the third shipyard, it must be successful in its response to the request for proposal, meeting all the evaluation criteria, including a financial due diligence process and technical requirements (plans) to achieve target state.
Chantier Davie will continue work under programs such as medium icebreakers conversions, Halifax class docking work period contract and Transport Canada ferries, in parallel with the third yard selection process.
- On May 6, 2021, the Government of Canada announced its intention to move forward with the construction of 2 Polar icebreakers
- Seaspan’s Vancouver Shipyards will engineer and construct 1 vessel while the other vessel will be engineered and constructed at Chantier Davie, pending the successful completion of the ongoing process to select it as the third strategic partner for large ship construction under the National Shipbuilding Strategy
Key data points
- Construction of these ships will generate approximately 300 jobs per vessel at the shipyards, and 2,500 jobs across the marine supply chain
On February 28, 2020, the Government of Canada issued a request for information, open to all Canadian shipyards, seeking information on domestic shipyard capability and capacity to construct and deliver a Polar-class icebreaker.
The request for information closed on March 13, 2020 and Public Services and Procurement Canada received 4 responses.
On May 6, 2021, the government announced its intention to move forward with the construction of 2 Polar icebreakers.
This procurement approach is the best path for ensuring that at least 1 of the Polar icebreakers is delivered by 2030 when the Canadian coast guard ship (CCGS) Louis S. St-Laurent needs to be retired from service.
As the Government of Canada progresses through the various contracting and design phases, a project budget that includes all costs associated will be determined and publicly disclosed.
Canadian surface combatant
- The Government of Canada has committed to 15 Canadian surface combatant ships for the Royal Canadian Navy
- Design work on the Canadian surface combatant is advancing
- With respect to Navantia, which was an unsuccessful bidder for the competitive Canadian surface combatant request for proposals:
- in the Navantia application for judicial review, the Attorney General of Canada had a statutory obligation to file a section 38 of the Canada Evidence Act notice because of the documents requested and it was not a discretionary decision by government officials
- beyond this explanation of the application of section 38, we are not able to comment on the matter as it is before the courts
Key data points
- Project budget is estimated at $56-60 billion
The Canadian surface combatant project will replace both the Iroquois-class destroyers and the Halifax-class multi-role patrol frigates with a single class of ship capable of meeting multiple threats on both the open ocean and the highly complex coastal environment. The CSC project is the largest and most complex shipbuilding initiative in Canada since World War II.
Navantia was an unsuccessful bidder for the competitive Canadian surface combatant request for proposals which was won by Lockheed Martin Canada. Navantia has applied to the Federal Court for a judicial review challenging the award to Lockheed Martin and the evaluation of its bid. Navantia contends the BAE Type 26 ship selected for the Royal Canadian Navy's new fleet failed to meet the requirements of the request for proposal and that their bid was improperly evaluated.
As part of the judicial review, Navantia sought disclosure of documents that contained sensitive or potentially injurious information. The Attorney General of Canada objected to the production of certain sensitive information and filed a section 38 Canada Evidence Act application in Federal Court on January 20, 2021.
With respect to section 38 in the Navantia application, the Attorney General of Canada had a statutory obligation to file, and it was not a discretionary decision by government officials. Section 38.01 requires every participant in a proceeding to advise the Attorney General in writing where there is a possibility of disclosure of sensitive or potentially injurious information.
Background by Shipyard
Seaspan’s Vancouver Shipyards Co. Ltd.
All 3 offshore fisheries science vessels have been delivered to the Canadian Coast Guard, marking the completion of the first class of large ships built under the NSS. In addition, work is ongoing on the first joint support ship and construction of 1 offshore oceanographic science vessel began in March 2021. Finally, early design work for the multi-purpose vessels and the Polar icebreaker has commenced.
Irving Shipbuilding Inc.
Canada’s lead Arctic and offshore patrol ship, the Her Majesty’s Canadian Ship (HMCS) Harry DeWolf, was delivered and accepted by Canada on July 31, 2020 and the ship was commissioned into the RCN on June 26, 2021. The second Arctic and offshore patrol ship, future HMCS Margaret Brooke, was delivered and accepted by the RCN on July 15, 2021, followed by the launch of the third Arctic and offshore patrol ship, future HMCS Max Bernays, on October 23, 2021. Two other Arctic and offshore patrol ships for the Royal Canadian Navy are currently under construction and design work on the Canadian surface combatant is advancing. Finally, design work on Arctic and offshore patrol ships 7 and 8 for the Canadian Coast Guard is also advancing.
Chantier Davie Canada Inc.
Chantier Davie is converting 3 medium icebreakers for the Canadian Coast Guard. The first vessel, CCGS Captain Molly Kool, began operations in December 2018, and the second vessel, CCGS Jean Goodwill, was delivered to the Canadian Coast Guard in November 2020. The third vessel, CCGS Vincent Massey, is expected to be in service in 2022.
An advance contract award notice (ACAN) signaling our intention to enter into a contract with Chantier Davie for required vessel life extension work on the CCGS Louis S. St-Laurent, Canada’s largest icebreaker, closed November 19, 2020. Chantier Davie has been identified as the only facility in Eastern Canada capable of performing this work during the specified time period. Contract award is anticipated in early 2022 with work scheduled to begin in spring 2022. Finally, on July 21, 2020 the HMCS St. John’s arrived at Chantier Davie for repair and maintenance. It is the first vessel to be re-furbished under the Halifax class docking work period contract awarded to Chantier Davie in July 2019. Work is expected to be completed in spring 2022.
Future Fighter Capability Project
- 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 ensuring the best value for Canadians
- We delivered on our promise to launch an open, fair and transparent competitive process to replace Canada's fighter fleet with 88 advanced fighter jets, and we are making great progress
- My department is working with the Department of National Defence, the Royal Canadian Air Force, and Innovation, Science, and Economic Development on next steps for the process and I look forward to that decision
- We will continue to keep Canadians abreast of our progress when information is available to share
Key data points
- Competition launched to replace Canada’s fighter fleet with 88 advanced jets in December 2017
- Proposals received from all 3 eligible suppliers:
- Swedish government— SAAB AB
- United States Government—Lockheed Martin Corporation
- United States government—Boeing on July 31, 2020
- Canada announced that the Swedish government—SAAB AB and the United States government—Lockheed Martin Corporation were eligible for the next phase of the procurement process on December 1, 2021
- Canada continues to work towards a contract award in 2022, with delivery of aircraft as early as 2025
An industry day was held in January 2018 with suppliers, foreign governments and Canadian industry to inform them about the solicitation process and to provide participants an opportunity to network.
An eligible supplier list was established in February 2018, which was followed by extensive supplier engagement leading up to the release of the formal request for proposals (RFP) in July 2019. Suppliers were engaged on Canada’s requirements and evaluation criteria, were provided 2 versions of the draft RFP for their review and feedback, and were generally pleased with the level of engagement.
The RFP was released in July 2019. A rigorous assessment of mandatory requirements was conducted prior to the release of the RFP to ensure these requirements were appropriate, reasonable and would lead to competition.
Canada extended the bid closing date by a total of 3 months as a result of requests from eligible suppliers and received 3 proposals in July 2020. By submitting a proposal, suppliers agreed to have their offers assessed against the evaluation criteria set out in the RFP.
The proposals have been evaluated against mandatory and rated requirements on capability including security, cost and economic benefits.
Mandatory requirements are the criteria that a bidder must meet in order to be compliant and be considered for a contract award. The rated criteria determine score and ranking of the bidder.
The RFP includes a phased bid compliance process which is designed to prevent a proposal from being rejected if it did not meet mandatory criteria and the bidders are given an opportunity to address any non-compliance related to their proposal.
An independent Fairness Monitor Team has been engaged to review, observe and monitor the procurement activities including the mandatory and rated criteria evaluation and phased bid compliance process. The interim report from the fairness monitor, dated November 26, 2021, concluded that the procurement was conducted in a fair, open and transparent manner.
In accordance with the Future Fighter Capability Project (FFCP) RFP, and following proposal evaluation, Canada has to make a selection for the next phase and can either implement a dialogue with the 2 remaining eligible bidders or proceed directly to finalization with the top ranked bidder.
Parliamentary Budget Officer Report: Canadian Surface Combatants
- Over the past several years, significant progress has been achieved on the Canadian Surface Combatant project
- The competitive process used to select CSC has been fair, open and transparent. It will ensure not only a capability-to-build that meets the Royal Canadian Navy’s needs but also will strengthen Canada’s shipbuilding industry while generating jobs for many decades to come
- Since the CSC definition contract was issued to Irving Shipbuilding Inc. in February 2019, the first phase of the design process has been substantially completed. Preliminary design review commenced in December 2021 with an anticipated completion in fall 2022
- Progress and successes are being achieved. However, shipbuilding is highly complex and we must continue to work with shipyards and industry to address ongoing challenges, including costs, estimated timelines and productivity
Questions on budget, requirements, estimated timelines, international comparisons, project management should be directed to the minister of National Defence.
Key data points
- 15 CSC will be built by Irving Shipbuilding Inc. under the National Shipbuilding Strategy, at an estimated cost of $56 billion to $60 billion (taxes excluded)
- The parliamentary budget officer (PBO) report on the CSC, published on February 24, 2021, estimates the cost of the CSC project at $77.3 billion (taxes included)
The CSC project represents the largest procurement under the NSS and is part of the work package to be built by Irving Shipbuilding Inc. The 15 CSC will replace the Royal Canadian Navy’s existing fleet of frigates and retired destroyers at an estimated cost of $56 billion to $60 billion, figures that are exclusive of taxes.
The PBO reported on the CSC projected costs in 2017 and 2019. In 2017, the PBO estimated the cost of 15 CSCs at $61.82 billion inclusive of taxes. In 2019, the PBO revised the cost to $69.8 billion inclusive of taxes. While the final design and build strategy is yet to be completed, the PBO observed that project delays would further increase the cost of the project.
The PBO published a report on February 24, 2021, entitled “The Cost of Canada's Surface Combatants: 2021 Update and Options Analysis” that now estimates the cost of the CSC project at $77.3 billion. The PBO also provides cost forecasts for alternative procurement scenarios that assume a 4-year delay to the overall project should a new design be selected to replace the type 26.
Analysis has continued since the PBO report was published in February 2021 to examine the key differences between the Department of National Defence (DND) estimate and the PBO estimate. One area of significant difference was the inclusion of provincial taxes (included in the PBO estimate but not included in the DND estimate). It has been determined that the removal of provincial taxes from the PBO estimate of $77.3 billion would generate a more pertinent comparison. Removal of the provincial tax amount results in a PBO estimate in the range of $70 billion and brings it closer to the DND cost estimate of $56 to 60 billion.
Strategic tanker transport capability project
- The government is advancing work to replace Canada's CC-150 Polaris, which included an open and transparent competition
- We are currently working with the qualified supplier to develop a costed proposal for mid-2022
- Concurrently, work is underway to asses complementary options, notably the purchase of used aircraft to maximize value for money that could see some replacement aircraft delivered on an accelerated timeframe
Key data points
- February 12, 2021, an invitation to qualify was published
- April 1, 2021, the result was published with Airbus Defence and Space SA of Madrid, Spain as the sole qualified supplier
- A directed request for proposal to Airbus Defence and Space SA is anticipated in winter 2022
In June 2017, the Government of Canada articulated within the strategic vision of the new Strong, Secure, Engaged (SSE) Defence Policy that Canada needs an agile, multi-purpose, combat-ready military. In response to SSE initiative #47, the strategic tanker transport capability (STTC) project is the means to recapitalize the next generation strategic air-to-air tanker-transport capability, and replace the CC-150 Polaris fleet.
Aligning with the SSE requirement to enhance interoperability with Canada’s allies, the minister of National Defence has a mandate to renew Canada’s strong commitment to the North American Aerospace Defence Command (NORAD) and the North Atlantic Treaty Organization (NATO), acting in multiple theatres simultaneously, while also bolstering disaster relief, search and rescue, contributing to peace operations and capacity building. The STTC platform will be equipped to support and contribute to these renewed commitments through delivery of air-to-air refueling of Canadian, allied and coalition aircraft, strategic Government of Canada transport, aeromedical evacuation, personnel and equipment transport.
Military pistol procurement
- The Government of Canada is committed to modernizing its military equipment to support the Canadian Armed Forces and keep Canadians safe
- Small arms are critical tools for the success of Canadian Armed Forces training and operations
- Based on the Canadian International Trade Tribunal’s decision, PSPC cancelled its solicitation, and a new request for proposal for 7000 pistols, plus options to acquire up to 9500 additional pistols, was issued in February 2022
Key data points
The current Browning High-Power 9mm pistol has been in use across the Canadian Armed Forces for 70 years. Due to serviceability and reliability issues, the Browning pistol needs to be replaced.
A request for proposal was published on May 3, 2021 and 2 complaints were filed with the Canadian International Trade Tribunal by Rampart International Corporation, the Canadian distributor of a pistol made by Glock, an Austrian company.
On November 10, 2021, the tribunal found the complaint valid in part, and recommended, as a remedy, that Public Services and Procurement Canada cancel the pistol solicitation and issue a new solicitation.
The tribunal’s statement of reasons was received November 30, 2021. The tribunal had determined that a small number of requirements were written as design specifications without the words “or equivalent” as required under the Canadian Free Trade Agreement. In light of the tribunal’s recommendation and the reasons provided, PSPC has decided to cancel this solicitation and work with the Department of National Defence to issue a follow-up solicitation that addresses the tribunal’s concerns. The disputed requirements have been written as performance specifications in the follow-up solicitation.
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