General items: Standing Committee on Public Accounts—May 25, 2021
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Good morning/afternoon, Madam Chair, and thank you for inviting me to speak to the committee to discuss the Auditor General’s 2021 Report on the National Shipbuilding Strategy (NSS).
I’m joined today by:
- Michael Vandergrift, Associate Deputy Minister
- Simon Page, Assistant Deputy Minister, Defence and Marine Procurement
Despite the global pandemic and the focus on getting safe and effective COVID-19 vaccines into Canada and into the arms of Canadians as rapidly as possible, Public Services and Procurement Canada (PSPC) continues to make progress on other important fronts.
The NSS is one such example.
Benefits of the National Shipbuilding Strategy
The NSS is a multi-decade commitment, launched in 2010 with 3 objectives:
- renew the fleets of the Royal Canadian Navy (RCN) and the Canadian Coast Guard (CCG)
- create a sustainable marine sector
- generate economic benefits for Canadians
With the projects already undertaken, the shipbuilding industry is now growing in Canada, and there will be sustained work on this front for many years to come in this country.
In all, work from the strategy is contributing more than a billion dollars to Canada’s gross domestic product every year, and it is sustaining thousands upon thousands of jobs.
But most importantly, Madam Chair, the work being done here is helping to support the brave members of the RCN and CCG.
So far, the strategy has produced 4 large vessels and a number of small ships. Many more ships are currently under construction across the country.
We are making important progress, but shipbuilding is complex, and we acknowledge the need to continuously improve. This is why we welcome reviews and recommendations, such as those from the Auditor General.
Madam Chair, to fully understand the important observations of the Auditor General, we must go back to the time when shipbuilding nearly ceased to exist in Canada.
When the NSS was conceived over a decade ago in 2010, Canada was still caught up in the boom-and-bust cycle of shipbuilding which had historically plagued the industry, and over the years, experience and expertise in shipbuilding had weakened.
In those very early days, work and cost projections were not yet informed by actual build experience in our Canadian shipyards. Specialized marine supply chains also needed to be re-energized.
Expertise in Canada was nascent at a time when entirely new classes of ships were set to be built in completely revamped and retooled shipyards.
This led to challenges in planning and some schedule delays. We have openly acknowledged these and several key risks being managed.
The government has made real efforts to better streamline the work required under the strategy.
Indeed, the Auditor General highlights that during the period covered by the audit, the government took key decisions to put the NSS on a more viable path.
Charting the course ahead
Over the years, both the shipyards and Canada have gained valuable shipbuilding experience.
We now have a much more reliable understanding of the time, effort and expenditures required to build world-class vessels.
We are applying this knowledge everyday, in particular as we closely monitor and manage the work of our shipyard partners.
Madam Chair, we have tabled with this committee our detailed action plan to help ensure shipbuilding schedules are more evidence-based, improve our risk-management tools, and develop approaches that build on our lessons learned, specifically as we engage a third shipyard in the NSS.
As you will see, we plan to address all of the Auditor General’s recommendations within this fiscal year.
Before I close, a brief mention of the replacement of Polar icebreakers.
With so much of our coastline located in the Arctic, icebreakers are an essential part of the CCG and RCN fleets.
Earlier this month, the Government of Canada announced plans to construct 2 Polar icebreakers at 2 different shipyards in order to ensure that they are built in the most timely and efficient manner.
Following a rigorous evaluation of all available options, the simultaneous construction of 2 polar icebreakers in 2 shipyards was chosen as it offers 4 key advantages:
- fastest delivery of icebreakers
- optimized economic benefits
- minimal disruption to other projects
- reduced production gaps
To conclude, Madam Chair, in order to secure the future of Canadian shipbuilding—and to ensure that we have a modern and effective CCG and Navy fleet for decades to come—the Government of Canada is applying the lessons learned and putting the expertise that Canada has developed over the past decade to use.
Thank you, and I am now happy to take your questions.
Auditor General’s 2021 Report on the National Shipbuilding Strategy
Since mid-February 2021, media coverage relating to the National Shipbuilding Strategy was moderate with the majority of articles published focusing on the Parliamentary Budget Officer (PBO) Report, the Auditor General’s (AG) Report as well as the recent announcement on Polar icebreakers. Following the 2 reports, articles were factual with some having a negative twist highlighting the rising costs of the various projects. Coverage following the Polar icebreakers announcement was balanced and mostly factual.
Parliamentary Budget Officer Report and Canadian Surface Combatant project
On February 3, Times-Colonist reported that the Department of National Defence (DND) revealed that the first 15 new warships being built to replace the Navy’s 12 frigates and 3 already-retired destroyers will be delivered in 2030 or 2031, years later than planned. Though defence officials have maintained the $60 million budget which was set in 2017 remains sufficient. The article noted that news of the schedule slip comes ahead of the “highly anticipated update” from the PBO.
Following the February 24 PBO report regarding the Canadian surface combatant (CSC) cost, several articles reported in a negative tone. The articles noted that the cost of the proposed fleet of warships has jumped to an estimated $77 billion, increasing by $7.3 billion in less than 2 years. The articles also indicated that the price of the CSC could climb even higher if the “frequently-delayed” program faces any more setbacks (Hill Times, Macleans, CBC, Radio-Canada, CTV News, Cape Breton Post).
An article by the National Post stated “The liberal government in 2017 set the project's budget at $60 billion, a number that defence officials reiterated in an interview with The Canadian Press last month.”
Cape Breton Post reported that the DND is refusing to make changes to the $77 billion CSC project and that it has instead launched a social media campaign to highlight the proposed new ship, the Type 26 from the consortium of Lockheed Martin and BAE. The article noted that DND also used government resources and funding to promote private firms associated with Lockheed Martin on the CSC project. DND spokesperson, Dan Le Bouthillier said that the social media effort to promote certain companies is done to provide factual information. Alan Williams, a former top federal procurement official at the DND argued that what the department is doing is unethical.
Ottawa Citizen reported once again on the PBO report outlining the rising costs of the CSC project, this time emphasizing that the PBO acknowledges he’s at a loss on why the cost keep increasing.
Hill Times published an opinion piece by Alan Williams, which touched on the Naval Association of Canada (NAC) releasing a paper that Williams states had “a number of significant errors” following the PBO report on the CSC project. The article was written in a negative tone and noted that the report which was written in an attempt to provide context and underscore the complexity of the CSC project does not contain accurate information.
Alan Williams, former Assistant Deputy Minister of Materiel, Department of National Defence
Quotes from the Cape Breton Post article:
"It is not the military's role to sell the public or members of Parliament on the Canadian Surface Combatant project"
"There is no contract yet, but they are engaged in actively promoting a specific product of a specific company. That should never be done"
Quotes from the Hill Times article:
Unfortunately, the PBO was asked to only cost the acquisition costs, not the full life-cycle costs. As such, the PBO answered the wrong question
Dan Le Bouthillier, Department of National Defence spokesperson
Quote from the Cape Breton Post article:
“The social media effort is done to provide factual, impartial and objective public information"
Yves Giroux, Parliamentary Budget Officer
Quotes from the Ottawa Citizen article:
"There doesn't seem to be a clear rationale when it comes to explaining these cost increases”
Auditor General’s report on the National Shipbuilding Strategy
Numerous articles reported in a negative tone following the Auditor General’s report on the NSS on February 25. The articles noted that several departments, one of which being PSPC, “did not manage the process in a manner that supported timely renewal of the federal vessel fleet”. That being said, National Post wrote that “The government departments responsible for the delays and cost over-runs claim that lessons have been learned and project schedules will be met in the future.” Other articles expressed some concerns in regards to delays that could result in several vessels being retired before new ones are operational (Marine Log, Radio-Canada, National Post).
Global News highlighted Minister Anand’s response to the report stating that shipbuilding is a complex issue and that the experience gained in completed projects gives the government sound data to move ahead, while accepting the Auditor General’s recommendations.
Statement from Public Services and Procurement Canada
Quotes from the Marine Log article:
“Given the importance of the strategy, we welcome the Auditor General of Canada’s report and accept all of the recommendations. As the Auditor General acknowledges, shipbuilding is complex and challenging work, and we continue to seek opportunities to improve the strategy”
“During the early years of the strategy, initial plans and projections were not yet informed by actual build experience at the shipyards, and expertise in industry and government was developing. Many decisions taken during this period led to the establishment of schedules that we now know to be unrealistic. Today, we have a much more evidence-based and reliable understanding of the time, effort and expenditures required to build world-class vessels”
Government of Canada’s Polar icebreaker announcement
On May 6, the government announced that it is moving forward with the construction of 2 Polar icebreakers under the NSS. A technical briefing with senior government officials was held, followed by a ministerial announcement. Media coverage was moderate and the tone was balanced and mostly factual.
Global News reported that during a background briefing ahead of the announcement, senior civil servants said the decision to build 2 heavy icebreakers reflected the changing conditions in Canada’s increasingly accessible Arctic regions. They also defended the decision to split the work between the 2 shipyards, rather than give both icebreakers to one, as a prudent step given the pressing need to get the 2 vessels in the water as soon as possible.
CBC reported that Bernadette Jordan, Fisheries and Oceans Minister and responsible for the Canadian Coast Guard said that they will be “putting thousands of Canadians to work building a fleet that will serve those communities for decades." Journal de Québec said that this will create approximately 300 jobs per ship and nearly 2500 jobs in the supply chain.
Global News and CBC reported that federal officials declined on more than one occasion to provide any cost estimate or budget for the 2 icebreakers. Articles highlighted that the decision to split the work will most likely ease the tension between Seaspan and Davie, but could come at a cost to taxpayers. Business in Vancouver also noted that the final cost of the 2 vessels will not be known until the contracts are negotiated with Seaspan and Davie but that the overall expected cost to build the 2 new icebreakers would exceed the previous $1.3-billion estimate for the Diefenbaker alone.
Multiple outlets described the announcement of dividing the work between 2 yards from 2 different provinces, ahead of a possible fall electoral campaign, as a politically-driven decision (Radio-Canada). Reuters wrote that the federal government promised to build 2 Arctic icebreakers and create hundreds of jobs in 2 politically influential provinces which will likely play a deciding role in the next federal elections. Canadian Press outlined that opposition parties are criticizing the government for playing electoral politics.
Pierre Paul-Hus, Conservative Party, procurement critic and Richard Bragdon, Conservative Party, fisheries critic
Quotes from the Canadian Press article:
''After over a half-decade in government, the liberals have re-announced that Seaspan Shipyards in Vancouver will be building a heavy icebreaker for the Canadian Coast Guard''
''However, the announcement made by the Trudeau liberals in no way guarantees that Davie Shipyards in Quebec will also get a contract to build a heavy icebreaker''
Yves-François Blanchet, Bloc Québécois Leader
Quotes from the Canadian Press article:
“Blanchet suggested until a contract with Davie is signed, Thursday's icebreaker announcement was ''nothing but words'' designed to protect the liberals' electoral fortunes in Quebec and Vancouver”
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