Year in review 2022: National Shipbuilding Strategy
The National Shipbuilding Strategy (NSS) is Canada’s long-term plan to renew the fleets of the Royal Canadian Navy (RCN) and the Canadian Coast Guard (CCG). The NSS is helping rebuild a domestic marine industry and creating sustainable jobs in Canada.
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About this report
This report provides updates on NSS activities from January 1 to December 31, 2022. It includes a review of activities within the 3 pillars of the NSS:
- large vessel construction
- small vessel construction
- vessel repair, refit and maintenance projects
Since the first build contracts were awarded in 2014, 6 large ships and numerous small ships have been delivered as of December 31, 2022. However, these milestones were met more slowly and at higher costs than originally anticipated.
However, shipbuilding remains highly complex and the NSS continues to face significant challenges in meeting its core objective of renewing federal fleets in a timely and affordable manner. While expertise, both at the shipyards and within government, continues to develop and efficiencies are discovered, there still remains challenges related to project delays, increased budget costs, and human resources capacity in the marine industry.
Large vessel construction
NSS large ship construction contracts awarded between 2012 and 2022 are estimated to contribute close to $12.63 billion ($1.52 billion annually) to the gross domestic product (GDP), and create or maintain 9,501 jobs annually, through the marine industry and its Canadian suppliers, as well as consumer spending by associated employees.
Projects at Irving Shipbuilding
Updates on large vessel construction projects done by Irving Shipbuilding in 2022.
Design work of Canadian surface combatants
Among other projects, design work is progressing for the RCN’s future Canadian surface combatants (CSCs)—the largest and most complex shipbuilding initiative in Canada since World War II. The preliminary design review, which begins to finalize the overall structure of the vessel, was substantially completed in December. Work has begun on the second of the 3 design phases: Functional design. This phase includes detailed design and engineering work to construct the vessel according to Canadian requirements.
The Government of Canada, in collaboration with its partners, continued to prepare for the CSC implementation (build) contract with early discussions taking place in 2022 and contract development and negotiation planned for 2023 and 2024.
Arctic offshore patrol ships
The third vessel in the Arctic offshore patrol ship (AOPS) series, the future His Majesty’s Canadian Ship (HMCS) Max Bernays, was delivered to the RCN in September.
AOPS 2, HMCS Margaret Brooke, was officially welcomed into the Navy with a commissioning ceremony in late October.
Identifying and correcting deficiencies following delivery is a normal part of the shipbuilding process. It allows the RCN to concurrently begin their preparations for operating the ship. Prior to the delivery of these vessels, a number of construction deficiencies were identified and documented as part of a rigorous quality assurance program. The Government of Canada is working closely with the shipbuilder to resolve deficiencies for AOPS while progressing the ships trials and operational schedule.
Construction work continues
Construction continued on AOPS 4 and 5, while construction of AOPS 6 began in August. In addition, extensive design work was done on the CCG variant AOPS 7 and 8.
Projects at Seaspan’s Vancouver Shipyards
Construction continued on the RCN’s first joint support ship (JSS), the future HMCS Protecteur, while construction of the second JSS, the future HMCS Preserver, began in May. This project, similar to all NSS projects, extends beyond the shipyards, with multiple Canadian companies contributing to the effort.
All 3 offshore fisheries science vessels (OFSVs) built by Vancouver Shipyards (VSY) under the NSS (Canadian Coast Guard Ship (CCGS) John Cabot, CCGS Capt Jacques Cartier and CCGS Sir John Franklin) have been delivered, and there remain only a few warranty items to be addressed. The OFSV project will be the first large vessel project to be completed under the NSS.
Design work also continued on the CCG’s polar icebreaker and began on the multi-purpose vessels (MPVs). Seaspan will build up to 16 MPVs, with construction to begin following completion of the JSS, the offshore oceanographic science vessel (OOSV) and the polar icebreaker.
Selection of a third National Shipbuilding Strategy shipyard
The Government of Canada continued work in 2022 to add a third Canadian shipyard under the NSS. Additional shipbuilding capacity is required in Canada to renew the RCN and CCG fleets, while supporting economic opportunities for the Canadian marine sector.
With the addition of the third shipyard, Canada will have an increased capacity to deliver new vessels in a timely manner. The third shipyard will build up to 6 new program icebreakers and a polar icebreaker for the CCG, to which the Industrial and Technical Benefits (ITB) Policy will be applied.
The competitive process to select a third National Shipbuilding Strategy shipyard is similar to the one used to select Seaspan and Irving in 2011. In response to an invitation to qualify issued in 2019, Chantier Davie, of Lévis, Quebec was the only prequalified supplier to proceed to the request for proposal stage.
In July 2021, Chantier Davie submitted their response to a request for proposal. In June 2022, the Government of Canada announced it would begin negotiations with Chantier Davie toward an umbrella agreement. As of December 31, 2022, negotiations were ongoing.
Small vessel construction
NSS small ship construction contracts awarded between 2012 and 2022 are estimated to contribute close to $389.4 million ($32.4 million annually) to the GDP, and create or maintain almost 300 jobs annually, through the marine industry and its Canadian suppliers, as well as consumer spending by associated employees.
Projects completed in 2022
The CCG took delivery of their 11th and 12th search and rescue (SAR) lifeboats in June both ships were dedicated into service in September. The 11th SAR lifeboat, CCGS Chignecto Bay, was built by Chantier Naval Forillon, in Gaspé, Quebec, while SAR lifeboat 12, CCGS Shediac Bay, was built by Hike Metal Products Ltd., in Wheatley, Ontario. The CCG then took delivery of SAR lifeboats 13 (CCGS Gabarus Bay, built by Hike Metal Products) and 14 (CCGS Chedabucto Bay, built by Chantier Naval Forillon) in December.
Refit, repair, and maintenance projects
NSS repair, refit and maintenance contracts awarded between 2012 and 2022 are estimated to contribute close to $11.81 billion ($984.3 million annually) to the GDP, and create or maintain 8,864 jobs annually, through the marine industry and its Canadian suppliers, as well as consumer spending by associated employees. Examples of refit, repair, and maintenance projects undertaken in 2022 are included below.
Spring 2022
In March, the Government of Canada awarded a $16.5 million contract to Chantier Davie of Lévis, Quebec, for vessel life extension (VLE) work on the CCGS Louis S. St-Laurent, Canada’s largest icebreaker. It is the first of 4 work periods scheduled until 2027. These periods are being divided into separate packages over 5 years to ensure greater operational availability over that time for this key icebreaking asset for the CCG.
Summer 2022
Highlights of the summer included a contract award and a vessel’s dedication into service.
Revamping of search and rescue vessel
In June, the CCGS Sir Wilfred Grenfell began operations on the west coast after a $17.3 million refit of the search and rescue vessel by Allied Shipbuilders in North Vancouver. The work included:
- painting the hull and deck
- updating navigation equipment and networks
- installing a new cargo hold and hatch
- replacing propulsion thrusters
- modifying the ballast system
- installing new machinery
Vessel life extension contract awarded for light icebreaker
In July, the Government of Canada awarded a $36.14 million VLE contract for the CCGS George R. Pearkes to Heddle Shipyards of Hamilton, Ontario. Work to increase the light icebreaker’s operational life will begin in winter 2023.
Icebreaker to provide service in Atlantic regions and St-Lawrence
The CCGS Jean Goodwill, 1 of 3 medium icebreakers acquired and converted by Chantier Davie as part of a $912.5 million contract awarded in August 2018, was dedicated into service in August. It will provide icebreaking services primarily in the Atlantic regions and the St. Lawrence Waterway as other icebreakers are being scheduled for major refits.
Fall 2022
Progress was made on a number of notable projects in the fall.
Work continues on Halifax class frigates
HMCS St John’s was the first frigate completed by Chantier Davie under a Halifax-class frigate extended docking work period and delivered in 2022. The cost of HMCS St John’s is approximately $235 million.
Work continued on 3 other Halifax-class work period contracts in 2022:
- HMCS Toronto at Chantier Davie, expected completion in spring 2024
- HMCS Ville de Quebec at Irving, expected completion in spring 2023
- HMCS Calgary at Victoria Shipyards Limited, expected completion in spring 2024
Third icebreaker delivered
Chantier Davie also delivered the third of 3 icebreakers, the CCGS Vincent Massey, in October, following conversion and refit work; the crew accommodation capacity, icebreaking capability and ship endurance were all increased, and a heavy crane was added.
Terry Fox vessel life extension
In early November, Public Services and Procurement Canada awarded the CCGS Terry Fox VLE contract (valued at $135.56 million) to Heddle Shipyards.
The contract includes 2 phases:
- extensive engineering and procurement phase to prepare the shipyard for the second phase
- 20 month work period (estimated), during which time the vessel will be drydocked
Maintenance and support of minor warships and auxiliary vessels
There was a competitive process to extend the contract for the maintenance and support of approximately 70 minor warships and auxiliary vessels (MWAV) ranging from small boats to the maritime coastal defence vessels and associated equipment; it is expected that the contract will be awarded in spring 2023.
Note: taxes are included in all contract figures listed.
Challenges
While acting as an economic driver, and while successfully delivering a number of vessels, as well as completing needed repair and refit work, the NSS continues to face some significant challenges related to budget, schedules and human resources capacity.
Impact of global pandemic
In addition, the Canadian shipbuilding industry, similar to other industries worldwide, experienced delays as a result of the global pandemic and supply chain disruptions, as well as workforce shortages, increased costs due to inflationary and supply chain pressures, commodity pricing and geopolitical tensions. The Government of Canada took action in 2022 to:
- set more realistic schedules
- mitigate budget-related challenges
- work toward solutions regarding skills and workforce development
- support the improvement of shipyard delivery schedules
- improve risk management
Risk-management approach
The Government of Canada has developed a formal and robust risk-management approach for the NSS. The approach is informed by international best practices, and helps to predict, identify and mitigate the key risks facing the NSS.
Economic benefits for Canada in 2022
The National Shipbuilding Strategy (NSS) continues to revitalize Canada’s marine sector, creating jobs, and generating economic benefits and prosperity in communities across the country.
Progress under the National Shipbuilding Strategy Value Proposition
The objective of the NSS Value Proposition (VP) is to benefit the broader marine industry to ensure its long-term sustainability. Large-vessel shipyards are required to invest an amount equal to 0.5% of the value of their contracts in 3 priority areas:
- human resources development
- technology investment
- industrial development
Irving Shipbuilding Inc. (ISI) and Seaspan’s Vancouver Shipyards Co. (VSY) continue to make investments in all 3 priority areas, with a focus on skills development and increased participation of underrepresented groups in Canada’s marine industry. Among other initiatives, their investments have gone toward:
- collaborative approaches to applied innovation in the ocean technology sector
- equipment to complement marine-specific education programs
- post-secondary curriculum development to ensure qualified personnel are being trained for the industry
As of December 31, 2022, NSS shipyards had accrued over $44.3 million in NSS VP obligations. The value of approved investments at the end of 2022 exceeded $46.6 million. This includes completed investment activities and approved future activities.
Progress under the Industrial and Technological Benefits Policy
Canada’s Industrial and Technological Benefits Policy is playing an important role in leveraging Canada’s defence and security spending to generate economic benefits for the country. NSS large-vessel shipyards are undertaking business activities in Canada equal to the value of their contracts, thereby:
- generating work in Canada directly related to procurement under the strategy
- creating opportunities for Canadian suppliers in the marine sector
- driving innovation through research and development activities in Canada
- advancing skills development
- creating new export opportunities
While the policy strives to incentivize benefits to Canadian industry, one of the core principles of this policy is that business transactions are market sensitive. As such, shipyards that are awarded contracts under the NSS are responsible for the sourcing and selection of materials for their respective shipbuilding contracts. Through this policy, hundreds of Canadian businesses are securing work through contracts with the selected NSS large-vessel shipyards. In turn, they are investing in innovation and securing exports.
Progress on shipyards’ economic obligations
Shipyards are on track to meet their economic benefits obligation under the NSS.
Breakdown of current obligations by contractor
Irving Shipbuilding Inc.
ISI has an industrial and technological benefits (ITB) obligation of over $4.5 billion for the Arctic and offshore patrol ship project and for the modernization and support services for the Halifax-class frigates. Close to $3.4 billion has been completed to date. For the Canadian surface combatant definition contract, ISI has an ISI obligation of $937 million so far; $808 million has been identified as activities either underway or completed. Its major subcontractor, Lockheed Martin Canada, has identified $598 million in ITB activities underway or completed. This is part of its ITB obligation of $745 million.
Seaspan’s Vancouver Shipyards co.
On the West Coast, VSY is making progress on its obligations, including in relation to the:
- offshore fisheries science vessels
- offshore oceanographic science vessel
- joint support ships
To date, VSY has completed over $2.6 billion in ITB. Approximately $315 million in activities are currently underway. This is part of a total obligation of just over $5 billion across these 3 projects.
VSY has an ITB obligation of close to $1.3 billion for modernizing and supporting the Halifax-class frigates. The shipyard has completed $814 million of this work to date.
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