Defence and marine procurement: Standing Committee on Government Operations and Estimates—November 24, 2022

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National Shipbuilding Strategy

Key messages

Key data points

Background

Large ships and their status

Marine services and small vessels

Third Yard

Key messages

Key data points

Background

On May 22, 2019, the Government of Canada announced its intention to add a third Canadian shipyard as a partner under the National Shipbuilding Strategy, and on August 2, 2019, Canada launched the competitive process to select the new shipyard.

On May 6, 2021, the Government of Canada announced it was moving forward with the construction of 2 Polar icebreakers under the NSS. Seaspan Shipyards in Vancouver, British Columbia, will build one of the Polar icebreakers, while the other will be built at Chantier Davie in Lévis, Quebec, pending the successful completion of the ongoing selection process.

On July 14, 2021, the Government of Canada announced it had received Chantier Davie’s supporting materials to become the third shipyard under the NSS.

On June 8, 2022, the Government of Canada announced that it will begin negotiations with Chantier Davie for an umbrella agreement to become the third strategic shipbuilding partner under the NSS. Pending successful negotiations, an agreement is expected to be in place by the end of 2022.

Chantier Davie submitted a proposal as part of the request for proposal process for the selection of a third shipyard. This included a third-party assessment of the shipyard’s infrastructure; submission and evaluation of a formal proposal from the shipyard; and a due diligence process to ensure the shipyard is financially capable of performing the work and making any necessary upgrades to its infrastructure.

Chantier Davie will continue work under programs such as medium icebreakers conversions, Halifax-class work period contract, and Transport Canada ferries in parallel with the third shipyard selection process. As well, Chantier Davie will continue work under the Eastern Canada Ferry Vessels Program for Transport Canada, and for which the intent is to integrate the 2 new ferries into the program of work under the umbrella agreement.

Polar icebreakers

Key messages

Key data point

Background

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

Key messages

Key data point

Background

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 Canada and the evaluation of its bid. Navantia contends that the design proposed by Lockheed Martin Canada, based on the BAE type 26 ship, failed to meet the requirements of the request for proposal such that its bid was improperly evaluated and awarded.

As part of the judicial review, Navantia sought disclosure of documents that contained sensitive or potentially injurious information. The Attorney General of Canada filed a section 38 Canada Evidence Act application in federal court on January 20, 2021.

The Attorney General of Canada had a statutory obligation to file the section 38 application, and it was not a discretionary decision made 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.

Parliamentary Budget Officer Report on the Canadian surface combatant (2022)

Key messages

Key data point

Background

The Canadian surface combatant 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 ships will replace the Royal Canadian Navy’s existing fleet of frigates and retired destroyers at an estimated cost of $56 billion to $60 billion.

In June 2022, the House of Commons Standing Committee on Government Operations and Estimates requested that the Office of the Parliamentary Budget Officer (PBO) undertake a costing analysis of the active life cycle costs for the CSC, including decommissioning and disposal.

The PBO published its report on October 27, 2022. The new information contained in this 2022 PBO report is primarily the inclusion of the operation and sustainment costs (estimate is $219.8 billion) and the disposal costs (an estimated $1.7 billion). These new costs totalling $221.5 billion did not form part of any previous PBO report and is new information for the public.

The PBO now estimates the cost of development and acquisition on the CSC project at $84.5 billion (without tax), representing an increase of 9% from the estimate included in the PBO’s 2021 report on CSC ($77.3 billion). The difference between the PBO’s 2021 and 2022 cost estimates is due mainly to schedule delays, associated cost escalation and the impacts of inflation, much of which can be attributed to the COVID-19 pandemic. The government has not yet updated its published costs of $56 to 60 billion for the CSC project.

As the project progresses through design and towards the start of ship construction, Department of National Defence (DND) continues to update its overall project cost estimates, with the next update expected in 2024 prior to implementation.

The PBO previously reported on projected costs for acquiring the CSC ships in 2017, 2019 and 2021. This is the first report that contemplates the life cycle costs, from development to disposal.

In 2017, the PBO estimated the cost of 15 CSCs at $61.82 billion. In 2019, the PBO revised its cost estimate to $69.8 billion and observed that project delays would further increase the cost of the project. In 2021, the PBO further revised its CSC project cost estimate to $77.3 billion, and provided cost forecasts for alternative procurement scenarios that assumed a 4-year delay to the overall project should a new design be selected to replace the type 26. Over the course of these reports, there have been changes to the PBO’s calculation methodology and cost inclusions that also affect their estimates.

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. All 3 of the ships are now in-service. As new equipment and systems are being operated for the first time, technical issues have arisen and have required repairs. The CCG is monitoring the situation closely. In addition, work is ongoing on the 2 joint support ships and the offshore oceanographic science vessel. Finally, early design work for the multi-purpose vessels and the polar icebreaker has commenced.

Irving Shipbuilding Inc.

The first 3 Arctic and offshore patrol phips, HMCS Harry DeWolf, HMCS Margaret Brooke, and HMCS Max Bernays, were delivered in July 2020, July 2021 and September 2022. The remaining 3 Arctic and offshore patrol ships for the Royal Canadian Navy are currently under construction, with cut steel for Arctic and offshore patrol ship 6 having occurred in August 2022. Design work on Arctic and offshore patrol ships 7 and 8 for the Canadian Coast Guard is also advancing. design work on the Canadian surface combatant is advancing as well and is now in preliminary design review.

Chantier Davie Canada Inc.

Chantier Davie has converted 3 medium icebreakers for the Canadian Coast Guard. The first vessel, CCGS Captain Molly Kool, began operations in December 2018, the second vessel, CCGS Jean Goodwill, was delivered in November 2020, and the third vessel, CCGS Vincent Massey, was delivered in October 2022.

On March 8, 2022, the government announced that a $14.36-million contract ($16.5 million including taxes) was awarded to Chantier Davie for vessel life extension work on the CCGS Louis S. St-Laurent, Canada’s largest icebreaker. This follows an advance contract award notice issued on October 29, 2020, in which Canada signaled its intention to enter into a contract with Chantier Davie. The shipyard was identified as the only facility in Eastern Canada with a dry dock large enough to perform this work. Work began in April 2022 and included inspections, regulatory maintenance and equipment upgrades to extend the operational life of the CCGS Louis S. St-Laurent until a new ship comes into service. The work was completed on June 28, 2022.

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 on the HMCS St. John’s continues and is expected to be completed later in 2022.

Recruitment of foreign workers at Irving Shipbuilding Inc.

Key messages

Key data points

Background

Labour shortages are present in many industries around the world, and the Canadian marine sector and shipbuilding industry are no exception. In the context of addressing human resources (HR) challenges, the marine sector has identified the need for a multi-pronged strategy that would involve reskilling and upskilling Canadian workers for shipbuilding occupations; attracting, training and retaining non-traditional labour pools (for example, women, Indigenous peoples, newcomers, persons with disabilities); as well as looking for skilled labour at the international level.

The terms and conditions of contracts with Irving Shipbuilding Inc. do not preclude the employment of foreign labour on National Shipbuilding Strategy projects. The shipyard is responsible for satisfying Immigration, Refugees and Citizenship Canada’s requirements related to issuance of temporary work permits and must also ensure foreign employees are security screened in accordance with the security requirements of the contract.

Through an HR strategy developed in support of the NSS, the Government of Canada continues to engage with the marine sector (including the 2 NSS shipyards) to understand its recruitment, retention and workforce development challenges, and assist it in developing effective solutions. Some of the initiatives under the NSS HR Strategy include matching the shipyards with relevant federal government programs and services; facilitating access to labour market data and information for HR planning; and, connecting with provincial labour and skills programs to champion the needs of the marine industry.

Irving’s 4 pillars of its HR strategy:

  1. keep them home: Engaging young people early to create the next generation workforce
  2. grow at home: Continuing to develop and build out a skilled Atlantic workforce
  3. bringing them home: Encouraging Atlantic Canadians to come back home
  4. making it home: Offering an attractive opportunity to put down roots

Terms and conditions of contracts

The terms and conditions of the contracts with Irving Shipbuilding Inc. do not preclude the employment of foreign labour on NSS projects:

Article C14—The contractor shall be responsible for compliance with all immigration requirements applicable to non-permanent residents entering Canada to work on a temporary basis in fulfillment of the contract. The contractor shall be responsible for all costs incurred as a result of the non-compliance with the immigration requirements, and as a result of delays in the work resulting therefrom

Article 31.0—The contractor must comply with Canadian immigration requirements applicable to foreign nationals entering Canada to work temporarily in fulfillment of the contract. If the contractor wishes to hire a foreign national to work in Canada to fulfill the contract, the contractor should promptly contact the nearest Service Canada regional office to enquire about Citizenship and Immigration Canada's requirements to issue a temporary work permit to a foreign national. The contractor is responsible for all costs incurred as a result of non-compliance with immigration requirements, and as a result of delays in the work resulting therefrom

Future fighter capability project

Key messages

If pressed on the evaluation results or the selection of Lockheed Martin and the United States Government:

If pressed on proceeding directly to finalization with Lockheed Martin and the United States Government and not dialogue with both bidders:

Background

As part of the Government of Canada’s reaffirmed commitment to invest in Canada’s military, as announced in the 2017 defence policy: Strong, Secure, Engaged, the government launched an open and transparent competition in December 2017 to permanently replace Canada’s fighter fleet with 88 advanced jets—the future fighter capability project.

Notes

Officials conducted extensive industry engagement with suppliers to maximize the likelihood that Canada receives competitive proposals, and with Canadian industry to ensure that they are well positioned to participate in the procurement. 

An independent fairness monitor is overseeing the entire process, to ensure a level playing field for all bidders. An independent third-party reviewer was also engaged to assess the quality and effectiveness of the procurement approach.

In July 2019, the request for proposal was issued to the eligible suppliers.

On July 31, 2020, the bid solicitation phase closed; proposals were received from 3 remaining eligible suppliers and the process entered the bid evaluation phase.

On December 1, 2021, Canada announced that, following evaluation of the proposals, 2 bidders—Swedish Government and SAAB AB; and the United States Government and Lockheed Martin Corporation—remain eligible under the future fighter capability project competitive procurement process and that it would be finalizing its selection for the next step of the process, which could involve proceeding to negotiations with the top-ranked bidder or entering into a competitive dialogue with both remaining bidders.

On March 28, 2022, following a rigorous evaluation of the 2 remaining eligible proposals, Canada announced it would enter into the finalization phase of the procurement process with the top-ranked bidder Lockheed Martin.

Next steps

During the finalization phase, Lockheed Martin and the United States Government must successfully demonstrate that a resulting contract would meet all of Canada’s requirements and outcomes, including value for money, flexibility, protection against risks, and performance and delivery assurances, as well as high value economic benefits for Canada’s aerospace and defence industry.

The Government of Canada continues to work towards a contract award in 2022, with deliveries to be confirmed following completion of the finalization phase.

Strategic tanker transport capability project

Suggested response

Background

Notes

As part of the Government of Canada’s reaffirmed commitment to invest in Canada’s military, as announced in the 2017 defence policy: Strong, Secure, Engaged, the government launched an open and transparent competition in December 2020 to replace Canada’s CC-150 Polaris fleet—the strategic tanker transport capability (STTC) project.

The strategic tanker transport capability 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 defence policy 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 Defense 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 strategic tanker transport 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, and personnel and equipment transport.

Fixed wing search and rescue project

Context

On May 4, 2022, the Department of National Defence announced delays in the fixed-wing search and rescue (SAR) project. The CC295 Kingfisher fleet of aircraft, that will eventually replace existing SAR aircraft, still requires significant work, tests, and trials before entering into Royal Canadian Air Force (RCAF) service. As a result, initial operational capability has been delayed from 2022 to 2025 to 2026.

The new fleet of modern aircraft is equipped with technologically advanced systems and will be able to perform in Canada’s harsh search and rescue environment; one of the most challenging and diverse landscapes in the world.

Note

All questions related to initial and full operational capabilities, capability gap, security, interoperability requirements and costs should be answered by the minister of National Defence.

Suggested response

If pressed on the delay:

Background

On December 1, 2016, the government awarded a $2.4 billion Canadian dollar (CAD) contract to Airbus Defence and Space to procure new fixed-wing search and rescue aircraft and systems. This contract was awarded following a fair, open and transparent and competitive procurement process to replace Canada’s Buffalo and Hercules aircrafts.

Extensive industry consultations were conducted throughout this procurement. A value proposition for both the aircraft procurement and the maintenance contracts was used to foster business opportunities for companies in Canada, through the application of Canada’s Industrial and Technological Benefits Policy.

On December 18, 2019, the government accepted the first aircraft in Spain. On September 17, 2020, the first operational aircraft arrived in Comox, British Columbia.

Questions pertaining to the delays in initial and final operating capabilities should be answered by National Defence.

Procurement of Arctic-capable assets

Key messages

Key data points

Background

Arctic-capable vessels

Under the National Shipbuilding Strategy, the government is delivering a number of Arctic-capable vessels, including:

Nanisivik Naval Facility

The Nanisivik Naval Facility, located on Baffin Island, Nunavut, will support the operations of the Royal Canadian Navy’s Arctic and offshore patrol ships and other government maritime vessels. Construction of this docking, replenishing and refuelling facility started in 2015 and was anticipated to be completed by September 2021, with initial operational capability targeted for summer 2022. However, due to the COVID-19 pandemic and other challenges that have impacted the schedule, the facility is now expected to be operational in 2023. Cost estimate for this Canadian Armed Forces asset is $130 million (before taxes).

North Warning System

The North Warning System is a chain of remotely operated radar stations within the Arctic that provide continuous aerospace surveillance of Canadian and United States northern approaches. It is an essential element in the provision of aerospace surveillance information as a contribution to Canada's sovereignty and Canada’s participation in the North American Aerospace Defence Command with the United States. 

Audit of the Auditor General on Arctic waters surveillance

The Office of the Auditor General of Canada carried out an audit on Marine Navigation in the Canadian Arctic in 2014. At the time of that audit, ship traffic in the Arctic had increased substantially. As expected, ship traffic has continued to increase both in terms of the number of vessels travelling in the Arctic and the distances travelled. Vessel traffic declined in 2020 and 2021 due to pandemic measures, but traffic is likely to increase again once these measures are lifted.

On November 15, 2022, the Auditor General of Canada will deliver an audit on Arctic waters surveillance, focused on whether key federal organizations built the maritime domain awareness needed to respond to safety and security risks and incidents associated with increasing vessel traffic in Arctic waters. The federal organizations deemed key to the surveillance of Arctic waters and included in the scope of the audit were Transport Canada, Fisheries and Oceans Canada, the Canadian Coast Guard, National Defence, and Environment and Climate Change Canada. Public Services and Procurement Canada was also included for its supporting role in central purchasing and contracting for items such as vessels.

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