Government Operations Committee on Nov. 22nd, 2012

[The Chair, NDP, Pat Martin]

Good morning, ladies and gentlemen. We'll convene our meeting of the Standing Committee on Government Operations and Estimates.

We're very pleased today to initiate a review or a study of our national shipbuilding procurement strategy. This was a motion or a request put forward by the Liberal Party, by our vice-chair of the committee, Mr. John McCallum, who I'm sure will be joining us soon.

We're very pleased to welcome a large panel of those involved in our national shipbuilding strategy.

I believe we'll hear an opening statement from the Department of Public Works and Government Services, the assistant deputy minister, Mr. Tom Ring.

Welcome back, Mr. Ring. It's a pleasure to see you. Perhaps you could introduce your fellow panellists and then proceed with an opening statement.

[Tom Ring, Assistant Deputy Minister, Acquisitions Branch, Department of Public Works and Government Services]

Thank you, Mr. Chair. I will do exactly that.

We certainly are happy to be here, and welcome the opportunity to discuss with you the national shipbuilding procurement strategy, NSPS.

I'm joined today by Rear-Admiral Pat Finn, Department of National Defence; Michel Vermette, deputy commissioner for the Canadian Coast Guard; and Mr. Scott Leslie, who is the head of the actual secretariat that ran the NSPS process.

Our presentation this morning will be twofold. First, we have a short video that presents the unique competitive process used for the selection of the shipyards that will build Canada's large vessels over the next 20 to 30 years.

The video will be shown simultaneously in both languages. You'll have to listen through the earpiece, because there's no room sound. We'll play the video, and then I will have a few more opening comments regarding the NSPS process.

[The Chair, NDP, Pat Martin]

Thank you, Mr. Ring.

[Video Presentation]

Mr. Ring, you still have some comments.

[Tom Ring]

Thank you, Mr. Chair.

Before I get to where we are in the strategy now, the reason we produced that video was that the successful selection process caused us to do some reflection. Why was that particular selection process so successful? What did we do differently?

We're happy to be here to share the video and to talk a bit more about the attributes of aggressive, early, and constant engagement with industry or potential suppliers, a new governance model for making sure decisions are taken appropriately, and then the aggressive use of third parties who will help to validate every step in the process.

The selection process itself is only one phase of a five-phase process for the NSPS. Phase one, developing the strategy, was launched in the summer of 2009, with a shipbuilding forum. This phase involved other industry consultations, and it led to the announcement of the strategy in June of 2010.

Phase two, selecting the shipyards, was a competitive process that was launched in June of 2010 and was completed with the announcement on October 19, 2011.

Phase three involves establishing the relationship with the two selected shipyards. This was largely completed with the signing of umbrella agreements in February of 2012. The establishment of a 20- to 30-year relationship is an ongoing process, and we continue to build and strengthen the relationship we have between the departments that are building the ships and the two shipyards involved.

Phase four is preparing the shipyards to do the work over a long period of time. In both cases, the shipyards will require significant upgrades to their existing facilities. That work has now commenced, and this is where we are today.

Phase five is actually constructing the ships. This is the next phase. The timing of this will depend on two key factors: when the designs are complete and when the shipyards are ready to start building.

The approach being used is “design then build”. In other words, we need to get the designs and production details right before work begins. We need to work with the shipyards to ensure that they are ready to build ships efficiently and avoid boom and bust cycles. The design-then-build approach will improve the efficiency and reduce the risks of the shipbuilding process.

The contracts to build the ships will take place in three phases: phase one, ancillary contracts to understand the requirements and the design; phase two, production and construction engineering contracts to mature the design; and phase three, the actual construction contracts to build the ships.

To date, ancillary contracts have been signed for the Arctic offshore patrol vessels, the science vessels, the joint support ships, and the polar icebreaker.

For their part, Irving Shipbuilding and Vancouver Shipyards have been actively recruiting senior personnel, establishing partnerships, and proceeding with facility improvements. The shipyards have also participated in numerous supplier engagement sessions across the country.

Although a considerable portion of the building of the large vessels will be carried out by the two selected yards, it is estimated that over half the value of the shipbuilding contracts could flow to the broader marine industry across Canada. The distribution of this work will include firms in related industries that manufacture equipment used on the ships or that provide services essential to the project. Many of these, undoubtedly, will be small and medium-sized enterprises.

As I said earlier and as is shown in the video, a key success factor of NSPS has been industry engagement. This engagement continues with each phase of the process. Three major consultations are currently taking place regarding procurement strategies for the Canadian surface combatant project, in-service support for the Arctic patrol vessels and the joint support ships, and for National Defence's small vessels.

Mr. Chair, we are one year into a 30-year program of work. Much has been accomplished, yet much remains to be done.

My colleagues and I would be happy to answer any questions that you have.

Thank you.

[The Chair, NDP, Pat Martin]

Thank you very much, Mr. Ring.

I'm sure my colleagues do have questions.

Beginning for the official opposition, we have Linda Duncan.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

Thank you, Mr. Chair.

I'd like to thank you for coming before us again. We appreciated the previous briefing and had said we'd love to meet with you again, so here we are. I'm sure we won't have time for all our questions, but I'll try to find some good ones for you so we can have some really good answers.

I'd like to put the first question to the coast guard. I'm a great admirer of the coast guard; you do important work. We looked online at the original estimate and the statement by the coast guard that the asset base is at a high risk and it's critical that action be taken. So you obviously must be delighted that, as you say, we're moving forward.

I'm a little confused, though, about some of the estimates given. The report posted online under Fisheries and Oceans lists a cost of $1.2 billion over seven years, which includes the polar icebreaker and four science vessels. But then when I look at another breakdown, the AOPS is $3.1 billion. In the Vancouver Shipyards.... There actually isn't a price that I know of for the polar icebreaker, or for the offshore science vessels.

Can you tell me if you're on track for what you think the costing will be to provide, and if those are the basic, necessary ships that you need, to deliver your mandate?

[Michel Vermette, Deputy Commissioner, Vessel Procurement, Canadian Coast Guard]

Thank you.

The budgets for the polar and the science vessels do add up to $1.2 billion. We're working to deliver those ships within those budgets. The budget for the polar icebreaker in that $1.2 billion is $800 million of that. Four science vessels are also in that package that total just under $400 million.

We're working very hard with the yard right now on the science vessels and with our designer on the polar icebreaker to ensure that we can deliver those capabilities within the budgets we have set for those projects.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

Thanks.

I understand that your target.... So the polar icebreaker is being built in Irving, or the Vancouver Shipyards?

[Michel Vermette]

The polar icebreaker will be built in the Vancouver Shipyards.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

Okay. Can you give us an idea of when exactly you think you might be cutting steel?

[Michel Vermette]

That's subject to a long conversation on finishing the design work and some sequencing conversations we have to have with Vancouver Shipyards. Currently we project delivery of that vessel in 2017. That would imply cutting steel in about 2015.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

When you're doing the bidding process—and I appreciate the secretariat went through this to an extent with us before, but your process is still evolving—can you outline briefly who exactly decides on the winning design? Is there a matchup among the cost, who has the expertise, where is the best equipment, what work can be done in Canada? Can you tell us briefly?

Mr. Ring looks like he might want to jump in.

[Tom Ring]

Thank you, Mr. Chairman.

Thanks for the question. I think I'm going to ask both Mr. Vermette and Rear-Admiral Finn to answer the question, because the answer to your question will probably be different project by project. There is no straightforward, single answer to how it will be done across every project.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

I was speaking specifically of the polar icebreaker.

[Michel Vermette]

Thank you.

Mr. Ring is correct that each project has a different approach, in part in terms of timing, when we started the project, the arrival of the NSPS. For instance, some of our projects predate the NSPS, although we're bringing those projects into the strategy now.

For the polar icebreaker specifically, we stood that project up in 2008. We did a lot of proof-of-concept work ourselves. The first stage of delivering a vessel like this is to set out the requirements for the vessel: how much ice should this icebreaker break, what range—

[Linda Duncan, NDP, Edmonton Strathcona, AB]

Right. I don't want to interrupt you. I appreciate all the detail, which we actually had from the shipbuilding secretariat. But it's actually a very simple question I'm asking.

I'm just trying to figure out, for the specifics, is that decided by the coast guard, is that decided by the shipbuilding secretariat, is that decided by the person who is going to build the ship?

[Michel Vermette]

Very clearly the requirements are set by the coast guard, for operational reasons.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

Okay.

If I have time, I have one more quick question.

[The Chair, NDP, Pat Martin]

Very quick, please.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

I appreciated the words from the fairness monitor. I'm wondering if you can give us assurance that the fairness monitor for this process is going to have greater success in accessing the costing information than the PBO has.

[Tom Ring]

Thank you, Mr. Chair, for the question.

I may actually have to ask you to rephrase the question, because the fairness monitor does not play a direct role in assessing costing information. The role of the fairness monitor is about assurance of the fairness of the procurement process.

We can provide additional information to you on precisely the role of the fairness monitor. It is an established program within Public Works that we use in most of our major procurements. The roles and responsibilities of the fairness monitor are specifically laid out.

I'd be happy to provide that information to you.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

He's more like an auditor than a PBO, then?

[Tom Ring]

He's an auditor of the procurement process.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

Thank you.

[The Chair, NDP, Pat Martin]

Thank you, Mr. Ring.

Next, for the Conservatives, Mr. Jacques Gourde.