Government Operations Committee on Nov. 22nd, 2012

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Thank you, Mr. Chair.

I want to thank the witnesses for joining us this morning. Your video was really interesting.

Could you quickly talk to us about how the national secretariat functions, how it has been progressing and how the roles of the different departments involved are administered?

[Tom Ring]

Thank you for the question, Mr. Chairman.

One of the unique parts of the NSPS is that it brought together multiple projects from multiple different departments into a single organization to look at a unique and different way of procuring all of the government's requirements for large vessels over 20 to 30 years. That required all of the various departments to come together and agree on a process and an approach. As Mr. Vermette has mentioned, and I'm sure Rear-Admiral Finn would say, the requirements for the different projects will be unique, so we had to find a way to agree to a process that would work for everyone. And the NSPS is the result of that process.

We established a specific secretariat with individuals not only from the departments represented here, but also from Industry Canada. There was a broad consultation with our central agencies. The Treasury Board played an active role in participating in the design of the selection process, as did all of the departments. As well, as I mentioned, in the engagement with industry, the actual potential bidders were also consulted on how the secretariat should work, how it should proceed with the selection process.

So that broad, extensive engagement and collaboration across different responsibilities in the different government departments we think was actually one of the singular success factors in assuring the selection process was done quickly and rapidly. The selection process itself was done in a very short period of time, and it was a key contributor to the outcome that you saw.

I think that addresses your question, unless Michel wants to add something.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Were the Department of National Defence and the Canadian Coast Guard consulted during the shipyard selection process?

[Rear-Admiral Patrick Finn, Chief of Staff, Materiel Group, Department of National Defence]

Yes, we have been members of the secretariat since the very beginning—so since the secretariat and the acquisition strategy were established in 2008.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Can you explain how the secretariat fits into the existing Canadian defence procurement system? How is that different from the normal procurement process?

[RAdm Patrick Finn]

The secretariat is obviously still around. National Defence and Coast Guard members are constantly being brought into it. For each project, the Treasury Board gives its approval in the usual way, and projects move forward. However, because of the secretariat and the strategic process, projects go through the strategy for every shipyard. Consultations with shipyards also go through the secretariat and through the appropriate project offices. Afterwards, the secretariat provides reviews and updates.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

As you have shown, the secretariat has helped speed up the decisions involved in procurement for new ships.

Has this collection of expertise—which involves departments and the industry—helped improve the decision-making expertise overall?

[Tom Ring]

Thank you, Mr. Chairman.

Yes, as I mentioned, the use of independent third parties is one of the key success factors or attributes of the success of the shipbuilding strategy. In the selection process itself, we used a number of third parties. They were listed in the video. I won't go through them again, but we have continued that attribute through each of the individual projects. We will continue to use outside third party expertise to review, assess, and validate both our thinking and our decisions as we move forward on each individual project.

This is not, I would say, necessarily entirely unique, but the aggressive way in which we use third parties is, in fact, a bit different, and it has contributed to the success of the strategy.

[The Chair, NDP, Pat Martin]

I'm afraid that concludes your time. Thank you very much.

Next, for the NDP, we'll have Denis Blanchette.

[Denis Blanchette, NDP, Louis-Hébert, QC]

Thank you, Mr. Chair.

I want to thank our guests for joining us today.

You haven't talked to us about a procurement process, but rather about shipyard qualifications. The procurement actually begins now. I think we can agree on the terminology.

You have talked to us about selecting two companies for shipbuilding. However, there is also a third component, but we have not heard anything about it so far.

Could you tell me what you intend to do as part of this third component and tell me about the timeline?

[Tom Ring]

I just want to confirm that you're referring to small vessel construction. Okay.

I'll ask Mr. Leslie to give you the specific details, and I think Admiral Finn and Mr. Vermette will also speak to that, because those small vessels are being built for those two departments. They have the details on the timelines for when those projects will go forward. One of them, I think, was initiated just recently.

[Scott Leslie, Director General, Marine Sector, Acquisitions Branch, Department of Public Works and Government Services]

Thank you, Mr. Chair.

Yes, and perhaps it would be helpful if I clarified that there has been a certain degree of I think perhaps misunderstanding. It's not our intention to bundle all of these small ships into a third package. The small ships will be procured on a project-by-project basis as those projects come forward and mature far enough along in their development for us to engage with industry on them.

As Mr. Ring mentioned, we're just about to launch a consultation process for DND's large tugboat requirements. The coast guard also has some very significant requirements, such as lifeboats and such, that will also be coming forward as those projects are developed.

I'm afraid I'm not in a position to be able to give you a more specific timeline for those projects, but there will be extensive consultations with industry, as we have done throughout the process, to ensure that the industry is aware and is provided significant input and advice on how we should proceed.

Perhaps I should also mention that part of the NSPS process was that the two shipyards selected to build our large ships, and their affiliates, will not be participating in any competitions to build the small ships. Supplying those other ships will only be among the other Canadian shipyards.

Michel, did you want to add anything?

[Michel Vermette]

Yes.

There are a number of small vessels in the coast guard fleet. In fact, about two-thirds of our fleet of 116 to 118 vessels on any given day are made up of vessels under 1,000 tonnes, the cut-off line between large and small vessels.

Mr. Leslie spoke of our lifeboat fleet, for instance. We have about four dozen lifeboats, 47- and 55-foot lifeboats. Our 47-foot fleet is actually in pretty good shape. We turned out the most recent five of those under the 2009 economic action plan. Our 55-foot lifeboat fleet, an example of which is the Cap-aux-Meules in Cap aux Meules, is an aging fleet of lifeboats. We recently initiated a design contract to work out a design for that lifeboat fleet. We need ten of these. As an example of the small vessel package, we will be going, in we hope late 2013 or early 2014, to an RFP for construction of those ten smaller vessels.

Just as one final comment, you should think of those projects, like the projects we have recently completed in

the Méridien Maritime de Matane shipyard

to build three 22- and 25-metre nearshore science vessels, or the project we have with ABCO, in Lunenburg, to build a small patrol vessel for Prince Edward Island—

[Denis Blanchette, NDP, Louis-Hébert, QC]

Thank you.

I would like to come back to main contracts. With those types of contracts, the risks are very high, mainly because an extended period of time is involved.

Let's first talk about what you call ancillary contracts. Is that your way to control ship costs? You decided that you wanted 28 ships, and you targeted a certain amount of money. However, cost overruns are already being suspected. Can you explain to me how you will be able to control costs through that ancillary contract process?

[Tom Ring]

Thank you for your question.

That's right. Ancillary contracts are not necessarily meant to control costs, but to help understand how the different projects are developed, and that in turn helps better understand costs. I will ask Mr. Vermette and Mr. Finn

to comment a little further on the details about the ancillary contracts, and what they are designed to do, in terms of better understanding how design of a vessel will proceed, and thereby controlling costs.

[RAdm Patrick Finn]

One of the outcomes of the strategy, as was mentioned in the video, is the bilateral engagement it has created. Historically we would have tried to do many of these very complex acquisitions in a competitive environment, where it is very, very difficult to have any kind of dialogue between the competitors to get to what I would call “ground truth” for costs.

As Mr. Ring indicated, the auxiliary contracts are just the first in a three-phase approach. These are meant to be an engagement by which we can have a dialogue with the shipyards such that we can bring to the table the designs we're maturing, and the actual people who will build it can give us feedback on the implications of our design. It's not unlike a house where an architect may want to have a beautiful design, and the house builder will tell you it's not affordable.

This is part of the early engagement by which we're using their expertise to comment on it—

[Denis Blanchette, NDP, Louis-Hébert, QC]

When will you choose between what you want to have and what you can have, given the costs? You know very well that needs will change over 20 or 30 years. However, we are looking at the costs today. What will be the key element in that process?

[RAdm Patrick Finn]

Usually, a spiral process is used in ship design. Budgets are set. We know very well that the opportunities to surpass and increase those budgets are very limited. So the process will entail changing the design and reviewing the needs—repetitively and in co-operation with the yards—to be able to ultimately deliver ships within the set budget.

[The Chair, NDP, Pat Martin]

Thank you, sir.

For the Conservatives, Peter Braid.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you, Mr. Chair.

Thank you to all of our guests for being here this morning.

Most of my questions will go your way, Mr. Ring, I suspect.

I want to start with a question about the secretariat itself. You each, of course, have your respective roles in government. Does the secretariat itself still exist? Does it have a continuing mandate? As well, what is the lifespan for the secretariat?

[Tom Ring]

Thank you for the question, Mr. Chair.

Yes, the secretariat does exist, and it will continue to exist. There is a role that is defined for the entire life of NSPS. The reason for that is that, as we've discussed, we're bringing together multiple different projects and establishing strategic supplier relationships and arrangements with two suppliers, Vancouver Shipyards and Irving Shipbuilding.

In the case of Irving, all of the work that's being done there, currently or planned, is for National Defence. There is probably what I would call a simpler relationship, as it were.

In the case of Vancouver Shipyards, there are projects for both National Defence and the coast guard. The secretariat, as Rear-Admiral Finn mentioned, is a way of ensuring that we have a coordinated dialogue amongst the various shipbuilding projects and the shipyard.

We did a study following the selection process to look at what the long-term role of the secretariat should be. It was agreed that we should have a coordinating or management role through the life of the NSPS process. And it comes back to the issue that it's not the only time that we have had a strategic source of supply for procurement of a particular commodity, but this one is very unique because multiple departments are involved. We've looked at putting unique governance processes in place to make sure that we keep on track and that we have effectively dealt with the needs of the various clients who are involved, and have a strong relationship with the shipyard.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

By the way, congratulations on the success of this process. You've clearly created a model that I think can and will be used in the future for other procurement processes as well.

I'm curious about another aspect. Of course, you're responsible for overseeing the building of the ships themselves, Halifax and Vancouver, but these will be ships with sophisticated technology and nifty gadgets. How will those be managed and tendered? Will you be taking care of everything from soup to nuts, as it were, with respect to the entire ship?

[Tom Ring]

Thank you very much for the question.

If I could, I will make a comment about your question about using the model for other procurements, and then I'll ask my colleagues to speak to the specific question at the end, regarding the various component parts.

The attributes, engagement governance, and the use of third parties are in fact being applied in other procurements today, notably fixed-wing search and rescue and coast guard helicopters. We have taken those attributes and are trying to even better understand how they can be applied, not only in large procurements but also in small procurements.

So you're absolutely correct that this is a model for how we should do procurement, that it is actually transforming the procurement processes step by step. You to make sure that you do it in a step-wise fashion so you don't get too far ahead of yourself. But it is proving to be quite successful, and we've received quite positive feedback from industry about the way in which we are conducting aggressive engagement on large procurements.

Now I'll ask Rear-Admiral Finn and Mr. Vermette to speak to your specific question about how we would manage the component parts of the individual projects.

[RAdm Patrick Finn]

Thank you for the question, sir.

Again, it depends on which vessel we are talking about and the level of complexity involved. If you look at the Arctic offshore patrol ships for the navy, the joint support ship for the navy, the auxiliary vessels, in those cases the hull form, the propulsion, and the power generation become the key components in where the complexity brings efficiency and speed.

In the case of those projects, although it will all be managed by us in Public Works, the relationships are a little more straightforward around the shipyards largely performing the role of the prime contractor. Some of the details of how all of the other players are involved have yet to be established in the detailed acquisition contracts. In most cases, given the relative cost, they will go through a form of acquisition themselves, clearly with oversight by Public Works and others.

When we get into the next generation of surface combatants for the navy, which are much more complex, in that case what we would call the combat systems, the sensors, and the weapons are the majority of the costs and the majority of the complexity. We usually describe it as a combat system that's wrapped in a hull.

We've just started the consultation on that project. Again, Public Works is leading that. We kicked off the industry day in the middle of November, and have gone out to industry. There are many models used internationally. We've gone out, we have some views on it or some options, but again, in learning from the shipbuilding strategy of the importance of early consultation, we've gone out to industry and asked how we should form the relationships between the shipbuilder and combat systems integrator and what we can do. In that case we're very early in the process, and I've just opened that up.

[The Chair, NDP, Pat Martin]

Thank you very much, sir.

We're letting the questions and answers go on a little longer just because a lot of these are technical questions that are difficult to answer within the strict five minutes that we usually allocate.

Now we have John McCallum for the Liberal Party, please.