Government Operations Committee on March 25th, 2022

[Pierre Paul-Hus, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

Thank you, Mr. Chair.

Due to the ongoing conflict between Russia and Ukraine, the North Atlantic Treaty Organization, or NATO, is asking its member countries to increase their military spending to 2% of their gross domestic product.

I've supported this for years, but what worries me a lot is the waste that is going on. There are always incomprehensible costs added to projects that run into billions of dollars.

By increasing the National Defence budget to meet this target, will we get more bang for our buck? I know this is a very hypothetical question for you, but I'd still like your opinion.

Is the shipbuilding industry capable of doing more at the moment? I think the order books are full. We are not even able to achieve what we have to do.

If the budgets were increased, would that allow us to do more or improve what we are already doing?

My questions are for Mr. Page or Mr. Crosby.

[Simon Page]

Thank you for the question.

We are working hard to assess the ability of our shipbuilding business to meet the operational needs of the Canadian Coast Guard and the Royal Canadian Navy. That is why we are working very hard on the selection of the third yard. We are also looking at how the smaller yards could make a greater contribution on an ongoing basis.

In terms of specific questions about the budget, I will turn it over to my counterpart, Mr. Crosby.

[Troy Crosby]

Just quickly, in a more general sense for defence procurement, should the opportunity arise, we would turn to the services who are the sponsors of the requirements. Once those requirements are determined and we know where the investments need to be made to meet future requirements, then we would proceed with processes, generally a competition, and take the best advantage we could of the market.

[Pierre Paul-Hus, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

Thank you, Mr. Page and Mr. Crosby.

I yield the floor to my colleague Mr. McCauley.

[Kelly McCauley, Conservative, Edmonton West, AB]

Thank you.

Vice-Admiral, I want to get back to the T26. Won't it be a bit too late, if we find it does not meet requirements, after the first one is built, as you seem to be suggesting?

[VAdm Craig Baines]

Mr. Chair, I would just clarify to say that we're still in the design process. Through that design process, we try to find trade-offs that will reduce weight and meet the speed parameters that are listed in—

[Kelly McCauley, Conservative, Edmonton West, AB]

If I could just interrupt, my understanding is that all during the design process, the LSW's getting heavier and heavier. So we're not finding any reductions every step. I've been doing this for six years on the committee. The ship's getting heavier and heavier every time.

Do we reach a point where we say, no, we can't achieve the speed that's required, and then we cancel the T26? It will reach that point where it cannot get any more speed out of that basic design.

[VAdm Craig Baines]

Mr. Chair, again, as we're still in the design process, we're still making sure that we understand the through-life weight of the ship. Once we're through all of that design, we'll have to decide whether there are trade-offs that have to be made to make sure that the ship can meet the speed we'll need for the future threats.

[Kelly McCauley, Conservative, Edmonton West, AB]

Is there a risk this will happen? What trade-offs are we going to make to stick to what I think is a very politically motivated, poorly chosen ship design?

[VAdm Craig Baines]

Mr. Chair, as we pull through the design from the Type 26, we go through our own design review process to look at the equipment put in the ship and the through-life weight the ship has to have, understanding that it starts at a weight, and then there are margins that exist through the life of the ship. We can look at how we manage those margins through time to make sure that we maintain the right requirement for the navy going forward.

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you, Admiral Baines.

We will now go to Mr. Bains for the final four minutes of questioning.

[Parm Bains, Liberal, Steveston—Richmond East, BC]

Thank you, Mr. Chair.

I want to welcome our guests and thank them all for their service to Canada.

My question is coming from Richmond, British Columbia. As it is to one of our other members, the marine sector in British Columbia is very important to us. Asserting Canada's territorial sovereignty is crucial, given Russia's actions in Ukraine. The multi-purpose vessels and the polar icebreaker that are to be built in Seaspan's Vancouver shipyards....

My question is for Monsieur Page.

Can you update the committee on the progress of the design work? Also, could you expand on the impacts to supply chains, steel costs and other things that are affecting the progress?

[Simon Page]

Mr. Chair, with respect to the multi-purpose vessels and the polar icebreaker, we are in what I characterize as the definition phase of the project—the design phase of the project. We're still in conversation about efforts required ahead of pure shipbuilding efforts.

For instance, with the polar icebreaker, we are very focused right now on negotiating the contract for construction, engineering and long-lead items, and eventually getting that contract and the full design on the way. We have some cut-steel dates in the future with a focus on meeting the operational imperatives of the Canadian Coast Guard.

With respect to your question about commodity pricing, as mentioned before, it is something that we monitor closely with the shipyards. Our efforts on long-lead items and ensuring that we can order in large quantities ahead of projects are discussed in a continuous fashion with the shipyards in order to generate some economies of scale ahead of the shipbuilding efforts themselves.

[Parm Bains, Liberal, Steveston—Richmond East, BC]

The global impacts on the supply chains.... Ultimately, how much did those affect the cost and the progress?

[Simon Page]

It's very difficult to put a number on how much, even as a percentage. It has been impacted. Supply chains have been impacted by what's happening globally, including the transportation segment of the supply chain management. At this time, it's difficult to put a precise figure on that.

[Parm Bains, Liberal, Steveston—Richmond East, BC]

Has it negatively impacted the progress, yes or no?

[Simon Page]

Supply chain issues have negatively impacted projects across the NSS.

[Parm Bains, Liberal, Steveston—Richmond East, BC]

Moving forward, what safeguards are built into the shipbuilding contracts to encourage shipyards to deliver ships as close to on time and on budget as possible?

[Simon Page]

We have different contracts for different projects. One contract mechanism that we use at the moment with the Vancouver shipyard is what we call a CRIF model: a cost reimbursable incentive fee model. There are specific incentives associated with meeting deadlines and staying within costing envelopes.

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you very much, Monsieur Page.

With that, we've come to the end of the questioning. I would like to thank the officials for being here today. Mr. Page, Mr. Crosby, Mr. Smith and Admiral Baines, thank you very much for your attendance.

With that said, we're now ending the public portion of our meeting and we are going to go in camera. As you are aware, this meeting will have to close and the technicians will shut down this Zoom. You will have to come back in on a new Zoom with the new passcode. I ask that you do this as quickly as possible, so that we can be expedient and respectful of the time.

With that, I now declare the meeting suspended.

[Proceedings continue in camera]