Government Operations Committee on April 1st, 2022

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

Thank you, Mr. Chair.

I also want to thank the witnesses for joining us at today's meeting.

Mr. Kasurak, when we talk about military construction, or specifically today's topic of shipbuilding, I believe that there are four stakeholders: politicians, the public service, the industry, and taxpayers.

Currently, each stakeholder still has an issue. The politician changes their mind. The public service wonders whether there's sometimes a lack of skill. The industry seems to often want all the benefits for itself.

In terms of shipbuilding, we have important questions, for example, about contracts to build the Arctic offshore patrol ships, or AOPS.

In his presentation, Mr. Collins said that the contract seemed simple, that it was working well and that it would cost $2 billion—there are five ships and each ship costs $400 million. Ultimately, a sixth ship was added, just to buy time. The total cost was $2.8 billion. We're now learning that a seemingly simple project will cost $4.3 billion. Once again, the taxpayers, the fourth stakeholder, will cover the costs.

Mr. Kasurak, you just said that there are many projects. I want to know whether Canada is biting off more than it can chew, thus making it difficult for the industry to carry out these projects. Shouldn't Canada look abroad and obtain ships from other countries?

I understand that Canada wants to benefit from the economic spinoffs. However, if it can't obtain the equipment in a timely manner, everyone loses.

What do you think about the possibility of doing business with foreign countries for certain products?

[Peter Kasurak]

If you don't mind the pun, I think that ship has sailed. The government in power—as a matter of fact, two governments—have decided to try to revive the Canadian shipbuilding industry as a strategic decision. At this point in time, there certainly would be little or no benefit and probably a lot of disbenefits to trying to change the process that has been established.

Mr. Chairman, I don't think that at this point in time trying to shift your—

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

Do you feel that the Seaspan and Irving yards will be capable of building everything they have to build on schedule? When you're talking about frigates, the level of technology required means you don't know when you will get them. By the time we get them, the technology may already be obsolete.

We have another issue when it comes to speed. The costs are huge, but what about how fast they get built? Are we supposed to sit here and cross our fingers?

[Peter Kasurak]

I don't think you need to sit and cross your fingers. I think that parliamentary oversight is going to be a spur to the resolution of some of these issues, but trying to make it go faster now that we've set upon this course is going to be quite difficult. The capacity of Seaspan and Irving is what it is. We've got to live with it. We've got to work with that and build on it.

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

Thank you.

Mr. Collins, in 2019, the defence minister's mandate letter called for the creation of a joint organization. This new organization was to be a new military procurement department. In 2019, that's what the Prime Minister asked the defence minister to do. In 2021, the request was withdrawn.

From our perspective, that is, from the Conservatives' perspective, we thought it was a very good idea to take a cue from the Australian model and organize our military procurement in one place, under one minister.

What do you think about the government changing its mind?

[Dr. Jeffrey Collins]

I'm not sure what the government's position is on it, because there's been no formal declaration that somehow this idea is dead in the water. It is, to your point, notably missing from the mandate letters.

COVID, I think, goes some way to explaining that. My understanding also, from talking to people in the system, is that bureaucratic resistance is first and paramount as well. Departments don't like losing aspects of their mandates to complete reorgs, and this would definitely involve that.

The combination of those two factors, I think, is a big reason we have not seen traction on it. For this type of reorg during an NSS build, and also fighter jets—and who knows what's proposed in the April 7 budget?—it would be a tall order to juggle a complete reorg while also trying to competently manage so many projects in the pipeline at the same time.

I do think, though, that it is a good idea worth evaluating and pursuing. I would always be thinking about how we could restructure ourselves to think about procurement a bit differently, and I would welcome further analysis on it.

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you, Mr. Collins.

We will now go to Mr. Housefather for six minutes.

[Anthony Housefather, Liberal, Mount Royal, QC]

Thank you very much, Mr. Chair.

I'm not going to be as bleak as the last round of questions.

I want to point out that I believe that the public service is excellent in Canada. I don't think it is fair to call into question their competence. I think Canada is lucky to have an independent, very well-respected public service.

To Mr. Kasurak, I look at this as an opportunity. You talked about a challenge in your opening statement. A challenge was the different way the public wanted to treat defence, because it was never viewed as a priority. It was never viewed as something they wanted to spend a lot of money on, so governments didn't, even though there may have been interests who thought we needed a stronger military with better equipment.

I think that the recent conflict in Ukraine, the horrible war that Russia has started, has made the public much more ready to spend more money on defence. They're ready to recognize the challenges we face as an Arctic country that borders Russia in a world where you had Donald Trump as president and you can't always count on the American president rushing to our defence. I think that Canadians are starting to see that there is a need to have very professional, well-equipped armed forces.

Do you not see this as an opportunity, Mr. Kasurak?

[Peter Kasurak]

I certainly see it as a need. If you look at the history of defence spending, even during the height of the Cold War, the late 1970s and 1980s, when the government by its orientation was towards a budget military side, they pushed spending up to pretty much two per cent, and it stayed there until the end of the Cold War.

I think that if the need is there, the public will certainly support the spending, and politicians are usually sensitive to both the need and the fact that they are going to get public support for it. I guess, in a defensive establishment, you could view it as an opportunity.

[Anthony Housefather, Liberal, Mount Royal, QC]

I also look at any improvements we can make in the department and in our processes as opportunities. What I think often fails to be looked at is that there are trade-offs involved everywhere.

We were just talking about buying foreign ships versus creating a Canadian industry that creates jobs and economic growth in Canada and is eventually self-sustaining in the sense that, once we ramp up our shipyards the way the Americans need, to have consistent builds, they're going to be able to produce cheaper and better ships in the process of qualifying Davie as well as Seaspan and Irving, so there was a choice to be made.

We may have been able to buy cheaper ships and get them a bit faster if we had bought them abroad, but a choice was made to develop Canadian jobs and the Canadian economy, and to have a self-sustaining industry in Canada.

Would you agree with the assessment that it's a trade-off and a choice that we made? This is for both of you.

[Peter Kasurak]

I think it's definitely a strategic choice that has been made. The question that I have is this: What happens at the end of the current production envelope? Are we going to be able to sustain what we've built? Even if we stretch everything out for a very long period of time, what's going to happen at the end?

Submarine isn't part of the program.

[Anthony Housefather, Liberal, Mount Royal, QC]

Go ahead, Mr. Collins.

[Dr. Jeffrey Collins]

I completely agree, sir, on this idea of trade-offs. I think missing for some time in this discussion is what you gain by having the capacity to develop, to not just build the ships but, crucially, to be able to maintain and sustain them over decades.

That is a domestic sovereignty capability you need. If we didn't do this, to go simply buying ships offshore again, you would have to depend on foreign builders to be responsible in the long term for doing significant modifications or upkeep, unless you're willing to make that vested in Canada.

We found out, with the Victoria-class submarine, when we bought those ships, that the production line for them was shut down. We had to restart that production line from scratch and learn from scratch how to maintain and sustain them, because we didn't have that sovereignty capability.

I'm not saying what the right answer is; I'm saying it's part of the trade-offs that you recognize in your question, sir, and we should be fully aware of those when we make these types of decisions.

[Anthony Housefather, Liberal, Mount Royal, QC]

Thank you.

I'm just going to end with a small comment.

It doesn't surprise me in the least that it will take a few months, perhaps up to seven months, to negotiate a contract with Lockheed Martin. I don't think that this is so simple. Even if some of the terms are already agreed upon, you have a vast number of things that you need to negotiate in complex contracts. I've done that my whole life, being a general counsel, and it doesn't surprise me at all.

Thank you so much to both witnesses.

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you, Mr. Housefather.

We will now go to Mrs. Vignola for six minutes.

[Julie Vignola, Bloc, Beauport—Limoilou, QC]

Thank you very much.

I'm going to ask all witnesses to answer my questions.

This week at committee, a witness stated that the government wasn't necessarily making decisions about the national shipbuilding strategy, it was a shipyard in Eastern Canada imposing its views. The current situation of exploding costs and constant delivery delays is worrisome. We're in this situation due to what we've been experiencing for the past two years, the labour shortage and inflation associated with shipbuilding. That said, the steel cutting capacity of each of the yards probably has an impact as well.

Nevertheless, the witness's comments lifted the lid on another possible reason for the rising costs, and it doesn't appear to be in the interest of either the government or taxpayers. If this shipyard really does have the upper hand when it comes to decisions, as the witness said, could it also be influencing other yards in a positive or negative way?

What do you think of what the witness said this week?

[Peter Kasurak]

I heard that testimony, Mr. Chair, and I thought it was somewhat exaggerated. I think the government made a deliberate choice to outplace the prime contractor to industry. It ceded a bit of control when it did that.

However, the problems that have been experienced are not strongly related to who the prime contractor is and whether it's inside or outside. They have to do with the initial state of the shipyard, the state of our labour force and the complexity of the weapons system we're trying to build. I'm not sure that if it had been all government employees, it would have been any cheaper or any better in the end. You have to interface with a shipyard at some point.

I'd also like to note for the committee that the government has intervened and directed that specifications be frozen, to try to control costs. That has caused another layer of problems. The government is in control, in my view, and the problems are inevitable, given the magnitude and the complexity of the task.

[Dr. Jeffrey Collins]

I echo my colleague's comments. They're spot-on.

An additional challenge is simply that we are not the only country among our allies going through a massive rebuilding program for ships, submarines and other key naval capabilities. Most of our clear allies are the Brits, the Aussies, the Dutch and the Germans now. Those commodity prices, whether they're for steel or other parts that go into a ship, are going to be there no matter where the ship is built.

It's really a question, back to my last answer with Mr. Housefather, of what the trade-offs are that you're going to be cognizant of when making this decision.

[Julie Vignola, Bloc, Beauport—Limoilou, QC]

So, when the yards were chosen they weren't yet ready to build the ships and work on such a large-scale project.

Did I understand correctly, Mr. Kasurak?

[Peter Kasurak]

Yes and no. The shipyards all had to be brought up to a standard before they started work, and that took Seaspan extra time. However, once they're at standard, no. They should be competent to do the work.

[Julie Vignola, Bloc, Beauport—Limoilou, QC]

The government is currently in negotiations to include a third shipyard in the strategy. Had the work started earlier, would that have fixed many of the issues we are currently experiencing with timelines, costs and steel cutting, for example?

[Peter Kasurak]

Well, it would have sped things up. The problem with having a third shipyard is whether at the end of the program we will have enough work to sustain three shipyards. I think that was the issue that drove the government to limiting it to two in the beginning. I'm not sure we know the answer yet as to whether we're going to be able to sustain even two, much less three, at the end of the road.

[Julie Vignola, Bloc, Beauport—Limoilou, QC]

Mr. Collins, I am wondering about a few things in the strategy.

At this point, for the 15 Canadian surface combatant ships, which will cost from $56 billion to $60 billion, no delivery date has been determined. Add to that the price of the two Arctic and offshore patrol ships—AOPS—, which we still don't know, despite the fact that the company building them has already built six. The current cost of these two Coast Guard vessels is said to be $1.5 billion.

As far as the small multipurpose and coastal patrol vessels go, we don't know their delivery date or their cost.

Does it concern you that we're missing so much information? After all, we're talking about our territorial sovereignty.

The chair tells me we're out of time, so you're going to have to respond to me in writing.

[Dr. Jeffrey Collins]

I am—

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you. Excuse me for interrupting, Mr. Collins, but unfortunately, due to time constraints, as the questioner suggested, if you could put the answer into writing, that would be greatly appreciated. Unfortunately, due to time constraints we have to move forward.

Mr. Johns, you have six minutes.