Government Operations Committee on May 3rd, 2022

[Gord Johns, NDP, Courtenay—Alberni, BC]

Witnesses, thanks for being here.

Mr. Padulo, can you speak a bit about how your business has changed since vessel repair, refit and maintenance projects were organized under the national shipbuilding strategy in 2010? Maybe you can speak a bit about how the federal government could do better to help smaller shipyards in developing capacity for national shipbuilding strategy projects.

I live in an area where there's a deep-sea port. They've had aspirations to build a floating dry dock on the west coast of Vancouver Island and there hasn't been federal support for them to grow that vision and that dream, despite that on Vancouver Island and the west coast we have a different capacity issue where we have not enough capacity on floating dry docks.

Maybe you could speak a bit about what the federal government could do.

[Shaun Padulo]

Is your riding in Port Alberni?

[Gord Johns, NDP, Courtenay—Alberni, BC]

Yes, that's it.

[Shaun Padulo]

That's awesome. It's a great part of the country.

I think the biggest issue that all of the smaller shipyards are facing is a continuity of work. Especially where we are, on the Great Lakes and the St. Lawrence Seaway, the majority of our commercial customers want their work done within a three-month period during the shutdown of the seaway, when they're not able to transport cargo. We have a massive ramp-up period followed by a massive bust period.

The projects have all been green-lit. We have these VLE programs. We have regular dry dockings and refits. If the government is able to strategically align those projects during the slow periods for the smaller shipyards, what it will do is create a continuity of work and intrinsically link commercial work and government work in Canada.

It will allow shipyards to have a continuity of work and save our workers, essentially. When we have to lay people off, we're losing experience and skills. It's very difficult to get those people to come back into our shipyards. As you all know, it's a very tough labour market out there right now, and continuity and long-term employment are very important.

[Gord Johns, NDP, Courtenay—Alberni, BC]

That was going to be my next question. How are you doing with retaining staff right now? It's a huge investment to train them, maintain them and then keep them for the long term.

How could the federal government support that recruitment, training and retention, and efforts around that?

[Shaun Padulo]

For me, it's what I discussed in my opening remarks. I think it's important for Heddle and Ontario to become a partner with Canada in the national shipbuilding strategy for these large VLE programs, these complex programs, as well as some of the vessels under 1,000 tonnes.

If there can be a continuity of work.... I don't think any of the yards are asking for handouts. What we would like to see is the work come into our yards so that we can earn a living and keep our people employed.

[Gord Johns, NDP, Courtenay—Alberni, BC]

You've seen policies in the past. You talked about doing some work on ferries. There was a 25% tariff. The Harper government got rid of that, and ferries were being built in Europe and around the world. That was a deterrent.

Can you talk about policies that are critical and that need to be put in place to support Canadian shipyards and Canadian workers? Can you also speak about the multiplier effect and the money that stays in our communities when we invest in Canadian shipyards?

[Shaun Padulo]

It's a very important point. Ultimately, there have been Liberal and Conservative governments that have come up with different economic policies that have helped and hurt the shipbuilding industry in Canada. There was a 25% tariff on large ships and that was removed at one point. Ferries is another one.

If we talk about a national shipbuilding strategy where we're trying to support the domestic production of ships, the federal government has done a lot at the federal level for the Coast Guard and the navy to roll out programs. It would be great to see collaboration with the provinces as well. If you look at B.C. and Ontario, there are a number of ferries that have been built offshore recently. Working collaboratively with the provinces would be something that the feds could do to help us keep that work onshore and create jobs in Canada.

The multiplier effect that you talked about is real. For every dollar spent in a shipyard, there is a multiplier effect, whether you use $5, $6 or more in the surrounding communities. That's a very important consideration that we need to factor in when we're talking about keeping work domestic.

[Gord Johns, NDP, Courtenay—Alberni, BC]

We look around the world and we can see Norway, where they've utilized rural and remote communities. They have shipyards in towns that have 2,000 people. It's to build resilience and economic diversity, but they also do it because of affordability. We're seeing skyrocketing real estate in all of the urban centres in Canada where the shipyards exist, which is going to make it even harder to find and retain a workforce and attract workers.

Can you speak about the critical need to expand into rural Canada and develop shipyards within a rural context?

[Shaun Padulo]

It's a very important point. We have a shipyard in Thunder Bay, Ontario, which is a city, but it's in northern Ontario. For all intents and purposes, the outlying region could be considered very rural.

You're right, there is a lot of pressure on people who are trying to buy homes now in some of the major urban centres of our country, and some of the largest shipyards that are in our country are in those major urban centres. It's important that we start looking at some of these outports, whether they be on the east coast, the west coast or in the internal ocean, which is the Great Lakes, and start considering sending capacity and work to those places.

[Gord Johns, NDP, Courtenay—Alberni, BC]

I'd consider Thunder Bay rural for sure.

Can you talk about what your number one frustration's been?

[Shaun Padulo]

Our number one frustration has been the fact that we own facilities that are the largest shipyards in Canada in terms of the actual space and our dry docking capacity, but we haven't been able to support Canada in what is the largest procurement in the history of our country, the national shipbuilding strategy. It would be important for us going forward if Ontario could be considered in a meaningful way to be part of the national shipbuilding strategy to help deliver ships on time and on budget.

There's a ton of capacity within our three shipyards and we would like to help the country deliver on the projects that we have currently.

[Gord Johns, NDP, Courtenay—Alberni, BC]

Thank you.

[The Chair, Conservative, Robert Gordon Kitchen]

Now we will go to Mr. Lobb for five minutes.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Thanks, Mr. Chair.

Some days I just feel like I'm going around in circles with this study.

My first question is to Mr. Fulfaro.

How is it that you can put a bid in—and I'm giving you a compliment, almost—at a fixed price, and I'm assuming a fixed period of time? It's my understanding that the work would have been done at the Irving shipyards, but yet with the very same people and other shipyards, the cost is maybe double or triple what you bid? How is it that you folks have the ability to produce these surface combatants at a fixed cost, and now I read that the cost of these 15 ships could be almost $70 billion. How is it that you have that ability?

[Achille Fulfaro]

I don't know what the $70 billion is in reference to, because as I said before, and I want to remark again, the FREMM frigate has a different cost per unit. When I heard the $70 billion, we were out of mind.... I want to be clear regarding this. The price in the market of the FREMM is very clear. You can check the contract for Egypt, for Indonesia, even the contract for the U.S. We are talking about another order of magnitude. I don't talk about the $70 or $30 billion; it's out of mind for 15 ships.

Regarding the question of the fixed price and how—

[Ben Lobb, Conservative, Huron—Bruce, ON]

I'm sorry. I'm not saying that's what you're going to charge or what you're proposing to charge. I'm saying that compared to what the others were proposing to charge, yours is way lower. That's what I'm saying. How can you do it?

[Achille Fulfaro]

That's a good point. We can stay a couple of hours regarding this, but I have a few seconds to reply to this question.

I come back again to the fact that we are talking about a well-proven design. When I say well-proven design, it means that these are proven at sea. We completely control the cost of this program. When I say we control, I mean that we start, of course, from the evaluation coming from our experience. We never proposed something related to Irving shipyard's cost. This is a matter that can be discussed.

Also, in our letter, we proposed the cost related to the production of the ship in Europe, even in Italy or in France. We never spoke about the prices outside that. Through the experience we get in an international market that they offer for Indonesia, Egypt, for U.S. or whatsoever, we know also the cost of having the production outside from our shipyards. We can control even this cost. It's a matter to seek and to discuss, together with the shipyard and the local supply chain, the different items, going through the points item by item and evaluating the cost impact.

We can do this job, because we act as a global player. We have experience in the transfer of technology. We have experience on how to control the cost outside of our capabilities and our shipyard.

[Ben Lobb, Conservative, Huron—Bruce, ON]

In your proposal, what percentage of the manufacturing would have been completed inside Canada? I won't hold you to the five decimal places, but a rough estimate—like 70%?

[Achille Fulfaro]

In our proposal, we proposed to have a proper transfer of the technology in order to have all of the production in Canada. This is the future idea of our proposal, not the value of the proposal we did. The idea of our approach was to make a transfer of technology to have the local production capability to manage item by item with the local supply chain, and then major equipment, let's say. The value of the production is a certain percentage. The value of the local supply chain depends on the technical viability of the local supply chain. We cannot estimate this. It's a matter of discussion, through the news, the local shipyard and Fincantieri.

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you, Mr. Lobb.

We now go to Mr. Kusmierczyk for five minutes.

[Irek Kusmierczyk, Liberal, Windsor—Tecumseh, ON]

Thank you very much, Mr. Chair.

Mr. Padulo, I want to start off by saying thank you to Heddle and your team for your tremendous support of humanitarian efforts in Ukraine and for the donations you have made through the Red Cross and the Canada-Ukraine Foundation, as well.

According to the Government of Canada website, since 2012 the NSS has awarded $20.87 billion worth of contracts, with over $950 million to SMEs with fewer than 250 employees. As well, through the repair, retrofit and maintenance program, 8,400 jobs have been either created or maintained annually under the NSS.

As you mentioned, in 2021 Heddle received a $12-million federal retrofit contract from the Canadian Coast Guard, again, to retrofit the Amundsen. Just to build upon questions that were asked by my colleague, I want to ask you how many jobs this project created at Heddle.

[Shaun Padulo]

Mr. Chairman, I appreciate the comments earlier on. I think Ukraine is a very important issue right now, and we appreciate the recognition.

With respect to the Amundsen, it created approximately 100 jobs. I just want to reiterate the point. Once the CCGS Amundsen leaves, it's going to be during the summer, and that's our quiet period, so those 100 jobs are in jeopardy. Those 100 individuals are responsible for delivering on a project that, as of right now, will be on time and on budget—which will be the first time that's happened in the history of the VLE program.

I do not want to see any of those individuals get laid off. Again, I'd like to bring back the point that we need the federal government's support to bring Ontario into the national shipbuilding strategy in a more meaningful way so that we can protect those jobs and continue to deliver projects on time and on budget.

[Irek Kusmierczyk, Liberal, Windsor—Tecumseh, ON]

Thank you very much for that.

Again, just to build on my colleague's previous questions, is there anything else you'd like to put on record in terms of how the NSS has impacted your shipyard and smaller shipyards?

[Shaun Padulo]

Of course.

As I mentioned during my opening remarks, there have certainly been challenges in the NSS, but at the heart of it, I think it's one of the most important strategies and policies in the history of our country.

We took over Port Weller in 2017 and Thunder Bay in 2016. When we took those facilities over—and they had once been the largest shipyards in Canada—there were zero employees there. Although the work is sporadic, the NSS has really helped us bring those shipyards back to life and revitalize them.

I want to thank the government for that, first and foremost. I think there are lots of things that can be done to improve..., but this was always an ambitious policy and strategy. So I think there a lot of positives that are coming and that will continue to come out of it.

Thank you.