Government Operations Committee on May 13th, 2022

[Anthony Housefather, Liberal, Mount Royal, QC]

I agree.

I have just some very quick questions, because I don't have much time.

On the type of design you're talking about, people have come to the committee and have said, “Well, you should just be buying off the shelf.” I don't think there are any navies or coast guards that buy ships off the shelf. You customize.

What you're saying is that the government should give specifications to the shipyards, tell them exactly what we need, let the shipyards do the design and then approve them. Is that basically what you're saying, instead of duplicating?

[John Schmidt]

Not quite, sir. It's more that we would work together. For example, the government produces a technical statement of requirements and operational requirements. We work together on refining those into a detailed specification.

However, once we complete the concept and basic design and the customer is happy, we do a final design review. If they give us a thumbs-up and say, “You got it; take it from there”, that's the point at which they should turn it over to the shipyard and say, “Now we're going to monitor your performance. Get on with delivering.”

[Anthony Housefather, Liberal, Mount Royal, QC]

Got it.

Mr. Chair, do I have any time left or am I done?

[The Chair, Conservative, Robert Gordon Kitchen]

I'm going to say you're done, even though you have 10 seconds left.

[Anthony Housefather, Liberal, Mount Royal, QC]

I wouldn't be able to do anything with that 10 seconds.

[The Chair, Conservative, Robert Gordon Kitchen]

We're going to go to Ms. Vignola.

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

Thank you very much, Mr. Chair.

Mr. Kendrick, I'd like to begin by thanking you for being with us today.

I understand fully that your comments are not aimed at workers or the industry as such. They are mainly about managing the national shipbuilding strategy.

The figures and examples you gave are worrisome.

What's the reason behind these cost overruns?

Why is the country with the most kilometres of coastline on the entire planet unable to stay on budget in a field in which it should have acquired expertise a long time ago?

[Andrew Kendrick]

Thank you very much, Madame Vignola.

Yes, I would like to emphasize that I am not against any sector of the Canadian marine industry, whether that be the designers, the builders or the equipment suppliers. I have been a firm supporter of that throughout my career in Canada, and I've participated in many unpaid activities—to the regret of my wife—that have dragged me to meetings all over the place.

We have the ability to build a capability in Canada better than we have today, but we have to go about it the right way. There are problems that come from the government side. There are problems that come from the management side within the shipyards. In my opinion, the latter are greater.

Just to give one example, the original design of the AOPS was purely commercial. It was designed to use commercial equipment, the cheapest possible commercial equipment. It was a design-to-cost project to keep the costs down. As soon as the project was awarded under NSS, the program office in DND was told that the shipyard was going to make it an ITAR project under the international arms trade regulations, because of the people they wanted to use to support them from the U.S.

That instantly caused a huge cost increase. It caused an increase in complexity. It required us to go and search for drawings that had been given to companies around the world and get them back because they weren't authorized to have them any longer. That was purely a shipyard decision, and there are many other shipyard decisions I could point to that have had the effect of driving up the price.

My concern here is that the government had lost control.

I said to the program manager at the time, “Why are you allowing this to happen?” The answer: “Oh, the shipyard tells us they need to.”

The shipyard is not in control. These are government ships.

That's the sort of messaging I've heard repeatedly about NSS, which is an indication to me that the system as designed, the system as implemented, is not a good system.

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

Thank you.

You're saying that Canada has become an international laughing stock because of its national shipbuilding strategy.

Is it possible that because of this poor reputation, certain countries are asking a higher price for ships we buy from them instead of building them here?

[Andrew Kendrick]

This is another interesting aspect.

If you are forced to compete on price, if you're forced to meet a price, then you accept risk. Another thing the shipyards have been doing is transferring as much risk as possible to their suppliers and contractors. They're not making a balanced decision on where risk should be.

As soon as you transfer a risk to an equipment supplier or to any other party involved, their price goes up. You've avoided the risk, but you're still able to charge the same amount of profit on the project. You're boosting the price and you're gaining profit at no particular risk to yourself.

There needs to be some form of price discipline. That price discipline, in part, needs to be based on the government's having informed knowledge of what the price of these ships should be. Many other governments around the world give their government projects to the shipyards in their countries. They do that all the time, whether it be the Dutch, the French, the Italians or whoever. They understand how to control cost.

A good example from the Netherlands is that when the Dutch government was given a quote for building a new ship, they took pieces of that away from the shipyard and did it in third-party facilities because they thought the cost of those elements was unreasonable.

These are the sorts of measures you can take. Control the costs. Make sure that's being done in an intelligent manner.

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you.

We'll now go to Mr. Johns for five minutes.

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

Thank you.

Thank you all for your really important testimony and for being here today.

We've heard that if we build ships abroad, the upkeep and maintenance will very likely end up being done abroad in the long term, which is obviously an impact.

Ms. Sampson, if Canada built the national shipbuilding strategy vessels abroad, do you believe that skilled workers in the naval industry would need to seek opportunities elsewhere?

[Shannon Sampson]

Absolutely. That would be absolutely devastating to the families in Nova Scotia who have been chasing that dream of 30 years' work, and they found it. They grew roots in Nova Scotia. They built their families. We would end up going back to the same boom-and-bust cycle that we were looking to avoid. That was one of the big staples of the NSS, not to mention that looking to build abroad would cause some concerns for our own security and the sovereignty of our country. I wouldn't want another country building our naval ships. That is something we would take personal offence to. We would be very concerned about that. I feel like that would not be a good idea.

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

You talked a little bit about the national security aspect of it. Do you want to touch on that?

As for boom and bust, we want to avoid boom and bust. There's some history here. I'm sure that you can share how we went through boom and bust in Nova Scotia. How do we avoid that in the long run?

Using the national shipbuilding strategy for the next 30 years is a foundation base for the 30 years after. What needs to happen to make sure we are competitive on an international front? Can you talk a little bit about the importance of getting this right?

[Shannon Sampson]

Our whole shipyard is based off of generational shipbuilders. We enjoy a family-oriented business. We wouldn't want to see any of our members face the same boom and bust we saw 10 years ago and prior to that. It was a hard time.

It's really hard. We have families who live around here. We have mortgages now. Inflation is through the roof. To go back and see that same boom-and-bust cycle would just.... We wouldn't have any jobs in Nova Scotia. That is where we work. It's one of the biggest employers in Nova Scotia. We would end up having to go elsewhere for work, and that's not something we want to see for our membership.

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

I really appreciate that. I don't even need to ask you. I was going to ask you about the multiplier effect, but I think you summed it up. It's having a massive impact.

In terms of attracting skilled workers from abroad, do you see a huge spike now that we're going full steam ahead here?

[Shannon Sampson]

Are you referring to the—

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

I mean attracting new workers to Nova Scotia and to the region.

[Shannon Sampson]

Yes. We're open to that. I know Irving shipbuilding is always looking to hire more Canadians. If we're running short on applications and looking abroad, we will welcome people with open arms to become Canadians and come into our membership to gain the experience and the skills to join our team.

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

Can you talk about how COVID has impacted your membership in terms of costs in the whole project?

[Shannon Sampson]

COVID hit really hard. For many months, we didn't have a full operating workforce. When we did, we had really strict restrictions. Nova Scotia took a leadership position in the way they operated in the COVID pandemic. Many different things were put in place.

We had zones in the shipyard such that if you were working in one area, you couldn't travel to another area to get anything, so you had to wait on what we called a “runner” to go and get that material for you. We weren't able to work in as many groups. There were things like having to wear masks, social distancing, and trying to lift up a large piece of steel and put it in place by yourself when you were normally used to having an extra set of hands.

In August on those ships—I'm not sure if any of you have been in them, especially with full PPE and tools—it is very hot with a mask on. Our safety department was always preaching about micro-breaks and being sure to hydrate and to not get overheated. It just added to prolonging items. It definitely took a long time to adjust to living with COVID.

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you, Mr. Johns. We'll now go to Mr. McCauley for four minutes.

[Kelly McCauley, Conservative, Edmonton West, AB]

Thanks, Mr. Chair.

Mr. Kendrick, thanks for your comments.

You said that the navy and the Coast Guard don't want the AOPS. Could you expand on that?

[Andrew Kendrick]

Obviously, this is hearsay, because they have never declared that very publicly. Having worked with both the navy and the Coast Guard, I believe that to be the case. If the navy had wanted them, they'd have taken them. They would have taken ships seven and eight, rather than making sure that the Coast Guard took them.

The Coast Guard really doesn't have a mission profile for a ship like the AOPS. In fact, for some of you who may know the Coast Guard fleet, I believe the plan is to use the AOPS to replace the Cape Roger and her sister ship. Those are really fishery patrol vessels. Those are non-ice-strengthened. They displace less than 2,000 tonnes. They're being replaced by an AOPS, which is getting on to 8,000 tonnes and is really optimized as an icebreaking vessel.

You're using a sledgehammer to open a tin can, essentially, with those ships. They are having to be customized for Coast Guard use because, as one example, the accommodations—

[Kelly McCauley, Conservative, Edmonton West, AB]

Can you give us a ballpark of how much these customizations are going to cost us?