Evidence of meeting #20 for Government Operations and Estimates in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was budget.
A recording is available from Parliament.
2:10 p.m.
Liberal
Anthony Housefather Liberal Mount Royal, QC
Mr. Chair, I'm sorry. I don't know where that suddenly came from.
By making allegations against a previous witness without specifying who that witness is, theoretically a cloud hangs over every single witness who has appeared before us in this study. I don't think that was appropriate. If somebody is going to make allegations, they better be specific and they better have facts. I found that to be totally inappropriate.
2:10 p.m.
Conservative
The Chair Conservative Robert Gordon Kitchen
Thank you, Mr. Housefather. I believe Mr. Lobb has indicated who the witness was.
2:10 p.m.
Conservative
Ben Lobb Conservative Huron—Bruce, ON
I'm not trying to cause any trouble, Mr. Housefather. I just want you to know that.
It was the Canadian Association of Defence and Security Industries. I thought it was pretty clear by my comments on who appeared the other day. They personally had a nice presentation and were well versed and everything else like that. I have no critiques there. I just think they should have maybe said that they receive $600,000 a year from the federal government, etc.
Let's move on and take that for what it is. It's just like if you're on town council and you work for the paving or cement company, you'd make the same comment.
I'll leave it at that and I hope we can just drop it.
2:10 p.m.
Conservative
The Chair Conservative Robert Gordon Kitchen
Thank you. Looking around, I don't see any more hands up.
Go ahead, Mr. Kendrick, please.
2:10 p.m.
Andrew Kendrick As an Individual
Mr. Chair, thank you. Committee members, thanks for this opportunity to testify. I'll introduce myself and my reasons for being here today.
I am a naval architect who emigrated to Canada in 1981. Since then, I have worked on every major Canadian government marine project, and on many other government and commercial shipbuilding projects worldwide. I retired from full-time employment at the end of 2020. I should emphasize that I am testifying today as an individual concerned Canadian citizen and not as a representative of any group or past employer.
You have already heard much testimony in this committee that the NSS has challenges and has had setbacks. My much blunter message is that NSS has failed and that it needs to be fixed or scrapped.
It's not delivering the ships the Canadian navy and Coast Guard need, and the few ships it has delivered have cost an indecent amount of money. We've become an international laughingstock. Broadly speaking, Canada is paying between three and five times the world price for ships and taking two to four times longer to get them.
We can't wait indefinitely for our new ships. Our navy and Coast Guard are rusting out. In the last few years, Canada has had to acquire more interim ships than new ones in order to fill gaps.
Let me review some comparative international projects.
I'll start with JSS. I was involved with JSS from 1998 until my retirement. In 2011, the project was awarded to Seaspan under NSS. In 2013, the decision was made to select the German Berlin class as the basis. Design work started in 2014 and construction in 2018. As of May 2022, assembly of the basic construction blocks is still not complete. My estimate is that the first ship may be completed by late 2025, perhaps 2026, with acceptance by the navy later. The project cost is currently estimated at about $4.1 billion for two ships and is likely to escalate further. The first ship will cost at least $2.5 billion.
The New Zealand maritime support ship Aotearoa is a brand new design, with a polar ice class that allows for Antarctic operations. She is technologically well in advance of JSS and roughly the same size and speed. Her design and build took almost exactly four years. The shipyard contract was $500 million Canadian. The Canadian project is roughly five times more expensive and is taking well over three times longer.
The Italian navy's new Vulcano was mentioned by a previous witness. She was awarded as a design contract in 2015 and commissioned in 2021, despite a major fire during construction. She also cost roughly $500 million Canadian.
Most of the ships under NSS are highly specialized vessels, so it is often difficult to find projects that look directly comparable. The Canadian offshore oceanographic science vessel and the South African navy equivalent are both designs by my ex-employer, with the much smaller Canadian ship being currently quoted at five times the cost of the South African vessel.
Another interesting recent project was the development of a large offshore patrol vessel for the Taiwan Coast Guard, a 5,000-tonne vessel with a 24-knot speed. Concept design to delivery took less than four years, and the cost of that four-ship program was slightly below $500 million Canadian. This Taiwanese vessel is different in concept from the Arctic and offshore patrol ship, but comparable in terms of complexity.
I was the program manager for AOPS from 2007 to 2010. AOPS is a cousin of the Norwegian Coast Guard's Svalbard, and my team had full access to costing for the Svalbard in order to support our own estimates, particularly for shipyard labour. We generally assumed that three times the European labour content would be needed. Based on the actual cost of AOPS, it seems that the true numbers are catastrophically worse. Given that the costs of the seventh and eighth ships are expected to be in excess of $1.5 billion, it seems that the situation is getting worse, not better. The Norwegian Coast Guard is now building three new ships that are bigger and more powerful for around $700 million in total.
Please note that these latest AOPS are not wanted or needed by either the navy or the Coast Guard. They are only being built to keep the shipyard busy until the surface combatant project is ready to move forward.
Fix NSS or scrap it. Frankly, I don't think it's fixable. There are fundamental flaws baked into its design. Much of the government's decision-making has been contracted out to what I'll describe as rent-seeking oligarchs whose interests don't appear to be aligned with those of the navy, the Coast Guard or the country.
Canada squandered billions of dollars on NSS and is at risk of wasting tens of billions more in the coming decades. We will not be giving the navy, the Coast Guard or Canada itself the ships they'll need.
This shouldn't be a partisan issue. Successive Conservative and Liberal governments share responsibility for the situation we find ourselves in. I implore this committee to look at the hard decisions that need to be taken to preserve our maritime safety and security capabilities.
Thank you.
2:15 p.m.
Conservative
2:15 p.m.
Shannon Sampson President, Unifor Marine Workers Federation Local 1
Thank you, Mr. Chairman and members of the committee.
I represent Unifor Marine Workers Federation Local 1. We appreciate the opportunity to speak with you today to highlight the importance of the shipbuilding contract for our members.
My name is Shannon Sampson. I'm the president of Local 1. With me today is our business agent, Adam Slaunwhite.
I understand that Kevin Mooney and Kevin Young have invited you to come to visit the Halifax shipyard. We would be honoured to have the opportunity to introduce you to your proud shipbuilders.
The three main topics I would like to discuss are as follows: number one, our members and the national shipbuilding strategy; number two, the challenges of COVID-19; number three, the transition from AOPS to the Canadian surface combatant project.
Marine Workers Local 1 was established in 1937. We have had up to three generations of shipbuilders working together at one time. Our members have weathered the boom and bust of national shipbuilding, and we still stand. We know what it means to see our members lose their livelihoods. The period of bust before that big announcement in October 2011 saw the largest shipyard in the country close. Saint John Shipbuilding was once home to over 3,200 skilled trades building the frigates. That is something we would never want our members to face.
Today we are building ships to sustain future generations. Canada has made this possible, and we do not take this for granted. The national shipbuilding strategy is growing a whole new generation of shipbuilders, and we are committed to delivering the best ships to the Royal Canadian Navy and the Canadian Coast Guard.
My generation is committed to the national shipbuilding strategy. We're keeping trades home, and we're bringing them home. Our local has over 229 apprentices, which is the largest number in a single employer in Atlantic Canada. Local 1 is committed to supporting our apprentices throughout their journey to achieve their Red Seal certification. We had a record-breaking number in 2021 and we're on track to breaking the record again in 2022.
The NSS has added over 700 skilled shipbuilders to our local. These shipbuilding opportunities are life-changing for our members. Our workforce is growing and diversifying, and we believe that skilled trades must include the under-represented. I am the first female president of Local 1, and I am proud of the number of women in trades at our shipyard. It exceeds both the provincial and the national average.
The Halifax shipyard and our members felt the impact of COVID-19, being an essential workforce. Nova Scotia Health Authority regulations closed schools and day cares for months on end, which reduced our workforce because of the need to care for young children. Irving Shipbuilding worked closely with the Health Authority to create site-specific distancing and safety protocols that protected all of our members. Maintaining these protocols affected production efficiencies, but we still persevered to deliver two Arctic offshore and patrol ships and are pulling together to deliver ship number three this fall.
Our members in ship repair, which is the mainstay of hundreds of jobs, have also delivered HMCS Charlottetown back to service and have welcomed HMCS Ville de Québec to the dry dock.
We're working hard to maintain the vote of confidence we rightly earned from Canada in 2011. As a team, Local 1 firmly believes that the protection of Canada against threats to our sovereignty and security begins at home and should be built at home. The NSS is all about Canadians working to keep Canadians safe.
AOPS has given us the opportunity to grow our team and expand our skills as we get ready for CSC. In order to sustain our workforce, we need to ensure there is no gap between completing AOPS and starting CSC. Our skilled members at Irving Shipbuilding earned the contract to build these combatant ships, and we are committed to building them all. This is a generational opportunity, and we are 100% focused on seeing this generation and the next employed on this historic journey for the navy.
Thank you.
2:20 p.m.
Conservative
2:20 p.m.
John Schmidt Chairman of the Board of Directors, Canadian Marine Industries and Shipbuilding Association
Mr. Chair and honourable members, thank you for the invitation to speak to you today on the national shipbuilding strategy.
I am here as chairman of the Canadian Marine Industries and Shipbuilding Association, or CMISA. CMISA's purpose is to represent and champion the advancement of the marine and shipbuilding industry across Canada. We represent 80% of Canadian shipbuilding production capacity. Our membership reflects a diverse group of successful businesses of all sizes in a range of marine industry sectors all across Canada. Our board therefore comprises directors from all major sectors across Canada, including partners in our NSS.
In the spirit of full disclosure, all our directors have day jobs in the industry. In my day job I am senior vice-president for commercial and government programs at Davie shipbuilding.
Personally, I have more than 45 years of experience in Canadian shipbuilding. Serving in executive positions in the private and government sectors, I worked on many contracts for the government and later for the shipbuilders. I was deeply involved in the original NSPS, the national shipbuilding procurement strategy, having been part of the successful Irving proposal. I hope I can offer unique insights on behalf of our CMISA members.
Let me start by commending Canada for its foresight and political will in creating our national shipbuilding strategy. The key to any successful strategy is to plan, execute, monitor and adjust. I emphasize “adjust”. This current review should be applauded for seeking to improve our NSS.
NSS projects either completed or under way, supported by many CMISA members, will benefit Canadians for decades to come. However, our NSS is not perfect. Its main goal is to replace our aging federal fleet, yet nearly 12 years into the large ship programs we have delivered only five large vessels. In the 1980s, over a similar period, Canada delivered 15 large ships.
The difference is easy to define. We transitioned from a commercially influenced model, emphasizing on-time delivery, to an approach that promotes process, governance and control over that of ship delivery. In the 1980s, we estimated the internal government cost of managing new ship construction at between 4% to 6% of contract value. Today it is around 14% to 16%. To replace roughly 36 large ships, Canada must budget now for 40.
Canadians live in volatile and worrying times, yet we struggle greatly to provide our Canadian Armed Forces and Coast Guard with essential tools and capabilities. We desperately need to fast-track ship construction to address growing threats to Canada's sovereignty and other vital interests. Our NSS should be a unique, made-in-Canada solution to the growing challenges we face. It should also help create a stable and sustainable domestic industry, with export potential.
In our time of great need, Canada's procurement process hampers agility, innovation and execution. This has contributed to well-documented cost overruns and delivery delays. The backlog means we are performing vessel life extensions on ships up to 50 years old.
We can fix this with pragmatic and proven solutions that combine the best of government and commercial practices. A real-world example is the United Kingdom's refreshed national shipbuilding strategy. It seeks to build competitively priced ships today to create future exports. A more commercial approach is paying off. The U.K. has developed a warship for a fixed price of U.S. $336 million. Five have already been sold to foreign governments.
Canada can, and I would say should, do the same. Canada is able to build competitively, and there is increasing demand for the high-quality products, including complete vessels, that Canadian shipbuilders and our supply chain can produce. Major global fleet renewal is an export opportunity for Canada. Other nations empower industry to drive shared success, and we should consider doing the same.
A key step is to rationalize government oversight on projects with more control, delegation and responsibility given to the contractor, who is, after all, the shipbuilding expert and responsible for delivering the vessels.
For example, one of our members had a recent major project that used a commercially based procurement strategy and project management approach whereby only the classification society and a single overseer were used by Canada to monitor shipyard performance. The project finished on time and on budget, meeting all contractual requirements. While this may only be one element, it speaks volumes as to what can be done with a more commercial approach that uses industry norms rather than government norms.
Let's look at the ship design stage. Canada has a high-quality design capability, and there is ample domestic capacity for the earlier steps in the design cycle. These early stages form a material contribution to innovation in Canadian shipbuilding. This capacity must not be allowed to stagnate due to project delays. Deepening the Canadian capability for early-stage design will, over time, provide capacity and cost reductions in the later stages of the design process.
On the same topic, establishing and freezing the vessel requirements and build specifications at the earliest possible time will prevent design changes, which we all know lead to delays and cost increases.
In terms of the specification setting and the design change process, the optimal outcome will always be a trade-off between government's operational, regulatory and performance requirements and the shipyard's capability to procure for and build the design to a competitive price and on schedule. It is essential to contract in such a way as to achieve these objectives. The design of an affordable ship will always be a compromise. Much as when we go to a car dealer asking for every option and getting exactly what we want, it's no different with ships.
The shipyard that will build the ship should be contracted to undertake the full design process. Doing less than that adds delays, since the shipyard will always take any design and run a second exercise—often lengthy and expensive, and avoidable—to ensure that the resulting ship is buildable.
As I mentioned, CMISA also encourages locking in the ship requirements at an early stage. From that point on, it needs to be about delegating the project to the shipbuilder and limiting customer approvals to those that are strictly necessary, such as those associated with safety and with meeting the requirements of the classification society.
Coming back to what we said about embracing commercial practices, we must look at fixed or effective target price incentive mechanisms instead of just cost-plus-profit contracting, where achievable. With fixed or target incentive prices, the shipbuilder is held to account and/or incentivized on its ability to deliver projects on cost and on schedule against specifications and performance criteria that have not been unnecessarily changed. This thinking is aligned with commercial contracting and has had a positive impact on shipyard efficiency and responsiveness to customers' needs in cases where it has been applied.
Fixed or effective target incentive contracting can be achieved within PSPC's existing framework. It does, however, mean a change to today's norms and standards. In fact, if our industry is to succeed, it means a reset of certain specific shipbuilding contracting standard practices used by Canada. By “succeeding”, I mean delivering performing ships on the original schedule and budget agreed to by the shipbuilder.
Our members also want more involvement in the build process. To this end, there are other innovations Canada should consider adopting, such as the distributed block assembly method. This is successful in other countries, and CMISA members support more direct involvement in the production of ships and build strategies that create multiple build sites—
2:30 p.m.
Conservative
The Chair Conservative Robert Gordon Kitchen
Excuse me, Mr. Schmidt. I'm sorry for interrupting.
Unfortunately, due to time constraints, we are limited. Perhaps you can get more of your information out during questioning. Anything you have submitted to us has been provided to the committee members, so they will be able to read what you presented.
We'll go to questions and answers, and we'll go to Mr. Paul-Hus for five minutes.
Go ahead, please.
2:30 p.m.
Conservative
Pierre Paul-Hus Conservative Charlesbourg—Haute-Saint-Charles, QC
Thank you, Mr. Chair.
Ladies and gentlemen, thank you for being here today.
Mr. Kendrick, I'd like to begin by saying that I found your testimony to be very incisive.
Our study of the national shipbuilding strategy showed that the situation was problematic. The purpose of this study was to determine where our money was going. From the very outset of the study, all of the witnesses we heard seem to indicate that Canada is truly dealing with an enormous management problem.
In your testimony, you gave concrete examples, particularly in connection with your involvement in the development of the Arctic/Offshore Patrol Ship, the AOPS, and with the associated costs.
The naval strategy introduced by the Conservatives, whose intent was to be effective and to establish specific contracts with shipyards so that we could work within established budgets and timelines, is not working. It's highly problematic. In fact you said so elsewhere in your testimony.
How could we begin today two deal with the situation? I believe that it's been a financial disaster, one of the worst scandals in Canada, a squandering of billions of dollars, particularly given that we don't have the capacity required to defend the country as we should.
What would be the best way of settling the problem quickly? As you mentioned in your last sentence, we need to come to a decision quickly.
What should we do?
2:30 p.m.
As an Individual
This is the $64-billion question. Unfortunately, I don't have a simple answer for it, partly because neither I nor anybody on this committee or anybody else seems to have a real handle on what is happening. The project's process was supposed to be fair, open and transparent. It's not. It is completely opaque.
When I was involved in redoing the cost assessment for the polar icebreaker a few years back, my team asked for productivity data from the NSS yards, which had already been working for some time on it. We were refused it. How can you develop a cost estimate if you don't know what the productivity metrics are? I know more about productivity metrics in U.S. shipyards, U.K. shipyards and South African shipyards than I do about Canadian shipyards.
I don't know what the contracts are. The contracts have not been publicized. The contract values have not been publicized. We cannot find this information, and until we move to a more transparent system, unfortunately, it's difficult to see what the solutions are likely to be.
I very much agree with some of the suggestions made by Mr. Schmidt, whom I've known for many years, about measures that could be taken on the government side. The measures could be taken on the industry side as well. I think we need to move towards, as he said, much more fixed-price, fixed-schedule contracting and accountability for things that fail to meet those targets.
That's my quick answer for now.
2:35 p.m.
Conservative
Pierre Paul-Hus Conservative Charlesbourg—Haute-Saint-Charles, QC
Well, since we're talking about fixed prices, Fincantieri, a European company whose representatives have appeared before the committee, had offered the government a contract under which it would build 15 frigates at a fixed cost of $30 billion. I know that it's not the same model, but they were nevertheless frigates for $30 billion. The government rejected this company's offer because of the way it had made its proposal. I don't understand it, because Irving could have built the rest of the frigates following implementation, based on this model
In your presentation, you were talking about oligarchs who controlled the government purely to their own advantage.
Do you really think that in Canada, the shipyards will be able to make profits by going beyond the government's requirements? Do we have a problem of this kind?
2:35 p.m.
As an Individual
Again, it's a difficult question. I was not involved in that unsolicited proposal, though I was associated with the group that was involved in making it. My opinion is that they could not possibly have delivered at a European price under the current system.
Canada's shipyards are not as productive as shipyards internationally. That is the case at the moment. Whether they could be made as productive as other yards is another question, but you would need to restructure the contracting approach.
When Fincantieri has to deliver a cruise ship, a frigate or an icebreaker, it has control. It exercises control and it knows what it's doing. It has well-established procedures, and those procedures are successful. We are obviously not using the same procedures in Canada currently.
2:35 p.m.
Conservative
The Chair Conservative Robert Gordon Kitchen
Thank you, Mr. Kendrick.
We'll now go to Mr. Housefather for five minutes.
2:35 p.m.
Liberal
Anthony Housefather Liberal Mount Royal, QC
Thank you so much, Mr. Chair.
To start, I have to say again that I entirely disagree with this concept that the national shipbuilding strategy is an abject failure. One of the things that it has done is create approximately 20,000 well-paying jobs in Canada. It is ensuring that we have the ability in Canada to build ships that we need, especially in light of times when we see that sometimes other countries will not put our needs before theirs and deliver ships to us. It's a bit frustrating hearing criticisms that I think in some cases are unwarranted.
We started from scratch. We had not built ships for government, the navy or the Coast Guard in a very long time. We're getting up to the pace of other shipyards that have been constructing for decades—in the case of the U.K., hundreds of years—without stop.
I'd like to ask Ms. Sampson if she believes that Canadian shipyards, as we get up to gear, can be as productive and can have workers who deliver on time and on budget just as well as shipyards in other countries.
2:35 p.m.
President, Unifor Marine Workers Federation Local 1
Absolutely. Thank you for your question. I appreciate it.
I definitely think it's something we can strive for. We've come leaps and bounds ahead of where we were a decade ago. We're constantly involved, getting groups such as NSCC to promote our shipbuilding trades, starting them fresh and growing them through the system, and they've absolutely come leaps and bounds. The program that they're in right now has given them the opportunity to really learn the Red Seal shipbuilding trades, and it makes all the difference.
I truly believe that won't be a problem.
2:40 p.m.
Liberal
Anthony Housefather Liberal Mount Royal, QC
It's a matter of gaining the skilled workers and keeping them there for enough time so that they learn the process and are able to deliver.
As you stated, I think very clearly that in terms of being able to move from the AOPS to the CSCs, you need constant, steady work and the guarantee of constant, steady work to make sure that the shipyard can be on the level of the U.S. or the U.K., correct?
2:40 p.m.
President, Unifor Marine Workers Federation Local 1
Absolutely, yes. This is—
2:40 p.m.
President, Unifor Marine Workers Federation Local 1
It is something.... You're talking about about how we started about 10 years ago. We have been building these skills for a long time. I feel that if we still had that boom-and-bust cycle, we wouldn't be able to continue those skills that we worked hard at every day in teaching each other and growing through that system.
2:40 p.m.
Liberal
Anthony Housefather Liberal Mount Royal, QC
Thank you so much.
Mr. Schmidt, do you agree that it is necessary to develop this talent and to be able to build ships domestically for the government?
2:40 p.m.
Chairman of the Board of Directors, Canadian Marine Industries and Shipbuilding Association
Yes, it is, and I think that's exactly what's happening. As we build programs and as we complete programs, we're learning. We're becoming better, just like in anything else we do. There's no doubt. I agree that the workforce—the skilled trades and the labourers we have—are as good as anywhere in the world. We've proven that over and over with the quality of work we do.
I think the changes we're suggesting are to speed things up so that we can get more ships through this wonderful cycle. We have our learning curves. We'll improve. Our productivity will improve and we'll deliver these products faster to meet the needs and demands of the Coast Guard and the navy.