Government Operations Committee on Feb. 15th, 2022

[Nicholas Swales]

No, we didn't. We do talk in the report about the availability of capacity in the federal government as a risk in managing some acquisition programs such as that one, but we didn't explore the question of the potential sources of that expertise.

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

In terms of the capacity just overall in the shipbuilding sector, there's something that I've asked before and that's of great concern to me. I live on the west coast. We're trying to build a floating dry dock. We have the only deep-sea port on the west coast of Vancouver Island, and yet there's no federal program for floating dry docks. Capacity is a real issue. Costs go up. The demand goes up. Can you talk a little about, in your research, the lack of capacity in Canada for shipbuilding and the need for the federal government to expand and invest in creating more options and utilizing such deep-sea ports as Port Alberni in my riding?

[Andrew Hayes]

I think part of the research we did showed...and this also dates back to a previous audit we did of the national shipbuilding strategy in 2013 or 2014, I believe. One of the objectives was to try to address what was termed the “boom and bust” cycle of shipbuilding. When you look at needs but you only address a need during a particular period of time and then you shut down an industry, then it will take time to build it back up. In that context, the national shipbuilding strategy with its three objectives, renewing the fleets in a timely manner but also having economic benefits for Canada and supporting a sustainable marine sector, addresses some of those previous challenges.

Now, that's only as good as putting it in place, monitoring it, and delivering on time.

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

Do you think the government is putting forward programs to expand capacity enough to actually ensure that we can have an upstream program that can help relieve some of the pressure on the bigger ports? I mean, this is really a big deal. We have communities that want to take the pressure off the big ports and that can create efficiencies. In the long term, we could be avoiding shipping boats overseas for refits, as we're doing with BC Ferries, and building boats somewhere else.

In terms of long-term sustainability, do you think this is a program Canada should be looking at and embarking on?

[Andrew Hayes]

I think that's a policy decision, but I do think that building capacity at this point in time.... We mentioned a little bit earlier the target state work that's being done and the efforts that were deployed to try to assist the shipyards to meet target state. To also have the ships delivered on time is a start, but for a shipbuilding industry to be sustainable, it has to have a long-term view. There needs to be constant monitoring and constant involvement from all parties.

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you, Mr. Johns.

We have finished our first round.

We will begin our second round with Mr. McCauley.

You have five minutes.

[Kelly McCauley, Conservative, Edmonton West, AB]

Great.

Gentlemen, thanks for joining us. Thanks for your work and for your answers so far.

I have a couple of things. First, I want to ask if you looked at the contract structures. This is more in regard to the Irving work for the CSC and the AOPS. I'm wondering whether it's a cost-plus or fixed cost and whether PSPC has set up strong enough fencing to protect taxpayers.

[Andrew Hayes]

We did look at the contract structure largely from the beginning part of the procurement process back in the 2013 or 2014 audit. At the time, we were concerned about making sure that the contract was fair and transparent and that the obligations were clear. In the context of the current audit, we weren't focused to the same degree on that issue, because the procurement had already started.

[Kelly McCauley, Conservative, Edmonton West, AB]

Can I ask why not? You talked about 2013 being focused on transparency and fairness. The current one is set up rather obliquely. Parliamentarians still cannot get an answer on any of it. We're getting sued by Fincantieri, I think it is, because of accusations that the T26 did not meet the RFP requisites.

Why did we skip over it? Is that something the AG should be looking at again, especially in light of what's happening in Australia with their version of the T26 being overweight and not meeting the specifications as set out in their RFP? It's the same accusation currently going on for our ships as they're being designed.

[Andrew Hayes]

I'll ask Mr. Swales to perhaps add some details in a minute.

At this point, this procurement process in the shipbuilding strategy had entered into some of the delivery or the implementation angle. That's where we put our scope for this one, to see where there would be delays, if there were any, and mitigation strategies, if there could be some.

I'm not familiar with the details in the example you gave, but Mr. Swales might be.

[Kelly McCauley, Conservative, Edmonton West, AB]

Mr. Swales.

[Nicholas Swales]

Thank you, Mr. Chair.

We'd distinguish two things in what my colleague was saying. One is that our 2013 report was speaking about the selection of the shipyards to be strategic partners, which we judged to be following a good process.

In the most recent audit, we did speak to some aspects of the contract arrangements. Particularly, we were concerned that the government didn't have sufficient steps and protections in there regarding schedule management and that it was not getting schedules in a timely way.

[Kelly McCauley, Conservative, Edmonton West, AB]

What other risks are there?

I want to bring in an example. I had a briefing with DND and PSPC on this several years ago, and we asked about Irving being the contractor and purchasing services that are only available in that area from themselves: “What protections did we have from them sole-sourcing to themselves?” The comment from DND and PSPC at this briefing came back, “Well, Irving has given us their word that they're not going to overcharge us.”

I was kind of gobsmacked that both departments would have such faith in any corporation that their word would be enough. It doesn't appear that there's anything written down or any other fencing to protect taxpayers. We've seen the costs balloon through the roof. Our allies in the States expect the CSC to be well above $100 billion.

Does the AG share concern about the lack of protection for taxpayers in these contracts, especially the refusal repeatedly over the years by DND or PSPC, in committee, to answer any questions about the makeup of the contracts, whether it's a fixed cost, cost-plus and how the last ships.... There's a contract for three, but what about the other ships?

[Andrew Hayes]

Transparency and accountability are always at the forefront of our minds when we are doing our audits. On the questions you asked about the contracts in terms of the government's interests, we recognize that some contracts will have enforcement clauses. The question comes down to the relative benefits and costs of enforcing those contract clauses. I think the reality of seeing delays in the ships being delivered is that we've shown it will result in increased costs—

[Kelly McCauley, Conservative, Edmonton West, AB]

Let me ask a quick question. Are you satisfied that there is protection for taxpayers in how these contracts are written?

[Andrew Hayes]

I'm going to defer to my colleague Mr. Swales on the details of the contract. We didn't raise concerns about the actual protections in the contract—

[Kelly McCauley, Conservative, Edmonton West, AB]

Are you comfortable that taxpayers are protected?

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you, Mr. McCauley.

Mr. Swales, if you could provide that answer in writing to the committee, it would be appreciated. We unfortunately have run out of time.

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

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

Thank you, Mr. Chair.

Thank you to our witnesses for joining us today, and thank you for your report.

My questions are coming from Richmond in British Columbia. I'm interested in the shipbuilding strategy because of its importance to our marine sector on the west coast here.

The report on the shipbuilding strategy reads, “Despite the delays, federal organizations have made adjustments to the strategy's implementation that improve the prospects of timely future deliveries.”

Can you go into detail about the adjustments that were made? That can go to either witness, please.

[Andrew Hayes]

I'll start, and Mr. Swales might add to this.

We know that they changed the order of the building and delivery of certain ships to facilitate the ability of the shipyards to meet their targets and to deliver them. We also know that the addition of a potential third shipyard was intended to release some of the pressure on the delivery times for the ships.

We mention also in the report some of the more short-term approaches that they took, whether it was chartering certain ships for specific purposes or leasing certain ships for particular purposes.

Mr. Swales, I will ask if you want to add to that.

[Nicholas Swales]

There are two other points I would add.

At the start of our period, some of the expected delivery dates for ships were clearly unrealistic, for instance, the oceanographic science vessel being delivered for October of 2021 when it hadn't started yet. Clearly, there was a need to make some changes.

The other thought I would add is that we comment on the fact that the schedule for the AOPS, the Arctic and offshore patrol ships, was changed to help close a gap that would have opened up in production between those and the Canadian surface combatant, which would have been very costly in terms of loss of trained personnel and the need to rehire and retrain them.

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

Would you say that this improved the efficiencies in the report and the potential outcomes?

[Nicholas Swales]

It was our conclusion that this opened up the possibility that ships could be produced in a more timely manner and that some of the flow of work would be smoother, and that it had the potential to be positive. That's recognizing that this was projecting forward into the future, and the result remains to be seen.

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

This report covered the period from 2018 to 2020. When was the last report done prior to that?

[Nicholas Swales]

We tabled a report on what was then called the national shipbuilding procurement strategy in 2013. That was shortly after the selection of the shipyards had been made to commence the strategy, but before any actual ship contracts had been let.