National Defence Committee on Nov. 17th, 2016

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

On the issue of the tenders that are going out right now, the request for proposals for the in-service support for the Arctic offshore patrol vessels and the joint support ships, you alluded to it, Ms. Campbell, in your testimony about the optical problems that are created with the Irving-BAE tender and the joint venture that they are bringing forward.

How can you ensure not just taxpayers but us as parliamentarians that BAE isn't on a special track when it comes to their tender for the design of the surface combatant?

[Lisa Campbell]

Mr. Chair, as I said in my remarks, Irving disclosed this to Canada early. It also disclosed it to all the bidders. There are separate bid teams. We have fairness monitors in both of the procurement processes.

As I also said, our goal is to maximize competition and innovation. It's a fairly small base of suppliers and, quite frankly, when you look at any industry like this, you will see relationships among suppliers. It's quite common. We're used to dealing with it in the defence context, but also in other contexts where you have large companies which often will either acquire one another or develop alliances. It's a regular feature for procurement processes. We're used to dealing with it, and we do monitor it very carefully so that it doesn't affect procurement outcomes.

The other piece of this is that Canada is very heavily involved. We are, in a sense, co-leading all of the aspects of the evaluation here, and we ultimately make the final decision on who will win the outcome of this process.

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

One of the reasons behind the national shipbuilding strategy was that we had a chance to rejuvenate our shipbuilding industry and create jobs right across the country. One thing that Irving and Seaspan have is the benefit of being right in the harbours beside our bases. How can you ensure that other companies aren't disadvantaged, such as the St. Catharines company or Davie?

[Lisa Campbell]

As I mentioned in my remarks, competition is an integral part of the shipbuilding strategy, and it continues throughout the process. The two prime yards undergoing construction continuously let contracts. The default is competition across Canada. We monitor that to ensure that they are fair, open, and transparent. We also have found that there's a demand across the country. We're seeing and tracking contracts cropping up in the middle of the country, and literally contracts being let to companies on the east coast for work on the west coast. There is such a strong demand being generated that we're finding they're really a pull for companies across the country.

I should also mention that as part of our industry outreach we regularly talk to the supply chain directly at our regional offices located across the country. I hold defence round tables, and I ask companies, “How are you doing? Are you getting work? Is it easy to get work? What obstacles are you running into?” We make sure to take their direct feedback and not just deal with the prime yards.

Is there anything you wanted to add?

[RAdm Patrick Finn]

If I could add just briefly, when we set up the national shipbuilding strategy, you'll recall it included a number of areas of work, so, yes, there was competition for the two large areas of work. For the smaller vessels, of course, the two yards that have been selected are precluded from bidding on that, as are their affiliated yards. As well, the in-service support goes to all of the marine industry to see who could bid on it. It's unusual for them to.... When did the initial competition, it was understood by the winners that there were areas of work that they would either be precluded from doing or have to compete for.

[The Chair, Liberal, Stephen Fuhr]

You have 15 seconds.

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

I have one quick one.

[The Chair, Liberal, Stephen Fuhr]

Sure.

[James Bezan, Conservative, Selkirk—Interlake—Eastman, MB]

We had some witnesses come before our committee who said that maybe we shouldn't be doing the surface combatants all in one block because of technology changes, especially given the time it takes to build these ships. Has there been any thought that maybe we don't go necessarily with one hull, and that we look at modularity as much as possible to ensure that our Royal Canadian Navy has the equipment and kit on deck that they need to do the job that we have tasked them with?

[RAdm Patrick Finn]

We are in discussions with the navy and with our colleagues at Public Services and Procurement Canada to look at a batching strategy, we would call it. In the history of Canada's navy, we have never bought.... Even with the Canadian patrol frigates, there were two contracts for six ships each, and they had to be let in time to take advantage of the first ones. It is the kind of work we're doing in the next phase of definition. What's the right approach? What's the right number? It tends to be that all of our allies do it in the same way, with the British in their Type 26 ships and the Americans in their ships. The idea is the same, and that's to have a sufficient batch to bring some economies of scale, but as you're indicating, understanding that with time, and that's really what we're trying to do in the strategy. We're trying to build to 2040 and beyond. The real success is not that we've identified every ship we're going to build; it's that we have a vision of continuously building ships throughout that whole period, sir.

[The Chair, Liberal, Stephen Fuhr]

Thank you.

Mr. Garrison, you have the floor.

[Randall Garrison, NDP, Esquimalt—Saanich—Sooke, BC]

I thank the witnesses for their patience with us today.

The members of the committee will know that I've been talking about some of my concerns about support for the shipbuilding strategy and what that means. What I think we've seen is a shift in what the strategy is, first of all, from a floor, where what we were looking at was the minimum number of ships needed to fill capability gaps, and to becoming a kind of ceiling. Now we're only talking about this as the maximum that will be done. Second, I think we've seen it shift from a number of ships with certain capabilities to a number of dollars and what we can buy for the dollars. The third thing is that we've seen the initial timelines shift from those that were based on the capability gaps to those that are based on when money is available.

Those are my general concerns, and I'd like to know which shipbuilding strategy you're working on.

[Lisa Campbell]

I'll start, if I may.

The government has reaffirmed its commitment to the national shipbuilding strategy, and we are continuing with the original precepts. We are implementing enhancements, however. We're strengthening governance. We are improving cost estimates, because some of the early cost estimates were done in the absence of data and ships hadn't been built. You learn a lot from the first blocks of ships that are constructed. You learn how long it's going to take, what the issues are with design, and what the efficiencies are that can be found. We now have a lot more data that will help improve costing in the yards.

We also have, thanks to third parties who we've engaged, a lot of good evidence about the yard's productivity, and that they're reached the industrial capacity to produce these ships. The number of ships has not changed at all. Those capabilities are still required. If anything, what we're finding is new needs arising and how to deal with those—

[Randall Garrison, NDP, Esquimalt—Saanich—Sooke, BC]

The strategy is the number of ships.

[Lisa Campbell]

It continues to be those original requests for those same number of ships that still need to be built. We're finding, however, that there are new needs arising and we're trying to address those in a way that ensures continuous build. That is our focus at all times. When we govern these projects, we're trying to ensure continuous work in the yards so that we avoid a boom and bust cycle, and we plan years in advance. That is our focus on overseeing this.

[RAdm Patrick Finn]

If I could just add that the strategy we are working on is to recapitalize the navy and the Coast Guard.

Yes, there are a number of ships right now. There are ships in contract. What will come after that continues to be an open dialogue—what's the future threat environment, and what will we need to do?

We say build when money is available. In a vote 5 capital sense, we actually profile the money for when we need it. We are re-profiling in some areas because we're not moving as fast as we would like to. That's absolutely the case. If we could speed some things up, that's what we're working at.

As I said earlier about the flights of ships, even when we talk to the Canadian surface combatant, the real question—and even when we started working on the strategy in 2008—is not just what work we're going to do between now and 2040, but what will happen thereafter. That's what we're hoping to achieve, a real capability in Canada and appropriate capacity to continue to support the navy and the Coast Guard for decades to come.

[Randall Garrison, NDP, Esquimalt—Saanich—Sooke, BC]

Thank you. Those are reassuring answers.

There are two questions I've asked elsewhere, and I was referred to you two both times. One was in the industry committee, and that was about the ability of smaller shipyards to participate in the big contracts. I know you've been very clear the other way around, but if Seaspan chooses to subcontract some of the work, is there an obstacle to smaller shipyards participating in those larger contracts?

[Lisa Campbell]

Not at all. In fact, what we're finding is the two prime yards are reaching out, building supplier relationships in Canada and abroad, and we encourage them to do so. We encourage them to reach out to Canadian industry and, quite frankly, it's in their long-term interest. Because they have long-term programs of work and the certainty of that, they want a reliable supply chain that they can count on.

They also need to meet their industrial and technological benefits obligations, so every chance they have to do that, we're finding that they are.

[RAdm Patrick Finn]

That would be small and medium enterprises, be they shipyards or otherwise. For example, on the west coast at Seaspan, they have opted not to do pipe spools or pieces of pipe in the yard. They've subcontracted that out, so they're looking across the supply chain for the most efficient way for them to bring it together.

[Randall Garrison, NDP, Esquimalt—Saanich—Sooke, BC]

The other question I asked General Vance was about concerns with both the in-service supply contracts and regular maintenance in the Canadian Forces. I asked whether there has been a study done on the impacts of having private companies provide these maintenance functions when it comes to maintaining the readiness of the Canadian Forces and in terms of security questions. Has there been such a study and if so, could that be tabled with us?

[RAdm Patrick Finn]

I would not say there's a specific study, but perhaps I could give a bit of context.

The use of industry to provide support, and how we have traditionally done this, is levels of maintenance. The sailors on board ship do first-level maintenance. I think you had previously asked questions about our fleet maintenance facilities at the second level. Industry has for decades, in the 40 years I've been involved with this, and well before that, always been involved with doing the maintenance.

What is key here is there is often a perception that we're changing the approach by using industry. It is industry that is actually designing, building, and providing this equipment. It is industry that has the detailed knowledge and intellectual property.

We are continuing to use industry as we always have. What's changing a little is around these levels of maintenance. It's not unlike cars, where it used to be that we did some work at home, went to the local garage, and then went to the dealership. Very often people go straight to the dealership. In military equipment there's a bit of a similar trend.

We are trying to use industry, which has to get this heavy maintenance work, bringing them in to try to do some knowledge transfer and work with our fleet maintenance facilities—and it's the same in the air force and the army—to continue to meet that strategic capability.

We haven't looked at it from a security perspective or otherwise because it's always been there. They will always be involved. In fact, they have more knowledge than we do. We're trying to bring them in to make sure that our fleet maintenance facilities continue to be an important strategic asset.

[Randall Garrison, NDP, Esquimalt—Saanich—Sooke, BC]

I think it's a concern, both in terms of cost and the ability of the navy to actually sustain itself. If companies go out of business, you have a problem.

The other concern is non-Canadian companies. The British have run into this where occasionally export permits have been refused for goods needed by the British from another European country. If we allow foreign contracting in some of these, we might run into that same problem in the future in terms of our ability to act independently.

[Lisa Campbell]

Increasingly what we're finding is that in-service support and maintenance is really about complex systems that we put on platforms, whether it's for the navy, land, or the air force. We don't want, as a public buyer, to be beholden to one OEM which either is going to charge us overly high rates or is not going to be around when we need to make modifications down the road.

Our focus is, at the outset of the contract, especially with such things as intellectual property, on either having ownership or actually being pretty restrained with ownership—having licensing and access—so that down the road we can re-compete, have choice, or have innovation and not be hamstrung by a particular supplier.

We're talking with industry right now about this, because we have heard from them that it's a sore spot. It is for us as well. We're working out some basic guidelines for a country the size of Canada that needs to have choice and flexibility and is also very linked to innovation. If we want to make sure that we keep access to key intellectual property in our country so that we can both service our fleets and also help companies grow and become part of the supply chain, that's our focus.

[RAdm Patrick Finn]

The strategy itself, of building in Canada, is actually to reduce that very risk. If we were to go offshore and acquire these assets—and we see it in other areas of military equipment—we would be absolutely beholden to export licences and other things. Bringing it into Canada is the way we're trying to mitigate some of that risk.

[Randall Garrison, NDP, Esquimalt—Saanich—Sooke, BC]

Thank you very much.