National Defence Committee on Nov. 29th, 2016

[Christyn Cianfarani]

Well, in terms of our ability to build in a modularized way, it would be of interest to the members, there's no question about it. In terms of what operational capability we need and how we would create the modules to stack it, I defer that question to National Defence.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Okay.

What more does Canada need to do to promote and develop the shipbuilding and defence industry in Canada?

[Christyn Cianfarani]

I think the single biggest thing we can do is to understand that defence is a unique industry. It is strategically used by almost every other country, and certainly by G7 nations, if not the G20.

In this country, we view defence very differently. We view it less as a strategic asset by which to develop the latest generation of technologies and more as something that we—or the industry that we involve—involve from time to time in unique and single acquisitions. I think we need to be significantly more strategic in the way we view the sector, the way we view the acquisition cycle, and the way in which it can be used to stimulate innovation and growth in the economy, but also strategically with our partners and allies.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Do we have the labour force, the skills force, and talent all in place in Canada to follow through with the national shipbuilding strategy, or are we needing people from other countries come in to fill some gaps?

[Christyn Cianfarani]

Absolutely. We've had to have people come from other countries to transfer technology and knowledge. It's very logical, given that our industry has effectively eroded over the course of time. The purpose of the national shipbuilding strategy is actually to regenerate an industry that had eroded significantly.

Nevertheless, even if there were a much larger portion of the industry involved in shipbuilding, you would still need to bring in technologies and a transfer knowledge from other countries, based on what you choose in the design.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

In terms—

[The Chair, Liberal, Stephen Fuhr]

That's your time, Ms. Gallant.

Go ahead, Mr. Garrison.

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

Thank you very much, Mr. Chair.

Thank you, Christyn, for being here. It's good to see you again.

I was particularly glad to see your emphasis on things other than cutting steel, because I'm from Vancouver Island, where we don't actually cut the steel. The shipyard in my riding will be intimately involved in installing systems for Seaspan.

We also have smaller shipyards, such as the Point Hope shipyard, just outside my riding, and the Nanaimo Shipyard, which are hoping to be subcontractors on some of the work on the large ships.

We also have other communities such as Port Alberni, in the mid-island, which has a very large harbour facility. It has an industrial workforce that's seen a lot of layoffs and they're looking for ways to get involved in the shipbuilding industry.

I ask this question of the public servants who were here. From your perspective, for those who don't have the big contracts, are there obstacles to getting involved as subcontractors in the shipbuilding strategy?

[Christyn Cianfarani]

I think—

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

The answer from the public servants was no, but I'd like to know from the people who are actually in the bid.

[Christyn Cianfarani]

Getting into the defence business in general is not easy. I think that most small to medium-sized enterprises that have tried a foray into defence will say that it is one of the hardest industries to get into. Irrespective of whether we're talking about shipbuilding or aircraft, you name it, it is a hard industry to get into. As everyone here is aware, we're a heavily regulated industry, with export controls. Security clearances very often need to be put in place. The long lead cycles with return on investment over a very long time frame can, in some cases, put small businesses out of business. It is a risk.

I think those are some of the challenges that people would face in entering the sector in general and, by nature, in getting work on the national shipbuilding strategy. What I can say, though, is that because of the value propositions that were placed on the shipyards to do work in Canada and source work in Canada, the advantages for Canadian companies are much higher and they're much more capable of achieving them.

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

That's great. Thanks very much.

You talked about what you called the “long lead cycles”. I guess what we're looking at quite often is the question of why it takes so long in Canada to do defence procurement. From the perspective of industry, is that largely a function of government policies? There's nothing about the industry that would make this take so long to do procurement.

[Christyn Cianfarani]

In part, we have gone for I think about 20 years in this country without doing a significant massive recapitalization of the Canadian Armed Forces. I think that any nation would be hard-pressed to execute on the massive amounts of items that we have essentially purchased or intend to purchase over such a short period of time.

By nature, your skills in some ways atrophy when you're not using them on a regular basis, so I think it's quite natural that we have these challenges. The key is to make sure that we have lessons learned as we go forward, to understand where we've had hard points and where we've had policy problems that haven't driven the proper outcomes that we want to see, and to change them, just like you would do in any business, for example, when you do process improvement and policy improvement. We're getting a lot of lessons learned, and it will be time soon enough for us to start looking at how we can continue to improve.

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

That leads me to something you said in your introductory comments and that you came back to again. You said that “Canada has proven to be very capable at military shipbuilding in the past, and we will be again if we have the resolve to stay the course”.

Can you talk a bit more about your concerns about the resolve? I have raised this in the committee. The shipbuilding strategy seemed to be one thing when everybody supported it, and now it seems to be drifting a bit into perhaps lesser capacities for the ships being built and maybe fewer numbers of ships, and we're still calling it the shipbuilding strategy.

[Christyn Cianfarani]

As we mentioned in our opening remarks, when you had an idea 10, 15, or 20 years ago, by nature you'd go and do a rough order-of-magnitude cost estimate and get an idea of the volume and how many ships you needed, but the truth of the matter is that these things evolve over the course of time.

In terms of the shipbuilding strategy, I think the industry sees that we are spending a lot of time arguing about the number of ships, the cost of the ships, and what number we said 10 years ago. To be quite honest with everyone in this room, that's noise. We need to get on with the business of building the ships that we need for the navy, however many it is based on their operational requirements, and balance it out and move forward on these programs. The technologies are there. The industry is ready and willing to do it. The navy is waiting on their ships.

[The Chair, Liberal, Stephen Fuhr]

You have about a minute and 30 seconds, if you want to continue.

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

One thing you included in your presentation is something that I may have missed, but I don't think we heard it from anybody else. That is a very specific figure for inflation in warship building costs. You cite the U.S. figure of 9% to11%.

[Christyn Cianfarani]

Yes.

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

Would you say that's similar to or higher than Canada's? Do we have any good estimates of what the inflation costs are?

[Christyn Cianfarani]

I imagine that Innovation, Science and Economic Development, the Treasury Board, or the finance department could give us an idea of what the differential would be potentially with Canadian and American inflation rates, but suffice it to say, it would probably be quite similar.

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

Thank you.

[The Chair, Liberal, Stephen Fuhr]

Thank you very much.

The last seven-minute question goes to you, Mr. Spengemann.

[Sven Spengemann, Liberal, Mississauga—Lakeshore, ON]

Thank you, Mr. Chair.

Ms. Cianfarani, thank you very much for being with us, for your expert testimony today, and also for your past service to our nation.

I really wanted to zoom in a little more on the macro-economic picture that you're painting in very compelling terms. I think it's very important for us as parliamentarians, and also for the Canadian public at large, to understand that we need to shift away from the notion of defence spending to the idea of defence investment, and that there are longer-term economic benefits in terms of our overall capacity to contribute on a number of different fronts at home and abroad. I wanted to explore both the domestic economic side and also the potential for export.

Before I do that—you didn't refer to it in your comments, but it's in your written submission—you note a multiplier, if you will, for the national shipbuilding strategy, of $1.3 million. Can you share with the committee in document form, at a future date, the source of that information? I think we would be very interested. We've asked the question on the multipliers a number of times of other witnesses, and you're the first one who has actually brought us some data. How is that particular multiplier composed? Also, how does it vary across other sectors within the defence industry?

[Christyn Cianfarani]

The multiplier actually comes out of Innovation, Science and Economic Development's multiplying model, a model on the ITBs and the marine industry in general. I would go back to them for the mechanisms or the makeup of the multiplier. It is actually $1.3 million and, I think, 14.5 jobs, which is another interesting piece to add on to that. It's—

[Sven Spengemann, Liberal, Mississauga—Lakeshore, ON]

It's equally important.