National Defence Committee on Nov. 29th, 2016

[Christyn Cianfarani]

To answer your first question about whether there has been a change in the national shipbuilding strategy, I don't think so. Philosophically, no. It is in what you'd call the throes of doing the thing.

Inevitably, when you build such complex vessels over such a long period of time, you're going to have challenges that come up. There will be a balancing, let's call it, that has to occur among the interests of the user, the industry, and government. As we said in our remarks, the single biggest thing we can do, despite the challenges, is to stay the course.

With respect to the aerospace industry, I would absolutely agree that we do need a strategy, not unlike either a national shipbuilding strategy or what we would like to say, which is a “defence industrial strategy” that would encompass all those domains from combat vehicles to aeronautics, airframe platforms, and national shipbuilding, in order to better understand what we want as a nation, to have our strategic significance with regard to how we want to use our industry, and then to prioritize how we want to deal with other nations and, as a nation, what we will aggressively to other nations.

[Pierre Paul-Hus, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

I'm currently wondering about the navy.

We are seeing that several projects are currently under way. For instance, there are some plans for offshore patrol ships and new frigates.

Do you think we could say that, when it comes to the industry, the planning that has been done in recent years and the contracts awarded are something positive? Are we on the right track? If not, what should be done quickly to fix this?

[Christyn Cianfarani]

I think we are very well placed to be able to execute on the strategy. Certainly from an industrial perspective, the way in which the contracting on the non-combat vessels has occurred has been a bit of a challenge. I think it's common business knowledge to understand that you need a certain volume of build to be able to make the return on investment work in the cycles. That has, to my understanding, been a challenge in Seaspan Shipyards in terms of the way in which the procurements were by nature structured.

In terms of physically actually doing the work as we roll it out, again, as we said in our remarks, I think it will be challenging. We are going to be building some of the most complicated warships in the world. In terms of staying the course, mitigating the risks, and putting in place the conversation that will occur between government, industry, and the user, the most critical thing that we can do at this point in time is to actually be partners.

[Pierre Paul-Hus, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

I'm also trying to understand why we aren't in a position to build ships for other countries. We are never competitive.

What is the Canadian industry's problem with shipbuilding for foreign countries?

[Christyn Cianfarani]

In particular, in terms of warships, almost every country has unique requirements in terms of their warships. It's very uncommon to take a warship and sell it to another nation off the shelf. In fact, I don't know if it's ever actually been done. It's just not done. The sensor suite within the warship, the combat systems, and the way in which you even partner and play with your allies are all taken into consideration when you build one of these types of ships. The idea of building a ship to print and exporting it to another nation isn't really what you do.

What's valuable is what's inside that ship. If you want to be the world-leading acoustic creator, that is something that you can export to another nation. That would be the type of thing that you'd look at in terms of shipbuilding exportation.

[Pierre Paul-Hus, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

Okay.

Thank you.

[The Chair, Liberal, Stephen Fuhr]

Thank you for that.

Mr. Fisher, you have the floor for up to five minutes.

[Darren Fisher, Liberal, Dartmouth—Cole Harbour, NS]

Thank you very much, Mr. Chair.

Thank you very much for your expertise and your perspective and for sharing them with us.

I represent Dartmouth—Cole Harbour in the greater Halifax area, so I was interested in Mr. Spengemann's comments about the economic impact and the multiplier. You say that the multiplier is $1.3 million, but when I stretch it out and I start thinking all the way from college courses at Nova Scotia Community College to a haircut, a movie ticket, and a bag of groceries at the Sobeys, it seems to me that the defence spending in those communities allows them to have an insulation when there's a tough time in the economy. It seems to be a much higher.... I'd be interested in more discussion someday down the road on what that multiplier actually is when you break it down to that base of what people are spending in the community.

I was really interested in what you said about the perspective. I have to say that I'm guilty of this. You said that 50% of shipbuilding is in the platform and the technology. I've been to the steel-cutting factory twice and I've been to assembly hall three times, and I fell right into that. I see progress when I see hulls and steel-cutting.

[Christyn Cianfarani]

It's impressive.

[Darren Fisher, Liberal, Dartmouth—Cole Harbour, NS]

It is very impressive, but your point of view is the first time that's been shared with me. I thank you for that, because I never saw progress on the Harry DeWolf until I really saw the hull starting to come together in that first module.

We've heard from various witnesses about the premature retirement of the Protecteur class and the fact that we have that capability gap after we prematurely retired those. Do you have concerns that we're going to do the same thing? Are we going to have a real capability gap for a period of time and then have to throw something together to fill that gap, like the interim ship that we're going to have in 2017 to solve that problem? Or do you think that maybe this NSS we have now is going to take that future potential...?

Let's think about our submarines. We have three submarines, and it will be 2035 when we're going to start to talk about replacing those. Are we going to have a problem? Are we going to have a capability gap there because of maybe being a little short-sighted in how we do things?

[Christyn Cianfarani]

I can't tell you whether they're going to have a capability gap. It has to be National Defence that looks at that. What I can tell you, though, is that NSS was designed on the premise that we're trying to avoid a capability gap. The premise of having an industrial strategy in general is to avoid having capability and technology gaps, because we are what we call in the industry such “lumpy buyers”. Canada is a lumpy buyer.

[Darren Fisher, Liberal, Dartmouth—Cole Harbour, NS]

Got it.

Mr. Spengemann asked the rest of my questions, so I'd be pleased to share my time.

[The Chair, Liberal, Stephen Fuhr]

You can, or we can move along in terms of time, if you're happy with that.

Mr. Bezan, you have the floor.

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

Thank you.

Thanks for your expert witness testimony today. Really, it gives us a different perspective from the industry standpoint on things that maybe we haven't considered.

I want to talk about the Canadian surface combatant design program that's on right now. You talked about how we can't be buying off the shelf, yet the whole design concept is to try to get off the shelf. How do you see that fitting in with the needs of the Royal Canadian Navy and how Canadian industry has always adapted to suit what the navy needs?

[Christyn Cianfarani]

Right. I guess it depends how you want to attach to the nomenclature. The design is a modified existing design. The subtlety is that this doesn't mean it is off the shelf 100%. We all know that there will be a Canadianization of the platform that goes on. We all would hope that we would make slight changes to the design in order to incorporate leading Canadian technologies. We also know that we're going to modify that design over time as the build goes along, because there will be new technological modernizations that come along.

While we're purchasing an existing design, there will be a significant amount of change orders to that design in order to make it relevant for Canada and also to keep it leading-edge throughout the build cycle. I don't think they're incongruous, by the way. It's very normal to say that you're buying an existing platform, but those of us in the business fundamentally understand that you're going to make modifications for your unique country's requirements.

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

How do you see this working out, then? We're definitely buying the basic design from some other shipbuilding company, and it's more international than a specific Canadian design. How does this integrate with Canadian industry, both in the design concept and then into the build?

[Christyn Cianfarani]

An interesting thing has been done in this project, in that there is what we call a value proposition that's put in place in the RFP. The principle of that value proposition is the incorporation of “Canadian work-share” into that base design. All the bidders are required to identify up front where they're going to get Canadian content and Canadian involvement. That includes, for example, systems. It includes combat management systems and things like acoustics and sonar and anti-submarine warfare, as well as comms and things like that.

With the point system—it's a point system based on money—the preferred bidder or the winning bidder will have the highest points in their value-proposition component, which means they will have incorporated the maximum amount of Canadian content before we even make the selection. In other words, they're trying to outbid each other to incorporate Canadian content and the Canadianization up front in the design-and-build cycle.

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

Is everybody in the industry happy with that approach, especially the Canadian-based enterprises?

[Christyn Cianfarani]

This is the highest value proposition we've seen to date, and the most detailed. Coming out of the gate, we're in a very good position to maximize Canadian content. That being said, you only are going to see it at execution, right? What we've asked all parliamentarians to do is keep their eye on this program. When the numbers are between $30 billion and $111 billion, you can't afford to go wrong as the bids become unveiled.

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

I'll go back to industry capacity and the discussion on making sure that there aren't going to be any future capability gaps. Let's say that National Defence and the CAF make the decision that we're going to change course midstream, that we're still going ahead with building our surface combatants, which will be some sort of hybrid of frigate-to-destroyer capabilities, but that because of technology advances, and because of the proliferation of cruise missiles and other intercontinental ballistic missiles, maybe we would need more of a destroyer-type approach again. Would we be able to add that into the mix while still doing the build of the surface combatants, as well as finishing off the Harry DeWolf class and the joint supply ships and Coast Guard vessels?

[Christyn Cianfarani]

I can't speak for the yards. I cannot speak to the capacity that the yards are able to handle.

I can certainly say that never in 20 years I have seen Canadian industry—or any industry, for that matter—not find a way to staff up when you dangle out contracts and say that you need industry to change course or to increase the build cycle. Canadian industry always, to my knowledge, finds a way to staff that up. Whether we have to import some labour to be able to do it, or import skills and training, or transfer technology, or start generating skills and training or a trained workforce from the universities themselves, never in 20 years in this business have I seen industry not rise to the occasion.

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

Thank you.

[The Chair, Liberal, Stephen Fuhr]

Thank you for the answer.

Mr. Iacono, welcome. You have the floor.

[Angelo Iacono, Liberal, Alfred-Pellan, QC]

Thank you, Mr. Chair.

Please note that I will share my time with my colleague John McKay.

Welcome, Ms. Cianfarani.

[Christyn Cianfarani]

Thank you.