National Defence Committee on Jan. 31st, 2017

[The Chair, Liberal, Stephen Fuhr]

I'd like to thank everyone for coming today. I'd like to welcome everyone back after our Christmas vacation and time in our ridings.

I'd like to welcome a couple of new people to the committee. Mr. Yves Robillard, thank you for your service and for being here. Leona Alleslev, thank you very much. Our new clerk of the committee is Elizabeth Kingston.

Today, we are here to continue our discussion of the Royal Canadian Navy and naval readiness. I'd like to welcome Davie shipyard and Federal Fleet Services. I believe Federal Fleet Services is going to go first.

You have seven minutes, and then we'll follow that up with Davie. If you'd like to introduce yourselves, you have the floor.

[Spencer Fraser, Chief Executive Officer, Federal Fleet Services Inc.]

Mr. Chair, I am Spencer Fraser. I'm the CEO of Federal Fleet Services.

If we can, we'd prefer if Davie goes first in our prepared comments.

[The Chair, Liberal, Stephen Fuhr]

As you wish, you have the floor.

[John Schmidt, Vice-President, Commercial, Federal Fleet Services Inc.]

Thank you.

Mr. Chair and honourable members of the committee, my name is John Schmidt, vice-president of commercial with Federal Fleet Services. Thank you for giving us the opportunity to speak here today. It is a great honour to be before the committee.

Having spent over 30 years in government managing marine programs for DND, Transport Canada, the Canadian Coast Guard, and Public Works—where I finished as the director of marine procurement on the Halifax class modernization program—and then moving across, first to Irving Shipbuilding and then to Davie Shipbuilding, I've worked on various shipbuilding strategy concepts throughout their evolution.

The concept of building Canada's warships, Coast Guard vessels, and crown corporation ferries in Canada by Canadians has always, and rightly so, received all-party support and is reflected by our “build in Canada” shipbuilding policy for the federal fleet. When one considers that up to 50% of the shipbuilding costs are related to labour, it is easy to understand why any country would want to build its federal fleet domestically. Given that the labour rates in Canada are similar to those in Europe, where shipbuilders export their naval vessels worldwide, there is absolutely no reason why we cannot do the same here in Canada.

Unfortunately, the current strategy requires adjustment, as it is lacking shipbuilding capacity. That is the source of the delays and cost overruns that we all see today. To date, we have retired four large federal vessels without a replacement, and many more vessels that are in service are operating well beyond their life expectancy.

First, I would like to explain how Canada ended up where we are today, for I do not believe that what we have today is what was originally envisaged during my period in the government—far from it.

In 2009, the Shipbuilding Association of Canada submitted a letter signed by all major shipyards in Canada, including Halifax and Vancouver, which made a clear recommendation to the former prime minister as to how industry could successfully deliver on federal fleet renewal. It was simple and made total sense: build large ships at the large shipyard, medium-sized ships at the medium-sized shipyard, and small ships at the small shipyard, and all shipyards would have to work together to deliver this plan. In other words, use all the capacity that we have, building ship sections at shipyards throughout the country to ensure that schedules and budgets can be met. A copy of that letter has been provided to you.

In 2010, during the bidding for the national shipbuilding procurement strategy, I was the director of government initiatives for Irving Shipbuilding. Early on in the process, there was much emphasis on shipyards working together to deliver the new fleet for Canada. It was all about collaboration and co-operation. In fact, Irving and Davie had previously signed a teaming agreement to ensure that there would be enough shipbuilding capacity to construct that fleet in Canada. Anyone who understands the size and capacity of Canada's main shipyards understands why that collaboration is needed. Davie single-handedly constitutes over half of all Canadian shipbuilding capacity today.

Ironically, the question going around the industry circles at that time was, would there be any work for any smaller shipyards, or would Davie just build everything? In reality, the renewal of the federal fleet in a timely manner will require the combined capacity of all major shipyards in every region of Canada. Fast-forward a year or so, and the industry experts were surprised to see that the advice from all of Canada's shipbuilders had seemingly fallen by the wayside.

Instead, what transpired was a process that was largely based on promises of future capability, whereby factors such as experience, existing infrastructure, labour availability, and schedule counted for less than 36%, one third of the entire NSPS bid evaluation. If you can believe it, the price of building ships was not even a consideration when determining which shipyard would do it. Of course, it doesn't cost the same to build ships at every yard in Canada—far from it. The cost of a ship varies exponentially depending on infrastructure, experience, skilled labour cost and availability, build methodology, and regional cost of living. That wasn't even evaluated.

With Davie bankrupt at the time of the shipbuilding competition, and with only a third of the evaluation criteria based on normal industry parameters, there was a very real chance that a shipyard or even a greenfield site that did not possess the experience of building large, highly complex military vessels might end up being tasked to do so.

The rest is history. The smaller shipyard ended up being earmarked to build the largest of the ships, and the largest shipyard, which still single-handedly constitutes over 50% of the entire Canadian shipbuilding capacity, would be left unused in a program now desperately lacking capacity. It's like leaving your top line on the bench in the finals in the Stanley Cup. Your probability of a successful outcome becomes severely diminished.

No one questions the fact that there was an open and independently evaluated competition, free of all political influence. What has never been assessed is whether the design of the competition, the evaluation criteria, if you will, has produced the solution to the problem, which is the successful renewal of our federal fleet. As I mentioned, only 36% of the evaluation criteria was based on previous experience, existing facilities, and so on.

What was the 74% based on? A full 24% was based on the shipyards' plans to upgrade their facilities. Each shipyard required different levels of upgrades, the least of which, of course, was Davie, which was already delivering and exporting some of the world's most complex vessels for the oil and gas market and had already been significantly upgraded to build Canada's frigates in the 1990s as well as ship sections for the U.S. Navy in the early 2000s.

Ten per cent was given for the shipyards' current financial situation, which didn't really matter much considering that those who won had the chance to negotiate billions of dollars of contracts.

Another 10% was for the value proposition for Canadian industry and economic development, and a full 20% was awarded for simply agreeing that any cost the shipyards incurred to prepare to build the stated classes of ships would come at no future cost to Canada. Let me repeat: at no cost to Canada.

All shipyards received the 20% in their bid evaluations by simply ticking the “no cost to Canada” box. However, subsequent to the award—and as is now public record—we know that the government agreed to directly fund post-bid capability shortfalls, which, critically, in a competition where less than 20% separated the three bids, has now delegitimized the entire process.

The clearest example of this was the opaquely termed horizontal engineering program plan, or HEPP, handed to Vancouver Shipyards. Frankly, it is quite incredible that a government website states, “Both large vessel shipyards proceeded with their plans for infrastructure modernization and capability improvements (at no cost to Canada)”. However, Marty Muldoon, assistant deputy minister and chief financial officer of the Department of Fisheries and Oceans, testified in 2014 during a parliamentary committee, talking about the new program HEPP, “It's called horizontal engineering program plan. Basically, what we're doing is investing in the shipyard's capability to get itself up to capacity, to start churning out vessels.”

That doesn't appear as “no cost to Canada” to me.

It is obvious that there are gaps that need to be filled. Why not fill them with capacity from other Canadian shipyards, rather than applying band-aids to programs that have yet to produce a single ship?

Back in Quebec people ask how it is possible that the government changed such a key tenet of the bid, post-award, something that would have altered the course for thousands of skilled shipbuilders, had they known then what they know today. I simply don't have an answer for them, other than to say to you that we need to add capacity to this program if we are to renew the federal fleet in a timely and cost-effective manner.

Thank you. I'll turn it over to Mr. Fraser.

[Spencer Fraser]

Bonjour. It's a great honour to speak before you today, and thank you for inviting us.

I would first like to take this opportunity to thank the Government of Canada for supporting our current export proposals, involving three countries, for the Resolve class supply ship. In addition, I wish to congratulate Public Services and Procurement Canada, PSPC, for its efforts to modernize Canada's government policies in the area of costs and profits.

I had the privilege of serving in the Royal Canadian Navy for 20 years. After my military career, I worked with an international high tech firm where I provided training solutions. As you can see, my experience led me to support military and maritime operations in Canadian and international environments, while promoting Canadian industry.

At around the same time as the fire on one of our last two remaining supply ships, HMCS Protecteur, in February 2014, I met for the first time with the new owners of Davie. When they said to me that they had come up with a solution to provide a fast-track full-capability supply ship for the navy, it certainly piqued my interest, but it also begged the question of why they were chasing this, since the navy was just about to receive its new supply ships.

This was 2014. Just a few months before, the media were reporting that shipbuilding capacity constraints on the west coast meant that Seaspan wouldn't be able to build both classes of large ships simultaneously. Those were the joint supply ships and the polar icebreaker. The government had just announced that it was going to schedule the joint support ships first. I remember this clearly because I actually told the Davie team at the time to forget about the navy and to focus on gaps with the Coast Guard.

Despite my best efforts during the summer of 2014, I really never received the answers to the questions I was posing about delivery schedules. All I really managed to ascertain simply raised more questions. This wasn't all that surprising, but it was somewhat troubling. I was here in Ottawa asking where the integrated delivery schedule was and when the ships for the entire federal fleet were going to be delivered. The simplest question was when would Canada receive its much needed ships.

The replacement of the Protecteur class AOR was ongoing when I started my military career in 1983. As you know, after several iterations and failed procurements, the final design was to adopt a proven—meaning already designed and built—off-the-shelf, low-risk solution: the German Berlin class, which I had actually had the chance to sail on.

It was an existing design that cost the Germans $504 million to build. That was the sail-away price for FGS Bonn in 2013. They did it in a couple of years. The price and delivery time are in line with those for other similar ships and navies. The obvious question, which I've never managed to have answered and which has been the subject of much public discussion, is why the joint support ships will now cost close to $2 billion, according to the parliamentary budget office. That's four times the price that Germany paid for the same ship. The cost should have been less because this was a proven design.

At around the same time, there were stories about other classes of ships in the NSPS that cost less than $100 million to design and build in other countries, whereas it was costing nearly $300 million in Canada just for their “design and definition” ships for which, again, the design already existed. Even if it hadn't existed, how can ships cost this much to design?

The Resolve class AOR that we're currently converting in Quebec City will deliver a full naval supply capability, and the total cost of design and engineering is less than $30 million. As with house renovation, the cost of conversion is typically more complex and costly than is designing and engineering a ship or a house from a clean sheet.

Despite the surreal cost being quoted in the media, it was the optimistic and seemingly unrealistic schedules that surprised me the most. Here was the navy desperately waiting for these ships, and from what I could ascertain, there were no ships in sight. The JSS program started in 2005, and the original delivery date for the first of four, which was subsequently reduced to three, planned vessels was 2012. Then under the second procurement attempt, the current NSPS strategy, the first ship was meant to be delivered in 2015, then 2017, then 2019.

Now, with further delays and despite prioritizing the build of these ships over that of the much needed polar icebreaker, we're talking about a delivery into the 2020s. From my calculations at the time, that still assumes the shipyards penned to build them can deliver them faster than could the five experienced German shipyards that teamed up to build the same design in 2013.

I now understand what Davie was saying all along, but no one really wanted to listen to them. Basically, they were saying that it's easy to build a shipyard, but to build large, complex ships, as the PBO and other groups have noted in their reports, is a whole other order of magnitude and challenge. That takes decades. As a senior industry veteran recently reminded me, even experienced shipyards get these kinds of projects wrong.

The shipping industry learned this difficult lesson when they ordered ships from greenfield shipyards in China during the height of the market in the last decade, great-looking shipyards that never ended up delivering a single ship. They simply didn't have the requisite knowledge, the mature systems, the simple experience, and most importantly, the skilled labour.

Aside from the schedule, some of the costs being discussed in the media were most alarming. Having been involved with shipbuilding in other developed shipbuilding countries, the numbers just seem totally incomprehensible, especially after I had spent more than a decade intimately involved with Canada's cost principles and profit policy.

I am heartened to know a review of those policies is under way as we speak, but let's just highlight that these policies in their current state incentivize suppliers to spend more and they even disincentivize these businesses from taking on other non-governmental work. Under sole-sourced contracts, if all the contracts a company has are from the Government of Canada, the Government of Canada pays the company's entire overhead, but if the company takes on other non-governmental work, that overhead is spread across other projects.

The effect of this is massive. First and most obviously, it can be extremely expensive for taxpayers. Even worse is that under the current NSPS the shipyards were earmarked before the profit margins were even negotiated. Though not binding, it leaves the government without leverage unless they are willing to walk away. This is yet to be seen. Second, you are disincentivizing shipyards from developing commercial opportunities. Third, you are not encouraging shipyards to become internationally competitive. All that means you are not working toward developing a sustainable shipbuilding industry.

With all these unanswered questions, I joined Federal Fleet Services and I'm proud to be delivering the most commercially innovative naval program that Canada has ever executed. It's a fast-tracked, privately financed, and cost-effective solution. We simply don't get paid a cent until we deliver and the price is fixed. It's an entirely new way of procuring ships whereby the contractor takes the entire risk of delivering the capability to the navy, a system that is scalable and can be adopted for all of Canada's auxiliary and non-combat fleet. As a respected expert in the defence procurement field recently told me, this is the SpaceX of naval shipbuilding.

Having heard all about the issues of the shipbuilding program, but then also being actively involved in negotiations with those who were managing, what is clear is that the problems do not lie in our civil service, which is often identified by the media. The dedication and professionalism of our civil service, particularly those within PSPC and the armed forces, is simply exemplary, especially if you've had an occasion, as I have, of working in 15 countries exporting products.

The reality is that these highly competent people are trying to make the best out of an impossible set of regulations. The current status requires certain clear political intervention. It needs reform, and if we don't see reform in our shipbuilding policy, our naval readiness will continue to be challenged.

Thank you. I'll hand it over to Mr. Vicefield.

[Alex Vicefield, Chairman, Chantier Davie Canada Inc.]

Thanks. Do I have time still? Hopefully.

[The Chair, Liberal, Stephen Fuhr]

You do.

[Alex Vicefield]

Good.

Good afternoon. Thank you for having me here. I'm Alex Vicefield. I'm the chairman of Davie Shipbuilding.

I just wanted to start with a bit of history and background here. We arrived in Canada in 2012 after having been invited to invest in Canada's largest and highest-capacity shipyard. We'd looked at shipyards in Europe, but Davie was at the top of our list mainly because it had very good production equipment and it really only needed modernization of some of the information systems there. In 2015, we won the Lloyd's List North American shipyard of the year award, and we beat General Dynamics NASSCO, which was quite a feat for us.

What's impressed us the most from having visited dozens of shipyards worldwide and then coming to Davie was the pool of available and skilled shipbuilders in Quebec City and their obvious passion. When we arrived, just one year before, their hopes and dreams had been shattered as they'd seemingly been excluded from all future government work. The consolation that would continue to be repeated to them, which was “Don't worry. Davie can compete to build small ships”, really didn't cut it. For the people in the region who knew the shipyard, this was probably the greatest insult to them. Why would the largest shipyard in the country, the only shipyard actually experienced in and designed to build large ships, simultaneously build small ships? It doesn't build small ships.

This is a shipyard that is very highly regarded on an international scale. It's the only Canadian shipyard that actually exports large ships, and there aren't many shipyards that can boast of building over 700 ships.

If you haven't guessed, I'm from the U.K. where we've actually experienced the same kinds of problems that Canada is now facing. These problems are far from unheard of, but the root cause is now widely understood. In the U.K., they've just introduced what they call their national shipbuilding strategy, and while it may sound similar, it's actually the polar opposite of Canada's version. In fact, it is being implemented to fix the kinds of problems that Canada is now facing.

I'd like to congratulate, at this stage, the Canadian government and Minister Foote for paving the way to reform by bringing in Mr. Steve Brunton from the U.K. as their independent adviser. I'm sure he knows a lot about what happened there and how that can be fixed here, and I'm sure he'll address the committee at some point too.

The U.K.'s national shipbuilding strategy is being chaired by a businessman called Sir John Parker. It is all about ending the monopolies held by a couple of shipyards in order to create competition, spread shipbuilding work throughout the country, and develop an exportable and sustainable industry. That means creating an environment and strategy for shipyards to build a variety of both commercial vessels and naval vessels, and to develop designs that are actually exportable. This is something that countries in Europe like France, Italy, Germany, Spain, and Holland have actually gotten right.

Unfortunately, despite the best intentions, the resulting Canadian version of the national shipbuilding strategy is not a shipbuilding industrial strategy. It's proving to be just a procurement strategy or sourcing strategy, and it doesn't actually encompass the overarching strategy to build a sustainable industry where creating export opportunities is the angle. Without that, Canada is simply providing a medium-term, artificial economic stimulus that will certainly postpone a boom and bust cycle but doesn't eliminate it, and in fact, may well contribute to it.

What the U.K. study concluded was that this kind of arrangement results in an exclusive reliance on government work, which actually creates the boom and bust cycle and forces governments, of course, to pay through their noses for ships and subsidies.

Although the development of an industrial strategy is key to economic development, that is probably the least of the problems that Canada is now facing. The limited shipbuilding capacity in the current strategy is the single greatest threat to Canada's naval readiness. We are six years in now with the national shipbuilding procurement strategy and not a single ship has been built. Six years is not a teething problem or a growing pain; it is a failing grade for shipbuilding projects.

We must not accept the vague defence here that these complex vessels are the excuse. The vessels that have been contracted are not complex. They're small, commercially classified ships of an existing design.

I'll just come back to Quebec City for a bit. Our stakeholders and our people in the region continuously ask us the same question: why won't the government let us build ships if it just isn't working elsewhere? Thankfully, I don't have to answer the public on that, but I do have to answer to a furious 300,000-man-strong union. Despite employing 1,200 staff, there is still an equal number of francophone skilled shipbuilders in the region who are out of work. They see other provinces struggling to find workers and having to train them. The question is, what do I say to them?

I'll come to some of the problems that are raised by them.

The Coast Guard offshore fisheries science vessels were meant to be delivered in 2013, and now we're talking about 2018. It's very difficult to explain the situation to them when we just built a class of vessels that are three times the size and three times the complexity, and we did it in a shipyard that was bankrupt with fewer than 20 employees just a few years before.

Why, as Spencer said, is it costing $2 billion to build the Berlin class AOR when Germany built it for $504 million and we are now delivering a ship with equal capability for less than what the Germans spent? Also, the polar icebreaker program was started in 1985, and under the latest strategy, was meant to have been delivered in 2017 for $720 million, and now we're talking about 2025 and a price of over $1.3 billion.

Of course, we have the Louis S. St-Laurent returning now. The workers are asking us why we are again repairing and refitting a 1967-built icebreaker when we could just be building a new one. Our shipyard is geared to build these ships. It uniquely has the experience and the track record in building them, and we have the capacity to build them. You just can't answer these questions because there is no real answer.

All that said, 2016 was a brighter year for shipbuilding in Canada and for Davie in particular. The Resolve class AOR is 15% ahead of schedule, and we are now demonstrating by our actions, and not just words, why Canada is actually capable of competing on an international scale.

The government is taking decisive action now to deliver much-needed ships. At the end of last year the government issued a solicitation for a fleet of icebreakers, and last week we responded with a series of value propositions. If we get this right, this will allow Canada a more sustained presence in the north and bolster trade by providing enhanced support for shipowners with better icebreaking capability in the south.

I think on the greater NSPS everyone seems to be gunning for their province, but this really can't be political. This is a simple situation. There is enough work here for everyone, and this has to be based on common sense and benefit the whole of Canada, especially the men and women of the armed forces, the Coast Guard, and of course, the Canadian taxpayer.

The fact of the matter here is that the government does have a free hand in reforming the shipbuilding strategy. It's normal; you think you have a great idea, it doesn't end up working out, and you go back to the drawing board. The umbrella agreements that form the basis of the NSPS are non-binding. We are not suggesting to cancel them and start again. What we are saying is that there is a need to do some fine tuning and to use the capacity that exists.

Going back to the U.K.'s national shipbuilding strategy, it's all about taking the monopoly away. It is about using all available shipbuilding capacity in a country and encouraging shipbuilders to consider the government work as just a baseline in order to develop other commercial opportunities, and therefore, a sustainable industry.

Going back to Germany again, when they built the same design as a joint support ship, they did it in only a couple of years and at a price that was 25% of what Canada is now projecting. The reason for that was that they built in blocks or ship sections at different shipyards throughout the country, actually a similar way to what the U.K. did with the aircraft carriers. That has expedited the delivery of the ships. It's spread the regional economic benefits. It's reduced the inflationary effects that the delays have had, and therefore, it has pulled the whole cost down. What's not to like?

That is why most shipbuilding countries actually do things like this. Even at Davie we have been producing ship sections, such as bow sections and aircraft elevators for the U.S. Navy, for many years. When we recently built and exported a class of offshore support vessels for Norway, we built the ship sections at five different shipyards and steel fabricators throughout Quebec.

That's our first recommendation: use all available capacity. There's enough work for everyone.

Our second recommendation would be to build a second Resolve class AOR and thereby allow for the polar icebreaker to be prioritized, while ensuring full naval readiness in the near term. With the Arctic becoming an ever more strategic area of operation, Canada really can't wait another decade for a polar icebreaker. At the same time, Canada must fast-track the interim icebreaker program, which is currently being solicited. The window is limited for securing a handful of the modern, powerful icebreakers that are currently available due to the downturn in the oil and gas industry. We must look at the facts and act on them.

Last, and by no means least, let's ensure that costs are fair and reasonable. Shipbuilding and domestic shipyards should be something that everyone is proud of, especially in what is one of the world's great maritime nations.

Thank you. I'd like to extend an invitation, to anyone who would like, to come to Davie if you're ever in Quebec City.

[The Chair, Liberal, Stephen Fuhr]

Thank you for your testimony.

Just by way of keeping some sort of timing here, we're going to go into seven-minute questions. We've burned up a little bit more time than I was hoping to burn up, but it was important that we heard from you. Thank you for that.

Having said that, we'll open up the first seven-minute question with our new defence committee member, Mr. Robillard.

You have the floor.

[Yves Robillard, Liberal, Marc-Aurèle-Fortin, QC]

Thank you, Mr. Chair.

Allow me to take a moment to tell you that it is a privilege for me to speak for the first time at this committee. As a former Canadian Air Force officer cadet, this opportunity to sit on the Standing Committee on National Defence is an honour and a responsibility I take most seriously.

That being said, my question is addressed to Mr. Vicefield.

Can you tell me how many Davie and Federal Fleet Services are currently working on the MV Asterix conversion project?

[Alex Vicefield]

I think that's pretty much for Spencer to answer.

[Spencer Fraser]

Thank you for the question, Mr. Robillard.

Currently, at the Lévis shipyard, there are approximately 550 people working directly on that project. The numbers vary from one month to the next according to the work being done. Since our firm, Federal Fleet Services, is going to begin its service for the Royal Canadian Navy in September, we are hiring personnel. We are hiring people who will make up the ship's crew. In September, there will be approximately 100 employees.

[Yves Robillard, Liberal, Marc-Aurèle-Fortin, QC]

Mr. Vicefield, how is the conversion of the MV Asterix into an interim auxiliary oil replenishment ship progressing thus far at Davie? Can you give us an update on the status of the project?

[Alex Vicefield]

Yes, I can take that. It's very good, actually.

I think the interesting thing for us is that this is the first contract we've undertaken that is not a legacy project, i.e., it wasn't a project we took over when we bought the shipyard. It has allowed us to actually use our new systems. We have some very cutting-edge systems.

The project is running at 15% ahead of schedule. We're at about 68% complete. We're on track for delivering the ship in September of this year.

[Yves Robillard, Liberal, Marc-Aurèle-Fortin, QC]

In your opinion, what are the challenges of converting an existing civilian ship into a naval vessel?

Have complications or delays been encountered since conversion work began in May 2016?

[Spencer Fraser]

It must be said that the systems installed onboard supply ships like the MV Asterix are proven systems. We work with a company from Toronto, Hepburn Engineering, which manufactures replenishment equipment. That company has been making systems of this type for 40 years for naval forces around the world. There are only four companies in the world that make this type of equipment.

I should add that a replenishment ship does not have weapons systems on board, or systems subject to technological evolution. These are systems that are well known. And so this is less complex than building a war ship.

[Alex Vicefield]

I'll add something there in terms of the question. It is nothing new to convert a commercial vessel. The U.K. has done it. The U.S. has done it. Australia has done it. It's innovative for Canada, and it's an innovative thing to convert to an AOR, but to actually convert a commercial vessel for naval use is nothing new.

To go back to the U.K., when they delivered HMS Ocean in the 1990s, it was one of the first naval vessels, let's say, that was actually built to commercial standards. That's something as well, I think. You can look at the U.S. naval programs such as the littoral combat ship, where it's not fully commercially classed but a lot of the equipment is actually commercial equipment that has been brought up to some sort of mil-spec.

[Yves Robillard, Liberal, Marc-Aurèle-Fortin, QC]

Mr. Chair, I will share my time with Ms. Leona Alleslev.

[The Chair, Liberal, Stephen Fuhr]

You have the floor.

[Leona Alleslev, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Thank you very much for coming.

How very interesting this is. I would like to go a bit deeper into the sort of structure you have around the project management. There is no question that we are concerned, not necessarily with your program but certainly with shipbuilding in general around cost, time, quality, deliverables, outcomes, etc.

I understand from what you've just said that you're ahead of schedule, but could you give us some more depth in terms of the controls, the integrated project planning, that you have perhaps at the entire facility, and how you're measuring against the outcomes, quality, time, cost, and budget?

[Alex Vicefield]

The first thing I'd say there is that this is not a typical new shipbuilding program. The interesting thing here, as Spencer has said, is that we take the entire risk of this program. The government doesn't pay us a dollar for the ship until we deliver it. We've privately financed the actual delivery of the ship, and then we will lease it to the government.

[Leona Alleslev, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Are there penalties, then, if you don't deliver it as available in September?

[Alex Vicefield]

Yes, there are. The contract states that the lease period would be reduced by the equivalent number of days to the days we would be late, but that's not happening. We're 15% ahead of schedule right now so it's not something we're considering.

If you look at the complexity of this conversion, it's not that complex. If you look at projects we've done in the past where we have built an entire ship or where we have converted a ship, such as in the gas market with a pipe-laying ship, for example, where you have a lot of systems on board the ship and those are all interdependent, where you have a big risk that if one system doesn't work the whole ship doesn't work. This is a ship where you're keeping the existing engines. You're literally taking out the container holds, and you're putting in tanks for fuel and accommodation.

It's a lot of work in terms of some of the parts, but there's no critical risk. It's not a situation where, come September, it's not going to work. It already works. It's already on the ship.

[Leona Alleslev, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Perfect.

You talked about capacity. Could you give us some feel for what your surplus capacity is at your shipyard?

[Alex Vicefield]

Absolutely. Davie can build seven ships at any one time. We're now building three.