Evidence of meeting #34 for National Defence in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was ships.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Spencer Fraser  Chief Executive Officer, Federal Fleet Services Inc.
John Schmidt  Vice-President, Commercial, Federal Fleet Services Inc.
Alex Vicefield  Chairman, Chantier Davie Canada Inc.

4:20 p.m.

Chairman, Chantier Davie Canada Inc.

Alex Vicefield

Do you mean in terms of federal government or provincial government? In terms of federal government, I'd say now it's about fifty-fifty. When we first came to the shipyard, it was 100% commercial for the first two years and then we started doing the Coast Guard. We've done five Coast Guard icebreaker programs now, so we've transitioned more.

When we first came to the shipyard, the oil and gas market was still strong. That's really fallen away of course.

The market for Canadian shipyards, aside from building government vessels, is really ferries—that's a big one—and the oil and gas market.

4:20 p.m.

Liberal

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

So you're saying it's about fifty-fifty government and commercial.

4:20 p.m.

Chairman, Chantier Davie Canada Inc.

Alex Vicefield

At the moment we're building two LNG-fuelled ferries as well.

4:20 p.m.

Liberal

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

Okay.

Could you give us a feel for cost structure or viability or profitability differentials between the two, to understand where we are in a competitive field?

4:20 p.m.

Chairman, Chantier Davie Canada Inc.

Alex Vicefield

Do you mean where the federal government...?

4:20 p.m.

Liberal

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

I mean between the government and commercial operations.

4:20 p.m.

Chairman, Chantier Davie Canada Inc.

Alex Vicefield

I think you can talk to Spencer about profit a bit.

4:20 p.m.

Liberal

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

Obviously I mean without giving us any of your secrets, but how do the two compare?

4:20 p.m.

Chief Executive Officer, Federal Fleet Services Inc.

Spencer Fraser

When the Government of Canada chooses to sole-source....

Very quickly, there were two controversies during the First World War. There was a conscription crisis and war profiteering. Canada has a tool box to ensure that there is no profiteering and that costs are very well controlled. I mentioned in my talk that Public Works is currently reviewing the cost and the profit policies. Costs are assessed. There's very little wrong with the cost policy in Canada. A whole group of auditors come in and they assess your costs and they tell you what they are.

Then there's the whole discussion around profit. The U.K. has said that when there is a thin market, you have to have directed contracts or sole-source contracts. Many years ago, the U.K., separate from the points Alex was making, said it needed someone with business acumen to be sitting there looking at—

4:25 p.m.

Liberal

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

This is a sole-source contract and it's a lease, and it's very difficult to get a competitive analysis to determine whether or not we're getting fair market value for a lease. All I was wondering was really if you had a preference or if there was any kind of economic structure that allows you or incentivizes you to prefer commercial work over government work, or government work depending on a cost structure, as in this case, where you've taken all the risk and therefore are in a position to dictate the lease costs.

4:25 p.m.

Chief Executive Officer, Federal Fleet Services Inc.

Spencer Fraser

My point, which I think is along the lines of what you're asking—and this is the critical item that gets lost in all of our discussions of procurement, the fundamental criticality of the cost and profit policy—is that our profit for the lease that we negotiated with the Government of Canada is within what the Government of Canada policy requires. The challenge you have—and I think this is where you're going with your questions—is that if you're a shipyard doing only government work, all the overhead of that project get put onto that one naval ship. It's very simple math that if you bring a second ship in that's not a government contract, half the overhead of the yard get assigned to that ship, so you're disincentivized from bringing in any commercial work when you have 100% government work. We're not set up that way. We don't have an umbrella agreement giving us 30 years' worth of work.

The last point I would make is that the risk you have for profit should correspond to how much risk you're taking on commercially. If someone tells you that you have 30 years' worth of work and there are billions of dollars.... Under the profit policy in Canada, the Government of Canada can give you only 1% to 7% profit, so the question is this. If it's above that in terms of contractual risk, are we following those policies? I would suggest that's something that has to be looked into. That's something the Auditor General has commented on.

4:25 p.m.

Liberal

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

Thank you very much.

4:25 p.m.

Liberal

The Chair Liberal Stephen Fuhr

Thank you for that. I'm going to go to five-minute questions now. Leading that will be Mark Gerretsen.

You have the floor.

4:25 p.m.

Liberal

Mark Gerretsen Liberal Kingston and the Islands, ON

Thank you very much, Mr. Chair.

I want to explore and understand Davie a little bit better. I have a couple of questions on that. I understand that Davie bid on the national shipbuilding strategy to be considered a centre of excellence, and I know that Mr. Fraser recently responded, in answer to a question, that there are about 515 employees.

Is that about right?

4:25 p.m.

Chairman, Chantier Davie Canada Inc.

Alex Vicefield

There are about 1,200 employees.

4:25 p.m.

Liberal

Mark Gerretsen Liberal Kingston and the Islands, ON

My apologies.

4:25 p.m.

Chief Executive Officer, Federal Fleet Services Inc.

Spencer Fraser

That was just on our project specifically.

4:25 p.m.

Liberal

Mark Gerretsen Liberal Kingston and the Islands, ON

Thank you.

Can you comment as to what the state of the company was when you made that bid and how many employees you may have had at that time?

4:25 p.m.

Chairman, Chantier Davie Canada Inc.

Alex Vicefield

That wasn't us. In 2009, just after this letter was sent out, Davie went into bankruptcy. There were about 20 people in the shipyard at that time. It was just sort of being maintained. There was no activity there. I don't know the specifics, because it was before our time, but it was revived at the very last minute to try to put in a bid out of bankruptcy.

4:25 p.m.

Liberal

Mark Gerretsen Liberal Kingston and the Islands, ON

Explain “our time”. You said, “it was before our time.”

4:25 p.m.

Chairman, Chantier Davie Canada Inc.

Alex Vicefield

We bought the shipyard in 2012. We weren't here in Canada before then. John, at the time, was working for Irving and—

4:25 p.m.

Liberal

Mark Gerretsen Liberal Kingston and the Islands, ON

You bought the goodwill of the company, I imagine.

4:25 p.m.

Chairman, Chantier Davie Canada Inc.

Alex Vicefield

We bought the company.

4:25 p.m.

Liberal

Mark Gerretsen Liberal Kingston and the Islands, ON

And you bought the goodwill or lack thereof that goes along with that.

4:25 p.m.

Chairman, Chantier Davie Canada Inc.

Alex Vicefield

I don't know. What do you mean by that?