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.