National Defence Committee on Feb. 2nd, 2017

[The Chair, Liberal, Stephen Fuhr]

I call the meeting to order.

I'd like to welcome our guests to our study of the Royal Canadian Navy and naval readiness. Specifically, I'd like to welcome, from Irving, Mr. James Irving, Mr. Ross Langley, Mr. Kevin McCoy, and Mr. Scott Jamieson. From Seaspan, I'd like to welcome Mr. Jonathan Whitworth.

Thank you very much for coming. We're looking forward to hearing how you gentlemen and your respective companies are going to deliver much-needed capability to our Royal Canadian Navy.

I'd like to start out by giving Irving up to 20 minutes to talk to us about how they're planning to do that. By way of making my job easier to manage the floor, as we move through our discussions here and opening statements, if you ever see me gesture, it means we're 30 seconds away from when you need to sum up so that I can make sure to get in everybody's comments and questions.

Thank you very much.

Mr. Irving, you have the floor.

[James D. Irving, Co-Chief Executive Officer, J.D. Irving, Limited]

Thank you very much, Mr. Chairman.

Just before we start, Mr. Ross Langley is not here with us this afternoon, just to correct that.

[The Chair, Liberal, Stephen Fuhr]

Okay.

[James D. Irving]

Good afternoon, Mr. Chairman and members of the committee. I'd like to thank you for the opportunity to speak to you here today to provide an update on our work at the Halifax shipyard.

With me today are members of the executive team, as was mentioned. Vice-chairman Ross Langley is not here with us at the present time. Mr. Kevin McCoy is our president, and Mr. Scott Jamieson is vice-president of programs.

We have a proud history of building ships for Canada. We've built more than 80% of Canada's current naval fleet. The Halifax shipyard has been maintaining the Royal Canadian Navy since its inception. That was a long time ago. Canada can be proud of the national shipbuilding strategy that's in place, and after a long period without building ships in Canada, we now have a strategy that makes sense for Canada and Canadians, and we'll make sure the navy and the Coast Guard get the ships they need at a fair price.

We've gone around the world to bring in the best management team with the right experience to lead our Canadian workforce to become world-class performers in the industry.

We've invested over $360 million to construct state-of-the-art facilities with the best equipment for the efficient building of Canada's naval ships. We are committed to not only doing a great job of building ships for Canada, but also to making sure that the industry remains sustainable for the long term.

Finally, we are spending a lot of effort to tell the story of our progress and success to Canadians through our website and other communication means.

Every time there is a contract placed or a value proposition announcement, we get the word out so that Canadians and government officials have a chance to see the good things that are happening as a result of this shipbuilding strategy.

We are proud to continue our long history as a trusted partner in Canadian shipbuilding.

Now I'll turn it over to Mr. Kevin McCoy, our president, to speak to you about the work that's under way currently at the Halifax shipyard.

Thank you.

[Kevin McCoy, President, Irving Shipbuilding Inc.]

Thank you, Mr. Chairman and committee members, for having us here today.

I joined Irving Shipbuilding in 2013 after a long career in the shipbuilding industry, including 36 years in the U.S. Navy. I was honoured to be appointed president of Irving Shipbuilding at a time when the shipbuilding industry in Canada was changing significantly as a result of the national shipbuilding strategy.

This strategy was first conceived by Canada due to a lack of sustainability in the marine and shipbuilding industry nationwide. This boom-and-bust cycle of the industry was experienced at all major shipyards and in the communities in which those shipyards reside. It resulted in an inability to stay up to date with modern shipbuilding practices and created significant challenges in recruiting the best shipbuilders.

In developing the framework for the strategy, Canada acknowledged that there was not enough large ship construction required for the navy and the Coast Guard to sustain more than two shipyards and their skilled workforce for the future. It was through a fully transparent and competitive process that Irving Shipbuilding was selected as the centre of excellence to build Canada's future combatant fleet.

Today we are well on the way to re-establishing the capability to build large ships in Canada, and we are making excellent progress towards providing the navy with the ships they need to operate as a true blue-water maritime force. Currently our shipbuilders are hard at work building Canada's first two Arctic and offshore patrol ships, or AOPS. We expect to deliver the first AOPS, the future HMCS Harry DeWolf, at the end of 2018.

The work we're doing now on AOPS will afford our workforce the experience and expertise required to construct Canada's next combatant fleet, the Canadian surface combatants, or CSCs, starting in the early 2020s. We're working closely with Canada to ensure the right foundations for this program, including the appropriate ship requirements, budget, and schedule. As a prime contractor, we look forward to awarding a contract to start working with the CSC ship and combat systems designer in the fall of this year.

It's imperative that we work at a steady pace and minimize delays. There are several pressing reasons for this. First and foremost, the navy needs the capability that these ships bring to the fleet. Canada's only three air warfare destroyers, which were to be replaced by CSC, have already been removed from active service. Second, starting in the fall of 2019, production work on AOPS starts to wind down. If we don't put our skilled shipbuilders to work on CSC, we face significant layoffs. If there is a production gap between the two shipbuilding programs, the cost to reconstitute the workforce and the experience will be borne by the CSC program. Third, the impact of inflation is very real on a shipbuilding program such as CSC. With shipbuilding inflation running 3% to 5% annually, on a 15-ship program you lose the buying power equivalent to 45% to 75% of one ship for every year of delay. Delays have a serious impact on a huge program such as CSC.

Now let me shift to economic benefits and the impact our work is already having across Canada. The benefits span far beyond the walls of the Halifax shipyard, where our head count has already surpassed 1,400 and in fact is almost 1,500 today. With the CSC program, we expect to reach over 2,500 employees. As of December 31, 2016, we've issued purchase orders totalling more than $1.2 billion to over 250 companies across Canada.

According to the Conference Board of Canada analysis, this will support an estimated 16,560 full-time equivalent person-years of employment and generate an estimated $895 million in income, $385 million in taxes, and $620 million in consumer spending. These are real benefits for Canadians from coast to coast to coast.

In Ontario, where over $543 million in contracts has been awarded, we have a seven-year contract with General Electric Canada for electrical power, propulsion systems, installation, and commissioning services for six AOPS vessels.

In Quebec, where over $61 million in contracts has been awarded, we have the pleasure of working with Bronswerk Group, which is supplying heating, ventilating, and air conditioning solutions for AOPS.

Bronswerk's AOPS contract has allowed the company to grow by 25%, open two facilities in Halifax, and be able to compete for global contracts.

In addition to our direct contracts, there is work happening throughout Canada that may seem unrelated to the construction of navy ships, yet would not exist without the national shipbuilding strategy. For example, Aspin Kemp & Associates in Montague, P.E.I., was awarded an initial $80-million contract with GE's global offshore and marine division to provide electrical components for drilling ships. This was a direct result of GE's industrial regional benefits obligation, under their contract with Irving Shipbuilding, to provide AOPS propulsion equipment. The spinoff work for drilling ships awarded to Aspin Kemp, which GE had previously been performing internationally, is now valued at more than $160 million, and has created new jobs and millions of dollars in economic growth in P.E.I.

These are just some examples of the hundreds of companies across the country—from Toolcomm, an aboriginal-owned company in B.C. providing communication systems and Internet protocol, to Glamox, a lighting supplier located in a former fishing plant in Newfoundland and Labrador—that we're proud to be working with to create a sustainable shipbuilding industry.

We have also invested in training and education programs to develop 21st century shipbuilders and modernize the face of shipbuilding. Two programs that we're very proud of, Women Unlimited with 17 female students and Pathways to Shipbuilding with 19 indigenous students, are the first of many designed to provide training and employment opportunities at Irving Shipbuilding to under-represented groups. These are Canadians who now look forward to a bright future with long-term, stable careers in the trades with salaries of over $70,000 per year, plus benefits. These are jobs you can raise a family on.

While we're hard at work on the Canadian navy's future combatant fleet, we also need to keep in mind how we are maintaining our current fleet, because it has a direct impact on day-to-day readiness. In November we were pleased to complete the refit portion of the Halifax-class modernization project on time and under budget. This involved extensive work on all seven of the east coast frigates to modernize the ships and their combat systems. This project not only sustained over 400 jobs in Halifax for the past six years but also once again provided the navy with the equipment required to successfully serve at home and abroad.

The success of this project can largely be attributed to the close proximity of our facilities to the navy's east coast home port. The same is true for Seaspan on the west coast. During this program, the shipbuilders at both Irving Shipbuilding and Seaspan honed their skills and truly developed into Canada's centres of excellence for maintenance and modernization, in addition to shipbuilding.

We are very concerned that Canada's current approach to running individual procurement competitions for ship maintenance is not in Canada's or the RCN's best interest, and strongly recommend that Canada take a holistic strategy with regard to ship construction and maintenance.

Let me explain. First, let me talk about the real cost to Canada. During the Halifax-class modernization project, the cost of shipbuilding at the Halifax shipyard was decreased, as a significant portion of our fixed overhead was spread across both new construction and maintenance. In 2016 alone, this resulted in lowering the cost by over $20 million for AOPS. This is equivalent to getting roughly 130 shipbuilders per day for free.

Second, I'll talk about sustaining the shipbuilding workforce. Both new construction and maintenance work go through peaks and valleys of demand for individual trades. Critical to eliminating the boom-and-bust cycle for employees and this industry is having both new construction and maintenance work in the shipyard at the same time. As Canada's shipyards have clearly experienced over the last 20 years, ship maintenance alone is not sufficient to eliminate boom-and-bust periods.

The third point concerns the impact on ship readiness and crew morale. Canada's current strategy could result in the Halifax-class frigates and crews leaving home port in Halifax for maintenance elsewhere. This would result in undue stress on crews and their families, increased costs for the navy and Canada, and the need for another shipyard to familiarize itself with the ships and procedures on which Irving Shipbuilding is now an expert.

I will also point out that Halifax is an ice-free port year-round, allowing ships to be maintained and deployed at a moment's notice.

Finally, there is the impact on leveraging long-term investment. The current strategy of spreading out maintenance to many shipyards across the country does not leverage the significant investments in people, facilities, and processes that come with a sustained shipbuilding program. Investment in these areas requires long-term certainty.

Canada's allies in both the United Kingdom and the United States actively manage maintenance and in-service support as part of their overall strategy for shipbuilding, enabling a steady workforce year-round and leveraging investments and facilities for both construction and support. We strongly encourage Canada to take a similar approach.

In closing, we're proud to continue our long history as Canada's shipbuilder and to create a legacy for the navy and Canada through the national shipbuilding strategy. The Halifax shipyard and employees take that responsibility very seriously, and we look forward to a bright and productive future that will benefit not only the men and women in uniform but all Canadians.

Thank you again, and we're happy to take your questions.

[The Chair, Liberal, Stephen Fuhr]

Thank you for that.

I'm going to turn the floor over to Mr. Whitworth from Seaspan.

Thanks for coming.

[Jonathan Whitworth, Chief Executive Officer, Seaspan]

Good afternoon, and thank you.

I'm pleased to be here along with Irving Shipbuilding as one of the two long-standing and long-term strategic partners selected by Canada back in 2011, through a competitive process, to build the next generation of combat and non-combat maritime vessels for the Canadian government under what is today called the national shipbuilding strategy, or NSS. In our case, it involves non-combat vessels to be built primarily for the Canadian Coast Guard. We are also under contract for two joint support ships required by the Royal Canadian navy.

In my opening remarks, I want to make sure that committee members are aware of the transformation that has taken place at Seaspan's Vancouver shipyards over the past five years, thanks to the NSS. I want to provide a progress report on the four concurrent NSS programs that are in various stages of development in our shipyard and the parallel impact on the Canadian economy. I'd also like to address a number of popular myths that have appeared since the inception of NSS. Finally, I look forward to answering your questions at the conclusion.

The national shipbuilding strategy and the government's commitment to manage the recapitalization of the Canadian Coast Guard and the Canadian navy fleets through a program of planned and scheduled work over the long term gave us confidence to invest our own money to rebuild our own shipyards in both Vancouver and Victoria, with the expectation that our capital investment would be recovered through the volume of work we would earn over the time. A total of $170 million of our own money was spent on shipyard infrastructure, wholly on the back of our single shareholder, the Washington Companies, and not a penny was received from any level of government.

The result is that Seaspan's shipyard in Vancouver is recognized today as one of the most modern shipyards of its kind in North America, tailor-made to build the vessels that are part of the non-combat package.

You may hear about the size of other shipyards in Canada. We agree that actually size does matter. It matters because we believe it's important to keep our cost structure as low as possible. We didn't want to build a yard with excess capacity, because Canada would just end up paying for this in higher overhead and to the detriment of vessel capability. We also didn't want to build a shipyard that was too small, because then we couldn't efficiently and effectively honour the commitment to build ships in Canada by Canadians.

When the NSS winners were announced in the fall of 2011, Seaspan's Vancouver shipyards employed 120 tradesmen and tradeswomen and 30 management professionals. If it had not been for NSS, we most likely would have closed our doors, after over 100 years of continuous operation. Today, thankfully, we have over 750 tradesmen and tradeswomen working this morning. Similar to what you heard from the Irvings, they're in highly skilled occupations, earning above-average family-supporting wages. We've also added 70 apprentices just in the last 12 months, and 30% of them are either aboriginal or female. They are supported by now 390-plus engineers; procurement, planning, estimating, and program managers; and the staff in the office.

We are working closely with the B.C. government on labour market planning, and internally on labour resource-loading strategies to avoid any serious shortfalls or excess of demand in the NSS build program. We have initiated Seaspan apprentice and internship programs to seed the market with future shipbuilding trades and professional candidates. We are investing in B.C.-based college, aboriginal, female, and even high school training programs with an eye to attracting new non-traditional segments of our community to shipbuilding and also to ship repair.

In 2016 alone, Seaspan awarded NSS contracts worth close to $200 million. Of these, 93% were won by Canadian-based companies. I also would share with you that of those Canadian companies that won those contracts, 87% were small and medium-sized enterprises. We enjoy giving contracts to large companies, but I have to tell you that what is creating a difference, from coast to coast to coast, is creating these small and medium-sized enterprises.

That's just one year—and, I would dare say, our first year—at the start of a program that is expected to grow and last for at least the next 20 years.

For the period 2012 to 2020, I have seen data from an economic impact study that estimates that the NSS non-combat package will contribute over $290 million a year to the GDP, with an annual increase in employment of 2,300 people across the country during the same period. We are clearly on the right path.

Thanks to the NSS, we are contributing to a resurgence of shipbuilding on the west coast. We are offering an increased number of Canadians the opportunity of a generation to find high-value work in shipbuilding and ship repair. We are creating a west coast centre of excellence that will benefit the entire marine industry across Canada. We are a long-term partner to the Canadian government to smooth out the boom-and-bust cycles that have unfortunately defined previous federal shipbuilding programs.

Now I would like to explain a little about what's going on within our shipyard and the programs and the vessels we are constructing.

In the non-combat package, we are starting off with a series of vessels called the offshore fisheries science vessels, or OFSVs. We have three ships to build in this class. The first one was 60% complete as of the end of 2016. It's about 65% done now. The second vessel is approximately 20% to 25% complete, and as of tomorrow morning, we will begin full production on our third vessel.

A first-of-class vessel coming through a new shipyard with new equipment, new people, new processes, and new systems, where everything is new, typically results in things not always going according to plan, which normally results in upsets to schedules. We are no different. That said, when this project for the OFSVs was designed and agreed upon with the federal government, we committed to delivering the first ship in 2017. We are still on path to deliver the first ship in 2017.

I would also like to make it clear that the project cost to Canada is protected by virtue of our being under a ceiling price contract, so I can assure you that the risk to Canada from cost overruns on this first class of vessels is zero. Both cost containment and schedule adherence are extremely important to our business and to our shareholder. Therefore, as you would expect, we've learned a number of lessons on OFSV ship number one, and now, thankfully, we get to apply those to OFSV number two, and soon, as of tomorrow, OFSV number three.

The next vessel, a single vessel in its class, is the offshore oceanographic science vessel. Planning, engineering, and long-lead equipment purchasing are ongoing. Basic design development was signed with the government on December 22, just over a month ago. We've done the down-selection on the single system integrator, which is currently under way, and we're expecting to receive draft terms and conditions from Canada in the spring.

The third class of vessels for the Royal Canadian Navy is the joint support ships, or JSS. Planning, engineering, and long-lead equipment purchasing are ongoing. Functional design was also signed just over a month ago, and procurement of long-lead items continues with the propulsion system integrator, which has already been down-selected.

Following the JSS is the polar icebreaker. The Canada-Vancouver shipyards workshop occurred just in the last two weeks. Once we get going on the polar design, we will be the only shipyard in North America simultaneously designing three active vessel classes. If you look at the largest shipyards you could imagine in the United States, you see that none of them is designing three vessel classes simultaneously.

Following that, there are also more vessels in the Canadian Coast Guard for future renewal. In October of 2013, the federal government increased Seaspan's non-combat build package by up to an additional 10 vessels. These additional ships were originally identified as five medium-endurance multi-tasked vessels and five offshore patrol vessels. This program and the vessel concept or concepts are still under discussions between Seaspan and Canada.

Next, I'd like to share my thoughts on a few changes to NSS program management through which Canada and Seaspan can together improve the program performance and the public's perception of the program, at least as we see it on the west coast:

I hope my testimony has convinced you that the NSS is getting the job done. It's building ships, rebuilding an industry, and creating jobs and economic activity across the country. The international community is sitting up and taking notice, and is impressed at what Canada has been able to accomplish in such a short period of time.

NSS is the right strategy. It's designed to avoid the boom-and-bust cycles that have defined previous national shipbuilding programs.

After careful consideration, full consultation and an open, fair, and transparent competition, two was judged by the government of the day to be the right number of shipyards to sustain the viable domestic shipbuilding industry in Canada for the long term. Despite what has been reported, delays in the national shipbuilding strategy have not been the cause of today's need for interim vessels for both the navy and the Coast Guard. Rather, it is the lack of real shipbuilding in Canada from the mid-1990s until the NSPS was put in place in 2011 that is the root cause of the interim needs.

Remember, we are catching up for not having had a large and complex shipbuilding program in Canada for over three decades. Thankfully, NSS will permanently correct this via a steady flow of long-term shipbuilding contracts and a properly structured industry to efficiently handle this for the long term.

From Seaspan's perspective, the biggest risk to the program is not the strategy itself but rather not allowing the time needed for this program to succeed. We believe this is a marathon and not a sprint. We have accomplished a great deal in a short period of time, and we've learned a tremendous amount about how we and Canada alike can work together as long-term partners to improve NSS program governance and management. The federal government must stay the course and avoid the trap of commercially driven unsolicited proposals and short-term expediency.

Critics of the NSS program and certain media members have commented on how different announced program budgets are from the actual cost performance. They have been able to do this because in most instances, and certainly from our own experience, program budgets were developed and codified within the federal program approvals system in a bygone era, long before the vessel requirements had been agreed to, and even longer before enough engineering work had been performed to properly estimate the labour, time, and materials required to build the subject vessels.

We believe that to peg performance against the build contract and not against the nominal indicative cost estimate required to get through Treasury Board initial project approval many years—in some cases five to eight years—before a project may begin, and many more years before enough is known about the vessel's requirements, is not a fair representation of either the government's or the contractor's competence to manage to a budget. We can change the public perception by changing the federal government's approval process and timelines.

Due to the number of vessels and vessel classes under the NSS non-combat package, we are also being contractually managed on a program-by-program basis, with a number of contracting phases and task authorizations within each program. Choppy contracting reduces efficiencies and increases uncertainty within our own company and—more importantly, perhaps—across our supply chain, in that we sometimes think we are in a perpetual state of contract negotiations with Canada and then also with our own supply chain. We made these observations as part of our submission to the defence policy review and more recently to the meeting of deputy ministers. We hope to see a more efficient process moving forward as the NSS program matures—that is, fewer contracts, fewer phases, and fewer task authorizations required so that we can get on with the business of building ships for Canada, by Canadians.

Thank you for your time. I look forward to the Q and A.

[The Chair, Liberal, Stephen Fuhr]

Thank you for your testimony.

I'm going to open the floor up to Ms. Alleslev.

You have the first seven-minute question.

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

Thank you very much.

Thank you, everyone, for coming, particularly in light of such an exciting topic, the national shipbuilding strategy. The Canadian surface combatant program is by far the largest naval procurement in history but also, I would argue, probably the most significant procurement that Canada will do for a generation. It will deliver not only critical combat capability to the navy, but equally, if not more importantly, it will create a significant impact on the Canadian economy.

I certainly don't need to tell you that 20% of the cost is in acquisition and 80% is in in-service support of the life cycle of any program. When we talk about technical benefits or industrial technical benefits, otherwise known as Canadian content, we really do need to talk about the impact of direct Canadian content on the ship itself, not only because it's important to the ship and therefore the technical capability and our sovereignty of that ship, but also in terms of the impact it has on the Canadian economy, not only today but of course through a core competency of a life cycle.

When we talk about that direct Canadian content, we need to know that not all Canadian content is created equally. Certainly electronic warfare, command management, communication systems, underwater radar, and all that kind of stuff is actually the step change. It is something that Canada has been incredibly good at, something that we have a great industry in, and something that obviously is a sovereign requirement.

Could you share with us how we're going to ensure that on this critical procurement for the navy and for Canada, we will have direct Canadian high-tech content?

[Scott Jamieson, Vice-President, Programs, Irving Shipbuilding Inc.]

Thank you for the question.

On the Canadian construction program, as I think you're aware, we did, along with Canada, considerable industry engagement. We worked very closely with the regional development agencies to look at the capabilities that existed in Canada in the context of being able to supply.

Again, it's a complex warship. In terms of the procurement itself, it is heavily weighted towards incentivizing bidders to create direct and indirect Canadian content, known as a value proposition for the program. The level at which that is weighted in the competition I think is fairly unprecedented, recognizing the importance that both we and the government put in that program to have strong economic benefits as a result of that program. I think it has been at the forefront of our mind, and I think it is reflected well in the procurement that is currently being executed.

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

I thank you for that.

Throughout the conversation, you indicated how important and costly delays can be. Now we're looking at a commercial off-the-shelf ship simply because we're looking at being able to shrink that delivery time to get us faster to a build. However, most of those commercial off-the-shelf ships, of course, already have combat systems integration with all those command management and high-tech electronic warfare systems that are already designed into them. They're not currently Canadian, because they're obviously not currently Canadian ships.

If we look at the bid process, we would be looking at taking out existing technology that's already systems-integrated into those ships to be able to put in that direct Canadian content, which would therefore potentially increase the risk and the time. How is the procurement ensuring that the weighting of the Canadian content for that high-tech systems integration is not adversely affected by the evaluation criteria, leading to a short time to get to that build and delimiting the risk?

[Scott Jamieson]

I think it's all about balance.

You raise a very good point: Canadian content and economic benefits are incredibly important. Also incredibly important is delivering a very capable ship to the navy. Also incredibly important is delivering good-value ships with a low-risk profile. All of those things have to be taken into account. I don't think it's one thing that beats all else.

The process that's been created along with Canada allows all of those inputs to come in, with the right information at the right time, to make a considered decision on how you maximize the Canadian content, maximize the capability to Canada, and minimize the risks that the program will face. We very much look forward to that phase of the program. There will be a lot to discuss, I am sure, but we're well aware of it and are working well with Canada to create that process.

[James D. Irving]

We shouldn't underestimate the value of indirects in this thing, because I think we're going to establish a lot of companies in Canada—small and medium-sized business, to Jonathan's point—that haven't been in the business before. The Aspin Kemp example by GE on Prince Edward Island is a case in point. If you can get a running start, if you have a small business and you can get a big baseload customer like GE that will take you global, that's a huge asset.

I think we should be broad in our thinking to make sure we don't get so narrowly focused on one aspect that we can't maximize the opportunities for Canada. I believe there are good opportunities there.

[Kevin McCoy]

I will just chime in too.

First and foremost, this procurement is about getting Canada's navy the equipment that it needs. From the start, this is a requirements-driven process. We went through an exhaustive effort over almost a year to look at every single requirement on a ship. It was probably the best one that I've ever seen, including in my experience in the U.S. We really threw out the stuff that would be kind of nice to have and got down to the requirements. We did that, and for whatever ship we pick, there are many areas, particularly in the war-fighting area, that are going to have to be customized for Canada's needs.

Canada has a different naval need than other nations do. For example, Canada doesn't have a high-low mix, a series of small, medium, and large surface combatant ships, which many nations have, so we're going to have to do tailoring of our electronic warfare. The radar is going to be different for the ship that we pick. There are a number of areas that are going to be ripe for good Canadian content and modification that we know we are going to have to do.

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

I think that is a very important point, and those are core competencies that already exist in Canada. Of course, as the landscape for defence and security is changing around the world, ensuring that we have those mission-critical war-fighter systems and that sovereign capability within Canada is obviously going to be a significant factor going forward, and I'm pleased to hear that you're putting that as a top priority.

[The Chair, Liberal, Stephen Fuhr]

I thank you for that, and I turn the floor over to Ms. Gallant.

Ms. Gallant, you have the floor.

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

Thank you, Mr. Chair.

Mr. McCoy mentioned in his statement that he had a long career in shipbuilding and in the U.S. Navy. The U.S. never seems to have the kind of procurement issues and delays that we have currently with the national shipbuilding strategy.

Through you, Mr. Chair, what, in your opinion, is the difference that creates our delays, and what steps can be taken to ensure that the Royal Canadian Navy gets the ships it needs built in a timely manner?

[Kevin McCoy]

Thank you for that question.

First let me say that every year, the U.S. Navy continuously builds, on average, 13 to 15 major capital warships, so it's not a matter of.... As our colleague Jonathan from Seaspan indicated, we're both standing up shipyards from scratch, so we're on the front end of this process, and I think five or 10 years from now, this will look different in Canada.

First of all, the U.S. has an ongoing industry that's geared up for it, and in fact the government builds 15 ships a year for two reasons. One is to support the navy, and two is that if they built any fewer, the industrial base would start to fall apart. It's not just the shipyards; it's the next tier. It's the engine suppliers and the valve suppliers and the launcher suppliers. You need 15 ships in that big economy in order to keep them alive. I think that's one of the things that Canada is going to have to go through. We'll have to determine the minimum self-sustaining level, not only for the shipyards but also for that industrial base for which we're now growing the supply chain here in Canada.

The other thing is that there is a real priority put on the speed of decision-making in the U.S., because when a ship in the U.S. is put under contract, it is because it already has a deployment date. It has already been assigned a battle group for deployment, so there's a real pull from the operational side that says you need to get that ship not only under contract but also delivered, because someone is already counting on it. I think that's the kind of mentality that allows you to build ships without having the ones they're going to replace already falling out of service.

I think there is the speed of decision-making, and I would say that one thing that does work against the system here is having authorities and responsibilities distributed through very many departments, rather than having what I'm used to, which is a single accountable officer, particularly for a program as huge as the Canadian surface combatant—somebody who can say, “Yes, in that area I'm going to go with Canadian content; in that area I'm going to go with operational requirements; in that area I'm going to go with low costs and risks”, someone who can push things forward, rather than debating over them for a very long period of time.

In a program like CSC, inflation is a real killer to a ship count, so you need speed in decision-making, recognizing that this is something that has to go on year after year after year. We're at the front end, trying to gear up for that serial production, and then we'll have to figure out how to maintain it.

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

Do we have that single project manager to see it through?

[Kevin McCoy]

Today we do not. I'm not telling a story out of school; we've made this comment to the government. It's very much a distributed process in which we will sit across the table from Industry Canada, Department of National Defence, the navy, PSPC, and the Department of Justice and negotiate everything from technical requirements to contract requirements, and it takes a while to churn the consensus through the system.

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

Patrick Finn, head of military procurement at National Defence, has stated that even minor changes can cascade into big costs and delays in relation to trying to fit Canadian equipment requirements into pre-existing foreign-designed military equipment.

With that in mind, what are the biggest issues you see arising from a pre-existing foreign design for our surface combat ships?

[Kevin McCoy]

I would say one of the things we're going to have to manage well, both the government and industry collectively, is our appetite for change. If you start to change too much on a ship, if you start to change 10% or 15% of the ship, you're starting to change 75% to 80% of the drawings. I've seen it time and time again, and at that point you're into essentially a clean sheet with big risks.

Therefore, collectively we're going to have to manage change. The most important part of a shipbuilding program like CSC, bar none, is to get the requirements right up front. I really applaud the effort that the Canadian navy made to do a lot of soul-searching. We went through four very rigorous war-fighting exercises. We looked at anti-air warfare, undersea warfare. We had all the classified intelligence data on cruise missile threats and other threats from around the world, from both the U.S. database and the Canadian database. We got the requirements down to a tight basket that is not the world, so that when you go buy the ship, you're not buying any more than you need but you still have the ability to execute the mission.

I'm very pleased with where we are on that. Now, when we pick a ship, all of us are going to have to constrain our appetites for change, and there will have to be that balance among Canadian content, risk, cost, and schedule, and that's what's going to take very strong leadership to push through.

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

We heard in earlier testimony that, really, with the national shipbuilding strategy we weren't going to be spinning off or starting up a whole new naval shipbuilding industry in Canada. There would be merely a series of procurements. Can you dispute that or give us any explanation as to why we will have a continuing commercial industry once this series of procurements is finished, or at the same time?

[Jonathan Whitworth]

One of the things that we on the west coast like about the non-combat package is that it is a combination of ships that will be built that actually look a little bit more like commercial. We would have been very pleased and happy to build combatant ships, I assure you, but the non-combat package actually lends itself to alternative commercial work.

When we see the capacity break, when we're not building federal vessels, we think we're going to be in a perfect position to actually market our skills and expertise to foreign countries that may be looking for icebreakers or oceanographic ships. Those are commercial-minded vessels. On the west coast we also have, in our province of British Columbia, the world's largest fleet of ferries. We really look forward to rebuilding and building BC Ferries' fleet.

[The Chair, Liberal, Stephen Fuhr]

We move now to Ms. Blaney.

Welcome. You have the floor.