Public Accounts Committee on May 25th, 2021

[Simon Page]

Things will be a bit more complex for the Davie shipyard because the selection process that will take place over the summer will have to be completed, and then the framework agreement must be signed. So as we get closer to signing the framework agreement, the details of target state for Davie will be discussed. That is when things will get interesting for us. With a view to ongoing improvement, we will take into account lessons learned with the two other shipyards and will ensure a good negotiation with the Davie shipyard in that respect. However, I cannot give you a date right now.

[Maxime Blanchette-Joncas, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you for clarifying.

Mr. Matthews, in early May, the government announced that Davie would build two new icebreakers, but to our knowledge, no contract has been signed.

How can we have full confirmation that this will happen?

[Bill Matthews]

Thank you for your question.

As we have already announced, the Davie shipyard is currently going through the process to become the third shipyard. That is the first step before a contract is signed. So we must continue to work with the Davie shipyard, to ensure it completes the work necessary to become the third shipyard. Afterwards, an agreement could be negotiated.

[The Chair, Conservative, Kelly Block]

Thank you very much, Mr. Blanchette-Joncas.

We will now go to Mr. Green for six minutes.

[Matthew Green, NDP, Hamilton Centre, ON]

Thank you.

It's still very difficult for me to unpack the delays from the actual costing of the overall program, so I'll reference paragraph 2.41, which states, “All risks were part of the defined risk management process, and the team analyzed some risks in detail, using third-party experts. However, the team did not analyze some risks that had an impact on shipbuilding timeliness.”

We've now heard Mr. Matthews reference some of the early estimates as perhaps being ambitious, being fraught with some deficiencies that we're now seeing play out in this study. Section 2.42 states:

For example, one risk was not having enough staff within departments to implement the strategy in a timely manner. The team did not document whether this risk was affecting the pace of implementing the strategy. Other risks were not having enough workers [in] each shipyard, which could affect timely delivery of vessels. Again, the team did not document how these risks were affecting timely shipbuilding.

The report goes on to say that they noted instances such as staff shortages that caused shipbuilding delays.

My question, through you to Mr. Matthews, is this: How can you commit to a multi-billion dollar shipbuilding strategy without knowing if you have enough capacity at either the departmental level or at the shipyard level?

[Bill Matthews]

Thank you, Madam Chair.

There are two aspects to that question, and I may turn to Mr. Kennedy to talk about the workforce in the yards.

With regard to the HR capacity inside government, which is part of the question—and we have control over that—we have added capacity, both through external resources but also in building up our own team, and we will continue to increase that team to make sure it's adequate.

I think some of the...I'll call it tension that you'll see between the government and the yards, when we talked about schedule, is that they would like quicker decisions. That's always something they raise with us. Frankly, we would say, “We would like more notice. Why didn't you tell us earlier?” That's a very natural kind of tension that occurs. Obviously, the more people we have working on the projects, the more quickly we can do analysis and get to decisions.

There are plans to further augment the team in place.

Simon, I'm not sure if you have anything to add in terms of building HR capacity in the yards themselves, because that was also a risk that came to fruition that impacted schedules as well.

[Simon Kennedy]

Madam Chair, I'd just say there are some things that are built into the industrial and technological benefits policy and the value proposition that are aimed to support skills development and help the bidders identify areas to improve training and that sort of thing.

I'd be happy to provide details, if there's interest.

[Matthew Green, NDP, Hamilton Centre, ON]

No, that's quite fine. We've identified already, through you, Madam Chair, the delays in the process.

These increases are going to cost Canadians in multiple ways. Again, going back to the PBO, each year a project is delayed will see production costs increase by tens of millions of dollars per ship. We've also heard that there's a cost to retrofitting the ships that are scheduled to be replaced in order to keep them in service longer than expected.

We heard the DM from DND, I believe, talk about contingencies. My question through you, Madam Chair, to her, would be, who's paying for the cost of retrofitting the existing ships to extend their service? Considering the overall cost of the shipbuilding, is this part of the contingency or is this a holdback or a set-aside from the actual contract through the procurement with a company like Irving?

[Jody Thomas]

The budget for the surface combatant does have contingency in it for delays and other costs—that is absolutely true. There is a separate budget for the maintenance, repair and ongoing operation of the Halifax class vessels.

[Matthew Green, NDP, Hamilton Centre, ON]

What would that cost be? What would the contingency be on the maintenance side, and who pays? Is this something that in procurement processes you would negotiate with a contractor? If they don't meet targets and if they don't meet milestones, then the costs would be borne by them. Or is this an additional cost to the taxpayer?

[Jody Thomas]

It's all within the budget that currently exists. It's not negotiated with the shipyard per se. Certainly, we all want the new ships in the water as quickly as possible. The navy needs new capacity, and we would rather be in new ships than old ships, but no, there is no particular.... Mr. Matthews can speak to this in greater detail than I, but there is no particular.... The yards are incentivized to produce sooner rather than receiving a penalty for not.

[Matthew Green, NDP, Hamilton Centre, ON]

There are no penalties.... For instance, we're now looking at, potentially, the last ship in 2047. Let's say it's 2055. I would imagine that all of us will be gone, and maybe we'll be tuned in virtually somewhere, but there's no penalty at all if this national shipbuilding goes way off the rails and is further delayed for unforeseen circumstances.

[Jody Thomas]

There's a difference between slight delays and “way off the rails”, Madam Chair. We would certainly be managing the project at that stage much more tightly than an eight-year delay on the last ship, as an example.

[Matthew Green, NDP, Hamilton Centre, ON]

Okay.

I'll go back through you, Madam Chair, to the other Ms. Thomas, from the AG's office, and ask about this. Under paragraph 2.36, it is stated that the Coast Guard, National Defence and PSPC “should implement mechanisms to obtain complete, current, and reliable schedules to support shipbuilding projects” and “ensure that progress toward forecast targets and delivery timelines is monitored to enable timely decision making”.

Mr. Matthews referenced some of that as being a “challenge” and a “tension” between the builders and the government. Compared to other large-scale military or similarly complex procurement projects, what other specific deficiencies did your audit reveal regarding the project's scheduling and monitoring systems and tools for these shipbuilding processes?

[The Chair, Conservative, Kelly Block]

We need a very short answer, Ms. Thomas.

[Casey Thomas]

In the spirit of short answers, I will pass the question about details over to Mr. Swales.

[Nicholas Swales]

Thank you, Madam Chair.

I'm not in a position to compare to others, but I think the issue here is that we felt there was an opportunity, certainly as we get into future projects, to look at ways of ensuring the government was using or had sufficient levers and was using those levers to keep the schedules on track better than it had up till now.

[The Chair, Conservative, Kelly Block]

Thank you very much.

We will now go to our last round of questioning. It's a five-minute round.

We're starting with Mr. Webber.

[Len Webber, Conservative, Calgary Confederation, AB]

Thank you, Madam Chair, and thank you to everyone today.

The testimony here today is incredibly enlightening. As a prairie boy, I don't talk much about shipbuilding, so I find this really interesting.

Ms. Yip alluded to this vessel life extension. Mr. Sargent, you brought that up in your opening comments and said that an additional $2 billion was announced for a comprehensive vessel life extension program to your existing fleet, to the limit of its technical life expectancy. This upgrade will put our vessels in the waters for how much longer?

[Timothy Sargent]

I'll maybe pass that over to the deputy commissioner, who is the keeper of our project schedules.

[Andy Smith]

Thank you very much, Deputy Minister.

Madam Chair, the Canadian Coast Guard currently has 26 large vessels, and the $2 billion that you have referenced speaks to the vessel life extension budget for that entire fleet of large ships. Given that some of the ships will remain in service until early 2040, it's envisioned that we're going to be 16 to 18 years cycling the ships through the various vessel life extension periods, which sometimes can take 8 to 12 months to complete.

[Len Webber, Conservative, Calgary Confederation, AB]

For a period of 8 to 12 months, these vessels will then be out of commission. Where do they get upgraded—in what shipyards?

[Andy Smith]

The vessel life extensions are individually contracted. They are competed for through Public Services and Procurement Canada. Sometimes we look to bundle ships to provide greater opportunity for industry to schedule their resources over a longer period of time.

[Len Webber, Conservative, Calgary Confederation, AB]

Thank you.

Also, Mr. Sargent, you mentioned that three medium icebreakers have been acquired to backfill while the ships are out of service. From where did you acquire these medium icebreakers?

You also have a light icebreaker that you say you are going to acquire. From where will you get these additional icebreakers?

[Timothy Sargent]

Maybe, Andy, you can speak to that.