Public Accounts Committee on May 25th, 2021

[Bill Matthews]

Thank you for your question. Perhaps it would be better to ask my counterparts, Mr. Sargent and Mr. Smith.

[Pierre Paul-Hus, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

Mr. Sargent, I'm listening.

[Timothy Sargent]

Sure. I'm happy to take that one on.

Yes, they're going to use the same basic design for the polar icebreaker, so they'll essentially look the same, which is not to say there won't be some detailed changes in design.

[Pierre Paul-Hus, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

Thank you.

Mr. Rodriguez, the Leader of the Government in the House, said that the Davie icebreaker would be delivered shortly after the Seaspan icebreaker. At this time, Davie can't be officially awarded the contract, since Davie isn't yet included in the national shipbuilding strategy.

Do you have a more accurate estimate of the time between the two deliveries?

[The Chair, Conservative, Kelly Block]

Give a very short answer, please.

[Timothy Sargent]

Okay. We expect both of them to be delivered around the same time, which is towards the end of this decade.

[The Chair, Conservative, Kelly Block]

Thank you.

We will now go on to Mr. Sorbara, for six minutes.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Chair, and thank you to all the witnesses for your presentations.

I'd like to start with Mr. Matthews, deputy minister of Public Services and Procurement Canada. Something in your testimony popped out at me that I think is very important as we build ships, if I can use that term. You mentioned that expertise in Canada was nascent at a time when entirely new classes of ships were set to be built in completely revamped and retooled shipyards, and that this led to challenges in planning and some schedule delays. You said you have openly acknowledged these, and that several key risks are being managed. Before that, you talked about the boom and bust cycle of building ships.

I take it that with the national shipbuilding strategy, we have been able to maintain, develop and strengthen what I would call the in-house expertise of building ships in Canada.

Can you comment on that?

[Bill Matthews]

Certainly. I'll start off, Madam Chair, and maybe if my colleague Mr. Kennedy wishes to add something on the workforce, he can do that. I'll be quick.

When you think about the workforce, Madam Chair, you have to think about the white collar as well as the blue collar workforce. When people think about shipbuilding, their minds often jump to blue collar, but early on it was the white collar skills in engineering and naval architecture that had eroded and had to be effectively rebuilt. I think we've seen an increase in the skill sets there as we've gone through the first roughly 10 years or so of the shipbuilding strategy.

As you're now into a world of trying to avoid the boom and bust, you're really wanting to make sure there are no production gaps at the shipyard, so that you don't lose your workforce. If you end up downing tools, losing some workforce and then bringing them back, that leads to great inefficiency.

Some of the risks that are being managed right now are around ensuring that there are minimal production gaps between ships, so that a workforce that has become expert can be retained.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Mr. Matthews, can we go to Mr. Kennedy briefly? I have a follow-up question afterwards.

Mr. Kennedy.

[Simon Kennedy]

I might just note that the guide book and the policies around the value proposition for the shipbuilding strategy and the industrial and technological benefits policy are set up to incentivize investment in skills. For example, under the value proposition program, there's a pillar that encourages bidders to identify skills development and training opportunities for Canadians, and in particular for under-represented groups, in the defence sector and in other economic sectors.

I can speak to that at greater length, if there's an interest, but we try to incentivize and support training through the investments that these companies are making.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Okay. I'm going to change tangents very quickly here.

Assistant Auditor General, you commented on risk mitigation and risk management tools. We know that in every organization and any project undertaken, whether you build a deck, a house or a ship, you need risk management and you need a proper timeline and referents. Even in quotations today we see that the price of input materials has exploded across the world, even for a simple thing such as lumber.

In terms of the risk management tools, then, could someone speak to how we have strengthened those tools? I'm hoping that we're not only utilizing risk management tools but also ensuring that we're using the best practices, so that whether a ship is being built in South Korea or Italy or the United States, which all have leading shipyards—or even in India— we are adopting the best risk management tools and best practices.

I'll open this up to whoever wants to jump in first, please.

[Casey Thomas]

I can start, and then if Mr. Swales has anything to add, he certainly can.

What we found during the audit was that in fact the risk management tools that were being used to assess the risks were inadequate. They were taking too much time, resulted in duplication and produced too many human errors.

In addition, they weren't analyzing the risks that had an impact upon shipbuilding timeliness, and that was the focus of our audit: whether or not there was timely delivery of the ships. The team, I think, recognized that there were some issues, so they tried to acquire a new tool, but I think, from what I understand, that the tool was not successful.

In terms of mitigating the risks, they also had not identified the right actions to put in place to mitigate them. There was very little information for us to be able to assess whether the risks had been mitigated, and because of that same lack of information it was difficult for us to ascertain whether there was monitoring to determine whether or not the risk mitigation measures had actually worked.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Would anyone else like to comment, or should we leave it at that?

[Bill Matthews]

Just to add to that, one of the best practices we are in the process of implementing is earned value management. It's a great way to integrate schedule risk as well as budget, and it's something you'll see used throughout the world. We've taken steps to start the implementation. We still have some work to do there, but it is one example of better techniques and world-class practices that we are integrating now.

There are others as well. The assistant auditor general mentioned the software tool. There are plans to acquire a new one, and that will be coming soon as well.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Chair. I'm done.

[The Chair, Conservative, Kelly Block]

Thank you very much, Mr. Sorbara.

We will now go to Monsieur Blanchette-Joncas for six minutes.

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

Thank you, Madam Chair.

I want to acknowledge the witnesses here today.

My first question is for Ms. Thomas from the Office of the Auditor General.

Good morning, Ms. Thomas. Welcome to the committee.

I read your report carefully. I was sorry to read your rather harsh conclusions regarding the various departments involved in the national shipbuilding strategy, or NSS.

Your work sheds light specifically on what simply isn't working in the strategy. Let's just say that it's quite strong and very significant. To be honest, the whole thing looks, if you'll pardon the expression, like a sinking ship or a ghost ship. Delays are piling up. There will be colossal cost overruns. To offset all this, the quality of the ships awaiting construction is being sacrificed. This is quite unbelievable.

In your opinion, is it still time to really turn things around?

Can you tell us whether you have moral certainty that the various departments will actually meet the goals of your recommendations?

[Casey Thomas]

Thank you for your question.

We found that the NSS hasn't been effectively managed in terms of timelines, risks and the achievement of the target state, for example.

However, the departments have taken steps to preserve operational capabilities until new vessels are delivered. That said, as you noted, these interim capabilities are limited.

We still have concerns. Since there are still a large number of vessels in the NSS, we hope that the departments' decisions will have a positive impact.

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

Thank you for that clarification, Ms. Thomas.

Your audit covered the period from January 2018 to January 2020. That was before the current pandemic. I'm a little bit annoyed that several witnesses gave the rationale that COVID-19 slowed down the NSS. Let's just say that it's easy to blame COVID-19. I think that the issue is more structural and that there isn't any captain on board to guide the strategy.

Have you conducted an analysis of the additional costs resulting from the government's complacency, or even negligence, in terms of identifying needs?

[Casey Thomas]

Thank you for the question.

As you said, our audit period was from January 2018 to January 2020. During the subsequent events, we found that the pandemic had an impact. There were some work disruptions, but other work was still done in the offices.

Again, it's too early to tell. Many vessels will be built in the coming years. We'll then see whether the pandemic really had a negative impact.

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

Okay.

Ms. Thomas, we know that, unfortunately, certain political and backroom games benefited two shipyards in particular.

Could you gauge the potential impact of having a greater diversity of shipyards to respond more quickly to the development and construction of different vessels, in order to speed up the implementation of the initial strategy?

[Casey Thomas]

Since the audit period ended in January 2020, our report couldn't include an analysis and commentary on actions and decisions that occurred afterwards.

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

Thank you, Ms. Thomas.

My question is for Mr. Matthews from Public Services and Procurement Canada.

Mr. Matthews, welcome to the committee. I was a bit puzzled by your opening remarks. I sensed some optimism in your remarks, and yet the findings of the Office of the Auditor General are quite troubling. Right now, the situation is serious. I'm not at all sure that everything will be fine in the foreseeable future.

Could you tell us more about how construction contracts are awarded and why the Davie shipyard in Lévis, Quebec, seems to have been undervalued, while Irving received the lion's share?

[Bill Matthews]

Thank you for your question.

I want to point out two things.

First, the Davie shipyard has done a great deal of work to support shipbuilding and the Coast Guard.

Second, the Irving and Seaspan shipyards were selected after going through a competitive process 10 years ago. The Irving and Vancouver shipyards won. That's why we started with these shipyards. Given the timelines, we decided that it was worthwhile to add a third shipyard such as Davie. However, the process is still ongoing. We hope to complete this work in the coming months.