National Shipbuilding Strategy overview: Committee of the Whole—May 19, 2022

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National Shipbuilding Strategy

Key data points

• As of December 31, 2021:
  • Canada has awarded approximately $21.07 billion in National Shipbuilding Strategy (NSS) contracts to businesses throughout the country
  • of these, $975.93 million went to small businesses (less than 250 employees)
• NSS contracts awarded between 2012 and 2021 are estimated to:
  • contribute close to $21.26 billion ($1.93 billion annually) to Canada’s gross domestic product (GDP)
  • create or maintain 18,239 jobs annually
• NSS contracts awarded from 2012 to 2021:
  • Irving Shipbuilding—$6.52 billion
  • Vancouver Shipyards—$5.26 billion
  • Chantier Davie—$2.26 billion
  • other shipyards/companies—$7.03 billion
• National Shipbuilding Strategy contracts awarded by province from 2012 to December 31, 2021:
  • Alberta had a total contract value of $27,460,551 with 0.13% of the grand total contract value
  • British Columbia had a total contract value of $6,599,011,355 with 31.32% of the grand total contract value
  • Manitoba had a total contract value of $4,623,463 with 0.02% of the grand total contract value
  • Newfoundland and Labrador had a total contract value of $265,835,525 with 1.26% of the grand total contract value
  • Northwest Territories had a total contract value of $2,084,586 with 0.01% of the grand total contract value
  • Nova Scotia had a total contract value of $6,885,707,082 with 32.68% of the grand total contract value
  • Ontario had a total contract value of $4,672,202,993 with 22.18% of the grand total contract value
  • Quebec had a total contract value of $2,611,621,889 with 12.40% of the grand total contract value
  • the grand total contract value is $21,068,547,444

Large ships and their status

• Arctic and offshore patrol ships (AOPS): 6 vessels (AOPS 1 to 6) for the Royal Canadian Navy (RCN) (note: the ongoing COVID-19 pandemic will have an impact on project timelines, the extent of which has not yet been fully determined)
  • first 2 AOPS delivered to RCN in July 2020 and July 2021; next 3 AOPS under construction
  • project budget: $4.3 billion
• AOPS: 2 vessels (AOPS 7 and 8) for the Canadian Coast Guard (CCG)
  • work underway to modify design to meet CCG requirements
  • project budget: $1.5 billion (estimate)
• Canadian surface combatants (CSC): 15 vessels for the RCN
  • currently in design phase
  • project budget: $56 to $60 billion (estimate)
• Joint support ships (JSS): 2 vessels for the RCN (note: the ongoing COVID-19 pandemic will have an impact on project timelines, the extent of which has not yet been fully determined)
  • JSS 1 under construction
  • JSS 2 expected to begin construction in spring 2022
  • project budget: $4.1 billion
• Multi-purpose vessels (MPV): up to 16 vessels for the CCG
  • construction is expected to begin in the mid-2020s
  • project budget: $14.2 billion (estimate)
• Offshore Fisheries Science Vessels (OFSV): 3 vessels for the CCG
  • all 3 vessels delivered to the CCG in 2019 to 2020, marking completion of first class of large ships built under NSS
  • project budget: $788.5 million
• offshore oceanographic science vessel (OOSV): 1 vessel for the CCG
  • build contract awarded in January 2021; construction started March 2021
  • project budget: $966.5 million
• Polar icebreakers: 2 vessels for the CCG
  • engineering and construction of 2 polar icebreakers announced in May 2021
  • project budget: to be determined

Marine services and small vessels

• Several key marine service contracts:
  • AOPS/JSS in-service support (AJISS) contract—estimated at $5.2 billion for up to 35 years
  • Halifax-class frigates maintenance—up to $7.7 billion
  • process underway to extend the contract for the maintenance and support of approximately 70 minor warship auxiliary vessels ranging from small boats to the maritime coastal defence vessels and associated equipment
• Repair, refit and maintenance work completed and underway:
  • following an open and competitive process:
    • contract awarded for the vessel life extension (VLE) of 2 of Canadian coast guard (CCG)’s fisheries patrol vessels (Canadian coast guard ship (CCGS) Cape Roger and CCGS Cygnus)
    • 4 regional contracts awarded for the VLE of the CCG’s motorized life boats
    • contract awarded for the VLE of 3 CCG jet boats
    • contract awarded for the VLE of a CCG medium ice-breaker (CCGS Amundsen)
    • contract awarded for the VLE of a CCG high endurance multi-tasked vessel (CCGS Kopit Hopson 1752)
  • contract awarded to Chantier Davie for the vessel life extension of the CCGS Louis S. St-Laurent
  • the Victoria-class in-service support contract (VISSC), as awarded in 2008, was recently extended to allow for work on the RCN’s 4 submarines to continue up to 2027
  • a competitive process for the follow-on sustainment solution to the VISSC, known as VISSC II, is currently underway. Upon the VISSC’s expiry in 2027, the VISSC II will provide support until the submarines are decommissioned
• Construction and delivery of small vessels is underway
  • all 7 hydrographic survey vessels delivered to the CCG as of June 2017
  • 2 channel survey and sounding vessels delivered to CCG in October 2018
  • CCG has requirement for 20 search and rescue (SAR) lifeboats; design, build, and delivery are underway; 10 vessels have been delivered so far
  • contract awarded for the acquisition of 30 new multi-role boats expected to be delivered to the RCN by spring 2024
  • acquisition of 3 medium commercial icebreakers and conversion work, valued at $843.47 million (value increased to $912 million in July 2021); 2 vessels have been delivered and the third is expected in 2022
  • construction underway on 2 of 4 naval large tugs for the RCN
• Small vessel construction and repair, refit and maintenance program strategies
  • opportunities to improve and streamline procurement are being implemented
• 2 ferries for Transport Canada to be built by Chantier Davie (not part of NSS)
  • Chantier Davie Canada Inc. (CDCI) will design and construct 2 new ferries for Transport Canada to replace aging vessels (41-year-old Motor Vessel (MV) Madeleine, now retired, and 51-year-old MV Holiday Island)
  • in July 2020, a ferry was purchased and entered into service in June 2021 as an interim measure to replace the MV Madeleine until the new vessel being built at CDCI is ready for service

Third yard

Key data points

• Canada intends to enter into an umbrella agreement with the third yard in 2022
• Package to include 6 program icebreakers and 1 polar icebreaker

Chantier Davie

• In May 2019, Canada identified the need to select a third Canadian shipyard under NSS. The selected yard will build 6 program icebreakers and one polar icebreaker for the CCG
• Following the invitation to qualify, Chantier Davie was the only shipyard that pre-qualified to the next stage of the selection process (request for proposal stage). Before Chantier Davie can be confirmed as the third shipyard, it must be successful in its response to the request for proposal, meeting all the evaluation criteria, including a financial due diligence process and technical requirements (plans) to achieve target state
• Chantier Davie will continue work under programs such as medium icebreakers conversions, Halifax class docking work period contract and Transport Canada ferries, in parallel with the third yard selection process
• Canada and Chantier Davie are now going through the steps of the process which include a third-party assessment of the shipyard’s infrastructure, submission of a formal proposal, and a due diligence process
• Our evaluation team continues to rigorously assess the proposal Chantier Davie submitted against the request for proposals
• This is a complex, multi-step qualification process and it is imperative that we get it right, therefore we are making every effort to finalize this process, while ensuring best value for the Government of Canada and all Canadians
• Should all elements of the evaluation process be satisfactorily completed, and subject to successful negotiations, Canada intends to enter into an umbrella agreement with the third yard in 2022
• The entire invitation to qualify process was overseen by an independent fairness monitor
• The third yard will build 6 program icebreakers and 1 polar icebreaker for the Canadian Coast Guard

Polar icebreakers

Key data point

• Construction of these ships will generate approximately 300 jobs per vessel at the shipyards, and 2,500 jobs across the marine supply chain

Current status

• On February 28, 2020, the Government of Canada issued a request for information, open to all Canadian shipyards, seeking information on domestic shipyard capability and capacity to construct and deliver a polar-class icebreaker
• The request for information closed on March 13, 2020 and Public Services and Procurement Canada received 4 responses
• On May 6, 2021, the government announced its intention to move forward with the construction of 2 polar icebreakers
• This procurement approach is the best path for ensuring that at least one of the polar icebreakers is delivered by 2030 when the CCGS Louis S. St-Laurent needs to be retired from service
• As the Government of Canada progresses through the various contracting and design phases, a project budget that includes all costs associated will be determined and publicly disclosed
• Seaspan’s Vancouver Shipyards will engineer and construct 1 vessel while the other vessel will be engineered and constructed at Chantier Davie, pending the successful completion of the ongoing selection process to select it as the third strategic partner for large ship construction under the National Shipbuilding Strategy

Canadian surface combatant

Key data points

• Project budget is estimated at $56-60 billion
• Design work on the Canadian surface combatant is advancing

Current status and Navantia court challenge

• The Canadian surface combatant project will replace both the Iroquois-class destroyers and the Halifax-class multi-role patrol frigates with a single class of ship capable of meeting multiple threats on both the open ocean and the highly complex coastal environment. The CSC project is the largest and most complex shipbuilding initiative in Canada since World War II
• Navantia was an unsuccessful bidder for the competitive Canadian surface combatant request for proposals which was won by Lockheed Martin Canada
• Navantia has applied to the Federal Court for a judicial review challenging the award to Lockheed Martin and the evaluation of its bid. Navantia contends the BAE type 26 ship selected for the Royal Canadian Navy's new fleet failed to meet the requirements of the request for proposal and that their bid was improperly evaluated
• As part of the judicial review, Navantia sought disclosure of documents that contained sensitive or potentially injurious information. The Attorney General of Canada objected to the production of certain sensitive information and filed a section 38 Canada Evidence Act application in Federal Court on January 20, 2021
• With respect to section 38 in the Navantia application, the Attorney General of Canada had a statutory obligation to file, and it was not a discretionary decision by government officials. Section 38.01 requires every participant in a proceeding to advise the Attorney General in writing where there is a possibility of disclosure of sensitive or potentially injurious information

Background by shipyard

Seaspan’s Vancouver Shipyards Co. Ltd.

• All 3 offshore fisheries science vessels have been delivered to the Canadian Coast Guard, marking the completion of the first class of large ships built under the NSS. In addition, work is ongoing on the first joint support ship and construction of 1 offshore oceanographic science vessel began in March 2021. Finally, early design work for the multi-purpose vessels and the polar icebreaker has commenced

Irving Shipbuilding Inc.

• Canada’s lead Arctic and offshore patrol ship, the Her Majesty’s Canadian Ship (HMCS) Harry DeWolf, was delivered and accepted by Canada on July 31, 2020 and the ship was commissioned into the RCN on June 26, 2021. The second Arctic and offshore patrol ship, future HMCS Margaret Brooke, was delivered and accepted by the RCN on July 15, 2021
• 3 Arctic and offshore patrol ships for the RCN are currently under construction, including the third Arctic and offshore patrol ship, future HMCS Max Bernays, which was launched on October 23, 2021
• Design work on Arctic and offshore patrol ships 7 and 8 for the Canadian Coast Guard is also advancing. Design work on the Canadian surface combatant is advancing as well

Chantier Davie Canada Inc.

• Chantier Davie is converting 3 medium icebreakers for the Canadian Coast Guard. The first vessel, CCGS Captain Molly Kool, began operations in December 2018, and the second vessel, CCGS Jean Goodwill, was delivered to the Canadian Coast Guard in November 2020. The third vessel, CCGS Vincent Massey, is expected to be in service in 2022
• An advance contract award notice (ACAN) signalling our intention to enter into a contract with Chantier Davie for required vessel life extension work on the CCGS Louis S. St-Laurent, Canada’s largest icebreaker, closed November 19, 2020. Chantier Davie has been identified as the only facility in Eastern Canada capable of performing this work during the specified time period
• A contract was awarded in March 2022 with work scheduled to begin in spring 2022. Finally, on July 21, 2020 the HMCS St. John’s arrived at Chantier Davie for repair and maintenance. It is the first vessel to be re-furbished under the Halifax class docking work period contract awarded to Chantier Davie in July 2019. Work is expected to be completed in spring 2022. Another Halifax class frigate is expected to arrive at Chantier Davie for the same type of work later in 2022

Impact of COVID-19 on the National Shipbuilding Strategy

• Unfortunately, like many sectors, COVID-19 has impacted several defence procurement projects, including the construction and maintenance of ships. New pressures on supply chains and the marine sector workforce have emerged over the past 2 years due to the global pandemic. This is anticipated to have further impacts on project schedules and budgets
• We are continually assessing the impact of COVID-19 on the delivery of ongoing and future major procurement projects, including those under the National Shipbuilding Strategy
• Although we are seeing some progress under the NSS, overall delivery of ships has been slower and more costly than originally anticipated. Additional supply chain and workforce challenges have emerged over the past few years due to the COVID-19 pandemic
• Work is underway with the shipyards to assess exactly what those impacts will be, and we are hoping to have a better picture of this in the coming months

Irving Shipbuilding

• In response to COVID-19, Irving Shipbuilding Inc. (ISI) suspended most industrial operations as of March 20, 2020, with special measures for working from home or within ISI’s offices implemented where possible. Most of the workforce is now back in the shipyard while also ensuring physical distancing. COVID-19 safety measures have been implemented, including temperature screening for all individuals entering the site
• ISI is working at reduced levels due to COVID-19, with inefficiencies stemming from social distancing, staggered shifts, and challenges related to supply chain/vendor support. In spite of these challenges, important milestones have been reached
• Delivery and acceptance of the first Arctic and offshore patrol ship took place in July 2020, followed by completion of maintenance of the HMCS Charlottetown in March 2021, and delivery and acceptance of AOPS 2 in July 2021. ISI has indicated a delay to future AOPS due to COVID-19 related disruptions and other slippage, with these timelines at least partly dependent on whether COVID-19 measures are continued or enhanced

Vancouver Shipyards

• Operations at Vancouver Shipyards (VSY) continue during COVID-19 but are being closely monitored. A number of non-production staff have returned to the office while others continue to work from home
• Measures being taken include: following self-isolation guidelines, additional social distancing measures, cancelling large gatherings and increased cleaning. VSY has been working closely with WorkSafeBC in implementing these practices, and has adjusted and escalated actions in response to new regulations and guidance
• This approach has allowed VSY to continue construction at a reduced rate of production for the first joint support ship and final offshore fisheries science vessel, the latter of which was delivered in October 2020. However, VSY has experienced significant COVID-19 impacts during the more recent waves of the pandemic which is affecting schedule and costs of the JSS and offshore oceanographic science vessel. VSY is working to mitigate these impacts

Chantier Davie

• On March 24, 2020, in response to COVID-19, the Quebec Government published a list of essential industrial sectors, under which Chantier Davie qualified
• Chantier Davie has conducted on-site training for dealing with COVID-19, implemented a set of strict directives, and negotiated with their union to maintain intact squads instead of rotating employees through different teams. Nonetheless workforce numbers and capacity have diminished to accommodate social distancing

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