Canada’s National Shipbuilding Strategy Process to Add a Third Shipyard

The Government of Canada is enhancing the National Shipbuilding Strategy (NSS) by launching a competitive process to add a third Canadian shipyard as a strategic partner to help ensure the timely delivery of six new program icebreakers for the Canadian Coast Guard.

The launch of this process reconfirms the Government of Canada’s commitment to adapting the National Shipbuilding Strategy to meet evolving federal shipbuilding needs.

Interested shipyards will undergo a multi-step qualification process, similar to the process previously undertaken to select Irving Shipbuilding Inc. and Seaspan Shipyards as strategic partners under the NSS.

These steps are described below.

Invitation to Qualify

On August 2, 2019, the Government of Canada issued an Invitation to Qualify (ITQ), to establish a short list of shipyards that demonstrate they meet the initial, defined requirements to build six program icebreakers for the Canadian Coast Guard. This includes experience, capability and capacity.

Interested suppliers have 15 days to respond to the ITQ. The Government of Canada will then evaluate submissions and establish a short list of shipyards that will move to the next stage in the process.

Request for Proposal and evaluation

Shipyards that pre-qualify through the ITQ will be invited to participate in the Request for Proposal (RFP) and evaluation stage. This will include a number of components for each qualifying shipyard:

1. A third-party assessment of the infrastructure at the shipyard will identify upgrades needed to modernize infrastructure and processes in order to efficiently build the required ships. This will require that the government and the shipyard establish a common understanding of the current state of the shipyard relative to an established standard (the “target state”).
2. The shipyard will be required to submit a formal proposal in response to the RFP. This will include a plan to fill any gaps identified through the third-party assessment between their current state and the target state, at no cost to Canada.
3. A financial due diligence process will be undertaken to ensure that the shipyard has the financial capability to perform the work and that the risk of financial issues during the course of the engagement is understood and is manageable. Primarily, the shipyard needs to demonstrate that it has the financial capability to perform the resulting contracts within the work package. This will include an examination of the shipyard’s capacity to raise the working capital required to meet the financial obligations required to construct the ships in the work package, in addition to other financial responsibilities, in particular the cost of the capital improvements to infrastructure to achieve the target state of the shipyard.

Umbrella agreement

The Government of Canada will begin negotiations with the successful shipyard for a potential umbrella agreement.

The umbrella agreement will closely mirror the existing agreements with Irving Shipbuilding Inc. and Seaspan Shipyards and will identify the shipyard as a third strategic source of supply under the National Shipbuilding Strategy.

Under the National Shipbuilding Strategy, umbrella agreements are long-term strategic sourcing arrangements that define the working relationships and administrative arrangements between Canada and the shipyards. Under these agreements, the government negotiates individual contracts for the ships to be built, and include agreements on shipyard modernization requirements, economic benefits obligations and dispute resolution processes.

Similar umbrella agreements were signed with Irving Shipbuilding Inc. and Seaspan Shipyards in 2012, following a competitive process to select two shipyards to build large federal ships under the NSS. Since then, both shipyards have completed their facility upgrades at no cost to Canada, and both are on track to satisfy or exceed their economic benefit obligations.

Once the umbrella agreement has been finalized and approved, the government and the shipyard can negotiate shipbuilding contracts and the shipyard can begin the process of modernizing its facilities.