Canada’s National Shipbuilding Strategy

In October 2010, the Canadian government issued a Solicitation of Interest and Qualification to 5 short-listed firms, for the opportunity to be be part of the Conservative Party government’s 30-year National Shipbuilding Procurement Strategy. Up to 28 major ships would be built over that period, to equip the Canadian Navy and Coast Guard. One yard would build all combat ships, and the runner up would build the support ships. Up to C$ 33 billion in future work was at stake.

That set up a difficult political situation, in a country with deep regional divides and a high-quality but shaky shipbuilding industry. The USA’s Jones Act makes major sales to the neighboring American market virtually impossible, some foreign shipbuilders are subsidized by up to 40% by their home governments, and Canadian military needs are too small and infrequent to sustain an industry by themselves. In October 2011, the government announced their decision:

• Canada’s NSPS [updated]
  • Decision and Reactions, 2011
• Contracts & Key Events [updated]
• Additional Readings [updated]

Canada’s NSPS

HMCS St Johns
and CH-124 Sea King
(click to view full)

The projected C$ 33 billion, 28-ship mega-program has been split into 2 parts.

Irving Shipyards, which built the current Halifax Class frigates but could not sustain that industrial base, gets the combat ships award. They will build 6-8 Arctic Offshore Patrol ships as their 1st order of business, followed by 15 Canadian Surface Combatant replacements for Canada’s Halifax Class frigates and their aged Iroquois Class destroyers. Most of that work will take place around their shipyard in Nova Scotia. The planned total is 21 ships, and about C$ 25 billion. Which could be challenging, as the CSCs alone were once costed at $26 billion.

On the west coast, Seaspan subsidiary Vancouver Shipyards Co. Ltd. in North Vancouver, BC will build 2-3 JSS support ships to replace the Protecteur Class, 4 off-shore science vessels for the Coast Guard, and a new polar icebreaker, for a total of 7-8 ships, worth about C$ 8 billion. Despite the JSS’ long-running competition, and the fleet’s need, the 3 off-shore fisheries and 1 oceanographic science vessels will be the first ships built.

The challenge is that the October 2011 selections are not in and of themselves ship contracts. The companies must sign an umbrella agreement, which happened in February 2012, and then must sign individual construction contracts. Somehow, the governments of the day must secure competitive pricing from a shipbuilding industry that’s below-par globally in efficiency, and shipbuilders that face no competition because they’ve been been pre-selected for their roles and associated programs.

Decision and Reactions, 2011

Since the announcement, complaints have been muted. Several factors account for this. One is that the process was designed to be firewalled from political interference. Another is that 2 political safety valves were built into Canada’s naval procurement needs, without creating engineering or technical problems.

Regular maintenance and repair, valued at C$ 500 million per year, will be open to all Canadian shipyards through normal procurement processes. In practice, the 2 main shipyards will be in a strong position, but it will make other shipbuilders cautious about burning any bridges.

The other safety valve is an even shinier consolation prize: plans for up to 116 small coastal, patrol, and utility ships will involve open competition, except for the winning Irving and Seaspan shipyards who are excluded from this projected C$ 2 billion contract set. ULG in Quebec looks to be in a strong position there, and Kiewit’s Newfoundland facilities may also have an opportunity.

A 3rd explanation for the muted reaction may be even more decisive: the demise of the Bloc Quebecois in the May 2011 election. The Bloc itself went from holding 47 of Quebec’s 65 Parliamentary seats, to just 4 seats – below official party status in the House of Commons. The socialist NDP opposition’s 58-seat gain in Quebec, from 1 seat to 59, made them Canada’s official opposition for the 1st time. On the other hand, the party has ties to unionized shipyard workers, and a long history in Nova Scotia and BC, where they also have key seats. That makes them necessarily cautious about criticizing a development seen as great good news by those groups, and they have remained true to that pattern following the NSPS announcement.

It should be noted that even if the 2011 election had returned a mirror image of the 2008 Parliament, the electoral math would have remained poor for Davies. Stephen Harper was an influential figure in the Reform Party, which rose to prominence in Western Canada when the Progressive Conservative Party was destroyed in the 1993 election (from 151 seats, to 2). One of the major factors in the PC party’s western annihilation involved the improper award of an aerospace contract to a Quebec firm, over a far more qualified western firm in Manitoba. Reform would later merge with the smaller PC party in 2003, in a political marriage that was more a takeover than a merger of equals. The last PC Party leader in Canada was Peter MacKay, now known as the Conservative Party of Canada’s Minister for Defence.

Neither Prime Minister Harper, nor his defence minister, will have forgotten that lesson.

Even with the Bloc present in strength, the Conservatives could still have embraced the recommendation, confident in the support of an NDP whose investment in the Maritimes and BC was far more important to the party than Quebec was, and a Liberal Party that would have been as conflicted as the NDP is now. The Bloc would have made the bankrupt Davie yard’s loss a bigger issue, but probably not a winning issue. Which was probably the political calculation when the National Shipbuilding Procurement Strategy was first formulated.

Contracts & Key Events

HMCS Protecteur
(click to view larger)

Oct 19/11: Tim Colton was right, it took just over a year from Canada’s government to announce the obvious. In their partial defense, there was a May 2011 federal election in between, and at least they didn’t pick an obviously disastrous political choice for the 20-30 year, C$ 33 billion program.

Combat ships winner Irving did not discuss sub-contractors, but many opportunities can be expected, given the combat ships’ complexity and the need for equipment types that aren’t made in Canada.

Other team members of Seaspan’s non-combat ships team include Alion Canada (design), CSC (logistics), Imtech Marine (ship systems), STX Canada Marine (design), and Thales Canada (ship systems).

There are 2 government caveats worth noting in these forthcoming contracts. One is that the shipbuilding projects will involve 100% value industrial offsets. That matters because many ship systems and components, especially combat-related equipment, will have to come from outside Canada. The other is that the government can take over the shipbuilder if it signs up for NSPS, and then defaults on contractual obligations (vid. Part 3, Section 5.2). Canadian Government | Canada DND | Public Works Canada: National Shipbuilding Procurement Strategy (NSPS) | NDP Party reaction | Liberal Party reaction || CDN Industry: Alion | Irving | Seaspan [PDF] || CDN Media: CBC | Globe and Mail | Global TV | Mark Collins | Montreal Gazette op-ed | National Post op-ed | Postmedia | Vancouver Sun | Victoria Times Colonist | Winnipeg Free Press || Other: Arctic Institute | Barents Observer | International Business Times.

July 21/11: The Quebec Superior Court authorizes the sale of Davie Yards Inc.’s assets to Upper Lakes Group (ULG), a joint venture composed of Canadian engineering firm SNC-Lavalin, ULG and leading global shipbuilder Daewoo Shipbuilding and Marine Engineering (DSME). With that sale, ULG can submit a bid for Canada’s National Shipbuilding Procurement Strategy (NSPS) before today’s deadline. SNC Lavalin.

Oct 8/10: Public Works Canada announces the results of their initial shipbuilding strategy Solicitation of Interest and Qualification. One yard will be selected to build combat vessels, while a 2nd yard will build non-combat vessels. Five Canadian shipyards have been short-listed:

• Davie Yards Inc., Levis, QC – later Upper Lakes Group: SNC Lavalin & Daewoo.
• Irving Shipbuilding Inc., Saint John, NB. The main shipyard is in Halifax, NS.
• Vancouver Shipyards Co. Ltd., North Vancouver, BC
• Kiewit Offshore Services – a division of Peter Kiewit Infrastructure Co. in Milton, ON
• Seaway Marine & Industrial Inc. in St. Catharines, ON

These 5 will be invited to participate in the Request for Proposal (RFP) process, and will meet with the National Shipbuilding Procurement Secretariat on Oct 12/10 in Ottawa. The public works release goes on to detail all of the measures being taken to ensure fairness, but Tim Colton’s Oct 12/10 Maritime Memos offered a blunt assessment of the solicitation:

“Well now, Davie is bankrupt (for about the tenth time since WWII); Kiewit (that’s Marystown Shipyard, in Newfoundland) is much too small, and Seaway Marine (that’s the old Port Weller Dry Dock, in St. Catherines ON) is a repair yard these days and hasn’t actually built a complete ship since 1992. So, bearing in mind the obvious political desirability of selecting one yard in the east and one in the west, we seem to be left with Irving Shipbuilding and Vancouver Shipyards. Given that Irving has a track record of building surface combatants and Vancouver doesn’t, it seems to be what I believe is called a no-brainer to divide the work accordingly. Now watch while they take about a year to come to that conclusion.”

Additional Readings

• Public Works & Government Services Canada – National Shipbuilding Procurement Strategy (NSPS)

• Vanguard magazine (August 2011) – New fleet in sight: Canadian navy builds for tomorrow

• Canada DND (June 3/10) – The Department of National Defence and the Government of Canada’s National Shipbuilding Procurement Strategy

• Frontline Defence (April 2010) – Canada’s JSS: Trendsetter …Follower …or Trap?. Includes a discussion of naval industrial strategy.

• Canadian Forces College (May 27/09) – Partnership, Balance and Flexibility: A Model for A Sustainable Naval Shipbuilding Sector in Canada. By Lieutenant-Commander John Charlebois.

• Canadian Conference of Defence Associations (Nov 19/08) – Military/Naval Procurement in Canada: A Flawed Process by Commander (Ret’d) Ken Bowering [PDF]

Projects, Competitors, and the Current Fleet

• Seaspan for NSPS – Promo by the company, which eventually won the non-combat portion.

• DID – Canada’s C$ 2.9B “Joint Support Ship” Project, Take 2

• Canada DND – Arctic/Offshore Patrol Ship (PMO AOPS)

• DID – Modernizing Canada’s Halifax Class Frigates. To serve until their eventual CSC replacements arrive.

• Naval Technology – Halifax Class Frigates, Canada

• Naval Technology – Iroquois Class Air Defence Destroyers, Canada

• Wikipedia – Protecteur class auxiliary vessel

• CASR (June 2010) – A Pregnant Pause? The National Shipbuilding Procurement Strategy Presents an Opportunity to Shift Priorities to Sovereignty Assertion. Focuses on the Arctic and OPV requirements.

• National Post (June 20/08) – J.L. Granatstein: Canada needs a navy that can do the job

• CASR (May 2008) – An Overview of Current, On-Going Danish Naval projects 2005-2009: Knud Rasmussen class Ice-Resistant OPV (Offshore Patrol Vessel). Compare to Canada’s AOPS.