Good afternoon, everybody. I call the meeting to order.
Welcome to meeting number 17 of the House of Commons Standing Committee on Government Operations and Estimates. Today we will be continuing our study on the national shipbuilding strategy. We will also discuss committee business during the last 60 minutes of the meeting.
Today's meeting is taking place, as you know, in a hybrid format, pursuant to the House order of November 25, 2021. Members are attending in person in the room and remotely using the Zoom application. Regarding the speaking list, the committee clerk and I will do our best to maintain a consolidated order of speaking for all members, whether they're participating virtually or in person.
I would like to take this opportunity to remind all participants at this meeting that taking screenshots or photos of your screen is not permitted.
Given the ongoing pandemic situation and in light of the recommendations from public health authorities, as well as the directive of the Board of Internal Economy on October 19, 2021, to remain healthy and safe, the following is recommended for all those attending the meeting in person.
Anyone with symptoms should participate by Zoom and not attend the meeting in person. Everyone must maintain two-metre physical distancing whether seated or standing. Everyone must wear a non-medical mask when circulating in the room. It is recommended in the strongest possible terms that members wear their masks at all times, including when seated. Non-medical masks, which provide better clarity over cloth masks, are available in the room.
Everyone present must maintain proper hand hygiene by using the hand sanitizer that you may have seen at the entrance when you came in. Committee rooms are cleaned before and after each meeting. We thank the staff for doing that. To maintain this, everyone is encouraged to clean the surfaces such as the desk, the chair and the microphone with the provided disinfectant wipes when vacating or taking a seat.
As the chair, I will be enforcing these measures for the duration of the meeting. I thank members in advance for their co-operation.
With that, I would like to welcome our witnesses. We're going to hear from Mr. Fulfaro and Mr. Padulo.
Greetings and welcome to Mr. Fulfaro, who is with us from Italy.
Mr. Fulfaro, I invite you to go ahead with your opening statements, please.
Sure. It's my pleasure and honour to introduce Fincantieri.
Fincantieri is one of the most important shipyard groups in the world, with the background of over 250 years of history and more than 7,000 ships built. We are not only involved in the military field, but also in cruises, offshore and new technologies. We also have important structures and capabilities going over the shipyard group including infrastructure, cybersecurity capabilities, new technology and also advancing the capability for service and service support.
We have about 20,000 employees and we create around 90,000 [Technical difficulty—Editor] all over the world. Our capabilities not only relate to Italy, but as you know, we have spread to four different continents, activating different important international programs.
In the Fincantieri portfolio, we have each type of travel vessel, including submarines, cruise, offshore and even mega-yachts, so we can have a cross-fertilization from different fields and different ages of technology in order to act as a global player.
We're also active in Canada in different important activities with important subsidiaries. We're aiming to act as an important strategic partner for this country.
For these reasons, Fincantieri is really interested in discussing the future programs of the combatant ships, starting from what we proposed in the past, which are the FREMM multi-mission frigates.
We are also able to discuss with you the different concerns, questions or points that you may raise in order to clarify exactly what our proposal could be and what our understanding is in order to have a strategic approach with Canada.
Bonjour and good afternoon, everybody. I would like to begin by thanking the chairman and members of the committee for allowing me to speak here today.
My name is Shaun Padulo, and I'm the president of Heddle Shipyards, which is the largest Canadian ship repair and construction company on the Great Lakes. I'm proud to say that we are 100% Canadian-owned.
The company was founded in 1987, and today, we own and operate three of the largest shipyard facilities in Canada and fluctuate between 150 and 400 people, which is due to the seasonal boom-and-bust cycles. Since 2012, we have performed over 70 projects for the Canadian Coast Guard, totalling over $80 million, and we are currently on schedule to complete the CCGS Amundsen vessel life extension project at our shipyard in Port Weller. If we stay on course, it will be the first vessel life extension, VLE, in the history of the Canadian Coast Guard that has been completed on time.
Given the delays in building new ships, the VLE program is incredibly important, because it will ensure that the coast guard's current fleet remains operational. As a result, the government has allocated $2.1 billion for the upcoming VLE II program.
In terms of our business activities, we offer a full gamut of vessel life-cycle services, which include construction, repair and maintenance overhauls, and recycling.
Despite our success we are still hampered by the inconsistency of work, and the boom-and-bust cycles that inconsistency creates. The worst part of my job is overseeing layoffs on a seasonal basis because of what it means for my people, their families and retaining hard-won skills, experience and knowledge.
We are here today to discuss the national shipbuilding strategy, NSS. For me and all of my people, the NSS represents hope. It is potentially the solution to the boom-and-bust cycles that have crippled shipyards in Ontario for generations. At its core, the NSS is an important industrial and defence policy that can unite Canada and Canadians, while bringing a vitally important capability back to our country. There have been challenges, to be sure, but the challenges were inevitable in order to accomplish the enormous task of rebuilding the industry.
I'm incredibly proud of the large ships that are being delivered on the east coast by Irving, the west coast by Seaspan and in Quebec by Davie. It is important that all three regions are active in the NSS, because our country needs the capacity and more. The motto of Canada is A Mari Usque Ad Mare—“From Sea to Sea”. Canada is a maritime nation whether we like it or not, and we can't ignore that fact. Given current geopolitical events around the world, the NSS is more important than ever.
I've heard previous witnesses talk about the geostrategic importance of the NSS in terms of defence and sovereignty, but I would also like to raise awareness of its importance for economic security. The merchant fleet operating on the St. Lawrence Seaway moved 231 million tonnes of cargo in 2018—that's over $100 billion in value. Prior to Heddle reopening the Thunder Bay shipyard and Port Weller dry docks in 2016 and 2017 respectively, many of those merchant ships were dry docking in the United States. Those ships are now being repaired and maintained in Canada at our shipyards. The government work made available through the NSS is contributing to the revitalization of our shipyards and is therefore important to the commercial sector, which is vitally important to our nation's economy.
Ultimately, the NSS is a bipartisan issue developed and altered by both Conservative and Liberal governments, and it should be recognized for its significance as one of the most important industrial, defence and economic policies in the history of our country.
Although there have been many successes in the NSS, especially recently, there is room for improvement. I've heard repeatedly in previous committee meetings that there is not enough capacity in Canada to deliver ships on time and on budget, and that delays are the main driver of the cost overruns.
Ontario shipyards have the largest untapped capacity in Canada. Heddle's six dry docks constitute over 30% of the dry dock capacity in Canada, yet in 2020 and 2021, our average dry dock utilization was less than 40%. At peak employment, our facilities had 4,200 people, and today we have fewer than 200. Ontario has the largest manufacturing capacity in Canada, and we have two shipyards based in the industrial core of the province. We are currently building a ferry for the Ministry of Transportation Ontario, and the methodology we have adopted relies heavily on our southern Ontario supply chain, as well as suppliers all across Canada.
Heddle and Ontario are here to support our country. We have a solution for this committee to consider, but most importantly, though, our message to the committee is that Ontario should be included in the NSS in a meaningful way.
Much of the national shipbuilding strategy's benefits to Ontario have actually sailed through corporate boardrooms to real jobs in other jurisdictions. Our solution is to have Heddle Shipyards become a strategic partner for Canada to execute the VLE II program and construct vessels of less than 1,000 gross registered tonnes.
By partnering with Heddle, Canada will bring Ontario's industrial complex and manufacturing capacity to bear on the NSS. The partnership will provide a continuity of work for Heddle and Ontario, which will eliminate the boom-and-bust cycles and allow Heddle to continue to be a supplier that Canada can have to deliver projects on time and on budget.
In closing, I would like to thank the committee for allowing me to speak here today. It's been an honour and a privilege.
The point is that we feel also through our international experience that what we are doing in the different important programs is that we are aiding all over the world—in Italy, but also in the U.S., Indonesia, Egypt and other important countries in which we are offering a multi-mission frigate, the FREMM—in that experience you are gaining through either the transfer of technology or through the capability to be acting as a global player from the initial profile analysis up to the end of life. It is to manage the program, starting as a prime contractor and acting from the beginning in trying to clarify all the points and the terms and conditions, including the price.
When we originally presented the proposal in the international market for a program like FREMM, we were considering these very complex ships where we need just to assist the user, then use the requirements analysis up through the different processes of this program. It is very important to fix from the beginning, in a clear way, all the terms and conditions.
One of the key points that we consider a basic point is having a fixed price. A fixed price is a sort of a clarification in the matter. It is a way through which we can define the scope of work in a clear way from the beginning. We can define the time plan from the beginning. We can define the quality of the product from the beginning in order to just have a fixed way to fix a price. This is the best practice in order to act in the proper way. This does not mean that we are not flexible enough in order to modify, to have amendments or to change the prices during the course of the program, but a fixed price is one of the key issues in order to maintain the optimal solution in the best way.
Considering the way we are proposing regarding the fixed price for the FREMM, let me say that we are confident about this. We are talking about a product that is a well-proven product. We are talking about a product that is under our complete control in acting generally as the prime contractor in the different international programs so we can manage everything in the proper way in order to reduce and optimize the price—
We cannot say what was refused.
There was a tender. You know the story. We were out of the tender because in the terms and conditions of the tender the scope of work was unclear. There were many points that were not fixed in the right way, so we proposed, with our solicitor, the way that we considered was the best way in order to reduce the risks to the program in managing quality and, in time, the ship. We proposed also a fixed price.
We also were very clear regarding the capability of Fincantieri to make a transfer of technology and also to have a completely local supply chain, because in that Fincantieri proposal we were also very clear on the details regarding all the suppliers, but it was not refused—it was not considered. That is different, from our point of view. The reason why it was not considered cannot be addressed by Fincantieri. You will have to ask in another way.
As I said before, we wrote a letter regarding this. In this letter we wrote about the main issues and the areas that were unclear regarding this first level of bid, considering our experience in the international market and our experience in negotiating a very complex program with different end users.
We wrote in this letter that there was an unclear process for the transfer of technology in the different phases. For us, as you know, the transfer of technology is one of the key issues in order to allow the local capabilities and manage such a complex program, and this was unclear in the terms and conditions. There was a problem related to the risk in the share of work, because the role of the bidders was not clear. Considering the leading role of the shipyard, it was rather an important point. The other important point was related to the fact that the management of the IP was not clear.
We are not against, in principle, all of these issues, but we were in an unclear position about the risk for this program, and not only for Fincantieri. In the letter we wrote, “In our opinion, the contract structure proposed in the bidders' prime contractorship and in the RFP, request for proposal, does not serve well any of the parties, the prime contractor, the bidders, the Canadian authorities”. We exposed the details—
Yes, I can reply in a general view regarding this. We are open, also, to consider the Quebec capabilities. It's not a problem.
I repeat again, the problem is not the local shipyard. The problem is not the local capabilities. The problem is how you manage the program, considering the investment you have to make, considering the local supply chain you have to create. Fincantieri is not having any problem also considering Quebec.
Also, we can have good experience in Canada, considering that we have Vard Canada, which has very important data for design, and also Vard Electro, for the system capabilities, and other important companies that can support us.
That's awesome. It's a great part of the country.
I think the biggest issue that all of the smaller shipyards are facing is a continuity of work. Especially where we are, on the Great Lakes and the St. Lawrence Seaway, the majority of our commercial customers want their work done within a three-month period during the shutdown of the seaway, when they're not able to transport cargo. We have a massive ramp-up period followed by a massive bust period.
The projects have all been green-lit. We have these VLE programs. We have regular dry dockings and refits. If the government is able to strategically align those projects during the slow periods for the smaller shipyards, what it will do is create a continuity of work and intrinsically link commercial work and government work in Canada.
It will allow shipyards to have a continuity of work and save our workers, essentially. When we have to lay people off, we're losing experience and skills. It's very difficult to get those people to come back into our shipyards. As you all know, it's a very tough labour market out there right now, and continuity and long-term employment are very important.
That's a good point. We can stay a couple of hours regarding this, but I have a few seconds to reply to this question.
I come back again to the fact that we are talking about a well-proven design. When I say well-proven design, it means that these are proven at sea. We completely control the cost of this program. When I say we control, I mean that we start, of course, from the evaluation coming from our experience. We never proposed something related to Irving shipyard's cost. This is a matter that can be discussed.
Also, in our letter, we proposed the cost related to the production of the ship in Europe, even in Italy or in France. We never spoke about the prices outside that. Through the experience we get in an international market that they offer for Indonesia, Egypt, for U.S. or whatsoever, we know also the cost of having the production outside from our shipyards. We can control even this cost. It's a matter to seek and to discuss, together with the shipyard and the local supply chain, the different items, going through the points item by item and evaluating the cost impact.
We can do this job, because we act as a global player. We have experience in the transfer of technology. We have experience on how to control the cost outside of our capabilities and our shipyard.
Thank you very much, Mr. Chair.
Mr. Padulo, I want to start off by saying thank you to Heddle and your team for your tremendous support of humanitarian efforts in Ukraine and for the donations you have made through the Red Cross and the Canada-Ukraine Foundation, as well.
According to the Government of Canada website, since 2012 the NSS has awarded $20.87 billion worth of contracts, with over $950 million to SMEs with fewer than 250 employees. As well, through the repair, retrofit and maintenance program, 8,400 jobs have been either created or maintained annually under the NSS.
As you mentioned, in 2021 Heddle received a $12-million federal retrofit contract from the Canadian Coast Guard, again, to retrofit the Amundsen. Just to build upon questions that were asked by my colleague, I want to ask you how many jobs this project created at Heddle.
As I mentioned during my opening remarks, there have certainly been challenges in the NSS, but at the heart of it, I think it's one of the most important strategies and policies in the history of our country.
We took over Port Weller in 2017 and Thunder Bay in 2016. When we took those facilities over—and they had once been the largest shipyards in Canada—there were zero employees there. Although the work is sporadic, the NSS has really helped us bring those shipyards back to life and revitalize them.
I want to thank the government for that, first and foremost. I think there are lots of things that can be done to improve..., but this was always an ambitious policy and strategy. So I think there a lot of positives that are coming and that will continue to come out of it.
Thank you all again for being here.
Mr. Padulo, you talked about your shipyard, which, not long ago, had no workers at all when it was once one of the most thriving shipyards in the country.
Hearing that, can you talk about the importance of the national shipbuilding strategy as an anchor, not just for today, but so that, 20 or 30 years down the road, we won't have an empty shipyard but a thriving shipyard? How important is it that we do it right with the investments we're making now? Can you speak about the critical need for us to ensure that we're making key investments strategically so we have a long-term, thriving shipbuilding sector in Canada?
I think the situation we find ourselves in right now is one that is a historical challenge. We're looking at a fleet for the Canadian Coast Guard as well as a fleet for the Royal Canadian Navy that are past their service lives.
My background is in commercial shipping. I spent many years in the Netherlands and Houston, Texas. Ships are supposed to last 25 or maybe 30 years. A lot of our vessels are quite older than that.
From a government perspective, I believe we need to ensure that we have a constant build program ongoing, so that as ships start to reach their end of life, there's a continuous renewal.
At the same time, as I mentioned in my opening remarks, we can't forget the fact that Canada is a maritime nation, whether we like it or not. Commercial ships are operating on the Great Lakes, east coast, west coast and internationally. I think that marrying government work and commercial work is extremely important.
The shipyards that were shut down need a boost. We need to be resuscitated, and we have been, through the national shipbuilding strategy. We need to be here to support our commercial sector. For many years, the ships that we're currently repairing in our shipyards in Ontario were going down to the United States. We completely lost capabilities within those yards. We're rebuilding that now.
The government work is critical to allow us to rebuild that capacity, so that in the future we can not only build ships for the government, but we can build ships for the commercial sector and repair ships for the commercial sector and government.
Thank you to our witnesses for joining us today.
My questions are coming from Richmond, British Columbia. This study is very important to us and to our marine sector on the west coast. Richmond is also the home of the largest commercial fishing harbour in all of Canada, so much of what you've said is very interesting to me.
I think you answered a bit about the sustainability of shipbuilding, and you went into some length there. What should we do beyond the national strategy? I think you've answered some of those things, but I'm just wondering about recruiting and retaining staff. What can we as a government do to support the recruitment and retention efforts, maybe in partnerships or collaborations with our academic institutions?
As you may know, we have the British Columbia Institute of Technology, one of the best and a world-class trade school. What are your thoughts on that? Are there any partnerships with the academic institutions and the industry? How we can help support that?
I would echo that B.C. has some great educational institutions. I went to school there; it was a great time.
Right now at Heddle, we're embarking on a program in which we're partnering with trades colleges that are in the areas where we have shipyards: Mohawk College in Hamilton, Confederation College in Thunder Bay and Niagara College in the Niagara region, in St. Catharines. What we're doing is creating a standard curriculum for ship repair and ship construction.
We need to get young people attracted to this industry. I think there are some incredible things that can be done. It's a great industry, and it's one where you can have a career, should we find stability within all the different shipyards in Canada.
Again, I'd just like to echo that I think if the federal government can do anything, it's to perhaps mobilize some of the trades colleges across the country to come up with a consistent curriculum, but to at the same time ensure that the shipyards that are offering employment do have work. For example, ensure that Davie in Quebec has multi-generations' worth of work and ensure that Seaspan and other shipyards—like in Port Alberni—have work.
I think the single greatest thing the federal government could do is roll out the programs that have already been green-lighted and funded.