:
I call this meeting to order.
Welcome, colleagues, to meeting number 33 of the Standing Committee on Public Accounts. The committee is meeting in public today and is being televised.
Pursuant to Standing Order 108(3)(g), the committee is meeting today to study report 2, “National Shipbuilding Strategy”, of the 2021 reports 1 to 5 of the Auditor General of Canada. Today's meeting is taking place in a hybrid format, pursuant to the House order of January 25, 2021; therefore, members may be attending in person in the room and remotely using the Zoom application.
I would like to extend a special welcome to my colleagues, Mr. Paul-Hus and Mr. Van Bynen, who are not regular members on the committee. We appreciate having you join us today.
I have a few reminders for our participants. Interpretation services are available for this meeting. You have the choice at the bottom of your screen of floor, English or French audio. Before speaking, click on the microphone icon to activate your mike. When you are done speaking, please put your mike on mute to minimize any interference. When speaking, please speak slowly and clearly. Unless there are exceptional circumstances, the use of a headset with a boom microphone is mandatory for everyone participating remotely. Should any technical challenges arise, please advise the chair. Please note that we may need to suspend for a few minutes, as we want to ensure that all members are able to participate fully.
Now I'd like to welcome our witnesses, and we have quite a list.
Joining us today from the Office of the Auditor General are Casey Thomas, assistant auditor general; Nicholas Swales, principal; and Chantal Thibaudeau, director.
From the Department of Fisheries and Oceans we have Timothy Sargent, deputy minister, and Andy Smith, deputy commissioner of shipbuilding and materiel for the Canadian Coast Guard.
From the Department of Industry we have Simon Kennedy, deputy minister, and Mary Gregory, associate assistant deputy minister.
From the Department of National Defence we have Jody Thomas, deputy minister; Vice-Admiral Craig Baines, commander of the Royal Canadian Navy—he hails from Saskatchewan, so I'm very glad to see him on our panel today—and Troy Crosby, assistant deputy minister of the materiel group.
From the Department of Public Works and Government Services we have Bill Matthews, deputy minister; Simon Page, assistant deputy minister of defence and marine procurement; and Michael Vandergrift, associate deputy minister.
I welcome you all.
We'll turn the floor over to Ms. Casey Thomas for five minutes.
:
Madam Chair, thank you for this opportunity to present the results of our audit of the national shipbuilding strategy. Joining me is Nicholas Swales, the principal responsible for the audit, and Chantal Thibaudeau, the director who led the audit team.
The Royal Canadian Navy and the Canadian Coast Guard operate fleets of large vessels to support Canada's participation in security operations around the world, to support marine science, and to ensure that Canada's waterways are safe and accessible. This audit examined whether these vessels were being renewed in a timely manner. Timely renewal is important because of the need to replace aging fleets and introduce new capabilities.
In 2010, the government launched the national shipbuilding strategy to renew these fleets in a timely and affordable manner, as well as to create and support a sustainable marine sector and generate economic benefits for Canada. The strategy also calls for the building of at least 50 large vessels over about 30 years.
Overall, we found that the strategy was slow to deliver the combat and non-combat ships that Canada needs. We found that only two of four ships scheduled for delivery by January 2020 were delivered, and both were late. We also found that the delivery schedules for many ships were getting longer.
We identified three areas of management weaknesses that contributed to the delays. First, we found that schedules were often not effective in terms of managing projects' timelines. For several projects, government officials relied on production schedules to understand expected progress and monitor performance. These schedules underestimated the time needed to accomplish different tasks and they weren't provided in a timely manner by the shipyards.
[English]
Second, we found that the risk management tools were inadequate to properly assess, mitigate and monitor the risks of the strategy.
Third, Public Services and Procurement Canada had not confirmed whether the shipyards had met target state. Target state refers to the facilities, people and practices needed to enable the shipyards to efficiently build vessels at the required rate. This expectation was part of the agreements that the department signed with the shipyards in 2012.
During the audit, government organizations made key decisions that improved the prospect of timeliness in future deliveries. For example, in 2019, the government changed the order in which ships would be built at Vancouver Shipyards in an effort to improve the shipyard's efficiency.
Nonetheless, navy and coast guard vessels are aging. When this strategy was launched, several ships had already reached their expected service lives. Measures have been implemented to extend the service lives of vessels, and other ships were chartered or leased to maintain some capabilities. However, interim capabilities are limited and cannot be extended indefinitely. Further delays could result in several vessels being retired before new vessels are operational.
Most ships to be built under the strategy are yet to be built. This means the federal government has an opportunity to further improve how it manages risks and contingencies, so future shipbuilding projects are delivered in a timely manner.
We made three recommendations as a result of this audit. Public Services and Procurement Canada, National Defence and Fisheries and Oceans Canada agreed with these recommendations.
Madam Chair, this concludes my opening remarks. We would be pleased to answer any questions the committee may have.
Thank you.
:
Good morning and good afternoon, everyone. Thanks for the introduction.
I'm pleased to be here to address the Auditor General's report on the national shipbuilding strategy. I'm here with Mr. Andy Smith, who is the deputy commissioner of shipbuilding and materiel, and my colleagues from Public Services and Procurement Canada, the Department of National Defence, and Innovation, Science and Economic Development.
As you know, this is the second Auditor General's report on the strategy, and it was focused on a relatively short period of time in its implementation. The audit period from January 1, 2018, to January 30, 2020, was, however, a very exciting time for the Canadian Coast Guard, during which we made significant progress with the renewal of the fleet under the national shipbuilding strategy. Two of the Coast Guard's new offshore fisheries science vessels were delivered during the audit window, with the delivery of a third ship in October 2020, so we have taken delivery of the first class of ships completed under the national shipbuilding strategy.
In March 2021, Seaspan's Vancouver Shipyards cut steel for a fourth Coast Guard ship. This offshore oceanographic science ship will be the replacement for the CCGS Hudson and is on track for delivery in 2024. While this milestone is acknowledged to be outside of the audit period, it serves to demonstrate the momentum that has been building for the renewal of the Coast Guard fleet.
In 2019, the Government of Canada announced the most significant investment in Coast Guard history, with 24 new large vessels to be built under the national shipbuilding strategy. As a result, funded replacement plans were in place for 29 large ships at the time of the audit. One of those 29 ships was a polar icebreaker that was funded at the time of the audit but did not have a procurement strategy. Since that time, a government investment decision has been made for a second polar icebreaker, bringing us to a total of 30 new large ships for the Canadian Coast Guard under the national shipbuilding strategy. Also in 2019, an additional $2 billion was announced for a comprehensive vessel life extension program that would take our existing fleet to the limit of its technical life expectancy.
We think we're taking steps in the right direction. As noted by the Auditor General, interim measures are being implemented to sustain operational capabilities until the new ships are delivered, and the Coast Guard has started vessel life extensions for its fleet, with the first investment made in 2012. In addition, three medium icebreakers have been acquired to backfill while ships are out of service for vessel life extension work, and there's a competitive process under way to acquire a light icebreaker. This suite of interim measures will provide sufficient on-water capability until new ships are delivered under the national shipbuilding strategy.
The Auditor General noted the continuing risk of delay for shipbuilding projects and recommended that the Coast Guard implement mechanisms to obtain current and reliable schedules to support shipbuilding projects, and to ensure that scheduled targets and delivery timelines are monitored to support timely decision-making. I welcome this recommendation and consider it to be a foundational element of both project and program management. Scheduled monitoring and oversight is something we have been managing very closely with the shipyards and with Public Services and Procurement Canada, and we are making progress.
In the 10 years since the national shipbuilding strategy was initiated, we have learned a number of important lessons and look to continuously fold these lessons into follow-on projects. However, even the most experienced shipbuilders will caution that the process is never without risk. The bottom line is that Canadians can rest assured that we will take any action necessary to maintain delivery of critical Coast Guard services. At the same time, we will continue to work with Public Services and Procurement Canada to ensure the timely delivery of the new ships we need to renew the fleet.
I want to thank the Auditor General for her recommendations. We're committed to addressing them to ensure the success of both the national shipbuilding strategy and the renewal of the Canadian Coast Guard fleet.
Thank you.
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Thank you, Madam Chair, for the invitation to be here today.
[Translation]
My name is Simon Kennedy. I'm the deputy minister of Innovation, Science and Economic Development Canada.
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I'm joined here today by my colleague, Mary Gregory, who is the associate assistant deputy minister of the industry sector at ISED.
As you may be aware, ISED is responsible for carrying out one of the three objectives under Canada's defence procurement strategy, which is to leverage defence and security procurement to create highly skilled jobs and economic growth in communities across Canada.
A primary tool to achieve this objective is the application of the industrial and technological benefits policy, otherwise known as the ITB policy, which requires contractors to undertake economic activities in Canada equal to the contract value.
In addition, the national shipbuilding strategy value proposition requires that large vessel shipyards, including the upcoming third shipyard, invest 0.5% of the value of their national shipbuilding strategy contracts into the greater Canadian marine industry to ensure its long-term sustainability. Those investments are designed to support human resources development, technology investments and industrial development.
I can report that the national shipbuilding strategy shipyards are meeting their economic leveraging obligations to date, and my department will continue to work with these yards to ensure that their economic benefits obligations are met. For example, national shipbuilding strategy contracts issued between 2012 and December 2020 are estimated to contribute close to $20.1 billion, or $1.8 billion annually, by 2022, to Canada's gross domestic product, and to create or maintain more than 16,900 jobs annually, through the marine industry and its Canadian suppliers.
Between 2016 and 2018, marine sector sales increased by 16% to $4.1 billion, with export growth of 33%, to a value of $1.1 billion in 2018. Canadian companies are having demonstrable success in the global market, with over 80% of Canadian-developed naval systems present on global fleets. This success can be attributed, at least in part, to the ability to leverage experience on domestic projects to pursue work internationally.
I'll conclude my remarks there, Madam Chair, but would be pleased to answer your questions as part of today's appearance.
Thank you very much.
:
Thank you, Madam Chair.
I'm pleased to be here with my deputy head colleagues to discuss the Auditor General's report 2, “National Shipbuilding Strategy”.
I am joined by Vice-Admiral Craig Baines, commander, Royal Canadian Navy; and Troy Crosby, assistant deputy minister, materiel.
First off, I'd like to thank the Auditor General and her team for their very important work. The NSS is a key element of our work at National Defence and, indeed, throughout the entire Government of Canada, to ensure that Canada can be strong at home, secure in North America, and engaged in the world.
National Defence agrees with the report's findings as they relate to our defence team, and we accept its recommendations. We agree that complete current, reliable schedules are absolutely essential for decision-making in the management of the shipbuilding projects. The review and insights highlighted in the AG report are timely and useful.
As with any massive and long-term capital procurement project, we knew we would need continuous review and likely hone our approach as the NSS progressed. That's a very typical reality of major procurement. As the report notes, DND was already in the process of implementing key improvements as the report was being produced.
Additionally, since the report was released, we at DND have coordinated with our colleagues at PSPC and Fisheries and Oceans Canada on our different management action plans to ensure they achieve an integrated outcome. These action plans will outline how, with what milestones, and by when we will achieve the outcome of the recommendations.
At National Defence, we expect that Q2 of fiscal year 2021-22 is when we will be in receipt of shipbuilding schedules that are complete and reliable.
I would also like to address the fact, noted at the end of the report, that we cannot yet know the full impacts of COVID on shipbuilding timelines. This is another difficult reality of COVID. Until we are over the pandemic, we will not have a complete and accurate picture of what the full impact has been, including anticipated delays on major procurement.
However, I want to reassure the committee and Canadians that we have firm contingency plans in place to ensure that the Canadian Armed Forces has the ongoing capability required to conduct operations, including in relation to the navy's work.
Work continues on the Canadian surface combatant project, with the first of 15 ships expected to be delivered in the early 2030s, and the last ship to be delivered in the 2040s. While we develop these modern, capable ships, we will extend our current Halifax class ships as long as is required. Until the arrival of our joint support ships, we've engaged a third party to help provide those interim services, and we can extend that contract if required in order to keep that capability going.
For our Arctic offshore patrol ships, this vessel offers a new capability. There are other means by which we can and do achieve the same outcome, including having vessels escorted by helicopter or icebreaker. Of course, the first AOPS, HMCS Harry DeWolf, is already conducting training and operations.
In addition to shoring up capabilities, we have other means to ensure our operations are supported, up to and including working with our allies to resource-share if an extenuating circumstance arises.
As with so much else in the federal government, cross-departmental collaboration and timely information-sharing are key, both for overall efficiency and increasingly to manage Canada's evolving threat environment.
National Defence will continue to work with our colleagues in other government departments and in Canada's shipyards, as well as with our industry partners, to keep the strategy moving forward.
This concludes my opening statement, Madam Chair. I'm happy to answer any questions from the committee.
:
Good morning and thank you, Madam Chair. I am pleased to join my colleagues to speak to the committee as it studies the Auditor General's 2021 report on the national shipbuilding strategy.
Despite the global pandemic, Public Services and Procurement Canada continues its important work to serve its clients. The national shipbuilding strategy work is one such example.
The national shipbuilding strategy is a multi-decade commitment, launched in 2010 with three objectives: to renew the fleets of the Royal Canadian Navy and the Canadian Coast Guard, to create a sustainable marine sector, and to generate economic benefits for Canadians.
With the projects already undertaken, the shipbuilding industry is now growing in Canada, and there will be sustained work on this front for many years to come. In all, work from the strategy is contributing more than $1 billion to Canada's gross domestic product every year, and it is sustaining thousands upon thousands of jobs. Most importantly, Madam Chair, the work being done here is helping to support the brave members of the Royal Canadian Navy and the Canadian Coast Guard.
So far, the strategy has produced four large vessels and a number of small ships. Many more ships are currently under construction across the country. We are making important progress, but shipbuilding is complex, and we acknowledge the need to continuously improve. This is why we welcome reviews and recommendations, such as those from the Auditor General.
Madam Chair, to fully understand the Auditor General's report and the important observations therein, we must go back to the time when shipbuilding nearly ceased to exist in Canada.
When the national shipbuilding strategy was conceived over a decade ago, in 2010, Canada was still caught up in the boom and bust cycle of shipbuilding that has historically plagued the industry. Over the years, experience and expertise in shipbuilding had weakened. In those very early days, work and cost projections were not yet informed by actual build experience in our Canadian shipyards. Specialized marine supply chains also needed to be re-energized.
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. This has led to challenges in planning and schedule delays. We have openly acknowledged these, and several key risks are being managed. The government has made real efforts to better streamline the work required under the national shipbuilding strategy. Indeed, the Auditor General highlights that during the period covered by the audit, the government made key decisions to put the national shipbuilding strategy on a more viable path.
Over the years, both the shipyards and Canada have gained valuable shipbuilding experience. We now have a much more reliable understanding of the time, effort and expenditures required to build world-class vessels. We are applying this knowledge every day, particularly as we closely monitor and manage the work of our shipyard partners.
Madam Chair, we have tabled with this committee our detailed action plan to help ensure shipbuilding schedules are more evidence-based, to improve our risk-management tools and to develop approaches that build on our lessons learned, specifically as we engage a third shipyard in the national shipbuilding strategy. As you will see, we plan to address all of the Auditor General's recommendations within this fiscal year.
Before I close, I will make brief mention of the replacement of polar icebreakers. With so much of our coastline located in the Arctic, icebreakers are an essential part of the Canadian Coast Guard and Royal Canadian Navy fleets.
Earlier this month, the Government of Canada announced plans to construct two polar icebreakers at two different shipyards, in order to ensure that they are built in the most timely and efficient manner. Following a rigorous evaluation of all available options, the simultaneous construction of two polar icebreakers in two shipyards was chosen, as it offers four key advantages: the fastest delivery of icebreakers, optimized economic benefits, minimal disruption to other projects and reduced production gaps.
To conclude, Madam Chair, in order to secure the future of Canadian shipbuilding and to ensure that we have a modern and effective Canadian Coast Guard and navy fleet for decades to come, the Government of Canada is applying lessons learned and putting to use the expertise that Canada has developed over the past decade.
Thank you, and I look forward to your questions.
:
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?
:
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.
:
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.
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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.
:
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?
:
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.
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?
:
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.
:
Thank you, Madam Chair.
I'll start by picking up from where my Bloc Québécois colleague left off with regard to the leader of the national shipbuilding strategy. At this time, we're like headless chickens. It seems that no one is taking responsibility. Can someone tell me who is in charge?
I can see that no one wants to say anything.
Is the reason for this failure the lack of a structure and the fact that, when one department decides to move in one direction, the other department doesn't follow?
I want to talk about defence with Jody Thomas. We currently have the combat ship contract, which is huge. The parliamentary budget officer's cost estimate was $27 billion at first, and now it's about $100 billion. This contract includes different classes of vessels, including the European multi-purpose frigates, or FREMMs, and the type 26 ships. Choices must be made.
Ms. Thomas, with respect to the naval strategy, does anyone decide the direction to take? In the Department of National Defence, do you have the choice to do what you want? How does this work?
The division is made and it's clear, given the vessels. Irving Shipbuilding Inc. is working with the Department of National Defence, while Seaspan is working with the Department of Fisheries and Oceans.
Two years ago, I believe, the contract to build a sixth Arctic and offshore patrol ship, or AOPS, was given to Irving. The original contract was for five ships. A sixth ship was added at twice the price. This means that Irving is being paid $800 million instead of $400 million. The surplus was used to give money to Irving, because its managers said that there was an issue and that the company couldn't lose employees.
In this situation, is the Department of National Defence responsible for managing the Irving Shipbuilding Inc. issue or is another department responsible for doing so? Should the Department of National Defence cover the additional costs resulting from a company's issues and include them in its budget?
My question is for Jody Thomas.
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That does not answer my question, but I will ask another one, as I don't have much time left.
I will now turn to Mr. Sargent, from Fisheries and Oceans Canada.
For a number of years, Seaspan had the polar icebreaker contract. The government then decided to rescind the contract with Seaspan, but it just decided to award it again. Was it because Seaspan had an exclusive right to the icebreaker contract? Was there not a way to use another company?
Given that Seaspan has been unable to build the icebreaker in all these years, why should we trust that company now?
:
Thank you, Madam Chair.
I would once again like to thank the witnesses appearing today.
I do not come from a region of the country where ships or icebreakers are built. However, as a member from the National Capital Region, I am very familiar with governance and project management issues.
I will read to you recommendation 2.36 from the Auditor General's report on the national shipbuilding strategy:
The Canadian Coast Guard, National Defence, and Public Services and Procurement Canada should implement mechanisms to:
– obtain complete, current, and reliable schedules to support shipbuilding projects
I see that the department has accepted that recommendation.
My question is for Mr. Matthews or Ms. Thomas, from National Defence.
Are you sure that you now have the tools needed to manage the schedule and carry out the tasks related to the building of those ships?
:
Thank you for the question.
I would say two things. First, we are almost certain that we do, but we have to continue to improve our tools. We have already talked about the software used to improve risk management. We are currently implementing it, but we are still not finished.
Second, we have started to use the earned value management method, which is a best practice used around the world.
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Even with the most experienced shipyards in the world, if you look to South Korea or the U.S., there is always risk and there is always challenge.
We're in a better place. We're implementing the recommendations and we're moving, but don't ever think shipbuilding will not be complex and will be risk-free. That's just not the nature of the business.
:
I would just echo what Mr. Matthews has said.
In our project budgeting, at the early stages, we account for some of this risk. Delays cost money, so there is a significant contingency attached to each project in the early days, and it's pegged down over the years as we know exactly what we're buying and the schedule firms up.
We will continue to monitor that contingency as we see things like the impact of COVID on both of the current projects under way, the AOPS, which are in construction, and the Canadian surface combatant, which is still very much in the design stage.
:
Madam Chair, I would suggest that every country that is building ships at this complexity and has a program this large is struggling with many of the same issues we are.
We are the third country, for example, to build the type 26 surface combatant. We are learning from the U.K. and from our colleagues in Australia.
The national shipbuilding strategy set out to do more than one thing. Of course, we wanted to resupply and recapitalize the navy and the Coast Guard, but we're also building an industry. Those two objectives, both critical for us as a country, added to the complexity.
I would say the other complexity is that we build ships once every 30, 35 or 40 years, for both the navy and the Coast Guard. We're leaping generations of technology in one program and in one project, and that adds to the complexity, because the last time we built ships was in the eighties and nineties for the navy, and before that, really, for the Coast Guard. A more regular process of building ships would, I think, reduce the complexity.
:
I thank the member for his question.
I don't agree with the statement that no one is managing the strategy. It is true that three or four departments are playing a role in its management.
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At Public Services and Procurement Canada, we run the program. We're responsible for managing the program.
If it's a question of which departments figure out what the required capabilities are, what ships are required and what budget they have, that would be National Defence for the navy, and Fisheries and Oceans and the Coast Guard for the coast guard.
For the industrial benefits piece, which is an important part of the strategy, my colleagues at ISED are led by the deputy minister, Mr. Kennedy, but the overall coordination of the program is with PSPC. When we're sitting on what type of competitive process we should run to award a contract, or what's the strategy, obviously there are lots of inputs, but it's PSPC that chairs that table and then manages the execution of the actual contracts.
We heard the deputy minister for the Department of National Defence, Ms. Thomas, state in earlier testimony that essentially time is money when it comes to delays. We know that the Parliamentary Budget Officer has already reported that each ship year that a project is delayed will see production costs increase potentially by tens of millions of dollars per ship.
Through you, Chair, when the deputy minister is doing costing and contingency, how much have they set aside for contingencies related to the surface combatant shipbuilding program and the 15 type 26 ships?
:
Thank you, Madam Chair. I had my five-minute timer all ready.
Thank you to the witnesses.
As I sat here and listened to the testimony today, I found it interesting because, obviously, I know this committee is studying results and the AG aspect, but we have to think back to 2010 and some of the policy choices around building some of this capacity in Canada.
Mr. Matthews spoke to this during his testimony, about the fact that we came into this about a decade ago with very little shipbuilding capacity in this country. I guess I would just remind my colleagues, having had the chance to visit the Halifax shipyard and Irving, about some of those immense challenges of trying to build that capacity in-house. Particularly given the pandemic—I know with my own constituents although I can't speak for other MPs'—there's a lot of increased focus on the capacity that we want in this country, whether that be agriculture, pharmaceuticals or otherwise.
I'll start with Mr. Swales, if that's appropriate; he is the principal on this.
One thing we're lacking here, Mr. Swales, in this conversation, is the perspective of the actual ship—the private shipowners who are building these.
During your audit, I assume you had conversations with the senior management of these shipyards. What is their perspective in terms of the timelines, because the AG report certainly highlights the fact that perhaps we were all a bit ambitious about what necessarily could be achieved on the existing timelines.
What was their perspective, in about 30 seconds?
:
That's exactly it, Madam Chair.
There is a natural tension. Obviously, due to the age of the fleets, there is pressure to get ships sooner, and we all know why that is. We also want schedules that are credible. When finding that balance in the early days, the yards and the government, frankly—officials—were overly optimistic in terms of timelines.
As we now have a few ships under our belts, we are in a position to be more real in our challenge to the schedules. We're demanding more detail from the yards in terms of the schedules, so that we can assess if they're credible.
I have mentioned the earned value management approach that we plan on adding in, and we have started that. As the yards mature, we'll have a better sense of what they can deliver when, and we can change their schedules accordingly.
In the conversations I've had with some of the folks at Irving, for example, I've asked about beyond-government procurement and what opportunities may exist. Traditionally, Canada has not been in this space. I asked about whether there would be private opportunities for procurement in a more commercial sense outside of defence procurement, as I wasn't sure if those existed. I think that speaks to the complexities and the fact that it's not easy to build an industry overnight.
I have a question for Ms. Thomas on the DND side.
I think it was outlined in the report, but I just want to confirm. Operationally, have there been any challenges from your side? It also mentioned mitigation measures to try to avoid some of those operational challenges because of the delays. Can you broadly speak to that, in the about 25 seconds I have left?
:
Thank you, Madam Chair.
Of course, we have a very careful balance of investment against operational requirement that we plan to. For example, we have two ships for deployment as we speak, and there is another one about to deploy in July.
With the JSS contract, as you know, we have an interim auxiliary tanker that is fulfilling that function. We find that, through smart scheduling on our side, we're able to manage both the maintenance and the operational requirements.
Thank you very much.
:
Thank you, Madam Chair.
[Translation]
Mr. Blois, thank you for giving me a bit of time earlier.
Madam Chair, since the beginning of this meeting and question period, having read the Auditor General's report, I have realized that leadership seems to be lacking, with all due respect to the people who are here to discuss the national shipbuilding strategy, or NSS. We have learned many things. It has taken us 10 years to learn. The government is starting to ask shipyards questions to figure out what is happening and why they are late.
Mr. Matthews, do you not think that we should figure out how the three departments communicate and organize ship delivery by different shipyards?
Based on what I have heard since the beginning of the meeting, I think that other departments would probably like to deal directly with shipyards.
:
Mr. Matthews, I apologize for interrupting you.
You say that I am oversimplifying the situation. It is not complicated: there is a shipbuilding strategy, and the federal government is being asked to supply ships and icebreakers to the Canadian Coast Guard and the National Defence. Ten years later, we are realizing that there are delays, that risk-management programs are ineffective and that the Auditor General, in her report, although she does remain very nice and accepts all your recommendations, is very strict about this entire process, which has been ongoing for 10 years.
Canadians expect various services and departments—your department and National Defence—not to have to learn lessons for 10 years on how to deliver goods to Canadians when given a mandate like this one. Billions of dollars are involved. Do you know how many Canadians it takes to pay those amounts?
I don't like to say that I am simplifying. What I want to know is why, after 10 years, you are still saying that you are learning lessons.
:
To take the second part of your question first, it had always been part of the Coast Guard fleet renewal strategy that we would have two polar icebreakers. Until very recently, only one of those icebreakers was funded. I would assume, although my colleagues from the Office of the Auditor General can speak for themselves, that that is why they focused on that one—on just the one polar icebreaker.
As to why the Coast Guard requires two polar icebreakers, it's important to understand that you can't run something as big and complicated as an icebreaker for the full 12 months of the year, year in and year out. There will always be times when you need to take it in for routine maintenance and routine refit. For three months out of every 12, we would normally expect the icebreaker to essentially be in the shop, as I say, for routine maintenance and routine repair.
If you want to have year-round coverage in the Arctic—which is very much the goal to do all the things a polar icebreaker needs to do to meet supply, to assert Canadian sovereignty, for search and rescue, for Arctic science—you need to have two polar icebreakers so you can cover off those three months.
The other motivation that is quite important is that if a polar icebreaker gets into trouble in the high Arctic, it's going to need another polar icebreaker to go to its rescue. Rather than relying on another country—which might take a very long time to get to the scene of the problem—having two polar icebreakers means that if one is in trouble, the other one can go in and rescue it.
:
Thank you, Madam Chair.
I will come back to the question I put to Mr. Matthews earlier.
Huge investments in the national shipbuilding strategy seem to be eroding owing to political decisions. I am very concerned by this. It seems to me that leadership, in this whole process, comes from political power, which hinders the sound management of public funds.
I have concerns about what is to come. I wish I did not have to say it to you like this, but I have the disagreeable impression that this anticipated slide could not be contained as long as you are only executing the government's political orders. Right now, I feel that you are abdicating your advisory responsibility.
I would like to hear your comments on this.
:
On the schedule delays, Madam Chair, I have a few points to offer here.
Number one, the initial schedules, way back when, were indeed not realistic. As time marched on, people realized that those initial schedules just weren't going to hold, and there were adjustments made.
The other piece here is that we learned that seeing labour force or production gaps in the shipyards is detrimental to the overall strategy. When you see a production gap.... The Irving shipyards afford a great example. We saw that there would be a gap between ships and that there was risk to the labour force. That leads to long-term costs, so actions were taken to close those gaps.
Those are the kinds of risks that are being managed from a program perspective.
To the original point, this was more a matter of budgets and schedules, way back when, just not being realistic. We continue to learn as the yards gain experience in terms of building up their expertise, but also in understanding on what schedule they can deliver.
It's still very difficult for me to unpack the delays from the actual costing of the overall program, so I'll reference paragraph 2.41, which states, “All risks were part of the defined risk management process, and the team analyzed some risks in detail, using third-party experts. However, the team did not analyze some risks that had an impact on shipbuilding timeliness.”
We've now heard Mr. Matthews reference some of the early estimates as perhaps being ambitious, being fraught with some deficiencies that we're now seeing play out in this study. Section 2.42 states:
For example, one risk was not having enough staff within departments to implement the strategy in a timely manner. The team did not document whether this risk was affecting the pace of implementing the strategy. Other risks were not having enough workers [in] each shipyard, which could affect timely delivery of vessels. Again, the team did not document how these risks were affecting timely shipbuilding.
The report goes on to say that they noted instances such as staff shortages that caused shipbuilding delays.
My question, through you to Mr. Matthews, is this: How can you commit to a multi-billion dollar shipbuilding strategy without knowing if you have enough capacity at either the departmental level or at the shipyard level?
:
Thank you, Madam Chair.
There are two aspects to that question, and I may turn to Mr. Kennedy to talk about the workforce in the yards.
With regard to the HR capacity inside government, which is part of the question—and we have control over that—we have added capacity, both through external resources but also in building up our own team, and we will continue to increase that team to make sure it's adequate.
I think some of the...I'll call it tension that you'll see between the government and the yards, when we talked about schedule, is that they would like quicker decisions. That's always something they raise with us. Frankly, we would say, “We would like more notice. Why didn't you tell us earlier?” That's a very natural kind of tension that occurs. Obviously, the more people we have working on the projects, the more quickly we can do analysis and get to decisions.
There are plans to further augment the team in place.
Simon, I'm not sure if you have anything to add in terms of building HR capacity in the yards themselves, because that was also a risk that came to fruition that impacted schedules as well.
:
No, that's quite fine. We've identified already, through you, Madam Chair, the delays in the process.
These increases are going to cost Canadians in multiple ways. Again, going back to the PBO, each year a project is delayed will see production costs increase by tens of millions of dollars per ship. We've also heard that there's a cost to retrofitting the ships that are scheduled to be replaced in order to keep them in service longer than expected.
We heard the DM from DND, I believe, talk about contingencies. My question through you, Madam Chair, to her, would be, who's paying for the cost of retrofitting the existing ships to extend their service? Considering the overall cost of the shipbuilding, is this part of the contingency or is this a holdback or a set-aside from the actual contract through the procurement with a company like Irving?
I'll go back through you, Madam Chair, to the other Ms. Thomas, from the AG's office, and ask about this. Under paragraph 2.36, it is stated that the Coast Guard, National Defence and PSPC “should implement mechanisms to obtain complete, current, and reliable schedules to support shipbuilding projects” and “ensure that progress toward forecast targets and delivery timelines is monitored to enable timely decision making”.
Mr. Matthews referenced some of that as being a “challenge” and a “tension” between the builders and the government. Compared to other large-scale military or similarly complex procurement projects, what other specific deficiencies did your audit reveal regarding the project's scheduling and monitoring systems and tools for these shipbuilding processes?
:
That's a good question.
First of all, they are both icebreakers, so that's the apples to apples comparison, but they're really very different ships. A medium icebreaker is in the range of 6,000 tonnes. A polar icebreaker is a 24,000-tonne ship, so it is a significantly larger ship, with heavier steel, given the higher icebreaking requirements of the ship.
The budget for the polar icebreaker remains under review and will be made public once we get further into the design process. However, it is also a little speculative to try to compare the cost of a used icebreaker to the construction of a new polar icebreaker of a completely different size.
:
Thank you, Madam Chair.
Thank you to our witnesses today.
It's great to be able to join this committee once again this morning.
I have a few questions for Mr. Matthews. There has been some concern presented in this report regarding the tools that were available to the PSPC procurement and project management teams. I think it's fair to say that these tools were limited in their scope and their effectiveness.
The Auditor General also acknowledged that key decisions were made to address risks in meeting the goals of the NSS, in some cases including reassigning the timelines for achieving these goals, but to the betterment of the overall project.
My first question is this: What decisions were made?
:
Colleagues from the Office of the Auditor General, if you want to add on to this, please do.
I have a couple of examples. First, measures to extend the lives of current vessels obviously have to be an important measure here. The other would be to add additional Arctic and offshore patrol ships to the Irving shipyards—AOPSs number seven and number eight, which will eventually go to the Canadian Coast Guard. That helps to reduce the production gap and also will result in the Canadian Coast Guard's getting ships earlier than necessary.
You can point to the west coast—Vancouver Shipyards—and see the reordering of ships in terms of the reordering of the joint support ships being brought up to number two in that case. You can also see the adding of the multi-purpose vessels to the Vancouver Shipyards workbook—17 of those, if I recall correctly. That is to better align with the requirements of the Canadian Coast Guard.
Those are a few examples of what we've done from a program management perspective that show how it all fits together.
:
Thank you very much, Mr. Van Bynen.
Thank you to our witnesses for joining us today. It's been a great meeting with lots of great questions asked.
Colleagues, I would like to remind you that on Wednesday I will be chairing the Auditor General's lock-up for reports that will be tabled in the House after the lock-up. You will all have received an invitation to the meeting, and I would encourage you all to attend. Finally, Thursday's meeting will be concerning report 1, “Procuring Complex Information Technology Solutions”.
Is the committee in agreement to adjourn the meeting?
Thank you.
We are adjourned.