On Ship Procurement Project

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Excerpted from The Hill Times

Heavy lifting just beginning on $33-billion ship procurement deal

Monday, 05/27/2013

The heavy lifting is just beginning on the procurement of new military and civilian vessels as the government prepares to pick the winning design for the first planned replacement ships this summer.

There should be sufficient funding set aside for unexpected costs and building quality ships, said Mr. Perry and Colin Robertson, a fellow at the Canadian Defence and Foreign Affairs Institute.

Since no designs have been finalized, it’s too early to tell whether the money allocated is enough, said Mr. Perry.

“Until that’s done, there’s no way of assessing if the way the project money allocated is good, bad, or ugly,” he said.

There is also a cost premium for building the ships in Canada, noted the PBO, because of the relatively inexperienced shipbuilding industry.

“We have chosen to rebuild our ship industry. This is a conscious policy decision. You can buy these things abroad at a lot less money. But when you build it in your country you create a whole bunch of jobs,” said Mr. Robertson.

The government estimates the shipbuilding could contribute as much as $2-billion to the economy and 15,000 jobs over 30 years.

“Some have raised the suggestion or the criticism that these ships could have been built cheaper or purchased perhaps offshore in other countries. We disagree. We feel it’s important to support the Canadian shipbuilding industry, as well as giving the Royal Canadian Navy a ship that is up to the task,” said Mr. MacKay.

This project is the first major shipbuilding initiative in Canada since the 1990s. The industry is ramping up its skills and capacity. The Vancouver shipyard is currently investing $200-million in upgrades. On the East Coast, the provincial and federal governments are investing in skills training and other initiatives to make sure the region is ready.

“These are not skills you acquire in a day,” said Mr. Robertson.

He explained the industry would build its proficiency as it goes, and starting with the support ships, science vessels and icebreakers would allow them to work towards increasingly more complex vessels.

“We had this capacity during the Second World War. We were building a ship in 183 days,” said Mr. Robertson.

The PBO cited an industry survey of employee technical skills in the United Kingdom’s naval industry, which found it took workers between six and eight years to reach 90 per cent of their optimal productivity levels.

The PBO notes its estimate is only useful if the ships are started and finished on time, and any delay would affect the estimates.

Delays significantly drive up the cost of any military procurement, as military inflation can be as much as 10 per cent annually, noted Mr. Robertson.

A scheduling conflict with the icebreaker may cause the support ships to be delivered later. The projects are scheduled to be built simultaneously, but the Vancouver shipyard can only handle one at a time.

“We’re in very high level discussions about the sequencing. Clearly, we have a preference. The Department of National Defence would like to see our ships built as soon as possible given the importance of replenishment at sea,” said Mr. MacKay.

Unless there are clear advantages to building one before the other, ultimately, it will be a political decision, said Mr. Perry.

“Whether or not you would need refuellers first, or whether or not you need the ice breaking capacity first, … they both are urgent requirements so it’s going to be a tough call about which one gets into service ahead of the other,” he said.

The two keys to avoiding unnecessary delays are stick to the schedule and buy off-the-shelf as much as possible, said Mr. Robertson.

“Keeping to schedule is really vital. The problem comes when, and this is natural enough, the Navy says, we’ll, something new is out, we’d like to have that on the ship. We’ll, if you want to have that on the ship, it takes you longer to do it. If it takes you longer to do it, you’re going to have to pay a premium,” he said.