Shipbuilding oppotunities are growing in Canada, according to Peter Cairns (VAdm-retired), head of the Shipbuilding Association of Canada
Below is the text from a column set to appear in the July 2009 edition of Maritime Reporter & Engineering News which disucsses the growing shipbuilding opportunities in Canada. The Author, Peter Cairns, is head of the Shipbuilding Association of Canada and a widely respected authority on the Canadian maritime indusry. Enjoy.
By Peter Cairns (Vice-Admiral, retired)
With apologies to Charles Dickens “it was the best of times, it was the worst of times”. Never in the last fifteen years have the prospects for shipbuilding in Canada been brighter. Yet like a mirage, you can see the oasis but you never seem to reach it. Canada fronts on three oceans. Historically the Atlantic and the Pacific have been the major interest but since the concern for climate change has escalated in importance on the world stage, the Arctic is now getting equal billing. The navy is now planning a special vessel for Arctic operations called the Arctic offshore Patrol ship (AOPS.) and the Coast Guard is planning a new heavy icebreaker. All told the Canadian government is planning to build approximately 55 Navy and Coast Guard ships over the next 30 years to meet its maritime security requirements. These programs coupled with the forecast in-service support requirements are projected to generate $Can 50 billion in Canadian industrial opportunity over the period.[i]
The Navy
The Navy has five major shipbuilding and repair programs on its to-do list. The 12-ship Frigate Life Extension Program (FELEX) is underway. Work has been awarded to Irving Shipbuilding Canada for seven ships and Washington Marine Group for the other five. The systems integration for the entire project has been awarded to Lockheed Martin Canada. A contract for the in-service support for the Victoria class submarine has been awarded to a consortium that will do the work in Victoria Shipyards in British Columbia. Unfortunately the centerpiece of the Navy’s renewal program has not fared so well. The $Can 2.1 billion Joint Support Ship (JSS) has been terminated. The three-ship JSS program is desperately needed to replace Canada’s aging Operational Support ships. The two consortia competing for the project were both found non-compliant due to cost. At this time option studies are being done to determine what other configurations might be more affordable.
While the FELEX program represents the mid-life renewal of the frigate fleet, at the same time the Navy is planning the replacement of the frigates and destroyers by a 15-ship program known as the Canadian Surface Combatant (CSC). In my view this should be a 16-ship program but the Navy found it necessary to retire one of its four Ant-Air warfare destroyers because of age and cost and subsequently by some magic calculation the requirement for sixteen became a requirement for fifteen. A few years ago the minimum requirement was calculated and confirmed as 24 destroyer/frigate types. Now with Canada’s small blue water navy deploying in all the world’s oceans 15 is deemed adequate. This is a calculation that does not make sense in maritime defense terms.
The AOPS program has a high profile with the government, the public and the industry. It will be much less sophisticated than an all-up frigate but will have a capability to operate in ice during the northern navigation season and patrol Canada’s Exclusive Economic Zone (EEZ) as required. A ship similar to the Norwegian Coast Guard’s Svaalbard class is likely. A Letter of interest to contractors is expected soon.
Canadian Coast Guard (CCG)
The CCG requires 12 mid-shore patrol vessels. Three requests for proposal (RFP) have been issued for these small vessels. The first two were cancelled, as the bidders were found non-compliant. In both cases the CCG deemed the bids too expensive. The third closed in early June. Hopefully this will be third time lucky. On the CCG’s list of near term needs, in addition to the mid-shores, are several science and fisheries research vessels and a heavy icebreaker.
Lessons from the JSS
The lessons from the JSS program are instructive and applicable to all programs. Leading the list is what I term the cost versus requirement disconnect. In the Canadian system the Navy sets the requirement and the government decides the funding for the project. In this case the funding was allocated in 2004 dollars. Simply put the ship the Navy wanted could not be built for the money provided. To make matters worse cost was a mandatory requirement and when neither consortium could meet the cost they were found non-compliant. Government requirements not directly associated with the building of the ship are major cost drivers. The government is risk adverse and desires to offload all risk onto the contractor. Naturally the contractor must put his costing of risk into the bid price. This cost is significant in a two billion dollar design and build program. A much more practical and fairer system would be a sharing of risk between the government and the contractor. A recent U.S. Government Accounting Office shipbuilding study clearly identified many of the issues we face north of the border. In part it recommended “…. balancing requirements and resources early, retiring technical risk and stabilizing design at key points…”[ii] Where the Canadian system fails is that we have not got the requirements and resources balanced.
Recommendations to Government
Practically speaking there are only several shipbuilders in Canada with the capability to build the Navy and Coast Guard’s most complex ships. The Shipbuilding Association has recommended that we prequalify those yards and then allocate work to the ones that are best able to do it. This would allow the builder and the government to begin working together much earlier and go a long way in solving the requirements/resources balancing act. It would also open up competition to smaller yards for the myriad of other programs without having to bid against the so-called “heavy hitters”.
Commercial Shipbuilding
Commercial shipbuilding in Canada is tough. We have not been blessed with a Jones Act that requires domestic ships to be constructed in Canada. Canadian shipowners favor low cost builders in China or will pay higher costs in Europe for preferential financing. Canada’s Structured Financing Facility has provided some stimulus to foreign small ship owners and to some Canadian owners but I think it is safe to say that it has not met its goal of encouraging Canadian owners to build in Canada. The Shipbuilding Association has recommended that Canadian shipowners be allowed to combine the Structured Financing Facility with Accelerated Capital Cost Allowance. To date this has received little support from the finance department.
That said there are some successes in commercial shipbuilding. East Isle shipyard continues to build sophisticated tugs for the world market. Halifax Shipyard has recently won a contract to construct an offshore supply vessel to support the Deep Panuke gas project. Kiewit Offshore Services is building ferries. Davie Yards has five vessels under construction and Vancouver Shipyards recently designed and built the 125-car ferry Island sky. Naval architect Robert Allan continues to have his innovative tug and small ship designs built by shipowners all over the world. It is a point of pride to note that the much-heralded Foss hybrid tug was designed by Robert Allan and the hybrid propulsion plant by AKA of Dartmouth Nova Scotia. Victoria Shipyard continues to successfully refit cruise ships on time and on budget.
Conclusion
There is more talk about shipbuilding than I can remember. Studies are being done on all aspects of the government’s procurement process. However talk and studies are cheap. The bottom line remains to get the work in the yards and the ships in the hands of the sailors that need them.
About the Author
Peter Cairns (Vice-Admiral, retired) served in the Canadian Navy for 39 years, retiring in 1994. His sea commands included the submarine Onondaga, the destroyers Fraser and Margaree, the 1st Submarine Squadron and the 5th Destroyer Squadron. In his senior appointments he served as Assistant Chief of Staff for Operations to the NATO Supreme Allied Commander Atlantic (SACLANT), the Commander of Maritime Forces Pacific and the Commander of Maritime Command. In 1997 he was appointed President of the Shipbuilding Association of Canada. He serves also as President of the Canadian Institute of Marine Engineers, the Defence Industry Advisory Committee, the Germanischer Lloyd Canadian Committee, and the Advisory Board of the Institute of Ocean Technology. Admiral Cairns is a Commander of the Order of Military Merit.