National Shipbuilding Procurement Strategy Update

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OTTAWA, ONTARIO--(Marketwire - Feb 27, 2013) - Today, the National Shipbuilding Procurement Strategy (NSPS) Secretariat held a technical briefing for media to provide an update on progress made since the signing of the umbrella agreements one year ago this month.

The Strategy was developed and is being implemented using the following five-phased approach:

  • Developing the strategy-Launched in summer 2009 with a Shipbuilding Forum, this phase involved industry consultations. It led to the announcement of the Strategy in June 2010;

  • Selecting the shipyards-A competitive process was launched in summer 2010 and completed on October 19, 2011;

  • Establishing the relationship-This phase is ongoing, but it achieved a major milestone with the signing of umbrella agreements with the shipyards in February 2012;

  • Preparing the yards and finalizing the designs-This is where we are today. The shipyards are undertaking the work required to be able to build Canada''s ships efficiently; and

  • Constructing the ships.

The NSPS is now in its fourth phase, with the designs for the first ships to be built being finalized. A "design-then-build" approach is being followed to ensure that the design work is completed before proceeding with construction. This lower-risk approach will improve the efficiency of the shipbuilding process. These two phases (design and construction) will be repeated throughout the duration of the Strategy.

To date, Canada has negotiated and awarded a number of contracts with the shipyards and progress continues.

  • The selection process for the design services for the polar icebreaker concluded on November 17, 2011, with the announcement of a $10.8-million contract to STX Canada Marine Inc., of Vancouver, British Columbia.

  • In July 2012, a preliminary $9.3-million contract was awarded to Irving Shipbuilding Inc. to conduct a review of the existing Arctic/offshore patrol ships (AOPS) design and specifications and create an execution strategy for the AOPS project.

  • On August 20, 2012, the Government tested a scale model of its future polar icebreaker, the CCGS John G. Diefenbaker, in the world''s longest ice tank. This unique testing facility is located at the National Research Council''s Institute for Ocean Technology in St. John''s, Newfoundland and Labrador.

  • On February 21, 2013, the Government of Canada announced a $360-million investment to extend the life of the Canadian Coast Guard fleet, which will benefit the Canadian shipbuilding industry across the country and build on the Government''s commitment to supporting jobs and growth.

  • On February 22, 2013, a $13.2-million design definition contract for the new offshore fisheries science vessels (OFSV) was awarded to Vancouver Shipyards Co. Ltd. The contract is one of a series leading to the delivery of new ships for the Canadian Coast Guard, starting with the construction of the OFSVs in 2014.

  • Two other contracts with Vancouver Shipyards were also announced on February 22, 2013-an initial agreement valued at $1.4 million for the Royal Canadian Navy''s joint support ships, and a $1.1-million contract for the review of the polar icebreaker design.

  • Both Vancouver Shipyards and Irving Shipbuilding are undertaking significant infrastructure upgrades valued at almost $200 million and $300 million respectively. These upgrades are at no cost to the Government of Canada.

The Government is following through on its commitment to build ships in Canada. The NSPS will mean long-term jobs and economic growth for the country, stability for the industry, and vital equipment for our men and women in the Royal Canadian Navy and the Canadian Coast Guard.

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Joint Support Ships (JSS) Backgrounder

On July 14, 2010, the Government of Canada (GoC) announced it would acquire two Joint Support Ships (JSS) with the option for a third, to replace the Royal Canadian Navy''s (RCN) Auxiliary Oiler Replenishment ships at a cost of $2.6B (taxes included). Included in this announcement was an indication that both a new design and a Military Off The Shelf (MOTS) design would be considered. The JSS project was integrated in the NSPS when it was developed in 2010.

New Design Option: Canada awarded a contract for Engineering, Logistics, and Management Support (ELMS) to BMT Fleet Technology (BMT). Under the ELMS contract, BMT was tasked on 7 February 2011 to develop an initial design and cost estimate for a JSS design option based on the RCN''s Requirements.

MOTS Design Option: Canada awarded a contract to ThyssenKrupp Marine Systems Canada (TKMSC) on 18 January 2012 to conduct design studies to ascertain the feasibility of adapting the Berlin class EGV II (FGS BONN) ship design to meet Canadian requirements, and to provide the estimated cost of building the existing design. 

The work under these two contracts will be completed shortly, at which point an options analysis will be conducted to select the design that will be the new JSS.

This options analysis will look at the capability, affordability and risks of each design and lead to a JSS design selection decision. The analysis will consider information provided by the designers of the New Design and MOTS Design options, with input from Vancouver Shipyards (VSY) (the Canadian shipyard selected to build JSS), and an independent third party cost validation provided by First Marine International (FMI). KPMG will provide independent expert advice in the development and finalization of the overall design selection process. This analysis will result in the selection of an affordable JSS design that provides the best value to Canada for two ships. The design selection decision is expected in Spring 2013.

Through NSPS and the required Government approval process, JSS will go through a series of check points to validate that the required capability can be achieved within the established affordability envelope. In the case of JSS the next check point is part of the design selection process. As described above the cost estimates for the design options will be reviewed providing confirmation that the selected ship design provides confidence of an affordable project.

Once this is confirmed, the selected design will then be passed to VSY to mature the design to a production-ready state. At this time, the estimates fit within the assigned budget to acquire at least two ships.

Throughout this process construction estimates will be matured until substantive costs are provided, again confirming project affordability. At any time throughout this process the project teams along with the shipyard have the ability to exercise design-cost trade-offs to ensure affordability and delivery of the required capability to the Navy.

Equipment Selection

On 19 October 2011, the GoC selected Seaspan''s VSY as the prime contractor to build the National Shipbuilding Procurement Strategy (NSPS) program''s non-combat vessels.

As the prime contractor for non-combat vessels, VSY will be responsible for the construction of all Joint Support Ships (JSS) at their shipyard in North Vancouver, British Columbia. The contract which will follow the selection process includes the sourcing by VSY of all equipment and major services from suppliers through competitive bid processes. Key requirements in VSY''s supplier selection process may include aspects such as technical capability, fit for purpose, ongoing product support, timely delivery, price and supporting VSY''s commitment to providing Industrial and Regional Benefits equal to 100% of the value of the purchases.

Companies interested in becoming a JSS supplier can register online at: http://www.seaspan.com/supply_chain_registration.php

Project Timelines*

Project Milestone   Description   Estimated Date
Design Selection   Selection of an affordable JSS that demonstrates best value to Canada   Spring 2013
Production Design and Engineering   To mature the selected design to a production ready state   2014
Build Contract   To build and deliver the JSS   2015/2016
IOC   Initial Operational Capability of the first JSS   2018
FOC   Full operational capability with two JSS   2019

*Note that these dates are estimates for planning purposes and will develop as the project progresses through ongoing work with the shipyard.

Project Budget

The project budget of $2.6B (taxes included) was established applying the costing principles in accordance with TB guidelines and includes a 15% contingency (approximately $300M) and applies an escalation factor 2.7% for the ship construction. Following cancellation of the first JSS procurement in 2008, DND undertook an options analysis to consider how best to meet the Department''s needs for Joint Support Ships. This analysis resulted in the development of a new cost estimate and a revised Statement of Operational Requirements for the acquisition of two Joint Support Ships. The budget for the relaunched JSS procurement was drawn directly from the original procurement budget, with two principal adjustments to account for escalation and tax as follows: a cost-escalation modification was applied to the ship construction costs. The escalation correction, which was intended to account for loss of purchasing power for ship construction labour and materiel, was based upon the DND Economic Model and was later validated by Treasury Board Secretariat prior to approval. The exact escalation factors varied over a wide number of distinct shipbuilding cost categories, but when averaged out the escalation rate that was applied was approximately 2.7% per year. In addition to the adjustment to account for escalation of costs, a second modification to the JSS procurement budget was made to account for changes in the application of national tax requirements.

Life Cycle Costing

As part of the procurement process, DND provides estimates of in-service support costing, as well as personnel and operating costs of the fleet over its defined life. These estimates are informed by work conducted during the definition process and are regularly refined to reflect the most accurate information available. 

In-service support includes equipment activities such as engineering modification, obsolescence management, maintenance, repair, testing, upgrading, supplying or sourcing of spare parts, maintaining documentation, and training. 

ISS cost estimates are refined as projects develop through design, into production and as they enter service, with the fidelity in these cost estimates increasing over time. For the Joint Support Ships project, our preliminary estimates indicate that:

  • The total cost estimate for the acquisition of two ships is $2.6 billion.

  • The estimated cost of 30 years of in-service support is approximately $1.9 billion for two ships. This estimate is subject to refinement once the JSS equipment selections are finalized and ISS contract development and negotiations are conducted.

  • The estimated costs associated with 30 years of Personnel and Operating are approximately $2.6 billion. This is based on current DND estimating methodology and a notional operational profile and target crew sizes.

Thus, the preliminary estimated life cycle cost for the Joint Support Ships is $7.1 billion.

Life-cycle cost estimates will be adjusted as the design matures, equipment is selected and the ships are constructed.

Estimated Life-Cycle Costs
Total indicative cost for two ships (incl. GST)   $2.6B
In-Service Support (30 yrs)   $1.9B
Personnel & Operating Costs (30 yrs)   $2.6B
TOTAL   $7.1B
Contact:
Media Relations
Public Works and Government Services Canada
819-956-2315

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