Is the National Shipbuilding Strategy failing to sufficiently support Canada’s domestic maritime industry?
When the then-minister for Public Works and Government Services Rona Ambrose announced back in 2010 that the National Shipbuilding Strategy (NSS) “will bring predictability to federal ship procurement and eliminate cycles of boom and bust, providing benefits to the entire marine industry,” it was assumed the policy would offer more federal ship procurement opportunities to more Canadian manufacturers.
Although there are several global conglomerates with Canadian offices, such as BAE, Lockheed Martin, Rolls-Royce, and L3, for example, supplying equipment to the Joint Support Ship (JSS) and the Canadian Surface Combatant project (CSC), no Canadian company has been selected to supply critical propulsion equipment to these vessels.
The prime contractors for delivering Canada’s NSS – Irving Shipbuilding in the case of the CSC and Seaspan for the JSS project – granted propulsion system contracts to European engine builders, and are doling out contracts to preferred suppliers rather than offering opportunities to established Canadian companies. Of note, in the case of the CSC project, the decision to stay with a European propulsion system was by direction of the Government of Canada.
Of course, Canada does not currently have a domestic marine engine builder and to change out a propulsion package from the original design can cause expensive design changes. Nevertheless, under the Industrial and Technological Benefits Policy (ITB) – a scheme introduced in 2014 – there are Canadian firms with the capability to deliver propulsion train components and those companies awarded defence contracts should be encouraged “to do business in Canada” equal to the value of their contracts.
“I think this is a big issue,” says Robert Dimitrieff, President, Patriot Forge Co. “These ships, based on existing designs, are simply being assembled in Canada with much of the most critical equipment and systems, particularly propulsion and related equipment, brought in from overseas, despite there being domestic capability for the projects. How this all fits in with the National Shipbuilding Strategy I don’t know.”
Patriot is the only forging company in Canada that can actually produce complete forged and finish machined solutions for a ship’s shaft line system. The company also supplies artillery components for 120mm, and 155mm guns as well as mortar tubes for the US Army. “But the Canadian government regularly and consistently buys this equipment from overseas suppliers which ensures we will never be in the Canadian supply chain,” says Dimitrieff.
“I have no idea why that is. It doesn’t make any sense at all to me. Many Canadian SME firms have very high capability to deliver the NSS requirement, but they are not given a fair shot to compete to supply to these programs. The NSS just isn’t working as we and perhaps even the government understand it was intended to work. It completely ignores the long-term view of strategic capability of supply – something, I understand, was one of its primary objectives,” he says.
Despite Canada having the manufacturing capability and knowhow to produce the strategic core components required of naval shipbuilding, Dimitrieff suggests that few of these companies and systems are being integrated into the supply chain due to a lack of governmental understanding of Tier 2 or Tier 3 level supply.
“Contracts are awarded to the larger well-established European integrators which have their own proven, established European vendors in their supply chains. Unless compelled by the Government of Canada to consider looking at Canadian suppliers, then there is zero incentive for them to consider Canadian suppliers for those complex components.”
He believes it should be mandatory that strategic, critical components are produced within North America or possibly in combination with other close allies that have strong, robust chains of supply, in a way not dissimilar to the defence procurement processes designed to protect British and Australian maritime industries.
Equally concerned is Terry McGowan, the President and CEO of Burlington-based Thordon Bearings, the globally recognised leader in water lubricated propeller shaft bearing technology. Given that Thordon, a Thomson-Gordon Group company, was omitted from both the JSS and CSC projects is particularly surprising, given the company’s long and successful history in naval propulsion, supplying bearing systems to over 40 navies around the world, not least with Royal Canadian Navy (RCN) and Canadian Coast Guard (CCG) projects.
Thordon played a key role in the success of the RCN Halifax-class frigates, which the CSC will replace and has recently supplied propeller shaft bearings to Canada’s new Harry DeWolf-class Arctic and Offshore Patrol Vessels. The company is also supplier to the CCG of a unique shaft seal that was developed under the IRAP and BCIP programs – federal R&D programs that support the development of new technologies for use in Canada and for export.
“It is a chess game,” says McGowan. “The policy is complicated and lacks transparency. Canadian companies cannot find out the details or hold accountable those responsible for administering the program.” McGowan suggests the problem starts with the Government of Canada guiding shipyards who typically want to deal with one propulsion integrator that takes on the risk of the entire propulsion system, and simplifying their supply chain.
“The government appoints the shipyard as the prime contractor. The shipyard then appoints the engine builder as the key system integrator, which then contracts out to their preferred suppliers, who subsequently go on to subcontract work to their preferred component manufacturers. Most often, these are not Canadian companies. The Canadian content requirement is lost,” he says.
For example, while Thordon Bearings was involved in early-stage discussions of the RCN JSS project and advised Seaspan and the government on the use of water-lubricated bearings, the European system integrator then sub-contracted its preferred suppliers, which in turn ended up signing bearing supply contracts with an individual European supplier.
“Canadian ships are being built but some of Canada’s leading suppliers are not being given the opportunity to quote on many of these projects, despite some of these companies having a long, successful history supplying naval projects at home and abroad,” says McGowan.
“Under the current defence procurement process, it is likely that shaftline systems will be supplied to these vessels that are at best adequate. They are certainly not the best available especially when the best available performance and lowest through life costs are provided by Canadian equipment manufacturers.”
Dimitrieff agrees, explaining that while Patriot as a Tier 3 Supplier has supplied forged machined parts to systems built for US Naval programs, including destroyers, submarines, and aircraft carriers, the company is unable to supply to its country’s own warships.
“I have been trying to have conversations for more than five years with the right people in the supply chain about how we can get involved as a potential supplier. I think it is easier for these large global scale, European based prime contractors, and system integrators if they don’t have to include new vendors; they see it as less risky. The reality is that there is no risk involved in using Patriot Forge. We are a very capable, world-class provider involved in a number of high-profile projects in a number of critical supply chains. We are proven and capable of delivering best in class solutions to the most exacting requirements.”
Dimitrieff thinks the failure of the ITB system is driven by the battle for ideological priorities. There is a constant pull between the desire for the lowest cost compliant bid to the country, and conversely to the larger strategic importance of developing a high value integrated supply chain in Canada. Thus far it seems the former priority has consistently won out. “It’s a shame as the capability exists. If given an opportunity to participate, firms like ours could provide Canada with economic and strategic value,” he says.
While companies are allowed to bank credits to use on future projects (within certain timelines and specific factors) under ISED policy, there is reportedly a backlog in ITB credits that have not been used. And those that have, may not be used in a way that benefits the Canadian people, either directly or indirectly. One example cited by The Globe and Mail would be the case of a $40 million investment in a French fry factory in Alberta.
This kind of investment may produce a limited number of jobs but is questionable in the context of developing Canadian sovereign manufacturing capability, despite the criteria under ITB rules having been met. The key objective of the ISED and ITB policy is to support the Canadian defence industry.
Bodo Gospodnetic, the President of Dominis Engineering Ltd., Canada’s leading propeller manufacturer, says that “Innovation, Science and Industry Canada funds a lot of research in home-grown technology which is wonderful. However, the government is failing to give these same companies the opportunity of getting the technology it has invested in on its own ships. It just does not make sense.”
“I think the NSS’s procurement process is not working as intended. The shipyards and multinational companies are ignoring Canadian manufacturers with proven track records in supplying propulsion components for naval vessels. When we approach the prime contractor to explain what we are doing, we are told we are unable to make a presentation as it will prejudice the supplier selection process. I find this a little rich. They should be giving Canadian companies the same opportunities to compete for the contracts as they give companies in their existing supply chains,” he adds.
Dominis is supplying water jet impellers to the US Littoral Combat Ship program and has supplied spare CP propeller blades for the Canadian Halifax-class frigates.
For many Canadian SMEs, the NSS and ITBs have been something of a lottery and may not have sufficiently supported the county’s domestic maritime industry as one might have expected. Certainly, this is the perception of Thordon, Patriot, and Dominis, all of whom have found the doors of opportunity firmly closed, no matter how hard they knock.
Indeed, such has been the challenges faced by each one of these world-class companies, they joined forces in a Thordon-led consortium to develop the Canadian Integrated Shaftline System (CISS), a complete turnkey propulsion package encompassing the component parts produced by each of the three companies: shafts, bearings, seals and propellers.
“With Thordon, Patriot, and Dominis coming together in this consortium we can ensure our voice is heard, we are louder collectively,” says Gospodnetic. “Individually, we were all banging our heads against a brick wall but CISS, hopefully, offers a better total value proposition. It will encourage the system integrators to open the door and at least listen to what we, as a consortium, have to say.”
Whether the rules are flawed or just open to differing interpretations, there is no denying the 2014 ITB Policy and CCV policy by ISED appears to have failed to create the kind of opportunities expected ten years ago.
Given what the government said at the time that NSS is all about “undertaking major ship procurements in a smarter, more effective, efficient way that sustains jobs, strengthens the marine sector, and provides the best value for the taxpayer”, then there does appear to be a significant gulf between principle and practice.
“The strategy was developed to invest in Canada, to support workers in Canada, to support Canadian technology, to reduce procurement costs, but it really isn’t working as intended. I think the reality is a far cry from the job creation and economic stimulus Gail Shea [then Minister of Fisheries and Oceans] spoke of when the NSS was launched,” says McGowan.
“Sourcing a state-of-the-art, made-in-Canada integrated propulsion system that supports Canadian jobs and secures critical component supply makes perfect sense. It meets the originally intended NSS strategy and supports the economy and security of supply. Our Defence procurement policy does not appear to have achieved the intended results for Canadians.”
At the time of writing, the consortium members have been able to engage with European integrators including those involved with the UK’s T26 program, and is hopeful that these discussions will lead to the development of a full naval propulsion shaftline assembly in Canada.
This, of course, is dependent on Canada, the CSC prime contractor and their team of integrators having more meaningful conversations about how CISS can work with them.
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