1. National Shipbuilding Procurement Strategy Status Update
October 2012

2. The Environment
Over the next 30 years, Canada will need to renew the Royal Canadian Navy and Coast Guard fleets to ensure operations can continue in all of Canada’s waters, including the Arctic.
Canadian Shipbuilding Policy states that the Government will procure, repair and refit vessels in Canada subject to operational requirements and the continued existence of a competitive domestic marketplace.
Canada’s previous approach to building ships was project-by-project with no long term strategy resulting in a “boom” and “bust” cycle. 2

3. What is NSPS? The Strategy was developed and is being implemented to:
Developing the Strategy
Selecting the Shipyards
Establishing the Relationship
Preparing the Yards & Finalizing the Designs
Constructing the Ships
The Strategy was developed and is being implemented to:
Recognize the strategic importance of a strong domestic shipbuilding industry
Support the industry’s sustainable development through a long-term approach to federal procurement
Ensure that Canada’s needs for large vessels can be met in a timely and affordable manner
Seek long-term benefits over short-term fixes

4. Developing the Strategy
Canada launched broad consultations with industry during summer 2009 to inform the strategy development
Industry expressed a high level of support for the development of a long-term strategy
Most respondents supported establishing a strategic relationship with two shipyards to build all large ships
Culminated in June 3, 2010 announcement

5. Elements of NSPS
Select 2 Canadian shipyards to build Canada’s large vessels, one to build Combat Vessels and the other Non-Combat Vessels
Compete smaller vessels procurements amongst Canadian shipyards other than the 2 selected yards and their affiliates
Repair, maintenance and refit – Business as usual; competitive procurements
Cabinet approved the National Shipbuilding Procurement Strategy and the NSPS was announced by Ministers on June
Two shipyards will be competitively selected to build 28 large vessels, valued at $33B: one to build combat vessels and the other to build non-combat vessels.
Combat Vessel Work Package: Arctic/Offshore Patrol Ship (AOPS), Canadian Surface Combatant (CSC)
Non-Combat Vessel Work Package: Offshore Oceanographic Science Vessel (OOSV), Offshore Fisheries Science Vessel (OFSV), Polar Icebreaker, Joint Support Ship (JSS)
116 smaller vessels, valued at $2B, will be set aside for competitive bidding by other shipyards not affiliated with the shipyards selected to build large vessels.
Ship repair and refit work, valued at $ M per year, will be competed as per existing procurement practices
What’s new about NSPS?
The size, duration and potential impact of the long-term agreements and subsequent contracts make the Strategy a new and unique undertaking
First time Canada has entered into a long-term relationship with shipyards
First time DND and CCG requirements have been combined
First time Canada has combined fleet requirements into packages being offered to shipyards 5

6. Selecting the Shipyard
NSPS Industry Day for Canadian shipyards interested in building large ships
August 2010
Issue of the Solicitation of Interest and Qualification to all Canadian shipyards
September 2010
Issue of the Request for Proposals to qualified bidders
Issued Feb 7, 2011, Closed July 21, 2011
Evaluation of Proposals received from the bidders
Selection announced October 19, 2011 6 6 6

7. Successful Attributes
Engagement
Leadership / Governance / Decision-Making
Use of Independent Third Parties 7 7 7

8. Engagement
Extensive consultation with bidders took place on the concept, the requirements and the evaluation process and criteria
The procurement process was driven by transparency and collaboration
Pro-active communication throughout the procurement process 8 8

9. Governance No Political Involvement
Deputy Ministers’ Governance Committee made key decisions in an open and transparent manner
Unique dispute avoidance and issue resolution processes
Used the governance structure to resolve issues
No lobbyists
No legal disputes or challenges of the process or the results 9 9

10. Use of 3rd Parties Internationally recognized experts were engaged to:
Monitor Fairness
Assess Capability and Performance Benchmarking
Provide Expert Advice
Assess Financial Proposals
Third parties:
Attended governance meetings to answer DM & ADM questions directly
Provided written attestations that processes, actions and decisions were fair, reasonable and prudent 10

11. Other Attributes Simplified Solicitation of Interest & Qualification
Value Proposition
Umbrella Agreements
Keeping the results secret until the shipyards were informed
Communications 11

12. The New Approach to Procurement
Listen to those with a stake in the process - clients and suppliers in equal measure
Suppliers often have valuable ideas about how to efficiently supply the government with what it needs
Adopt a governance or decision-making process that allows for real business choices to be made by both clients and procurement staff with direct input from suppliers
Make sure there is a robust issue resolution process to address any concerns and manage risks in a timely manner
Seek advice and input from those who are knowledgeable or expert but do not have a stake in the process

13. Establishing the Relationships
Long-term nature of the strategic relationships demanded a strong foundation
Canada and the two selected shipyards signed Umbrella Agreements in February 2012
The Umbrella Agreements are long-term strategic sourcing agreements that contain the framework for business and relationship management
The UA is a long-term strategic sourcing agreement that contains the framework for business and relationship management, such as:
Value Proposition commitments and obligations to be fulfilled, and consequences of shortfalls
Productivity improvement monitored through periodic benchmarking
Conditions precedent to the award of ensuing contracts
Pre-agreed commercial terms for the ensuing contracts
Negotiation rules and processes to jointly mitigate risks and reduce costs under an open-book environment
Expeditious issues resolution process

14. Preparing the Yards & Finalizing the Designs
In order to build the ships efficiently the yards need to modernize their infrastructure
An independent 3rd party expert has defined the required Target State and will assess the shipyard’s progress in attaining it
Infrastructure upgrades are being done at no cost to Canada
Initial ships in both Combat and Non-Combat packages have designs that must be finalized for production of the vessels
Shipyards need to review and finalize designs
Consultations with shipyards have lead to the decision to proceed on a “Design then Build” approach
No design work done yet for Canadian Surface Combatants

15. A Phased Approach to Shipbuilding Contracts
Contracting with shipyards to build ships will generally take place in three phases:
Ancillary contracts – understand the requirement and the initial design
Production / Construction Engineering contracts – mature the design so it is ready to be built
Construction contracts to build the ships
The establishment of the timelines for the phases is part of the negotiations with the shipyards
The phased approach provides less risk and will improve the efficiency of the shipbuilding process
Procurement strategy for the design, development and integration of the Canadian Surface Combatant will be determined following industry engagement

16. Benefits of “Design then Build”
Collaborative/Iterative understanding of requirements
Furthering ship Design to Production Level Drawings before Construction Contract
Design/Cost Tradeoffs before Construction Contract
Simulation & Modeling to attain cost fidelity before Construction Contract
Risk mitigation & appropriate risk sharing

17. Ship Construction Contracts
These contracts will be:
Negotiated in accordance with the rules established in the Umbrella Agreements
Subject to separate Government approval
Used by the shipyard to deliver the value proposition commitments and capability improvement commitments of the Umbrella Agreements
Current plans show construction of first Non-Combat ship (Offshore Fisheries Science Vessels) beginning in 2013 and the first Combat ship (Arctic/Offshore Patrol Vessels) beginning in 2015

18. Opportunities for Broader Marine Industry
Combat Systems
Auxiliaries
Outfit and Furnishing
Hull
Propulsion and Electrical
Warship construction provides work to a broad spectrum of the marine industry, much of it high tech
Shipyards need to bring along partners / suppliers to increase the Canadian participation in projects
Equipment represents a significant portion of the ship construction cost, thus suppliers will play an important role
Components sourced offshore will be matched dollar for dollar by IRBs 18

19. Current Status Summary
Shipyards have:
Hired senior staff including engineers, managers and production specialists
Progressed with their plans to improve their physical facilities
Canada has:
Been actively maturing its ship requirements
Reviewing its processes to ensure momentum is maintained
Been in continuous communications with the shipyards on the way ahead
Hosted supplier engagement events across the country to introduce companies to the shipyards
The Broader Marine Industry is
Participating in supplier engagement events
Preparing for supplier and sub-contracting opportunities

20. Continuing Industry Engagement
Canada continues to recognize the value of early engagement with industry before decisions are made
Upcoming industry engagements this fall will include:
Canadian Surface Combatants
Strategy for warship design, development and integration
In Service Support for AOPS & JSS
Small Ship requirement – DND Large Tugs

21. Conclusion We are 1 year into a 30 year program
Much has been accomplished
The shipbuilding process is complex
Need to get designs and production details right BEFORE cutting steel
Need to work with shipyards to ensure they are ready to build ships efficiently and to avoid boom and bust
We’re on track to replace Canada’s large ships