Way Ahead

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Implementation of a National Shipbuilding
Procurement Strategy Steve Durrell President ,
Irving Shipbuilding Inc. COExThe Road Map to A
Sustainable Industry
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Brief History

• Due to over capacity in the Mid 80s Government
  introduced Shipyard Rationalization Assistance
• Shipyards Closed in
• British Columbia
• Ontario
• Quebec
• Atlantic

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Shipyard Rationalization Assistance
Source Industry Canada Website
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Shipyard Capacity

• Today our industry is only sustainable if we have
  a federal program
• Canada can not afford any further reduction if we
  are to meet pent-up demand
• Contracts are required immediately to maintain
  current capacity

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Overview

• Existing Marine procurement for fleet renewal
  requirements contains high risk elements, it is
  very complex, time consuming and expensive for
  both Government and Industry.
• Stakeholders recognize the need for change given
  significant government shipbuilding requirements
  and the need to ensure capable and qualified
  Canadian shipyards have continuous work in order
  to maintain a strategic asset.
• Our proposal was submitted in response to the
  July 27, 2009 National Shipbuilding Procurement
  Strategy Consultations. Most Western nations
  have chosen a model similar to our submission.

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Future For Canadas Shipyards

• Majority of work will be Government
• Some commercial in booming markets this market is
  not predictable.
• Perhaps some niche markets
• Lake Vessels
• Provincial ferries and tugs

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Continuous Procurement (New Builds) Essential to
Maintain Ongoing Viable Industry

• History of the Boom/Bust industry
• Canadian Patrol Frigate (CPF)contract signed
  1983
• Maritime Coastal Defence Vessel (MCDV) contract
  signed 1992
• Next Navy MCP new build contract ?

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Government New Build Solicitations

• Cost of bidding is very high and the time from
  Request for Proposal (RFP) to contract award is
  exceptionally long
• CPF 7 years from expression of interest to
  contract
• Bid cost 20Million
• MCDV 4 years from expression of interest to
  contract
• Bid cost 8Million
• JSS solicitation suspended project exceeds
  budget - million spent
• MSPV bid 3 times before award
• Arctic Offshore Patrol Ships (AOPS) Awaiting
  communication.

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National Shipbuilding Procurement Strategy (NSPS)
Consultations were held with Industry on July
27th 28th, 2009
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Some of the Assumptions (or Objectives) of the
NSPS

• Federal Ships will be built in Canada
• The Finite Federal demand will be over a 30 year
  horizon
• Limited number of yards would be involved
• Government ship operators will level-load the
  requirements (No Boom Bust)

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National Shipbuilding Procurement Strategy (the
Road Map)

• Establish two (2) Centres of Excellence (COEx)
  for fleet renewal Major Crown Projects (MCP)
  through a competitive qualification process.
• One COEx would be qualified for medium, complex
  combatant vessel capability.
• One COEx would be qualified for large, complex,
  non-combatant vessel capability.

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FAQs

• What is the competitive Process?
• What is the Contracting Process?
• What do other western countries do?
• How is value for money achieved?
• What are the benefits of a COEx approach?
• What about the SMEs and small yards?
• What is the Irving and Davie deal about?

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Competitive Process

• Utilize the proven and successful Procurement
  Strategy, recently used on other Major Marine
  Procurements prepared in collaboration with
  Industry
• Competitive Solicitation of Interest and
  Qualification Process (SOI-Q) on MERX
• Compete Capability not Scope of Work
• Utilize Appropriate (risk reducing) Qualification
  Criteria
• Adequate existing facilities
• Qualified resources skilled labour
• Management strength and experience
• Financial strength
• Recent proven experience in ship construction
• Past performance

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Contracting Procedures

• Award a Contract to the 2 Facilities emerging
  from the SOI-Q process
• Utilize (Shipbuilding) Supply Arrangements (SSA)
  as basis for contracts that ensure Best Value.
• Negotiate contracts by particularized project.
• Build incentives into the projects, reward
  performance and share savings with Canada.

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How do other Western Countries do this?

• The COEx model of contracting is similar to other
  countries
• U.S.A.
• U.K
• France
• Australia

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Value for Money

• SSA would use contract cost principles 1031-2 and
  include contracting templates to ensure fair
  value utilizing
• Annual Rate Negotiations
• Contract Audits For Profit Limitation
• Earned Value Performance Measurement
• Continuous Improvement Incentives Through Shared
  Risk
• Integrated Project Management Teams
• Use contract incentives for continued incremental
  infrastructure investment

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Benefits of a COEx approach

• Canada can preserve Sovereign Capability and
  Maintain shipbuilding as a Strategic Asset for
  Canada
• Provide a steady work load into the future (30
  Years)
• Retain and develop high value jobs with subject
  matter expertise
• Provide stable facilities for the cost effective
  delivery of all MCPs
• Allow for incremental investment to keep pace
  with a world wide industry
• Reduce industries cost of proposals, more money
  for facility investment and HR development

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Benefits of a COEx approach (continued)

• Provide the basis for a long term shipbuilding
  industrial strategy
• Expedite the government procurement process,
  while respecting contract policy
• Provide earlier delivery of vessels
• Reduce Canada's Project Management Office level
  of effort
• Reduce Canada's costs in the project definition
  and implementation phases
• More available for the ship and project
  deliverables
• Reduce risk to the program, the Contractor, and
  to Canada

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SMEs and Small-yard Benefits

• Facilities designated as a COEx would not be
  allowed to bid on non-MCPs
• Sub-contract work to small shipyards, where
  geographically feasible
• Provide significant contracts to Small and Medium
  Enterprises (SMEs) and
• Include shipyards on the West Coast, Ontario and
  Newfoundland for participation in In-Service
  Support work based on the eventual home port
  location of the new vessels

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Other Shipyards (non-COEx)

• Facilities designated as a COEx would not be
  allowed to bid on non-MCPs
• Utilize National Supply Arrangements
• Pre-negotiated contracts
• Work competed on capability and price
• Lowest priced compliant bid wins
• Benefits
• Creates a natural commercial balance
• Win/win potential for all small shipyards in
  Canada
• Minimum bid period, cost and risk
• Stimulate economy gt 100M/year potential

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Irving Shipbuilding and Davie MOU Significant
Benefits to Canada

• Technology, IP and Process sharing
• Project and contract management collaboration
• IRB coordination and partnership for maximum
  Canadian benefit
• Distinct Regional Capabilities in a
  collaborative teaming agreement
• Sub-contract where applicable
• Best Practice teamwork and sharing
• Value for money structure. Ensure value for
  money for Canada.

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Industrial and Regional Benefits (IRB)

• Company with facilities designated as a Centre of
  Excellence will
• - Create immediate high value jobs
• Prior to contract signing, commit to direct
  Industrial Regional Benefits exceeding 60 of the
  contract value
• Guarantee to achieve indirect benefits through
  offsets so that the total industrial benefits to
  Canada meet or exceed the contract value

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Industrial and Regional Benefits (IRB)
(continued)

• Spread Industrial Benefits across Canada to the
  maximum extent possible
• Include Aboriginal Business as well as Small and
  Medium Enterprise targets
• The only thing for sure.if the vessels are not
  built there will be no benefits to worry about

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A summary of Benefits form this Procurement
Strategy

• Reduction in solicitation time and cost
• Projects start earlier and therefore earlier
  delivery of vessels and earlier IRBs
• Significant reduction of up-front expenditure for
  Government Industry
• Significant Project / Program risk reductions
• This is a win/win situation for Government and
  Industry
• Best value for money

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The Way Ahead

• Immediate action steps required
• Decision by Government on COEx concept
• Qualify COEx based on overall capability
• Sign long term agreement
• Get on with the business of building the Federal
  Fleet.

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Thank You!