Preserving capacity, General Tom Lawson, Chief of the Defence Staff, Keys to Canadian SAR
Issue link: http://vanguardcanada.uberflip.com/i/533940
S Shipbuilding www.vanguardcanada.com JUNE/JULY 2015 31 val shipbuilding experience or a suitable facility, this did not appear a problem for TKMS, which had extensive experience in providing management to shipyards in less developed countries – after 20 years without a naval building program, Canada fit this category. The straightforward project for three underway replenishment vessels had grown into a more ambitious project. Throughout 2007 major increases in requirements emerged and the basic re- plenishment ship morphed into a support and troop carrier, with roll-on, roll-off capability for some 100 vehicles and 500-600 soldiers, and a command center for directing operations ashore. National Defence's (DND) ambitions quickly outstripped the cost. The initial budget of $2.9 billion, which included a 10-year in-service support contract, was never realistic for the evolving design. Yet, to be compliant, both teams were compelled to ac- commodate the growing wish list. TKMSC responded by adding Flensburger Shipbuilders, a lead- ing designer and builder of roll-on, roll-off car ferries, as a design partner. In recognition of a potential budget shortfall, Flensburger prepared their own cost analysis and concluded that the price could be met if the department would accept three ships built to a com- mercial standard. DND refused to budge, suggesting that TKMSC was overstating costs. The department advised both TKMSC and SNC that Canada would not accept any cost increases for the de- sign as it was proposed. As a result, an alternative proposal based on Flensburger's commercial design was never offered. In early 2007, TKMSC made a presentation to the JSS Program Office, demonstrating the difficulty of meeting the project imple- mentation price and informing DND that the baseline budget for the program was six years out of date – in the intervening years steel prices had increased by nearly 100 percent; copper by 400 percent; and engines costs had doubled. In addition, engine delivery schedules had increased by a full year over the schedule prepared by DND in 2002. But TKMSC's appeal was to no avail – DND did not adjust the budget or the schedule. By May, TKMS DE had performed a bid evaluation that result- ed in a no-bid decision. But believing that Canada would either reduce the number of ships or down-scope the design require- ments, senior management in the parent company gave its sub- sidiary approval to go ahead with a bid. During the final DND program review in June, TKMSC again repeated its concerns about the unrealistic overall budget. It is my belief, however, that DND opted to proceed after being emphati- cally assured by the SNC program manager that their team could deliver the JSS at the budgeted price. It appeared to have been a spur of the moment decision by the project manager, possibly in order to gain favour with the department. At this stage, however, Murphy's Law took over. In February 2008, just before the proposal deadline, Vancouver Shipyards with- drew from the SNC team and the competition. The reason was re- ported to be schedule risks and inability to meet the budget price. It was also reported that the yard did not have a suitable facility unless the government floating dock was made available, which would have meant repair and maintenance on other naval vessels would not have been possible for the duration of the JSS program. At about the same time, ironically, TKMSC received confirma- tion that Kiewit was withdrawing after revealing the true cost to modify their yard to meet the requisite naval standards. I was nev- er told exactly how much the yard conversion was going to cost, but one could surmise that it was in the range of $500 to $600 million. Kiewit was a division of an American firm and the parent company was adamant that the yard conversion be included in the price of the program, not as a partial investment by Kiewit. It also appeared that both shipyards were facing manpower short- ages and cost issues. As a result, by March 2008 both primes found themselves with- out shipyard partners. SNC rushed to confirm a partnership with Davie Shipbuilding, which was now under Norwegian ownership, but in subsequent meetings with Davie management it was learned that the commitment was nonexclusive. In fact, Davie was posi- tioning itself to be available to whoever got the JSS contract. For reasons that were never shared with me, TKMS Germany decided to stand by its initial partner, Kiewit, and proceed by in- cluding the high capital cost in its bid. (This was apparently sup- ported by advice from TKMSC's Canadian partners and consul- tants stating that Canada would in the end find the extra money). I suspect TKMSC felt that changing horses at such a late juncture would eventually cause a credibility problem. When SNC and TKMSC submitted their project definition pro- posals, their bids were reported to be $700 to $800 million over budget. Consequently, the JSS program was cancelled and the government launched a study that led to the National Shipbuild- ing Procurement Strategy, the outcome of which has been the selection of shipyards on the East and West coasts to build com- batant and non-combatant vessels, respectively. Conclusion The political imperative in Canada is to have a stable shipbuilding industry, one that can also serve the country's maritime defence needs in the future. It is a noteworthy objective. But how to get there is more complicated than having the political will to dole out sole source contracts. In the first round of the joint support ship program, TKMSC had the full support of its globally experienced parent company; Vancouver Shipyards, an all Canadian yard, had assistance from some of the best U.S. naval architects to develop its proposal based on a realistic understanding of costs. Neither bidder had all the capabilities to be prime on such an ambitious multi-ship- building project, yet even with highly capable support both bids greatly exceeded the $2.9 billion budget. Crucially, the backing experience to both teams, especially TKMS, meant there was a certain amount of "safety" to both bids – a large parent company that DND could "lean-on" to ensure a successful outcome. This may not be the case with the current reissued program. Unfortunately, home grown industry has a sad history of sched- ule delays and cost over-runs on programs much smaller than the JSS. The two shipyards selected can buy help from designers and consultants, but this advice does not carry a commitment of contract performance. An arduous and costly learning curve might result, one the government will struggle with for the next decade. It is very possible that the JSS, when delivered, will have less capability and at higher cost, than the initial multi-mission variant that was cancelled in 2008.