NSPS Projects – Overview

Status and Future Direction

The $35B National Ship Procurement Strategy (NSPS) was first announced in June 2010 following several failed high profile procurement projects – notably the Joint Support Ship (JSS) in 2008, and perceived challenges in delivering a successful Arctic Offshore Patrol Ship (AOPS) project. Initiated with great optimism, FrontLine looks at NSPS progress so far.

In October 2011, as part of NSPS, Irving Shipbuilding Inc. in Halifax was chosen as the primary yard for AOPS and Canadian Surface Combatant (CSC) construction as part of the decision to award all combatant warship construction to Irving. At the same time, Vancouver’s Seaspan Shipyards was awarded the non-combatant ship construction, which includes a number of Coast Guard vessels and the JSS Project.

A design-then-build approach is being implemented for all the NSPS shipbuilding projects. This internationally recognized best practice approach reduces risk and improves efficiency during the overall shipbuilding process. It will allow Canada and the shipyards to get design and production details “right” before cutting steel by facilitating a collaborative understanding of the requirements before starting construction.

A design-then-build approach is also supposed to incorporate development spirals to ensure proper progression from design to production before starting construction. It also enables informed understanding of design and cost trade-offs before starting construction, and allows for simulation and modeling to be completed in order to attain a high fidelity costs before awarding construction contracts. This approach clearly reduces unnecessary risk premiums through a risk management approach that allows risks to be defined and understood throughout the process.

Certification
Key to any shipbuilding project is the issue of classification or certification of the ­vessels’ main and auxiliary equipment and safety and control equipment. NSPS projects are employing a “classed by builder” methodology during the build phases. This means that the build shipyard is responsible to retain the services of a Classification Society of their choice and will provide DND with a Classification Society Certificate as part of the quality assurance scheme for acceptance of the vessel. Separately, DND and Public Works and Government Services (PWGSC) are putting their own Classification Society under contract for each of the major NSPS categories, combatant and non-combatant. Whether the Class Society used by the builder yard (Irving or Seaspan) aligns with the Classification Society for combatants and/or non-combatants as contracted by PWGSC/DND becomes somewhat irrelevant as there is a Transfer of Classification process between International Association of Classification Society member companies.

Progress
Earlier this month – three and a half years after signing the overarching Umbrella Agreements with Seaspan and Irving – the Government provided an update on the progress of the NSPS.

The update focused mainly on the CSC project and how Government will deliver “up to 15” surface vessels to replace the existing fleet. Citing significant progress on the NSPS file overall, including the fact that both shipyards have completely transformed themselves through investment of hundreds of millions of dollars to modernize infrastructure, they are soon to begin construction on the first ships in the lead projects: the AOPS in Halifax and the Offshore Fisheries Science Vessel in Vancouver. The Government also outlined the way ahead for the procurement strategy for the CSC. While the design-then-build approach will also be used for CSC, a somewhat different procurement strategy will be used than in the past.

This new approach, referred to by Government as the “Most Competitive Procurement Strategy” is an attempt to avoid the failure experienced during the earlier JSS debacle which employed a competitive selection and funding of two design teams. The new approach is supposed to enable Government to complete the reconciliation of requirements and budget. It will also facilitate the competitive selection of systems and equipment and will allow it to incorporate Value Propositions into these selection processes. If all goes according to plan, it will also drive costs down and ensure value for money. We shall see.

Arctic/Offshore Patrol Ship (AOPS) Project
After numerous delays, the AOPS project is three years behind the original delivery schedule. One of the main causes of delay was the decision to put the project “on hold” while the Government introduced the NSPS framework.

The most recent announcement on AOPS was the signing of a contract with Irving, in late January 2015, to build 5 vessels, with an option/incentive plan for a 6th. Irving’s key sub-contractors for this project include: Lockheed Martin Canada as the Command and Surveillance Systems Integrator; GE Canada as the Integrated Propulsion System Integrator; Lloyd’s Register Group is responsible for Classification; Odense Maritime Technology (OMT) is the Marine Engineering and Naval Architecture Provider; and Irving subsidiary Fleetway Inc. is the Integrated Logistics Support Provider.

Although listed in the NSPS combatant ships category assigned to Irving, the AOPS vessels will be built largely to commercial standards to reduce costs. DND is in the process of entering into a sole source contract with Lloyd’s Register Canada Limited (LRCL) for combatant vessels, including AOPS. An Advance Contract Award Notice was posted to the Government of Canada Buy and Sell web page recently. Production designs are currently being completed by Irving, with the assistance of OMT, and recent (Jan 2015) conversations with AOPS Project staff indicate that procurement of equipment for that project is well underway.

Unofficially stated at recent industry events, and hinted at by RCN Admirals during FrontLine interviews, the Government’s goal is to start “seeing the production hall come to life” this coming summer. It would appear that the Harper Government wants to achieve this AOPS milestone before the October election so it can be seen as a good news story in Atlantic Canada when the writ is dropped.

Joint Support Ship Project
The JSS Project has been on the books for many years. Initially known as the Afloat Logistic Support Capability (ALSC) to deliver Auxiliary Oiler Replenishment (AOR) vessels to meet the Navy’s requirements and also provide a joint command and control platform with medical facilities, sea lift, and other capabilities. The first iteration of ALSC/JSS failed largely due to insufficient funding, however the Government recently blamed the failure on the two Competing Design Teams approach, where it became impossible to work with competing teams to ­reconcile requirements with budget.

At the time, the RCN on the public front accepted the delay in delivery of JSS as the Protecteur Class ships were still serviceable, however, this is no longer the case – the two AORs have been taken out of service due to fire damage and rust out.

A gap-filler project is now under consideration to provide an “at sea support” capability through a commercial vessel conversion or AOR leasing arrangement until the JSS is delivered. Several companies, notably Chantier Davie in Quebec are actively pursuing this opportunity with an offer of a commercial ship conversion. DND and Public Works’ initial plan was to have an RFP for this project published on buyandsell.ca in the summer of 2015.

A recent article by Michael den Tandt, (Ottawa Citizen 15 May 2015) suggests that Government is on the horns of a dilemma regarding a decision to award Davie this opportunity. To the contrary, such an award would make perfect sense – provided it is preceded by the competitive process, which Government as already indicated it plans to undertake.

Re-initiated as the JSS Project under NSPS in 2010, the RCN eventually (June 2013) chose the German Berlin Class (Hull #3 BONN) by Thyssenkrupp Marine Systems (TKMS) as a suitable design, however, a great deal of Canadianization will be required to meet the RCN’s needs. BMT Canada and Alion have been involved in high level design work and the Canadianization requirements.

As per the NSPS direction for non-combatant ships, Seaspan Shipyards will build the two JSS. Seaspan and Alion have been awarded some further Phase I design work contracts, and Thales Canada has been chosen to do the Combat Systems Integration (CSI) work for non-combatants.

Like AOPS, JSS will be built largely to commercial specifications. It is believed that Seaspan uses Det Norske Veritas / Germanischer Lloyd (DNV GL) as the Class by Builder Classification Society. A statement of work is under development within DND to engage in a competitive bid process for a Classification Society contract for the support of the Non-Combatant vessels.

Seaspan’s supply chain staff activated a new supplier portal over the past winter and the company’s engineers have stated that, although the ship was of German design, the intent is to find as many Canadian suppliers as possible to meet government requirements.

In fact, Public Works has directed Seaspan to both increase the Canadian content and decrease the overall cost of production.

In terms of project delivery timelines, on 3 April 2014 Treasury Board approval was obtained to complete the Initial Design Review (IDR), and Seaspan commenced the IDR in the fall of 2014. This risk reduction phase will allow Seaspan to review the design information and develop the detailed plans and cost data for the JSS Design and Production Engineering (D&PE) work. This will be followed by an equipment acquisition (RFP) phase where Seaspan will start procurement of materiel and equipment for the builds.

In February 2015, Seaspan put out a request for costing information for a number of components and systems, presumably to provide some budgetary information for a Treasury Board analysis. The Government’s stated intent is to have long lead items procured first and that RFPs are expected to be released starting in May 2015. However, as of this writing, nothing substantive in terms of major JSS contract awards has been announced.

Despite no recent contract awards, Seaspan and its subcontractors continue to move forward. Alion and Seaspan are finalizing production designs and developing equipment requirements lists. Also involved are Imtech Marine, which has been working in support of Seaspan since early 2014, and Thales Canada whose project engineers will begin working in Seaspan lines in late spring 2015.

Canadian Surface Combatant (CSC) Project
The RCN’s primary surface fleet replacement project, the CSC project is the centerpiece to the Government’s NSPS. The intent is to procure up to 15 warships – with the kind of capabilities to replace the DDH 280 Destroyers (two of the three remaining have now been paid off or retired) and the 12 Halifax Class Canadian Patrol Frigates – in the 2025-45 timeframe.

Keeping in mind the earlier award of combatant warship construction to Irving, the Government announced, on 20 January 2015, that it has chosen Irving to be the Prime Contractor for CSC.

Additionally, as announced in early May, the Government is now proceeding with a competition to select a single design team through what is referred to as the “Most Competitive Procurement Strategy”, described in broad terms earlier. With the RCN defining the requirement for Govern-ment, Irving Shipbuilding, the Combat Systems Integrator (CSI), and a Warship Designer (WD) in this new construct will conduct the competitions to select the systems, sub-systems and equipment, and complete the designs for the ships.

This is in contrast to the approach used for the failed JSS procurement where two teams were down-selected and funded to develop the design then build process, with a subsequent bake-off to choose the winner. That approach required extensive teaming arrangements early in the process, which the Government has admitted, in hindsight, limited its ability to compete the equipment and systems throughout the process.

On 11 May 2015, the Government confirmed the “Most Competitive Procurement Strategy”, previously referred to as conceptual and subject to approval, and outlined the final version of the three phase process. The Government believes this new process will maximize competition for the opportunities the project creates for Canadian business or work to be done in Canada, as well as maximizing value and innovation. Again, we shall see.

Phase 1 will be a competition to select the Combat Systems Integrator (CSI), the Warship Designer (WD), and concept design. At the end of Phase 1, Canada will award a design contract to the Prime Contractor, Irving, who will in-turn award sub-contract(s) to the CSI and WD.

Phase 2 will involve Canada, Irving, and the chosen CSI and WD, aligning the requirements with the budget.

Phase 3 will see the completion of the design, competitions to select systems, sub-systems, services and equipment, and negotiation of the build contract with Irving. On completion of Phase 3, Irving will be awarded the Implementation Contract, and construction will commence.

As most readers are aware, Industry Canada recently remodelled and rebranded its Industrial Regional Benefits (IRB) program to the newer Industrial and Technological Benefits (ITB) program in an effort to increase Canadian industry/supplier involvement in defence contracting.

The ITBs and Value Propositions will be incorporated into the competitive selection processes as deemed appropriate for the CSI and WD, plus the systems/sub-systems and equipment.

Some readers may recall earlier discussions with Government on the procurement concepts known as Most Qualified Team (MQT) and Most Capable Design (MCD). The new “Most Competitive Procurement Strategy” process has effectively removed the need to make a decision on using the MQT or MCD methodologies in the project definition phase of the project, although some lip-service is still being paid to it. The choice of MQT over MCD was a contentious issue in that choosing the MQT approach is seen as more or less a sole source arrangement similar to the Fighter Replacement Project where the F-35 was selected without a Canadian competition. Nevertheless, it appears now that the Government has in fact sole sourced the project to Irving, which will in turn work with the Government to develop the RFP for selection of CSI and WD subcontractors, and then the system/sub-system and equipment providers for the CSC Project.

Irving reportedly has a team of about a dozen staff working on a “top level” CSC design with assistance from Bath Iron Works, a subsidiary of General Dynamics Marine Systems based in Maine. Bath has recent experience with the U.S. Navy’s DDG 1000 Zumwalt Class destroyers. Lloyd’s Registry will also likely be used as the Classification Society for certification of CSC equipment.

Earlier this year, there were some minor delays in announcing the procurement strategy which hinged on the approval of a Memo to Cabinet (MC). The suspicion was that the MC, which was supposed to have been discussed in the latter weeks of March, had been withdrawn.

There are still no published timelines associated with the 3-Phase approach for CSC. An early (November 2013) estimate on the PWGSC website stated the target date for signing construction contracts for CSC is 2018, provided there is no change of Government in 2015.

The expectation is that Phase I will likely run until mid/ late 2016; Phase 2 will be 2016/late 2017/ early 2018; and Phase 3 will be 2017/18 to 2019/20. Insiders agree that regardless, the construction phase of the CSC Project will not begin until Irving completes the AOPS build and delivers up to six of those vessels. This build can be expected to run until at least 2019.

The first part of Phase 1 will be a Request for Responses for Evaluation (RFRE), or a down-select process to reduce the field of potential WDs and CSIs to those who can truly compete and deliver. Earlier this month Government published a Draft RFRE document and stated that the down-select process should be complete in early Fall 2015.

In early May there was also a commitment that a WD and a CSI will be chosen by early 2017. And just before press time, the CSC Project Office put out a Request for Information seeking comment from Industry by 1 June on modifications to the definitions for WD and CSI. These definitions will not impact the RFRE process and will only come into play as part of the Requests for Proposals for the WD and CSI competitions.

The CSC Project will be the most complex procurement undertaken by the Canadian Government, and there are a number of very experienced ship designers vying for selection. BAE is promoting their Type 26, Global Combat Ship design, while Odense Marine Technologies has the Iver Huitfeldt Class already in service with the Royal Danish Navy. DNCS is marketing its French FREMM design, while Vard (formerly STX Canada and now a Fincantieri subsidiary), is promoting the Italian FREMM design. Also in the mix are designs by Navantia, TKMS and possibly Daewoo. BMT Fleet is already engaged by the Government as Tier 0 advisors to assist (presumably with design selection and modifications to meet Canadian requirements).

Several defence industry companies are very capable of being CSI for Irving. The most prominent of this group is Lockheed Martin. Both Thales Canada and General Dynamics are also considered possible contenders.

Additionally, a number of Tier 2/3 suppliers are currently all attempting to position themselves for a piece of the $26.2B that is budgeted for CSC.

Notwithstanding the Government’s oft-stated desire to have an open and fair competitive bidding and selection process, once the selection of Irving was announced as the Prime, there has been an undercurrent of comment within industry that the Government has basically handed over the keys to Irving. It is expected that Irving will pick a WD and CSI that benefits its owners the most, with little influence from either DND or PWGSC. Many believe that shipbuilding firms and suppliers with no previous dealings with Irving will effectively be shut out of the competition.

There are also concerns within Defence Industry circles that further delays are eroding the buying power of the project and that the number of hulls to be delivered may be reduced to fit the budget. Warnings about the budget being insufficient for this project go back as far as a statement by the Auditor General in 2013 that the $26.2 billion the government has set aside for the project is “insufficient.”

In-Service Support for NSPS Projects
The Government has stated its intent to support all three of the major ship procurement projects with multi-year In-Service Support (ISS) contracts. There is a move afoot within DND to develop an In-Service Support template, known as Future In-Service Support (FISS). The AOPS and JSS will be combined into a single ISS contract, named AJISS – worth an estimated $5B over a 35 year lifespan.

Since 2013, PWGSC and Industry Canada have conducted four industry engagements on In-service Support where Government officials outlined high level requirements and its approach regarding Industrial Technological Benefits (ITBs), which specifies Canadian content, and the requirement for Value Proposition (VP) content in Industry proposals.

Regarding the application of ITBs and requirement for a VP in AJISS proposals by bidders, Industry Canada stated in October 2014, that the AJISS project would not be constrained by having to apply the guidelines for small or medium-sized enterprise (SME) content, and VP would not be included as part of the overall contract evaluation. However, over the winter that position appears to have been reversed. At the 31 March Industry consultation meeting, it was stated that the ITB Policy will apply and the VP requirements will be up to 10 percent of the evaluation criteria. They also briefed a Start-up Phase of 12-18 Months, three Transition Phases of 3 years each, and a Steady State Phase for the remainder of the contract, which could be up to 25 years.

The Transition phase will enable the Government to assess what work is ‘core’, and move from what was initially a ‘time and materials’ construct to a ‘fixed price’ environment as work becomes more predictable and moves into the core category.

Industry Canada appears intent on publishing the AJISS RFP by mid-2015. A number of companies have attended the Industry Canada AJISS meetings and indicated interest in bidding on this lucrative opportunity, including Babcock Canada, BAE Canada, L-3 CMS, IMP Aerospace, DCNS Technologies Canada, Irving, Fleetway, Seaspan, and SNC Lavalin.

The CSC Project will have a separate ISS contract, with requirements development expected to start in 2017, and a contract competed and awarded in 2018/9. Slippage in this timeline will likely occur, as the project is bound to slip.

In conclusion, there has been and continues to be a significant amount of activity around NSPS over the past 12 months. After many years of uncertainty and delay, DND, PWGSC and Industry Canada staffs have been pulling out the stops to move the three major projects, AOPS, JSS and CSC down the tracks toward delivery.

Government has made good progress in developing a FISS construct and applying it to the AJISS Project. While Industry seems satisfied to a degree with the all progress made to date, there are concerns that costs will overrun allocated budgets.

In our next edition, FrontLine will take a detailed look at the major contenders for WD, CSI, and the other major suppliers for the CSC project in what is becoming a high stakes poker game.

While some players are making serious investments in Canada to support their potential bids others are taking the “wait and see” approach.

The coming fall Federal Election will also become a factor, as Government typically shuts down communications and project-related activities to keep them out of the limelight during the election run-up.

With added delays, budgetary concerns and possibly stacked decks, the question will be, “who will hold and who will fold” in the CSC game over the coming 12 to 18 months. We shall see.

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