Davie shipyard boss calls Canada's national shipbuilding strategy 'bizarre'

The boss of Canada's largest shipyard says a $36-billion national shipbuilding plan is becoming an "international embarrassment" with a "bizarre" costing regime and "exorbitant" prices, despite producing no ships to date.

"It's been five years and the two shipyards haven't built a single ship," said Alex Vicefield, CEO of Inocea, a global shipping conglomerate that owns Quebec's Davie shipyard.

"All we hear are delays and cost overruns which are so high, they are turning the Canadian shipbuilding industry into an international embarrassment."

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Davie was stung last week by the Liberal government's apparent rejection of its offer to provide ships more quickly, and at much lower cost, than projected under the National Shipbuilding Procurement Strategy, or NSPS. That plan was designed by the previous Conservative government and has been endorsed by the Liberals.

In comments provided to CBC News from his headquarters in Monaco, Vicefield said that, "Having spent my career in the international marine industry, I have experienced government procurement throughout many different countries, both developed and emerging, but never have I witnessed a country so willing to spend money unnecessarily. It's almost as if money is no object."

Vicefield cited the procurement strategy of awarding cost-plus contracts, which guarantee a profit margin, rather than fixed-price contracts, which he said are the norm internationally.

Of the cost-plus approach, he said, "Under that system, profits are calculated as a percentage of the costs incurred. This provides no incentive for shipyards to reduce costs when possible."

'Perverse incentives'

That critique jives with an analysis commissioned by the Harper government, delivered to the Trudeau government last November by PricewaterhouseCoopers and obtained by CBC News.

It found that "the regime provides perverse incentives for industry to increase costs … if the profit percentage is fixed, increased costs result in increased profits."

The analysis, first reported by The Canadian Press, called this process "detrimental to the global competitiveness of Canada's defence industry." 

Vicefield agreed, in even blunter terms.

"Anywhere else in the world, if someone wants a ship built, you do a design and you go out to all capable shipyards to quote it and provide delivery schedules and so on. Under the NSPS it seems to be the opposite. That's bizarre."

The icebreaker gap

Even so, Vicefield said he supports the intent of the shipbuilding program — to re-equip the navy and the coast guard with ships built in Canada. His objection is that it is not set up to meet those goals.

Announced in June 2010 and billed as the largest procurement in Canada's history, the shipbuilding program awarded the right to build a fleet of warships to the Irving shipyard in Halifax, with non-combat ships, including a polar icebreaker, to be built in North Vancouver by Seaspan.

The Davie yard was in bankruptcy when those two yards were chosen, but is now solvent and remains the biggest yard in Canada. Taking advantage of delays in getting Seaspan's yard ready to begin work, Davie has already muscled in on the program, winning an order to provide an interim naval supply ship by refitting a discounted commercial vessel. That ensures some 1,100 jobs at its own yard on the south shore of the St. Lawrence across from Quebec City.

More recently, Davie offered to adapt a series of existing ships available at steep discounts because of the slowdown in the oil industry, including a three-year-old icebreaker sitting idle after Royal Dutch Shell cancelled a costly Arctic project.

Davie has also offered to begin work immediately on a new polar icebreaker, priced at less than $800 million, to fill a "capacity gap" until Seaspan produces its own icebreaker.

That vessel already has a name — it was dubbed the "Diefenbaker" by the Harper government — but it will not begin to exist until the late 2020s, because Seaspan must first build two supply ships. By then, after inflation, the Diefenbaker is expected to cost about $2 billion — more than twice as much as Davie's offer.

'Unsolicited bid'

Even so, Minister of Public Services and Procurement Judy Foote, visiting Seaspan on Friday, said the government would not respond to an "unsolicited bid" from Davie and is committed to the existing procurement strategy. 

Vicefield told CBC News he's not taking that as a final rejection, because the government could still choose to solicit such bids. He expects it will, because of an embarrassing "capacity gap" looming now as Canada's only large icebreaker, the Louis St-Laurent, reaches the end of its long life.

Now almost 50 years old, "the Louis," as it is known, has undergone numerous refits and will soon return to Davie for another, but the ship is rusting and due to be decommissioned in the next few years. If Seaspan cannot provide a new icebreaker until 2027 or later, there will be a 10-year gap in Canada's ability to assert sovereignty in the Arctic.

• The 2010 voyage of the Louis St-Laurent

Vicefield said filling that gap is not an attack on the national shipbuilding strategy, but an addition to it.

"We are merely trying to provide a solution to a known sovereignty problem that is coming with the certainty of tomorrow's sunrise.… This is even more important in light of Russia's stated goal of fielding 11 nuclear and conventionally powered Arctic icebreakers by 2020. Canada may even face a situation where China has a greater capability in our North than we do."

Davie's local MP, Conservative Steven Blaney (Lévis-Bellechasse) agrees.

"We need icebreakers," said Blaney, calling the Davie plan "very interesting for the taxpayer.… These are additional ships, complementary to the NSPS, which I endorse."

He said the minister was wrong to reject Davie's proposal.

"I find it beyond belief, inconceivable, to brush aside such a proposal.… Are we rich enough not to seize that opportunity?"