CSC 2018 Evaluation Stage
Sep 30, 2018

The Canadian Surface Combatant program is the largest and most complex procurement to be undertaken by the Canadian Government to date. This program intends to replace the existing Royal Canadian Navy (RCN) frigates (specializing in anti-submarine capabilities and multi-role mission support) and the now-retired destroyers (providing anti-air capabilities) with a fleet of 15 versatile new warships that will be in service to the mid 21st century, if not longer.

May 2018 – RCN frigate HMCS Vancouver approaches the port of Hong Kong during Op Projection Indo-Asia Pacific. (Photo: Master Corporal Brent Kenny, MARPAC Imaging Services)

As outlined in its defence policy, the Government remains committed to replacing the Navy’s surface fleet with 15 surface combatants, which will all be built by Irving Shipbuilding as part of the “combatant” portion of the National Shipbuilding Strategy.

Although rumours are swirling about the possibility of two variants on a common platform, a DND spokesperson confirms that “the current requirement is that all 15 CSC ships will have the same capabilities: anti-air warfare, anti-submarine warfare, anti-surface warfare, electronic warfare as well as command and control.”

The DND email to FrontLine goes on to say that “Funding has been set aside to deliver the full complement of ships the Royal Canadian Navy needs, in order to provide capability across the full range of operations. This will replace both the recently retired Iroquois-class destroyers and the Halifax-class frigates with a single class of ship capable of meeting multiple threats on both the open ocean and the highly complex coastal (littoral) environment.”

Aug 2018 – Lt(N) Milie Béchard passes orders to crew of HMCS Ville de Québec to Japanese Ship Kashima during Op Reassurance in the Mediterranean Sea. (Photo: MCpl Andre Maillet, MARPAC Imaging Services)

One rumour suggests that an initial tranche would be built “to facilitate narrowing the production gap at Irving.” But the official word from DND is that “In recognition of the duration of the design and construction for the ships, the competitive procurement required bidders to bid on major equipment for the first three ships. These competitive prices will then be used as the basis for negotiation of equipment which will be installed in subsequent ships.”

How the Government expects to receive the best pricing for the most expensive single procurement in Canadian military history based on only 3 of the 15 was not explained.

Whichever way quantities and variants play out, the chosen design must be cost-effective and fully capable in the current global environment, be adaptable to the future maritime threat environment, and have growth margins to allow for role changes and upgrades in technology, particularly weapon systems (hence the criticality of this process).

Insiders are saying the estimated completion of the winning design and contractor team selection process is now expected to be in November 2018 (though more likely early 2019), with ship construction to start the early 2020s.

A note of caution comes from Jean-Denis Fréchette, the Parliamentary Budget Officer. For every year that the awarding of the contract is delayed beyond 2018, his staff estimates the program will cost taxpayers an extra $3 Billion due to inflation.

Following our August article on CSC Procurement, where we reported on the former qualifiers that had given up on the retooled process, we now look at the “Final Three” teams who submitted bids, their team complement, the proposed designs, and their prospects for success. We will also consider the importance of the overall supply chain and how it will impact the Canadian economy.

June 2018 – Naval Combat Information Operators LS Christopher Richardson and LS Ben DesRochers, drive the Hammerhead target onboard HMCS Vancouver during Operation Projection in the Pacific Ocean. (Photo: Lieutenant (Navy) Tony Wright)

First, a brief update on some of the other “goings on” around the CSC procurement. We reported earlier this year that the Government had approved an additional $54 million for the CSC project. It's unclear how that is being allocated between bid evaluation and other expenses.

Steve Brunton, a retired Rear Admiral from the Royal Navy with extensive experience in overseeing shipbuilding programs and naval acquisitions in Britain was selected in February 2016 as Canada’s Expert Advisor to assist on the National Shipbuilding Procurement Strategy (NSPS), now NSS. His job description is “to provide Ministers and senior government officials with independent expert advice on multiple facets of the NSPS, including risk and program management, construction benchmarking and competitiveness, and performance and operational improvements.” Some say he has been “firewalled” from the CSC project in order to lessen perceptions of conflict of interest from past linkage with BAE UK.

No one outside Government is sure what he has produced in the way of reports in the past 18 months, although he did complete a report in February 2016 (yes, the same month he was hired), in which he stated that “Canada’s ambitious multi-billion dollar shipbuilding program is poorly managed and lacking oversight”.

Brunton further concluded that these shortcomings “could result in both ballooning costs to taxpayers and a potential gap in navy capabilities,” and that, “the level of risk involved in the massive shipbuilding program is fully understood by the government”, and “the navy could be left short on available warships”. Let’s hope the Government is not paying much for these self-evident insights.

A few months later, in June 2016, then-Minister of Procurement, Judy Foote, announced a “streamlining” of the procurement approach for the CSC to select an existing warship design rather than continue on the previous path of choosing a designer and systems integrator. The government expected this would shave two years off the delivery time.

June 2018 – Leading Seaman Edith Desjardins and Ordinary Seaman Cole Dolhan plot events into the Battle Damage Control System (BDCS) onboard HMCS Vancouver during Operation Projection Asia Pacific in the South Pacific Ocean. (Photo: MCpl Brent Kenny, MARPAC Imaging Services)

Any warship/frigate requires the coordinated integration of three main components: the Active Electronically Scanned Array (AESA) multimode radar; the missile launch system and surface-to-air missiles (SAM); and the combat management system (which includes situational awareness and combat engagement decision aids). The critical challenge is to support those requirements in an integrated combat system, and that’s why the experience and management style of the Combat Systems Integrator plays such a pivotal part in the success or failure of a warship.

It’s important to note the emphasis on Canadian content value (CCV) as a strong component to the CSC evaluation process. This goes a long way to reaching the government’s end-goal of ensuring these ultra-large defence procurements build up the Canadian industrial base along the way. Each bidder was required to estimate and report the CCV of each subsystem in their technical submission. In general, the CCV is to be based on the dollar value of the raw materials and components manufactured in Canada, the cost of Canadian labour involved in the manufacturing process(es), and any additional value in terms of management of the manufacturing process.

In a further example of progress towards the goal of benefit to Canadians, Thales Canada has recently opened a new Maritime office in Bedford, Nova Scotia to support key naval programs.

Innovation in niche technologies and product areas is where Canadian industry shines – many companies have built international export success and now have the opportunity to contribute to Canada’s Surface Combatants. The dual-band staring IRST systems (Leonardo DRS & Thales), integrated naval communications systems (Leonardo DRS & Rockwell Collins), Electronic Chart Precise Integrated Navigation System (OSI), and Integrated Platform Management Systems (L3) are some well-known examples of technology developed in Canada that are now competing for selection on CSC.

The decision to restrict the Bidders’ ability to enter into “exclusive” teaming agreements with Canadian suppliers related to CSC procurement has allowed Canadian Key Industrial Capability companies to participate on multiple bid teams. Canada’s intent here was to increase opportunities for Canadian suppliers by allowing them to offer their technologies to multiple bidders, after all, why wouldn’t you want Canadian technologies on a Canadian warship?

A representative for Leonardo DRS and Rockwell Collins confirmed to FrontLine that they have “put forth an impressive, low risk, and achievable Value Proposition offer to all the Combat Systems Integrators,” and they will be “READY ON DAY ONE”.

Feb 2018 – Deck Officer and Boatswain on board HMCS Edmonton load a .50 calibre machine gun during Operation Caribbe in the eastern Pacific Ocean. (Photo: MARPAC Imaging Services)

It is believed that Irving and Canada together developed a scoring plan for the evaluation team. As noted in our last edition, the evaluation team is focused on the review and verification of the “Cured” Technical bids and the Financials that were submitted in July-August. They will examine the proposals and determine if the proof to substantiate the achievability of claims is strong enough.

This will culminate in the announcement of the team selected to enter negotiations with Irving on the details of their proposal. The process of allowing Irving to select the team it will work with to deliver 15 warships has been the subject of numerous accusations of the government enabling conflict of interest as well as shirking its own responsibility. However, according to defence analyst David Perry, “there’s not a lot of room for ‘selection’ in the bid evaluation process, it’s more about adding up the scores.”

The teams have all submitted their voluminous submissions, including financials, and each is confident they have what it takes to become Canada’s “Preferred Bidder”. If an agreement can’t be reached with that bidder, the team that was assessed as the runner-up will have the opportunity to enter into negotiations. In any event, the contract is expected to be awarded sometime early 2019.

Of course, all three teams believe they have achieved full compliance in adapting their proposals to Canadian requirements. Let’s look at each of the bidders, the proposed designs, and their teams. Click the links for each:

The budget for the CSC project has been pegged by the federal government at between $55 and $60 Billion (or more). About half of the cost will be for systems and equipment that will go on the 15 ships, according to federal documents obtained by Postmedia through the Access to Information Act. “Approximately one-half of the CSC build cost is comprised of labour in the (prime contractor, Irving Shipbuilding Inc) Halifax yard and materials,” the documents state.

Notwithstanding the cost of the build and the obvious impact on the Halifax economy in particular, there will also be a significant In-service support contract for CSC, and this will continue for the life of the delivered product. The previous Government stated, back in days of NSPS, that the “overall strategy to acquire In-Service Support for the Canadian Surface Combatant will be determined as the project continues through the Project Definition Phase when In-Service Support requirements can be more accurately determined, and will continue during the Project Implementation Phase.” Nothing has changed in this regard. The common understanding is that CSC In-Service Support requirements will be the object of a separate multi-billion dollar contract, as it is the case for the Arctic Offshore Patrol Ships (AOPS) and Joint Support Ships (JSS).

With the multitude of Canadian companies that have developed world-leading defence products and technology, it makes sense that these systems be brought into the CSC design by the prime and subsystem integrators. It is a Canadian warship after all, and should be fitted with Canadian products first and foremost – ahead of any offshore product choices – as long as quality is comparable. This is what the Industrial Technological Benefit and Value Proposition (ITB/VP) policy seeks to achieve, and it will pay dividends well into the future in the form of underwriting Canadian jobs, technology innovation and advanced product development, and opening doors for Canadian companies to compete in the global market.

If chosen, the smaller Tier 2/3 and SME-sized companies definitely stand to benefit as suppliers to the winning design/delivery team. However, the challenge for suppliers will be enduring cash flow problems caused by the years of “hurry up and wait” while Irving finalizes the design and negotiates the contract with the winning team, and then goes into further detailed design work prior to cutting steel. There could be a wait of 3 or 4 years before the procurement of “long lead” items commences. Additionally, the ships will be built over an extended period of many years, and components will be ordered somewhat piecemeal. The true winners among the lower tier suppliers will be those that see research and development funds and investment flow into their companies from the winning team members as part of the commitment to Canadian Content Value in their bid.

There is also the issue that Irving has alluded to many times in the past – the gap in construction from AOPS to CSC which Irving claims will force it to lay-off shipyard workers. While this is definitely something that both Irving and the Government want to avoid, the Fall 2019 election and other unforeseen delays may make the layoffs a reality, impact the supply chain, and ultimately the economy.

Some critics have noted the Rules of Engagement kept changing (giving the perception of an unfair process), and the repeated bid extensions and ever-increasing information input certainly added cost to the process. However, as judgement day nears, participants publicly state the procurement process has been fair.

As per the reviews above, the technical aspects of the designs are comparable and each platform will be fitted out to meet Canadian specifications. They all have radars, sonars, fire control systems, missiles, crew size and capacity to carry helicopters, and other components that meet RCN requirements. Each will include the latest available combat systems and use modern technology for hull design and production and, despite the nasty rumour circulating that all have been deemed non-compliant, each would prove a viable choice based on merit.

The fact that not a single Type 26 hull has been built has become a contentious issue in this procurement, particularly since the original requirements included reference to a “proven design.” Some consider it unfair that an unproven design should be allowed to compete, so the challenge for the government may be in defining a mature design. That said, will assessment of remaining growth margins in the two mature and well-proven hull designs be harsh? There are no obvious answers.

It is generally acknowledged that the Lockheed team, which was stood up (at least in practice, although not publicly announced) well in advance for the final Request for Proposals, was the most diligent in organizing CCV into their proposal. Team Alion was a late entry, so to speak, in terms of deciding on their design partner, but did put effort into reaching out to Canadian suppliers and creating a proposal team supported by Canadian subject matter experts. Team Navantia on the other hand, seemed to have an overall game plan early on in terms of support from Saab, but was late in terms of Canadian presence and reaching out to Canadian suppliers for content. The evaluation will indeed be interesting.

How will design, technical capabilities, and preparation weigh out during the evaluation process? Presumably the government will want to ensure there is significant Canadian technology on its warships. Many believe that price and Canadian Content Value (CCV) will likely become the tipping factors in the CSC decision.

The Irving-led Evaluation Team will soon complete its evaluation of the “Cured” Technical bid and the Financials, and we will have an announcement from Government on which team has been selected to enter negotiations with Irving on the details of their proposal. This cannot happen soon enough. With an election slated for October 2019 (or possibly earlier if Government sees an uptick in the polls and decides to take the risk), any further delays in design/team selection for CSC could put the whole procurement at risk in terms of schedule and stale pricing.

The question is, how quickly can the process transition into production to minimize work gaps at Irving and get the CSC into series production – it will take a collaborative effort at all levels and by all parties to make it happen. It remains to be seen how things look in the homestretch, but the expectation is a photo finish.

A FrontLine Report © 2018