Thursday, May 5, 2016

Harper government funded Seaspan Shipyard to help with Contract


OTTAWA — The former Conservative government quietly helped fund improvements for a Vancouver shipyard that was scrambling to get ready for shipbuilding, despite saying it would not do so.

Seaspan’s Vancouver Shipyards received about $40 million in 2014-15 to get its engineering systems up to speed as it prepared to build non-combat vessels for the Canadian Coast Guard, documents suggest.

But one of the premises underlying the Conservative government’s enormous National Shipbuilding Procurement Strategy (NSPS) — lauded by prime minister Stephen Harper’s government as the biggest defence program in Canadian history — is that shipyards would have to fund improvements to their shipbuilding infrastructure at no cost to Ottawa.

The existence of a government-funded program to help Seaspan, an association of western Canadian marine transportation companies, was revealed at a House of Commons committee meeting in December 2014.

Marty Muldoon, assistant deputy minister and chief financial officer at Fisheries and Oceans, told committee members $9.5 million of his department’s money was going to the “horizontal engineering program plan,” an initiative shared with the Department of National Defence.

That money was to help Seaspan “hit full stride in manufacturing capability or construction capability for our vessels,” he said.

“Basically, what we’re doing is investing in the shipyard’s capability to get itself up to capacity, to start churning out vessels.”

(Seaspan) went from a very small shipyard to a very large shipyard in a very short amount of time.

Though Public Services and Procurement Canada admits the contract is being used to help Seaspan create “material, engineering and production standards” for its yard, making systems consistent across “multiple projects,” it says this doesn’t count as the type of shipyard improvement forbidden under the agreement governing NSPS.

Jessica Kingsbury, a spokeswoman for PSPC, said this contract is “clearly distinguished” from capital investments Seaspan made to ready its yard for shipbuilding.

The horizontal engineering program plan is “in no way related to the criteria which the shipyards were required to meet, at their own cost, to achieve target-state,” she added.

Rather, it aims to co-ordinate and manage Seaspan’s non-combat package “more strategically,” through building a “program management capability.”

All three bids for NSPS contracts — from Halifax-based Irving, Seaspan and Quebec-based Davie — orginally included the guarantee that Ottawa wouldn’t pay to help the shipyards get ready for shipbuilding. Federal money would only go towards the shipbuilding projects.

But successful bidders Irving and Seaspan lacked capacity to start building ships when umbrella agreements were announced in 2011. Both negotiated to include clauses in the agreements, saying Ottawa would reimburse them for shipyard infrastructure if it decided to spend less than promised on new ships.

Irving and Seaspan also went to the provinces for money. Irving got a $304-million loan from Nova Scotia, $260 million of it forgivable, while Seaspan got only $40 million, for training from British Columbia.

No federal money was officially announced for either shipyard.

The agreement between Ottawa and Seaspan, dated Feb. 14, 2012, obtained by the National Post, says Seaspan agreed any improvements to shipyard capacity would be “paid for by the company entirely at its own expense” — unless Canada reneged on its commitments.

In November 2014, Seaspan announced a two-year, $170-million project to modernize its shipyard had finished “ahead of schedule and under-budget,” according to its website.

Still, recent job postings show it has continued hiring people to work on the “horizontal engineering program plan.”

The plan does not include improvements to physical infrastructure, but focuses on improving engineering systems, technical programs and management, says a consultant who worked for Seaspan from April to October 2014.

“It covered the whole spectrum of trying to stand up an engineering organization that was robust enough to support the overall shipbuilding objectives,” said Matt von Ruden, now director of vessels at Washington State Ferries.

Employees believed Ottawa was helping fund this work, he confirmed. “The government understood the need for this program, as far as I understand,” he said.

“(Seaspan) went from a very small shipyard to a very large shipyard in a very short amount of time.”

The fact government money was used for “systems” and “programs,” not physical infrastructure, may have made this a grey area under NSPS guidelines.

Several unusual contracts posted on the government’s Buy and Sell website from June 2014 to October 2015 appear to show money flowing into such programs.

For example, Public Services and Procurement Canada sourced just under $40 million in “engineering services” from the Vancouver shipyard.

Contracts are labelled as noncompetitive, representing the “best interests” and “value” to government. They differ from other contracts held by Seaspan, which are usually identified as being tied to a shipbuilding project.

The NSPS has an official budget of $39 billion, with $8 billion set aside for non-combat vessels.

Construction is expected to take at least 20 to 30 years, says the procurement department.

Seaspan began building the first of three offshore fisheries science vessels in June 2015 and the second in March. The three vessels, the first NSPS ships to come out of the improved Vancouver shipyard, are scheduled to be delivered by the end of 2017.

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