National Shipbuilding Procurement Strategy (NSPS)

1. NATIONAL SHIPBUILDING PROCUREMENT STRATEGY STRATÉGIE NATIONALE D’APPROVISIONNEMENT EN MATIÈRE DE CONSTRUCTION NAVALE National Shipbuilding Procurement Strategy (NSPS) Technical Briefing October 2011 Final

2. NATIONAL SHIPBUILDING PROCUREMENT STRATEGY STRATÉGIE NATIONALE D’APPROVISIONNEMENT EN MATIÈRE DE CONSTRUCTION NAVALE National Shipbuilding Procurement Strategy • Establish a strategic relationship with two Canadian shipyards and designate them as source of supply to build government’s large ships, where: • One shipyard will build the combat vessels package: • Arctic/offshore patrol ship, Canadian surface combatant. • The other will build the non-combat vessels package: • Offshore oceanographic science vessel, offshore fisheries science vessel, polar icebreaker, joint support ship. • Set aside smaller vessels for competition by other than the two selected yards and their affiliates; • Repair, maintenance and refit remains business as usual.

3. NATIONAL SHIPBUILDING PROCUREMENT STRATEGY STRATÉGIE NATIONALE D’APPROVISIONNEMENT EN MATIÈRE DE CONSTRUCTION NAVALE Economic Benefits for Canada • The Government has recognized a once-in-a-generation opportunity to leverage its fleet renewal investment to foster a stronger, more sustainable Canadian marine industry. • The Canadian Association of Defence and Security Industries (CADSI) has estimated that the renewal of the federal fleet will support 15,000 jobs annually in communities across Canada over the next 30 years. (Sovereignty, Security and Prosperity – Government Ships, May 2009) • Canada’s marine industries are broader than the ship construction that occurs in shipyards and involves many hundreds of Canadian companies, most of them small and medium enterprises. • The Industrial and Regional Benefits Policy will ensure that the full value of the resulting contracts (both shipyard and non-shipyard related work) is leveraged back into the Canadian economy.

4. 28 Large Vessels • Combat Ships: • Arctic Offshore Patrol Ships (6-8) • Canadian Surface Combatants (15 per CFDS) • Non-Combat Ships: • CCG Science Vessels (4) • DND Joint Support Ships (2+1) • CCG Polar Icebreaker (1)

5. NATIONAL SHIPBUILDING PROCUREMENT STRATEGY STRATÉGIE NATIONALE D’APPROVISIONNEMENT EN MATIÈRE DE CONSTRUCTION NAVALE Innovative Measures to Ensure a Fair Result • Extensive Consultation with Bidders • Concept, Process, RFP, Evaluation Criteria & Weighting • Governance • Evaluation teams working independently • Robust dispute avoidance and resolution processes • Deputy Ministers’ Governance Committee to oversee and validate the process and its results • Government approval to award Umbrella Agreements without results • Transparency • Bidders informed of results first • Final scores of all bidders released publicly • Bidders have agreed to share detailed 3rd party assessments and area scores amongst themselves • NSPS website was kept updated with all significant developments http://www.tpsgc-pwgsc.gc.ca/app-acq/sam-mps/snacn-nsps-eng.html

6. NATIONAL SHIPBUILDING PROCUREMENT STRATEGY STRATÉGIE NATIONALE D’APPROVISIONNEMENT EN MATIÈRE DE CONSTRUCTION NAVALE Innovative Measures to Ensure a Fair Result Use of independent 3rd party experts: Fairness Monitor • Independent observer • Ensures the procurement is conducted with integrity and accountability in a fair, open, transparent and compliant manner • Attended all consensus meetings of the evaluation teams • The Fairness Monitor has reported that “decisions were made objectively, free from personal favouritism and political influence, and encompass the elements of openness, competitiveness, transparency and compliance.” First Marine International • Internationally recognized expert in shipbuilding field • Conducted assessment of the current state of shipyards • Defined required target state for each package based on international benchmarks • Reviewed shipyards’ proposed plans for upgrades and improvements • Provided a written analysis of shipyards’ plans for use by the “Plans” evaluation team • First Marine International attests that it “carried out its work for the National Shipbuilding Procurement Strategy Secretariat independently and free from influence.”

7. NATIONAL SHIPBUILDING PROCUREMENT STRATEGY STRATÉGIE NATIONALE D’APPROVISIONNEMENT EN MATIÈRE DE CONSTRUCTION NAVALE Innovative Measures to Ensure a Fair Result KPMG • Assisted in the development of the procurement process and evaluation plan • Helped make certain that all possible measures were taken to ensure fairness, openness and transparency and that selection criteria, scoring methodology and processes were reasonable and defendable. • Provided advice on the long-term strategic sourcing arrangements, and the validation of criteria and methodologies related to the selection of two shipyards. • KPMG attests that “the evaluation criteria and methodologies are valid, that is, a reasonable and appropriate means to select the two shipyards that meet the Canadian Government’s objectives for the procurement.” PricewaterhouseCoopers • Reviewed the shipyards’ financial situation proposal • Provided a written analysis for use by the “Financial Situation” evaluation team • PricewaterhouseCoopers LLP attests that “the bid evaluation process which we supported was robust and designed to ensure fairness and transparency and we were able to fulfil our responsibilities in accordance with these principles.”

8. A National Competition to select 2 Canadian Shipyards: Issue a Solicitation of Interest and Qualification to all Canadian shipyards to establish a short list of potential shipyards for the competitive RFP (Sept 2010); Issue a Request for Proposals to the short-listed shipyards (Issued Feb 7, 2011, Closed July 21, 2011); Five Proposals from 3 Bidders: 2 Combat, 3 Non-Combat Evaluation of Proposals and select 2 shipyards (Fall 2011); Finalize an Umbrella Agreement with each selected shipyard (Fall 2011); Negotiate Individual Contracts for the first project in each work package (2012). NATIONAL SHIPBUILDING PROCUREMENT STRATEGY STRATÉGIE NATIONALE D’APPROVISIONNEMENT EN MATIÈRE DE CONSTRUCTION NAVALE Process Overview

9. NSPS Governance NATIONAL SHIPBUILDING PROCUREMENT STRATEGY STRATÉGIE NATIONALE D’APPROVISIONNEMENT EN MATIÈRE DE CONSTRUCTION NAVALE Deputy Ministers’ Governance Committee PWGSC (Chair), IC, DND, DFO ADM Interdepartmental Steering Committee Fairness Monitor Evaluation Review Board Evaluation Co-Leads Independent 3rd Party Subject Matter Experts Evaluation Teams

10. NATIONAL SHIPBUILDING PROCUREMENT STRATEGY STRATÉGIE NATIONALE D’APPROVISIONNEMENT EN MATIÈRE DE CONSTRUCTION NAVALE Bid Evaluation

11. NATIONAL SHIPBUILDING PROCUREMENT STRATEGY STRATÉGIE NATIONALE D’APPROVISIONNEMENT EN MATIÈRE DE CONSTRUCTION NAVALE Evaluation Area 1Mandatory Criteria • Administration: Such as continued adherence to the Qualification requirements, agreement to meet the target state within specified deadlines and meet the value proposition and industrial regional benefits obligations. • Legal: Primarily the legal capacity to enter into contract; and • Financial: Such as the bidder not being under Companies’ Creditors Arrangement Act or insolvent.

12. NATIONAL SHIPBUILDING PROCUREMENT STRATEGY STRATÉGIE NATIONALE D’APPROVISIONNEMENT EN MATIÈRE DE CONSTRUCTION NAVALE Rated Evaluation Area 2aShipyard’s Current State • Request for Proposals Requirement • Evaluation of shipyard’s Current State versus international benchmarks (Target State) • Evaluation Method • Record current state from First Marine International reports • Calculate score based on total gap

13. NATIONAL SHIPBUILDING PROCUREMENT STRATEGY STRATÉGIE NATIONALE D’APPROVISIONNEMENT EN MATIÈRE DE CONSTRUCTION NAVALE Rated Evaluation Area 2bShipyard’s Plans • Request for Proposals Requirement • Assessment of shipyard’s plans for upgrades and improvements required to close gaps in benchmarking and capability • Evaluation Method • Team reviewed First Marine International’s benchmarking and capability reports • Team reviewed shipyard’s proposed plans • First Marine International analyzed the shipyard’s proposed plans and prepared appraisal report for each plan • Team reviewed First Marine International’s appraisal reports • Based on above reviews, each plan was assigned a Probability of Failure rating • Consensus reached for each plan to arrive at a total bidder score

14. NATIONAL SHIPBUILDING PROCUREMENT STRATEGY STRATÉGIE NATIONALE D’APPROVISIONNEMENT EN MATIÈRE DE CONSTRUCTION NAVALE Rated Evaluation Area 3Cost to Canada • Request for Proposals Requirement • Assess cost to Canada • Evaluation Method • Calculate the Net Capital Cost to Canada for each bid • Assign a score – Highest score for lowest cost

15. NATIONAL SHIPBUILDING PROCUREMENT STRATEGY STRATÉGIE NATIONALE D’APPROVISIONNEMENT EN MATIÈRE DE CONSTRUCTION NAVALE Rated Evaluation Area 4aFinancial Capability • Request for Proposals Requirement • Assess the bidder’s financial capability without award of NSPS contracts • Evaluation Method • Team reviewed shipyard’s financial information • PricewaterhouseCoopers analyzed shipyard’s financial information and prepared appraisal report • Team reviewed PricewaterhouseCoopers’ appraisal report • Based on above reviews, the team rated the shipyard’s financial capability & assigned the corresponding score

16. NATIONAL SHIPBUILDING PROCUREMENT STRATEGY STRATÉGIE NATIONALE D’APPROVISIONNEMENT EN MATIÈRE DE CONSTRUCTION NAVALE Rated Evaluation Area 4bSource of Funding • Request for Proposals Requirement • Assess the bidder’s ability to meet future contract commitments based on review of financial capability and business plan • Evaluation Method • Team reviewed shipyard’s financial information • PricewaterhouseCoopers analyzed shipyard’s financial information and prepared appraisal report • Team reviewed PricewaterhouseCoopers’ appraisal report • Based on above reviews, the team rated the commercial terms, sources and available equity, as well as the ability to repay considering revenue projections and proposed repayment from Canada

17. NATIONAL SHIPBUILDING PROCUREMENT STRATEGY STRATÉGIE NATIONALE D’APPROVISIONNEMENT EN MATIÈRE DE CONSTRUCTION NAVALE Rated Evaluation Area 5Value Proposition • Request for Proposals Requirement • Assess the bidder’s proposed contribution to Canada’s marine sector • Evaluation Method • Team reviewed the bidder’s proposal and rated it in accordance with individual components: • Strategy credibility • Expected benefits of the strategy

18. NATIONAL SHIPBUILDING PROCUREMENT STRATEGY STRATÉGIE NATIONALE D’APPROVISIONNEMENT EN MATIÈRE DE CONSTRUCTION NAVALE Next Steps – Post Announcement • Debrief each shipyard • detailed results of their own proposal’s evaluation, including scores and rationales • Finalize Umbrella Agreements with both shipyards • Establishes framework for subsequent contracts • Negotiate ship construction contracts for the first projects in each package • Combat: Arctic Offshore Patrol Ships • Non-Combat: Coast Guard Science Vessels

19. NATIONAL SHIPBUILDING PROCUREMENT STRATEGY STRATÉGIE NATIONALE D’APPROVISIONNEMENT EN MATIÈRE DE CONSTRUCTION NAVALE Unique and Innovative Measures Taken to Ensure a Fair Result • Dialogue with and involvement of the shipyards; • Clearly defined and published evaluation criteria; • Participation of internationally recognized, independent expert consultants; • Unique and active governance regime; • Fairness Monitor conclusion: “… decisions were made objectively, free from personal favouritism and political influence, and encompass the elements of openness, competitiveness, transparency and compliance.”