Backgrounder—National Shipbuilding Procurement Strategy—Economic Benefits

Widespread Economic Benefits

The shipbuilding work that will take place as a result of the National Shipbuilding Procurement Strategy (NSPS) represents millions of person hours of work and will generate significant economic benefits in the form of increased activity in the marine sector and other sectors that support the construction of modern ships. Modern ship construction is a complex process that requires carefully coordinated integration of multiple systems.

It is still too early to know exactly how many jobs will be created and when and where they will be located because the designs for the ships have to be finalized and the contracts have to be put in place with the shipyards, which will require them and their as-yet-unknown subcontractors to make significant business decisions. Others, such as the Canadian Association of Defence and Security Industries (CADSI), have performed their own analysis and have concluded that job creation from the NSPS will be significant. In its report entitled Sovereignty, Security and Prosperity, CADSI has estimated that government ship projects would directly and indirectly contribute over $2 billion in annual economic benefit and 15,000 jobs over the next 30 years. The work involved will be spread over a wide spectrum of sectors across all regions of Canada, not only the shipbuilding industry.

The NSPS was actively designed to maximize benefits and ensure their distribution to the greatest extent possible. With respect to the construction of the smaller vessels, the NSPS specifically requires that work be set aside for competition among other shipyards than the two selected for large ship construction. The ship repair, refit and maintenance contracts will also be opened for competition. The sheer breadth and variety of the work involved will ensure that economic benefits are spread across Canada for decades to come.

The distribution of work going to the two shipyards is expected to be comparable to other naval procurements — for example, the Canadian Patrol Frigate program, which spanned the late 1980s to the mid-1990s. Over the life of that program, work went to every region in the country, benefitting hundreds of firms and creating many valuable jobs.

Although a considerable portion of the large shipbuilding will be done by the two selected yards, it is estimated that over half of the value of the shipbuilding contracts could flow to the broader marine industry. The distribution of work is likely to include other shipyards as well as firms in related industries that manufacture equipment used on the ships or that provide services essential to the project. Many of these undoubtedly will be small and medium-sized enterprises (SMEs) outside of the regions where the two selected yards are located.

Recognizing that some ship components will need to be sourced outside of Canada, the Industrial and Regional Benefits (IRB) Policy will guarantee dollar-for-dollar return on these expenditures to the Canadian economy either directly or indirectly.

Sustained Business for Industry

Activity levels in Canada's shipbuilding industry have historically been characterized by a “boom and bust” cycle, where periods of steady work have been followed by prolonged periods of inactivity. The NSPS will help the shipbuilding industry avoid this cycle by creating a long-term, steady work flow that will sustain highly skilled jobs for Canadian companies.

Furthermore, as part of this process, the two selected yards will have to make investments in the competitiveness, viability and health of the broader marine sector over the long term. These investments will help develop human resources, promote technological development and support industrial growth.

Industrial and Regional Benefits (IRB) Policy

As with all major defence and security procurements, the IRB Policy will apply to the shipbuilding contracts. Prime contractors will be required to undertake IRB business activities in Canada valued at 100 percent of the contract value (including work outside of the shipyard itself), thereby ensuring a dollar-for-dollar investment in the Canadian economy.

Administered by Industry Canada, the IRB Policy ensures that major government defence and security procurement will generate high-value business activities for Canadian industry. This approach will create significant opportunity for suppliers, including SMEs across Canada, to work with major defence companies. There are currently over 60 procurements subject to the IRB Policy with a value of over $21 billion. More information on Canada's IRB Policy can be found on the Industrial and Regional Benefits website (www.ic.gc.ca/irb).