The NSPS Experience Presentation to the PBO 11 Dec 2012

1. The NSPS ExperiencePresentation to the PBO11 Dec 2012

2. Establish a long-term, strategic relationship with 2 Canadian shipyards to build $33B worth of ships One shipyard to build the Combat Vessels Package Arctic / Offshore Patrol Ship, Canadian Surface Combatant The other to build the Non-Combat Vessels Package Offshore Oceanographic Science Vessel, Offshore Fisheries Science Vessel, Polar Icebreaker, Joint Support Ship Set-aside the individual projects for $2B worth of smaller vessels for competition by other than the 2 selected yards and their affiliates Repair, maintenance and refit – Business as usual What is the NSPS?

3. 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. NATIONA SHIPBUILDING PROCUREMENT STRATEGY STRATÉGIE NATIONALE D’APPROVISIONNEMENT EN MATIÈRE DE CONSTRUCTION NAVALE 3

4. What is NSPS? • The Strategy was developed and is being implemented to: • Recognize the strategic importance of a strong domestic shipbuilding industry • Support the industry’s sustainable development through a long-term approach to federal procurement • Ensure that Canada’s needs for large vessels can be met in a timely and affordable manner • Seek long-term benefits over short-term fixes 4

5. NSPS Process - What Did We Do? 5

6. NSPS Timeline Next Step • Get actual ship design / ship build contracts in place Project Contract Negotiations

7. A Phased Approach toShipbuilding Contracts • Contracting with shipyards to build ships will generally take place in three phases: • Ancillary contracts – understand the requirement and the initial design • Production / Construction Engineering contracts – mature the design so it is ready to be built • Construction contracts to build the ships • The establishment of the timelines for the phases is part of the negotiations with the shipyards • The phased approach provides less risk and will improve the efficiency of the shipbuilding process • Procurement strategy for the design, development and integration of the Canadian Surface Combatant will be determined following industry engagement 7

8. Shipyard Selection Framework Basis of Selection: The Best Overall Score from the combination of Capabilities & Improvements, Cost to Canada, Financial Situation and Value Proposition

9. Shipyard Selection Framework

10. Mandatory Requirements Mandatory Requirements grouped into 4 areas: • Administrative • Normal PWGSC requirements • Continued adherence to pre-qualification criteria used to short-list the 5 shipyards • Industrial Regional Benefits requirements (100%) • Legal • Related to the entity submitting the proposal • Financial • Minimum normal standards regarding financial capability, in line with industry practices • Bidder cannot be under CCAA or insolvent

11. Shipyard Selection Framework

12. Current State • The Current State of a shipyard was the most important rated element • The weighting of Current State element in the evaluation process reflected its importance • First Marine International report used as the measure of a shipyard’s Current State

13. Shipyard’s Plans • Shipyards submitted plans that proposed capability improvements to reduce overall costs to build ships • Plans also identified upgrades to infrastructure, technology or processes

14. Shipyard Selection Framework

15. Cost for Upgrades & Improvements • The improvements to shipyards are normally funded via new work projects • Shipyards identified costs based on FMI report • A principle of the NSPS evaluation process was to identify these costs as discrete items and evaluate them • The lower the cost the higher the rating

16. Shipyard Selection Framework

17. Shipyard’s Financial Situation • Financial situation assessed based on: • Financial capability (experience) • Access to financing • Evaluation assisted by 3rd party professionals (PwC) who submitted assessments using financial industry norms • Shipyards had to demonstrate access to working capital for first project(s)

18. Shipyard Selection Framework

19. Value Proposition • The Value Proposition considers broader socio-economic benefits • Canada identifed a minimum commitment level of 0.5% of contract value for Value Proposition investments within the mandatory portion of the Shipyard Selection Framework • At the time of contract negotiation, shipyards will submit an Investment Plan outlining the investment activity(s) proposed to satisfy Value Proposition commitments for each project along the key priority areas

20. Evaluation Weighting

21. EvaluationOrganization Same Team Members Reference: Evaluation Plan Figure 1

22. NSPS RESULTS For the combat work package: Irving Shipbuilding Inc. is the selected shipyard with a score of 82.8%. Cost to Canada is $0. For the non-combat work package: Vancouver Shipyards Co. Ltd. is the selected shipyard with a score of 76.8%. Cost to Canada is $0. 22 22

23. Successful Attributes Engagement Leadership / Governance / Decision-Making Use of Independent Third Parties to validate process 23

24. Engagement Extensive consultation with bidders took place on the concept, the requirements and the evaluation process and criteria The procurement process was driven by transparency and collaboration Pro-active communication throughout the procurement process 24

25. Governance No Political Involvement Deputy Ministers’ Governance Committee made key decisions in an open and transparent manner Unique dispute avoidance and issue resolution processes Used the governance structure to resolve issues No lobbyists No legal disputes or challenges of the process or the results 25

26. Use of 3rd Parties Internationally recognized experts were engaged to: Monitor Fairness Assess Capability and Performance Benchmarking Provide Expert Advice Assess Financial Proposals Third parties: Attended governance meetings to answer DM & ADM questions directly Provided written attestations that processes, actions and decisions were fair, reasonable and prudent

27. Other Attributes Simplified Solicitation of Interest & Qualification Value Proposition Umbrella Agreements Keeping the Results Secret Communications 27

28. National Shipbuilding Procurement Strategy Secretariat Secrétariat de la stratégie nationale d’approvisionnement en matière de construction navale The New Approach to Procurement • Listen to those with a stake in the process - clients and suppliers in equal measure • Suppliers often have valuable ideas about how to efficiently supply the government with what it needs • Adopt a governance or decision-making process that allows for real business choices to be made by both clients and procurement staff with direct input from suppliers • Make sure there is a robust issue resolution process to address any concerns and manage risks in a timely manner • Seek advice and input from those who are knowledgeable or expert but do not have a stake in the process 28