Escalating costs at the Seaspan Shipyard in Vancouver in 2019 depleted the multi-million dollar contingency fund set aside as part of the budget to build three offshore fisheries science vessels under Canada’s National Shipbuilding Strategy.
The Canadian Coast Guard Ship John Franklin and CCGS Capt. Jacques Cartier were delivered in 2019, and a third ship is expected this year.
The 63-metre vessels are the first large civilian ships produced under the federal shipbuilding program. They will be used to monitor fish stocks and ecosystems.
The $687-million budget included an escalation contingency fund. The amount was not disclosed.
The full amount was redacted in a federal document authorizing the final dip into the fund. It was released to CBC News under access to information legislation.
Millions already spent by last May
According to a memorandum prepared for Jonathan Wilkinson, the former minister of fisheries and oceans, the project had already used $19 million in contingency funds by May 2019.
But more was needed, the memo said, to cover “escalating project costs such as labour rates and owner’s changes, as well as other unexpected increases to project costs including transition into service costs.”
“Access to the remainder of the contingency funding [redacted] is now required,” the two-page memo said.
A view of the Seaspan shipyard in North Vancouver, B.C. Four science vessels, two naval supply ships and a polar icebreaker are to be built here under the $36-billion National Shipbuilding Procurement Strategy. (Seaspan)
A decision was needed by July 5, 2019, the note said, “in order to adjust the Shipbuilding Contract with Vancouver Shipyards in a timely fashion and further advance the project in a seamless manner.”
Wilkinson signed off on the request.
A small percentage of overall budget
The Department of Fisheries and Oceans would not disclose the amount, but said Wilkinson was not asked to approve new funding.
“The overall contingency fund is a small percentage of the overall budget of $687 million, and is a pre-planned funding amount to cover potential increases to labour rates at the shipyard, economic price and foreign exchange adjustments, and any necessary changes to operational requirements that surface over the 5-year project implementation phase,” DFO spokesperson Benoit Mayrand said in a statement to CBC News.
“The total value of available contingency funding cannot be released, as its use will be subject to negotiations with the shipyard,” he said.
In an emailed statement, Seaspan spokesperson Amy MacLeod said “requests for contingency funding is a normal, ongoing part of the contracting process on large projects such as the [National Shipbuilding Strategy].”
What we know about the funding deal
When the agreement in principle with Seaspan was announced in 2015, the total project budget was set at $687 million.
Federal officials said at the time the total included $59 million for project management, work up to that date and contingencies, $51 million for engineering costs, and the remainder for construction, contingencies, insurance, warranty, spares and training material.
Seaspan committed to deliver three offshore fisheries science vessels at a total ceiling price of $514 million.
The ceiling included fees and an allowance for contingencies “that may or may not be required to address the risks associated with building a new class of ships in what is essentially a brand new shipyard.”
Incentives established to keep costs under budget
The agreement set out three cost bands and established incentives to the yard if the final cost came in below target.
If the final cost came in under a $400-million target, Canada would pay Seaspan a fee and the government and yard would share the savings between the actual and target costs.
Delivery of the first vessel was scheduled for spring 2017, the second vessel five months later and the third three months later.
The delivery date in every case was missed.
The delivery of CCGS Capt. Jacques Cartier was delayed due to defects in the vessel. (Ben Nelms/CBC)
Microscopic cracks in the welding were discovered on all three vessels in 2018. The faults were found after two of the ships had passed initial inspections.
The original budget for the ships of $244 million was developed in 2004.
During the 2015 briefing, federal officials said the first forecast was unrealistic because it did not adequately provide for inflation, management, engineering and design costs and did not properly include contingencies.
Demands for government intervention in Air Canada labour talks could negatively affect airline competition in Canada, the CEO of travel company Transat AT Inc. said.
“The extension of such an extraordinary intervention to Air Canada would be an undeniable competitive advantage to the detriment of other Canadian airlines,” Annick Guérard told analysts on an earnings conference call on Thursday.
“The time and urgency is now. It is time to restore healthy competition in Canada,” she added.
Air Canada has asked the federal government to be ready to intervene and request arbitration as early as this weekend to avoid disruptions.
Comments on the potential Air Canada pilot strike or lock out came as Transat reported third-quarter financial results.
Guérard recalled Transat’s labour negotiations with its flight attendants earlier this year, which the company said it handled without asking for government intervention.
The airline’s 2,100 flight attendants voted 99 per cent in favour of a strike mandate and twice rejected tentative deals before approving a new collective agreement in late February.
As the collective agreement for Air Transat pilots ends in June next year, Guérard anticipates similar pressure to increase overall wages as seen in Air Canada’s negotiations, but reckons it will come out “as a win, win, win deal.”
“The pilots are preparing on their side, we are preparing on our side and we’re confident that we’re going to come up with a reasonable deal,” she told analysts when asked about the upcoming negotiations.
The parent company of Air Transat reported it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31. The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
It attributed reduced revenues to lower airline unit revenues, competition, industry-wide overcapacity and economic uncertainty.
Air Transat is also among the airlines facing challenges related to the recall of Pratt & Whitney turbofan jet engines for inspection and repair.
The recall has so far grounded six aircraft, Guérard said on the call.
“We have agreed to financial compensation for grounded aircraft during the 2023-2024 period,” she said. “Alongside this financial compensation, Pratt & Whitney will provide us with two additional spare engines, which we intend to monetize through a sell and lease back transaction.”
Looking ahead, the CEO said she expects consumer demand to remain somewhat uncertain amid high interest rates.
“We are currently seeing ongoing pricing pressure extending into the winter season,” she added. Air Transat is not planning on adding additional aircraft next year but anticipates stability.
“(2025) for us will be much more stable than 2024 in terms of fleet movements and operation, and this will definitely have a positive effect on cost and customer satisfaction as well,” the CEO told analysts.
“We are more and more moving away from all the disruption that we had to go through early in 2024,” she added.
This report by The Canadian Press was first published Sept. 12, 2024.
