Shipbuilding Contracts and Industrial and Regional Benefits Requirements

February 24, 2012

CANADIAN SHIPBUILDING INITIATIVE

A. CONTRACTS AWARDED

The National Shipbuilding Procurement Strategy (“NSPS”) was introduced to establish a transparent method of developing an ongoing relationship with two Canadian shipyards to provide Canada’s large ships.

On October 19, 2011 the National Shipbuilding Procurement Secretariat announced the results of the Request for Proposals to build ships for Canada. Two large packages were at issue: a combat package (21 vessels) and a non-combat package (7 vessels). The total value of both packages is an estimated $33 billion over 20 to 30 years.

The combat package was awarded to Irving Shipbuilding Inc. The 21 ships in the combat package include the Navy’s Arctic Offshore Patrol Ships and the Canadian Surface Combatant Ships.

The non-combat package was awarded to Vancouver Shipyards Co. Ltd. The 7 ships in the non-combat package include the Navy’s Joint Support Ships, the Canadian Coast Guard’s Offshore Science Vessels, and the replacement Polar Icebreaker.

The announcement brings opportunities to businesses of all sizes in a variety of industry sectors in all parts of Canada, and around the world. Involvement in either contract will require a proficiency in a multitude of legal issues and mandatory requirements that go with the performance of Canadian Government procurements.

B. INDUSTRIAL AND REGIONAL BENEFITS POLICY

The Industrial and Regional Benefits Policy (“IRB Policy”) requires companies who have won Government of Canada defence and security contracts to undertake business activities in Canada equal to 100% of the contract value. The IRB Policy has eight mandatory requirements which can be met through Direct or Indirect IRB transactions, and each transaction must meet five eligibility criteria.

(i) IRB Mandatory Requirements

The IRB Mandatory Requirements establish eight criteria that a bidder must satisfy. Notably the bidder must identify acceptable transactions equal to 100% of the bid price measured in Canadian Content Value (“CCV”), there are minimum levels of Direct IRB transactions required, a minimum amount committed to Small, Medium and Aboriginal businesses, and the bidder must accept the terms of the IRB Model Contract, including the penalty provisions, for failure to meet IRB obligations.

(ii) Direct and Indirect IRB transactions

Either Direct or Indirect IRB transactions will satisfy the requirements of the IRB Policy.

Direct IRB transactions are those achieved through the provision of goods and services for the performance of any part of the work under the contract. Direct IRB transactions can also be achieved through approved Global Value Chain platforms.

Indirect IRB transactions are those transactions containing work or investments that are not related to the Canadian purchase. Work within an IRB Contractor’s other business lines, provided the work meets IRB eligibility criteria, would be considered indirect.

(iii) IRB Eligibility Criteria

There are five eligibility criteria that an IRB Contractor must demonstrate when submitting an IRB transaction to Industry Canada for review: Causality, Timing, Incrementality, Eligible Party, and CCV. These requirements generally ensure that each IRB transaction is brought about by a current or anticipated IRB obligation which must be implemented within a specified period. IRB contractors are able to use current suppliers (credit is only earned to those transactions related to “new work”) and the transaction is only credited to the extent that it contains CCV.

C. CONCLUSION

The announcement of the contract awards is an exciting time for many sectors of industry throughout Canada and around the world. However, the requirements in performing shipbuilding contracts with the Canadian Government present challenges in finding suitable workers, services and suppliers. Cox & Palmer offers a variety of legal services which will be essential for what lies ahead.

Cox & Palmer has lawyers with an active practice in the fields of:

  • Contract negotiation/management
  • Dispute resolution
  • Maritime and transportation law
  • Business immigration law
  • Tax law
  • Labour & employment law
  • Industrial and regional benefits

Given this wide range of expertise, and the wide range of expertise that will be required to become involved in either of the projects, Cox & Palmer is suited to assist. Cox & Palmer has an established network of international experts to service the needs of those involved in the NSPS. Whether it concerns Aboriginal business, the International Trade Tribunal, American secrecy compliance, or concerns of European contractors – or simply what the NSPS is and how to get involved – Cox & Palmer can serve those needs.

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