$25 Billion is Getting Pumped into Nova Scotia’s Economy: How Will it Impact IT Services?

By Daniel BerthiaumeIt is not often an outsourcing contract has the potential to alter the course of world history, but a recently awarded $25 billion contract from the Canadian federal government to Halifax, Nova Scotia-based Irving Shipbuilding Inc. just may do that. During the next 25 years, 15 next-generation vessels will be built for the Canadian Navy at the Halifax Shipyard.

“The Halifax Shipyard will completely replace the Canadian Navy’s frigates, and also build new Arctic patrol vessels,” said Paul Kent, CEO of the Greater Halifax Partnership, a municipal-level economic development organization that performed an economic impact analysis of the project.

‘Floating Computers’

The contract, which Kent estimates will create 11,500 jobs and says is the biggest single opportunity ever awarded to a business in Nova Scotia, includes the full lifecycle of ship design, construction, operation and maintenance for the next 25 years. While the contract does not specifically focus on IT-related activities, it does include the full scope of designing, building, operating and maintaining the sophisticated technology employed by the 21^st century military.

“These ships are floating computers,” said Kent. “There are combat systems, navigation systems, radar systems. There is a lot of technology and a ton of embedded software, hardware and firmware.” Kent said Irving will subcontract out IT systems maintenance to a defense contractor such as General Dynamics or Lockheed Martin.

Under contract preconditions, the Halifax Shipyard has agreed to cooperate with a third party’s periodic benchmarking of its shipbuilding activities to assess the capability and productivity improvements and whether the shipyard has met its target state commitments.

Government Ensures Fairness of Selection

The Canadian government selected the Halifax Shipyard as one of two locations (the other is Vancouver Shipyards Co. Ltd.) to receive shipbuilding outsourcing contracts under a program known as the National Shipbuilding Procurement Strategy (NSPS). The government launched NSPS in 2009 with a forum that helped shape its concept, and initiated an industry day in August 2010 to launch consultations on the process with members of the shipbuilding industry, who were consulted at every stage.

Throughout the process, which selected five shortlisted shipyards from an RFP process in October 2010 and culminated with awarding of contracts in August 2011, the government took numerous steps to ensure the selection would be fair and independent. A fairness monitor, Knowles Consultancy Services Inc. and Hill International Inc. in joint venture, was engaged to ensure that all activities were conducted in a fair, open and transparent manner. This included having the fairness monitor sit in on all meetings involving shipyards.

In addition, U.K.-based First Marine International (FMI) conducted a benchmarking assessment of shortlisted shipyards that established the shipyards’ current level of applied technology as a basis for productivity improvement, while its capacity assessment measured the strengths and weakness of the shipyards’ capability to deliver the vessels in the combat and non-combat packages in an efficient manner.

Other third-party input included advice and validation from KPMG and financial evaluation from PricewaterhouseCoopers. Representatives of different governmental bodies also formed a governance body to help oversee the process.

Economic Impact Estimated at $900M

In addition to the $25 billion which will be paid out during the life of the contract, Kent estimates the contract will produce more than $540 million in direct personal revenue and more than $350 million in federal, provincial and local tax revenue. “This will create a lifetime of positive change,” he said. “It will transform Nova Scotia, Halifax and Atlantic Canada as a region.”