$26B Canadian Surface Combatant Program Under Review

Written by: JOHN IVISON, Ottawa Citizen
Published in the Friday February 12, 2016 Edition

The multibillion-dollar solesource deal to build a fleet of warships for the Royal Canadian Navy is being reviewed by a newly formed Cabinet committee set up to take a closer look at controversial defence procurement contracts.

Irving Shipbuilding in Halifax was awarded the build contract as part of Canada’s largest-ever defence procurement project, the $26-billion Canadian Surface Combatant (CSC) program.

A concept design of the Canadian Surface Combatant from BMT Fleet Technology

Irving was also named as the prime contractor on the design phase. That role allows Irving a say in designating subcontractors for the project, and awards Irving a cut of their payment — which could be even more lucrative than building the ship hulls, since up to 70 per cent of the cost of the vessels derives from the complex combat systems that will be installed on them.

That role as prime contractor is now “under active discussion,” said a senior industry source.

Irving’s appointment as prime contractor was greeted with shock in the industry. Since the contract was awarded without being put out to tender, accusations followed that the taxpayer might have received a better deal had competing bids been received.

The Conservatives justified handing Irving the work without a tender on the basis that it would save money having one contractor instead of two (one for the build, one for design), each charging a percentage fee on every dollar spent.

Government and industry sources say Irving put out calls last fall for information and data from pre-qualified defence companies interested in bidding on the design and combat systems integration phase of the project.

However, that process stopped “dead in its tracks” after the new Liberal government indicated its plans for a new ad hoc Cabinet committee, chaired by Environment Minister Catherine McKenna, to review key projects including the warship program and the plan to replace the CF-18 fighter jets.

Sources said the choice of Irving’s Halifax yard as the construction site for the combat vessels is not in question. Justin Trudeau promised as much during the election. “We will be able to guarantee the delivery of current procurements for the navy, we will keep those promises for the Halifax shipyards,” he said in September.

As Postmedia reported last month, Public Services and Procurement Canada has confirmed that no contract has been signed between the government and Irving, even though Irving has been designated prime contractor for the “definition and implementation” phase. “While three preliminary services contracts have been awarded to (Irving) for work relating to the CSC project the definition contract for CSC has not yet been awarded.”

A spokeswoman for new Public Services minister Judy Foote said Thursday: “Discussions on the process of selecting a warship designer and combat systems integrator are ongoing.”

However, sources said there are concerns in government circles about the risk of cost overruns, not to mention the challenges caused by asking U.S. defence companies to hand classified information related to their weapons systems over to Irving, a third party, instead of directly to the government.

“There is a degree of nervousness” on the Irving side, said one industry source.

A spokeswoman for Irving said the company had no comment.

The commitment to tighten up defence procurement rules was included in the Liberal election campaign. The Liberals said they would ensure “all equipment acquisitions operate with vastly improved timelines and vigorous Parliamentary oversight.”

A concept design of the Canadian Surface Combatant from the CASR 

The Conservatives had originally planned to build 15 warships but federal officials acknowledged last year inflation and currency pressures could see that number reduced. In December, Vice Admiral Mark Norman, commander of the Royal Canadian Navy, said the cost of the surface combatant ships could reach $30 billion.

During the election, Trudeau promised to set aside any savings from the CF-18 replacement program and invest them in the navy.