Government Gets OK to award $60B Shipbuilding Contract to Lockheed Martin Canada

By: David Pugliese, The National Post

A federal trade tribunal has rescinded its order preventing the federal government from awarding a contract to Lockheed Martin Canada for a new fleet of warships for the Canadian navy.

The Canadian International Trade Tribunal ordered the government on Nov. 27 to postpone the awarding of the contract for the $60 billion Canadian Surface Combatant project while it investigated claims that Lockheed Martin’s proposed vessel doesn’t meet the military’s needs.

The firm is offering Canada the Type 26 warship designed by BAE in the United Kingdom.

Alion, one of the companies that submitted a bid on the project, filed a complaint with the trade tribunal alleging the process was flawed and that BAE’s Type 26 can’t meet Canadian requirements. Alion has also filed a legal challenge in federal court, asking for a judicial review of the decision by Irving and the government to select the BAE design. Alion argues the Type 26 cannot meet the stated mandatory requirements, including speed, that Canada set out for the new warship, so it should be disqualified.

But on Monday the CITT lifted its order, even though it has determined it will examine the Alion complaint. Mélanie Lalonde, CITT’s deputy director of communications, said Tuesday that the tribunal cannot comment on ongoing proceedings.

A delay in awarding contracts would be contrary to the public interest

But the decision came after Andre Fillion, an assistant deputy minister at Public Services and Procurement Canada, wrote to request the order be removed. He noted that “the procurement of goods and services to which the Alion Complaint pertains is urgent, and that a delay in awarding contracts would be contrary to the public interest.”

Alion’s legal team objected, noting that “no reasons, nor any justifications, are provided to support this claim.”

The CSC program, the largest single government purchase in Canadian history, will see the eventual construction of 15 warships at Irving Shipbuilding in Halifax. Lockheed Martin Canada says the Type 26 will meet all of Canada’s requirements. The government hopes to be in a position to have a contract ready for signature by early next year.

The Irving Shipbuilding facility is seen in Halifax on June 14, 2018. Andrew Vaughan/The Canadian Press

The CITT hearings into the Alion complaint could take as long as 90 days.

Alion had offered Canada the Dutch De Zeven Provinciën Air Defence and Command frigate, which the firm says meets all of Canada’s requirements. It also noted in its court application that the requirements and other parameters of the surface combatant project were altered 88 times during the process and that the changes diluted the requirements for a new warship, allowing the government and Irving to pick “an unproven design platform.”

The entry of the BAE Type 26 warship in the competition was controversial from the start. Previously, the government had said only mature existing designs or designs of ships already in service with other navies would be accepted for the bidding process, on the grounds they could be built faster and would be less risky — unproven designs can face challenges as problems are found once the vessel is in the water and operating.

But that criteria was changed and the Liberal government and Irving accepted the BAE design in the process, though at the time it existed only on the drawing board. Construction began on the first Type 26 frigate in the summer of 2017 for Britain’s Royal Navy, but it has not been completed.

Company claims about what the Type 26 ship can do, including how fast it can go, are based on simulations or projections.

The two other bidders in the surface combatant program have ships actually in service with other navies so their capabilities are known.

CSC Fleet In Limbo as Trade Tribunal Investigates Alion Claims

By: Murray Brewster, CBC News 

The federal government's plan to award a group of companies led by Lockheed Martin Canada the contract to design and support the construction of the Navy's new frigates was dealt another setback late Tuesday by the Canadian International Trade Tribunal, CBC News has learned.

The agency said it intends to investigate a complaint by one of the other bidders, Alion Science and Technology Corp., and its subsidiary Alion Canada.

The tribunal ordered the Liberal government to suspend negotiations with Lockheed Martin, which was selected last month by Public Services and Procurement Canada as the preferred bidder on the $60 billion program.

An artist's rendering of the British Type 26 frigate, which Lockheed Martin submitted for consideration as the replacement for Canada's patrol frigates. (BAE Systems Inc./Lockheed Martin Canada)

"You are hereby ordered to postpone the award of any contract in connection with the above-mentioned procurement until the Canadian International Trade Tribunal determines the validity of the complaint," said a copy of the letter that was obtained late Tuesday by CBC News.

Alion asked the CITT last week to investigate the procurement deal, saying the preferred warship design will need substantial changes and that it doesn't meet the Navy's requirements as spelt out in the government tender.

Last week, the company asked the Federal Court in a separate filing for a judicial review of the long-awaited decision.

Three companies were in the running to design the next generation of warships to replace the navy's aging Halifax-class frigates. Navantia, a Spanish-based company, was the other bidder in the competition.

Alion proposed its De Zeven Provinciën Air Defence and Command (LCF) frigate, a Dutch-designed warship, for the Canadian competition. The ship is already in service in other countries.

No one from the trade tribunal, nor the federal government was immediately available for comment late Tuesday.

A program already behind schedule:

Experts had warned the trade challenge and the court case might delay the program, which is already behind schedule.

The design competition stretched for almost two years as public services officials and executives at the federal government's go-to shipyard for combat vessel construction, Irving Shipbuilding of Halifax, worked with bidders to ensure a fair competition and to avoid post-decision court fights.

Public Services and Procurement Canada declined to comment when the court challenge was launched last week. But a senior federal official, speaking on the background at the time, said the federal government has up to 20 days to respond in Federal Court.

The official — who was not authorized to speak on the record because of the sensitivity of the file — said there is flexibility built into the timeline and the government is optimistic it can meet its goal of an early 2019 contract signing.

The substance of the Alion complaint is that the Lockheed Martin Canada-led bid should have been disqualified from the outset because it allegedly doesn't meet the Navy's criteria in terms of speed and crew space.

The Liberal government said it wanted to go with a proven warship design, rather than starting from scratch because it would be faster and cheaper.

Alion Canada Sues Over Failed Canadian Surface Combatant Bid

By: Andrea Gunn, The Chronicle Herald
Alion Canada, one of the firms involved in the $60-billion dollar procurement of Canada’s new fleet of warships, has launched a Federal Court appeal to overturn a recent decision to select Lockheed Martin as the preferred bidder.

According to an application for judicial review filed in Ottawa on Friday, Alion Canada, a Nova Scotia-based wholly owned subsidiary of the U.S. parent company, is asking the court to prohibit the federal government and Irving Shipbuilding from entering into a contract with Lockheed Martin Canada on the grounds that Lockheed’s bid was non-compliant.

Last month, Public Services and Procurement Canada announced that after a lengthy, and sensitive competition, Lockheed Martin Canada was selected as the preferred bidder to design replacements for the navy’s frigate and destroyer fleets, beating out two other bids: Alion Canada, which offered up Dutch De Zeven Provinciën Class air defence and command frigate, and Navantia/SAAB’s design based on the F-105 anti-submarine frigate design for the Spanish navy.

But now Alion is alleging that the BAE Systems Type 26 Global Combat Ship design offered by Lockheed, which is currently also being constructed for the U.K. and Australian navies, is incapable of meeting three critical and mandatory requirements of the request for proposals that the firms crafted their bids around: two requirements concern the vessels’ speed, and one deals with the number of crew berths.

An artist's rendering of the Type 26 Global Combat Ship, Lockheed Martin's proposed design for Canada's $60-billion fleet of new warships. - BAE Systems Inc. / Lockheed Martin Canada

But now Alion is alleging that the BAE Systems Type 26 Global Combat Ship design offered by Lockheed, which is currently also being constructed for the U.K. and Australian navies, is incapable of meeting three critical and mandatory requirements of the request for proposals that the firms crafted their bids around: two requirements concern the vessels’ speed, and one deals with the number of crew berths.

“The RFP required (Public Services and Procurement Canada) and Irving to reject Lockheed’s bid because of its non-compliance,” the application reads.

Instead, the document says, the federal government and Halifax-based Irving Shipbuilding announced Lockheed as the preferred bidder and has entered into the conditions precedent period. This is the step immediately prior to awarding the definition subcontract between Irving, the prime contractor and shipbuilder, and Lockheed, the warship designer.

“(Alion) submitted a fully-compliant and conforming bid, at enormous expense, (and) expected that their bid, and the entire procurement process, would be administered in accordance with the terms and conditions in the RFP,” Alion says in the document.

“This was not the case and the applicants have been denied the fair treatment they were owed.”

As such, Alion is asking a federal court to set aside the decision to select Lockheed as the preferred bidder, and to prohibit the government from issuing the necessary approvals to award the Canadian Surface Combatant definition subcontract to Lockheed.

The respondents named in Alion’s application include Irving Shipbuilding, Lockheed Martin Canada, Navantia, SAAB Australia, and the Attorney General of Canada.

Alion’s legal actions come after months of rumblings and speculation from industry about bid-rigging: that the Type 26 was always the preferred ship of the Royal Canadian Navy, and that a number of amendments were made to the RFP to tailor it to Lockheed’s bid. These concerns centred around changes to the RFP that allowed Lockheed to offer a “paper” design that had not yet been in the water, even though Ottawa announced it was streamlining the National Shipbuilding Strategy back in 2016, axing plans for a fully Canadian designed ship and opting instead for a proven, off-the-shelf design to cut costs and mitigate risks.

The amendments, 88 in total, are referenced in Alion’s federal court application.

“While the RFP originally set out a requirement for a relatively mature and proven vessel platform, the amendments to the RFP effectively diluted the requirements and resulted in (PSPC) and Irving being able to accept an increasingly unproven vessel platform, like the one offered by Lockheed,” it reads.

David Perry, senior analyst with the Canadian Global Affairs Institute, told The Chronicle Herald he’s not surprised in the slightest that one of the other bidders is challenging the process in court.

“I mean there’s just far too much money and potential opportunity at stake for it not to be worth anyone’s while to at least try,” he said.

But, Perry said, he does find the premise of Alion’s appeal somewhat strange.

“(Alion) is basically saying that they know what (Lockheed) was able to substantiate better than either than the government/Irving did,” Perry said.

Large military procurements are a very technical and comprehensive process, and Perry said all requirements would have been laid out very clearly in the RFP. Bidders would have had to prove quite clearly to the teams evaluating the bids that they’re able to adequately meet all the requirements.

“Just to get to the point where Lockheed is right now they had to prove that they could do what Alion is saying they couldn’t,” he said.

Furthermore, Perry said it’s highly unlikely that anyone from Alion has managed to get their hands on a full copy of Lockheed’s bid. Because of the money on the line and the amount of incredibly sensitive corporate intelligence contained within a bid like this, Lockheed — one of the world’s biggest defence companies — would have guarded that information pretty closely.

“People in industry talk to each other a lot (and) have a good general idea of what others are doing, but as for if they have seen the bid, I would be astounded if that was the case.”

The Chronicle Herald reached out to Alion, Irving Shipbuilding Lockheed Martin Canada and and Public Services and Procurement Canada and all declined comment while the matter is before the courts.

Lockheed has responded to rumblings that it doesn’t meet all the RFP requirements in the past. In September, before they were announced as the preferred bidder, the Twitter account for the Lockheed/BAE team posted: “BAE System’s Type 26 meets all requirements in the CSC proposal, including speed.”

Both Irving and Public Services and Procurement Canada have expressed numerous times in response to concerns about the Canadian Surface Combatant competition that they are committed to a fair, open and transparent procurement process.

British firm BAE Selected for Canada’s $60B Warship Replacement Program

By: David Pugliese, The National Post 

The Canadian Surface Combatant project will see the Halifax-based Irving build 15 warships, which will form the backbone of the future Royal Canadian Navy.

Artists Rendition of an RCN BAE Type 26 Global Combat Ship. BAE Handout

The Canadian government has selected a consortium closely linked to Irving Shipbuilding to provide it with a new warship design for the most expensive defence project the country has ever seen.

Canada announced Friday it had chosen the Type 26 warship design by British defence firm BAE for the $60-billion program to replace the Royal Canadian Navy’s Halifax-class frigates. Lockheed Martin Canada is leading the BAE consortium and will be the prime contractor. The group’s win had been anticipated since 2016, however, after rival defence firms raised concerns that the competition had been rigged in favour of the British design.

The Canadian Surface Combatant project will see the Halifax-based Irving Shipbuilding build 15 warships, which will form the backbone of the future Royal Canadian Navy. It will be the largest and most complex procurement in Canadian history. However, it is seen as a major departure from previous procurement processes, as Irving is playing a significant role in selecting the winning design.

The previous federal procurement minister, Judy Foote, had said only mature existing designs or designs of ships already in service would be accepted for the bidding process, on the grounds they could be built faster and would be less risky — unproven designs can face challenges as problems are found once the vessel is in the water and operating. But the Liberal government and Irving accepted the BAE design into the process, though at the time it existed only on the drawing board. Construction began on the first Type 26 frigate in the summer of 2017 for Britain’s Royal Navy, but it has not yet been completed.
Federal shipbuilding program poorly managed and lacks oversight, government adviser warns
Federal warship replacement cost swells to $62 billion, now more than twice the original budget: PBO
Liberals reject warship proposal that companies said would save taxpayers as much as $32B

Both Irving and the federal government have insisted the procurement was being conducted in a way that ensures all bidders are treated equally, overseen by a fairness monitor with no unfair advantage given to any individual bidder. Nonetheless, while three consortiums submitted bids for the surface combatant program, several European shipbuilders decided against participating because of concerns about the fairness of the process. Others raised concerns about BAE’s closeness with the Halifax firm.


Last year a French-Italian consortium also declined to formally submit a bid and instead offered Canada a fleet of vessels at a fixed price. Officials with Fincantieri of Italy and Naval Group of France said they don’t believe the procurement process as it is currently designed will be successful. The federal government, however, rejected the deal.

The federal government had to remind Irving about the potential for conflict of interest when the firm joined forces with BAE in late 2016 to bid on a multi-billion dollar contract to provide maintenance and support for the navy’s new Arctic patrol and supply ships.

The Irving-BAE alliance was not successful in that bid, but it led the government to remind Irving it had an obligation to “ensure that the Canadian Surface Combatant competition is conducted in a manner that is free from real or perceived conflicts of interest,” according to February 2017 documents prepared for defence minister Harjit Sajjan and released to the Conservatives under the Access to Information law.

Andre Fillion, assistant deputy minister for defence and marine procurement at Public Services and Procurement Canada, said Friday’s decision is not a contract award. “It’s an important step to getting to contract award in the coming months,” he said.

Negotiations will now begin with Lockheed Martin. if negotiations proceed accordingly a contract is expected to be signed sometime between January and March 2019.

But Fillion said if there are issues with those negotiations and an agreement is not reached, the government will then turn to the next highest-ranked bidder. The government has declined to identify that firm, but the other bidders were from the U.S. and Spain.

The Canadian Surface Combatant program has already faced delays and rising costs. In 2008 the then-Conservative government estimated the project would cost roughly $26 billion. But in 2015, Vice-Admiral Mark Norman, then commander of the navy, voiced concern that taxpayers may not have been given all the information about the program, publicly predicting the cost for the warships alone would approach $30 billion.

Final Canadian Surface Combatant Bids Due Today

By: David Pugliese, Defence Watch 

The final bids are being submitted Friday by various consortiums for the Canadian Surface Combatant program.

The bids going in Friday involve the finalized portions of the bids on designs (the technical design bids were originally submitted in November but today marks the deadline for responses that deal with any questions the federal government may have had/changes needed to be made) as well as proposals for the financial elements for the project.

The new ships will be the backbone of the future Royal Canadian Navy.

The groups bidding include:

-Lockheed Martin Canada, who will be the prime on the team that includes BAE Systems, CAE, L3 Technologies, MDA, and Ultra Electronics. The team is offering the BAE Type 26 warship for the Canadian program. The proposal will include Lockheed Martin Canada’s combat management system, CMS 330, which is currently on board the modernized Halifax-class frigates. A scaled down version of the system will be used on the Royal Canadian Navy’s new Arctic Offshore Patrol Ship fleet. The United Kingdom is acquiring 8 of the Type 26 ships. Australia has also identified the Type 26 as the design for its future warship.

Gary Fudge, Vice President and General Manager, Lockheed Martin Canada Rotary and Mission Systems told Defence Watch that the group’s bid was submitted earlier this week. He noted that the Type 26 would be excellent in an anti-submarine warfare role as it is designed to be extremely quiet. The vessel also has room to future modernization, unlike older designs, he added. The Lockheed Martin team, which is making $17 billion in value proposition commitments to Canada, will commit to spending billions in innovation across Canada’s priority areas, including $2 billion in supplier development and $2 billion in research and development, and $200 million in advanced manufacturing, the company noted.

-Alion Science and Technology, along with its subsidiary Alion Canada, submitted their proposal based on the Dutch De Zeven Provinciën Air Defence and Command (LCF) frigate. “Our solution delivers an effective, affordable, production-ready 21st century naval capability to meet Canada’s defence needs,” Bruce Samuelsen, Chief Operating Officer for Alion, said last year while promoting the firm’s bid. The De Zeven Provinciën-class frigate is a proven NATO vessel, built by Damen Schelde Naval Shipbuilding, with more than 10 years of operational excellence, the company added.

Alion’s combat system solution is based on the world-class capabilities of ATLAS-Elektronik and Hensoldt Sensors. ATLAS brings an open architecture Combat Management System that readily accepts new and evolving technologies, the firm noted. Hensoldt’s capability and experience in developing and fielding state-of-the art radars was central to meeting the unique Canadian requirements with a fielded, non-developmental radar, the Alion team added in an earlier news release. Other key suppliers include L3 Technologies Canada, Raytheon Canada Limited, DRS Technologies Canada Limited (DRS TCL) and Rheinmetall Canada Inc.

-Navantia of Spain is leading a team that includes Saab Australia and CEA Technologies. Its proposal is based on the F-105 frigate design, a ship in service with the Spanish navy. The design has also already been exported to Norway and Australia. Saab, which would provide the combat management system, has support on the CSC program from Lockheed Martin (Moorestown, New Jersey), General Dynamic Mission Systems – Canada, DRS Technologies Limited Canada, OSI Maritime Service and Rheinmetall Canada, according to Navantia.

The F-105 Anti-Submarine Warfare ship will incorporate Saab’s 9LV Combat Management Systems, elements of which are in service on over 240 platforms in 16 navies across the globe, including Canada’s own Halifax-class frigates, the company has said.

The budget for the Canadian Surface Combatant project is estimated by the federal government to be between $55 billion and $60 billion. That is a range but specific costs won’t be known until contacts are signed and more details worked out. Fifteen warships will be built.

Pat Finn, assistant deputy minister for materiel at the Department of National Defence, told Defence Watch he expects a winning bid to be selected by the end of this year.

After that negotiations would start and a contract is expected to be signed sometime early 2019. If an agreement can’t be reached then negotiations would begin with the group that came second in the competition.

About half of the cost of the surface combatant price-tag is for systems and equipment that will go on the 15 ships, according to federal documents obtained by Postmedia through the Access the Information law. “Approximately one-half of the CSC build cost is comprised of labour in the (Irving’s) Halifax yard and materials,” the documents added.

Jean-Denis Fréchette, the Parliamentary Budget Officer, estimated the CSC program would cost $61.82 billion. He also warned that every year the awarding of the contract is delayed beyond 2018, taxpayers will spend an extra $3 billion because of inflation.

BAE Type-26 GCS to be operational in 2027; Still considered a top contender for CSC Fleet

By: David Pugliese, National Post 

One of the top contenders in Canada’s new frigate program – a ship now being built for the United Kingdom – won’t be operational for the Royal Navy until 2027.

BAE’s Type 26 frigate has been ordered by the United Kingdom and the cutting of steel started last year.

But the United Kingdom’s defence procurement minister Guto Bebb has told parliamentarians that the first of those frigates won’t be delivered until 2025. Because of testing it won’t become operational until 2027, the minister added.

Artists Rendition of the BAE Type-26 Global Combat Frigate. 

The Type 26 design has been submitted to Canada for its Canadian Surface Combatant program and is one of three contenders. Construction on the Canadian frigate program to start in the early 2020s.

That raises the possibility, say industry insiders, that Canada could be the first nation to acquire the Type 26 and put it to sea.

Being the first to deploy a new class of warships, however, comes with associated issues of working through the initial problems of new vessels.

That, however, is what the Canadian government had hoped to avoid with its CSC program. It originally stated that only mature ships or proven designs would be considered.

But the Liberal government inexplicably retreated on that stipulation and allowed the Type 26 design to be entered even though the vessel had not been built yet.

That, in turn, sparked a belief in some quarters of industry that the fix is in for BAE’s Type 26. The federal government has denied that.

Lockheed Martin Canada is leading the consortium that has proposed the Type 26. A company spokesperson said the progress of the British program will not have an impact on CSC.

“Our CSC bid meets or exceeds all requirements and this does not impact our bid in any manner,” the spokesperson noted in an email to Defence Watch. “Our CSC bid does not rely upon the T26 becoming operational before 2027.”

Some industry officials have also suggested that the 2027 date won’t be an issue because they expect the CSC to fall significantly schedule. By the time CSC gets really underway, the Type 26 will be ready.

The Canadian Surface Combatant program will cost between $55 billion and $60 billion. Fifteen ships will be eventually built. Three consortiums have bid on the program.

A contract for the CSC is expected to be awarded by the end of this year, said Pat Finn, assistant deputy minister for materiel at the Department of National Defence.

About half of the cost of the surface combatant price-tag is for systems and equipment that will go on the 15 ships, according to federal documents obtained by Postmedia through the Access the Information law. “Approximately one-half of the CSC build cost is comprised of labour in the (Irving’s) Halifax yard and materials,” the documents added.

Last year, Jean-Denis Fréchette, the Parliamentary Budget Officer, estimated the CSC program

would cost $61.82 billion. He also warned that every year the awarding of the contract is delayed beyond 2018, taxpayers will spend an extra $3 billion because of inflation.

DND Needs $54M in Additional Funds to Evaluate CSC Fleet Proposals

By: David Pugliese, The National Post

The Department of National Defence needs an extra $54 million just so it can examine the bids from companies hoping to build it a new fleet of warships — an indication of the growing expense of a program that has more than tripled in cost over the years.

HMCS Ottawa, one of the Royal Canadian Navy's Halifax-class frigates that will be replaced by the eventual arrival of the Canadian Surfance Combatant Fleet. Roslan Rahman/AFP/Getty Images

The funds are not earmarked for anything to do with the actual construction of the ships, but instead to fund DND’s evaluation of the the bids this year — and they would be in addition to the $39 million the department has already received to review the bids, according to defence sources.

The cost of the new Canadian Surface Combatants, which will replace the existing Halifax-class frigates, has steadily been climbing. The 15 ships were originally estimated to cost $15 billion. That increased to $24 billion before DND came out with a new estimate of around $40 billion. That too has since changed, and the project is now estimated to cost between $55 billion and $60 billion — and even then, the federal government acknowledges it doesn’t know what the program’s final cost will be to taxpayers. Parliamentary budget officer Jean-Denis Fréchette estimated last year the CSC program would cost $61.82 billion, and warned that every year the awarding of the contract is delayed beyond 2018, taxpayers will spend an extra $3 billion because of inflation.

Despite the Liberal government’s repeated statements about openness and transparency, it took Postmedia more than three months to get basic information from DND about its request for new funding, and even then, the details provided are limited.

“These funds will permit the project to maintain the Project Management Office and to continue work under the Definition Support Contract with Irving Shipbuilding Inc. for the remainder of this fiscal year,” the DND said in an email. “This funding will primarily support the Request for Proposal, bid evaluation and preparations for the design services contract.”

The money will cover salaries and benefits for the 135 military and civilian staff at the DND who are assigned to the project office, the department said, and will also be used to train staff and upgrade their offices.

Prospective builders of the new warships submitted their bids on Nov. 30, and a winning bid is expected to be selected sometime this year. Halifax-based Irving Shipbuilding will begin construction of the first ship in the early 2020s and delivery of the first vessel is expected in the mid-2020s, according to the federal government.

Artists rendering of a BAE Type-26 Global Combat Ship with the Royal Canadian Navy Ensign - a proposed design for the Canadian Surface Combatant Fleet. 

Defence analyst Martin Shadwick said that without more detail of how the funds will be spent it’s hard to determine whether taxpayers are getting value for money. “But it seems a very high cost to run a project office for a one-year period and to evaluate bids,” added Shadwick, a strategic studies professor at York University in Toronto.

The surface combatant project, intended to provide the backbone of the future Royal Canadian Navy, has long been controversial.

In a surprise twist in November, a French-Italian consortium declined to formally submit a bid, instead offering Canada a fleet of vessels at half the price. Fincantieri of Italy and Naval Group of France don’t believe the established procurement process for the surface combatant program, already beset with delays and increasing costs, will be successful.

They instead proposed that Irving Shipbuilding construct 15 ships based on the consortium’s proven FREMM frigate design, currently in operation in both the French and Italian navies, among others, and guaranteed a fixed price of $30 billion. Thier proposal also focused on using Canadian technology on board the ships, and would have transferred technology to Canadian firms so they could be involved in future sales of the FREMM vessels on the international market. Under the plan, Irving would have been able to start building the warships almost immediately.

The Canadian government, however, rejected the offer.

Italian Navy Alpino FREMM Frigate. Italy ordered 10 FREMM Frigates. The FREMM is currently operated by the Italian Navy, the French Navy, the Egyptian Navy, and the Royal Moroccan Navy. 

Federal Government Rejects FREMM Frigate Proposal That Could Save $30B

By: David Pugliese, National Post

Liberals reject warship proposal that companies said would save taxpayers as much as $32B
Industry sources alleged the Canadian competition is skewed to favour a bid by Lockheed Martin Canada and the British firm BAE which would see Canada buying the Type 26 frigate. 

The 3rd FREMM "Languedoc" sails during the acceptation ceremony by the OCCAR on March 16, 2016 in Toulon.BORIS HORVAT/AFP/Getty Images.

The Liberal government has rejected a European consortium’s offer to provide Canada with a fleet of new warships, which industry officials said could have saved Canadian taxpayers as much as $32 billion.

Postmedia reported last week that the French and Italian governments made the Canadian government a proposal on behalf of their shipbuilders, Fincantieri of Italy and Naval Group of France, offering Canada 15 of the consortium’s FREMM frigates at a fixed price of roughly $30 billion. The offer came in lieu of a bid from the consortium to win the design for the $62-billion Canadian Surface Combatant program, intended to provide the Canadian navy with the core of its future surface combat fleet.


To be clear, any proposals submitted outside of the established competitive process will not be considered

But the Canadian government announced Tuesday it was rejecting the pitch. “The submission of an unsolicited proposal at the final hour undermines the fair and competitive nature of this procurement suggesting a sole source contracting arrangement,” Public Services and Procurement Canada said in a statement. “Acceptance of such a proposal would break faith with the bidders who invested time and effort to participate in the competitive process, put at risk the Government’s ability to properly equip the Royal Canadian Navy and would establish a harmful precedent for future competitive procurements.

“To be clear, any proposals submitted outside of the established competitive process will not be considered,” the statement said.

The Fincantieri-Naval Group’s gambit was always seen as risky, as federal bureaucrats were expected to fight the proposal. But sources close to the European companies said they felt they didn’t have anything to lose. They alleged the Canadian competition is skewed to favour a bid by Lockheed Martin Canada and the British firm BAE which would see Canada buying the Type 26 frigate BAE is building for Britain’s navy.

A photo shows the FREMM Aquitaine multipurpose frigate on May 11, 2017 in Brest harbour, western France. FRED TANNEAU/AFP/Getty Images

The Canadian government had originally asked for only bids featuring proven ship designs. It changed those parameters last year to allow a bid from BAE, though the Type 26 was at the time still on the drawing board.

Both Public Services and Procurement Canada and Halifax’s Irving Shipbuilding, which the government has named prime contractor on the CSC project, have denied allegations of favoritism.

Industry sources, however, told Postmedia that two other European shipbuilders also decided against submitting bids on the Canadian program because of concerns over the fairness of the process.

PSPC has declined to say how many bids were received for the CSC project by the Nov. 30 deadline. Besides the Lockheed-BAE group, only two other companies have publicly acknowledged bidding.

Fincantieri and Naval Group had hoped their offer might sway the Liberals, as it eliminated much of the risk in such a large procurement by offering a proven warship design at a fixed price. The consortium had proposed building the ships at Irving’s Halifax yards, as well as using Canadian technology on board the ships and transferring some technology to Canadian firms so they could be involved in future sales of FREMM vessels on the international market.

But the Canadian government dismissed the consortium’s claim of cost savings. “With respect to suggestions that significant savings could be realized through this alternative process, this is far from evident,” PSPC’s statement said.

Officials from Fincantieri and Naval Group were not available for comment Tuesday.

The Italian, French, Moroccan and Egyptian navies currently operate FREMM frigates; Australia is considering buying them for its new fleet, and they are seen as serious contenders in the competition to outfit the U.S. Navy with modern frigates.

The cost of the CSC program has steadily increased. Originally set at $26 billion, the Department of National Defence later estimated its price tag at $40 billion. Then in June, Parliamentary budget officer Jean-Denis Fréchette estimated its cost at $61.82 billion. He also warned that inflation will cost taxpayers an extra $3 billion for every year beyond 2018 the awarding of the contract is delayed.

French-Italian Consortium offers Canada a deal on a new fleet of frigates

By: David Pugliese, The National Post 

The proposal is for Canada's chosen contractor, Halifax-based Irving Shipbuilding, to build 15 ships based on the consortium’s FREMM frigate design, that could save the Federal Government close to $32 Billion. 

A FREMM frigate sails off the coast of France in 2016.Boris Horvat/AFP/Getty Images

OTTAWA — In a surprise twist in Canada’s shipbuilding saga, a foreign consortium is offering the country a way to build a fleet of warships at a guaranteed price of $30 billion — a potential savings of $32 billion.

Fincantieri of Italy and Naval Group of France — major forces in international shipbuilding — don’t believe the current $62-billion Canadian Surface Combatant program, already beset with delays and increasing costs, will be successful, industry sources told Postmedia.

Instead, the French and Italian governments have proposed that Canada’s chosen contractor, Halifax-based Irving Shipbuilding, build 15 ships based on the consortium’s FREMM frigate design, which is proven and is in operation with the French and Italian navies. They are offering to guarantee the cost of the ships at a fixed $30 billion.

The deal would use Canadian technology on board the ships, sources said, and include the transfer of technology to Canadian firms so they could be involved in future sales of FREMM vessels on the international market.

As well as the French and Italian navies, Morocco and Egypt operate FREMM ships. Australia is considering them for its new naval fleet, and they are seen as a serious contender in the competition to outfit the U.S. Navy with modern frigates.

Bids for the Surface Combatant program were to have been submitted by Thursday to Irving. The company has not responded to a request for comment, and it is not known how receptive it would be to the consortium’s proposal.

The Fincantieri-Naval Group gambit is risky, as federal bureaucrats are expected to oppose it. But the potential of $32 billion in savings for Canadian taxpayers will put pressure on the Liberal government to seriously consider the offer.

Defence industry insiders said the Fincantieri-Naval Group consortium thinks it has nothing to lose by trying to circumvent the CSC procurement process, which a number of observers believe is skewed to favour a bid by Lockheed Martin Canada and the British firm BAE. They would provide Canada the Type 26 frigate that BAE is building for the Royal Navy.

Industry sources pointed out that Canada had originally asked for proven ship designs, then at the last minute loosened that restriction to allow the Lockheed-BAE bid to qualify, since the Type 26 was at the time still on the drawing board. (Construction on the Type 26 frigate began in the summer, but the first ship for the Royal Navy is not yet completed.)

Both Irving and Public Services and Procurement Canada have denied any favoritism towards BAE.

An aerial image of Irving Shipbuilding Halifax Shipyard. Irving Shipbuilding Inc.

Another team, led by Alion Canada, is offering the Dutch De Zeven Provinciën Air Defence and Command frigate. Though no other bids have yet been reported, a number of other companies were expected to put their ships in the running for the CSC program.

Fincantieri, the fourth-largest shipyard in the world, has long warned the Liberal government it believes the CSC procurement process is flawed. On Oct. 24, 2016, the firm sent then-Public Services and Procurement Minister Judy Foote a detailed outline of why it thought the acquisition process was in trouble, warning that “Canada is exposed to unnecessary cost uncertainty.”

At the time, the company proposed to Foote that a fixed-price competition be held, with the winning shipyard building the first three warships complete with Canadian systems and delivering them to Irving. The ships would have then be evaluated and, after any technical issues were worked out, Irving would have begun to build the remaining 12 vessels. That would allow work on the new ships to get underway faster, the vessels to be fully tested and the risk to the Canadian taxpayer significantly reduced, Fincantieri argued.

Foote dismissed the company’s recommendation. However, the cost of the CSC program has steadily increased. Originally set at $26 billion, the Department of National Defence later estimated the price tag at $40 billion. Then in June, Parliamentary Budget Officer Jean-Denis Fréchette estimated the CSC program would cost $61.82 billion — and warned that because of inflation, every year beyond 2018 the awarding of the contract is delayed would cost taxpayers an extra $3 billion.

There are also concerns that plans to build two supply ships for the Royal Canadian Navy and a new Polar-class icebreaker for the Canadian Coast Guard are in trouble.

The Liberals have said they can’t provide Parliament with a schedule for the delivery of the supply ships or the icebreaker because they deem such information secret.

Public Services and Procurement Canada would not comment on the reasoning behind that claim.

Analyst: Time For RCN To Scale Back Warship Plans

By: ANDREA GUNN THE CHRONICLE HERALD
The growing price tag on Canada’s new fleet of warships has left some experts wondering if there’s a more economical solution to rebuilding the navy.

In June the federal government more than doubled the $26-billion budget to build 15 new Canadian Surface Combatant vessels — the first of which is expected to be delivered in 2026 — to $60 billion.

The U.K. revealed plans this week to buy five budget Type 31e general purpose frigates, on top of the eight type 26 global combat ships currently being constructed by BAE Systems, at a cost equivalent of about $400 million Canadian a piece. This is a fraction of what their Type 26 global combat ships — which are one of the designs in the running for Canada’s new fleet — will cost.

Ken Hansen, a retired navy commander and defence analyst, said Canada ought to follow countries like the U.K. and Denmark in scaling back on what he calls outrageous military-grade engineering standards as well as considering purchasing some vessels with more basic capabilities.

“(These standards are) driving defence procurement to ridiculously high extremes when in fact there is no imminent conflict that would justify that kind of expenditure,” he said.

“Historically . . . what we have always done is a high-low mix, and it makes no sense to be sending a really high capability ship off to low risk tasks,” he said.

According to Hansen, a large portion of shipbuilding costs are due to using extremely high engineering standards for systems and subsystems — things like water, power, heating and ventilation — that are commonly available, something that he said Denmark has managed to opt out of.

“They use Caterpillar diesel engines for diesel generators and they use stuff from their marine industry, the best industrial standard is good enough.”

Hansen said it was once thought that over engineering could improve survivability, but that’s no longer true with modern weaponry.

“Engineering standards will not save you for a torpedo hit or high-speed missile hit. The only thing that will absorb the destructive power of modern weaponry is size. So you’re better off to build it bigger and then use redundancy to get survivability, and that’s what the Danes do as well,” he said.

Instead of two diesel generators on a ship, Hansen said, the Danes will have four or six because because they’re a 10th of the cost of a military spec diesel generator.

“What’s driving the government to say ‘Oh we have to put all this extra money in the program,’ is that they’re allowing the navy to dictate this requirement when there’s no historical justification for it. If you do the analysis on the lethality of modern systems for it, there’s no justification for it there either,” he said.

Hansen pointed out that the Arctic Offshore Patrol vessels currently being built by Irving in Halifax are being built to best commercial standards, which he said also has a positive impact on the Canadian economy.

“If it’s built to a best commercial standards there’s all kinds of Canadian companies that can contribute to its completion and there’s a real growth going on in Canadian industrial marine systems,” he said.

Steven Staples, vice-president of the Rideau Institute, called building a fleet of 15 single-class brand new surface combat vessels for the Canadian navy during a period when we’re primarily involved in land wars and air combat is a Cadillac plan.

“The navy is projecting on keeping a fleet that’s roughly the same size as it was at the height of the Cold War with what has not been a good rethink of what the role of the navy is in this time,” he said.

But Adam Lajeunesse, Irving Shipbuilding chair in Canadian Arctic maritime policy at St. Francis Xavier University, said building a new fleet that will sustain the navy for the next number of decades is not just about looking at what is needed to respond to the current threat landscape.

“We are buying these in the way that many states have always bought military equipment, not just to face current threats but as an insurance policy against what we may have to face in the future,” he said.

Four Companies ask Canada to Delay Shipbuilding Bidding

By: David Pugliese, The National Post 

A third of the companies involved in a $26-billion project to build a new fleet of warships for Canada have asked the Liberal government to delay bidding as problems continue to mount for the program.

On Monday, the Ottawa Citizen reported that one of the world’s largest shipbuilders — Fincantieri — had told Procurement Minister Judy Foote the project was so poorly structured it had doubts whether it would bid.

Foote’s department has now confirmed that four firms have come forward to request the bidding process for the Canadian Surface Combatant be delayed.

Canada has pre-approved 12 firms to bid on various aspects of the program, which would see Irving Shipbuilding construct a fleet of new ships for the Royal Canadian Navy.

“Canada and Irving Shipbuilding Inc. are considering the extension requests,” Jean-François Létourneau, a spokesman for Public Services and Procurement Canada, noted in an email. He did not identify the companies requesting the delay.

The Liberal government announced on Oct. 27 that Irving had issued a request for proposals from companies on the design of the new warships.

The firms have until April 27 to provide those bids, which must not only include the design but details of teaming arrangements with Canadian firms.

Allowing only six months to compile bids for one of the largest procurements in Canadian history doesn’t make sense, say representatives of some of the companies. The extent of the technical data and other information the Canadian government requires is overwhelming.

Fincantieri’s letter to Foote provided a detailed outline of other problems with the acquisition process, warning that “Canada is exposed to unnecessary cost uncertainty.”

There is also the belief in industry circles that the Liberals favour the design from the British firm BAE, which is offering the navy the Type 26 warship.

Foote had previously said only proven warship designs would be considered, to reduce the risk of problems. But the Liberals retreated on that, and will now accept a Type 26 bid, even though the vessel has not been built yet.

Over the last several months, various firms have highlighted their serious concerns about the project but are frustrated Foote has not acted to deal with those, industry sources added.

But Foote’s spokeswoman, Annie Trépanier, said industry has been repeatedly consulted on the project and an independent fairness monitor is involved in the process.

Irving spokesman Sean Lewis said the contract for the design would be awarded to an existing warship design that best fits the requirements of Canada’s navy. All bidders are being treated equally and no one bidder has an unfair advantage, he added.

Industry officials aren’t the only ones raising concerns. In December 2015, Vice Admiral Mark Norman told CBC journalist James Cudmore the Canadian public had not been given accurate information about the growing price of the ships. Norman warned the project, originally budgeted at $26 billion, could end up costing taxpayers $42 billion.

Cudmore is now a procurement adviser for Defence Minister Harjit Sajjan.

Norman was temporarily removed from his job as vice chief of the defence staff on Jan. 13 by Chief of the Defence Staff Gen. Jon Vance. The government and military have declined to provide a reason for the decision.

 dpugliese@postmedia.com

Warship Project At Risk as Shipbuilders Threaten to Withdraw from Bidding

By: David Pugliese, The National Post 

Canada’s multibillion-dollar project to buy a replacement for its frigates is so poorly structured that Italian shipbuilder Fincantieri, one of the world’s largest shipbuilders, has warned the Liberal government it won’t bid unless changes are made.

A number of other ship designers are also considering backing out because of the problems plaguing the project to spend more than $26 billion on a new fleet of Canadian Surface Combatants.

Italian shipbuilder Fincantieri sent Procurement Minister Judy Foote a detailed outline of why the acquisition process is in trouble, warning that, “Canada is exposed to unnecessary cost uncertainty,” according to the Oct. 24, 2016, letter obtained by Postmedia.

There is also a belief in industry circles that the federal government is favouring a design from the British firm BAE, which is offering the Royal Canadian Navy the Type 26 warship.

Foote had previously said only proven warship designs would be considered to reduce the risk of problems. But the Liberal government retreated on that and will now accept a Type 26 bid, even though the vessel has not been built yet, which is causing other shipbuilders to reconsider their bids.

Preparing a bid for the Canadian Surface Combatant or CSC will cost companies between $10 million and $20 million. If they see their chances of winning a contract as slim, firms could decide not to enter the competition, further narrowing the choices for the Liberals on a new vessel for the navy.

The government announced Oct. 27, 2016, that Irving Shipbuilding, its prime contractor, had issued a request for bids from companies on the design of the new ships.

The firms have until April 27 to provide those bids, which must not only include the design but details of teaming arrangements with Canadian firms.

Irving Shipbuilding Inc.A keel unit of an Arctic Patrol Ship is lowered into place at Irving Shipbuilding’s Halifax Shipyard in an undated photo.

In its letter to Foote, Fincantieri pointed out that the current structure of the procurement limits the role of the warship designers to simply providing engineering and design services to Irving, which will then build the vessels. In return for that small role, the companies are being asked to provide valuable intellectual property to their designs, access to their established supply chains and transfer technology to Irving and Canada.

In addition, the warship designers have to provide a warranty on the integration of technology into their designs, even though they are not responsible for buying that equipment.

The project as it is structured now leaves little incentive for warship designers and builders such as Fincantieri, which has designed and constructed ships for the navies of Italy, the United Arab Emirates, India, Iraq, Malta and Malaysia.

“If the current proposed procurement approach is retained, then it will be very difficult for Fincantieri to obtain approval to bid from its board,” the company warned Foote.

Fincantieri declined to comment on the letter.

Fincantieri instead proposed to Foote that a fixed-price competition be held, with the winning shipyard building the first three warships, complete with Canadian systems, and delivering those to Irving. The ships would then be run through evaluations and after any technical issues were worked out, Irving would begin to build the remaining 12 vessels.

That way work on the new ships could get underway faster, the vessels will be fully tested, and the risk to the Canadian taxpayer significantly reduced. The “winning team can be held accountable for the overall performance of the finished ship,” Fincantieri added.

“Companies are also given incentive to make long-term investment in Canada because they can expect to get a fair return from the greater value of their work responsibility,” Foote was told.

The minister responded by suggesting Fincantieri approach Irving with its concerns. Foote’s response further worried the Italian shipbuilder as it had believed the Canadian government and its ministers were ultimately responsible for the program and the spending of billions of tax dollars.

Related
Irving Shipbuilding’s $26-billion warship procurement deal under review, senior source says
Irving accused of conflict as it teams with company bidding on Canada’s multibillion-dollar warship program

Foote’s spokeswoman Annie Trépanier did not comment specifically on Fincantieri’s letter but repeated previous government comments about how industry was consulted extensively and those shaped the final documentation used to solicit bids. An independent fairness monitor is also involved in the process, she added.

Irving spokesman Sean Lewis said the contract for the CSC design will be awarded to an existing warship design that best fits the requirements of Canada’s navy. “I can assure you that the procurement process is being conducted in a way that ensures that all bidders are treated equally, with no unfair advantage given to any individual bidder, and under observation of an independent fairness monitor,” he added.

The surface combatants will be the backbone of the Royal Canadian Navy’s future fleet. The project has seen repeated delays, with the navy at one time expecting the ships by 2015. The first vessel is now planned for sometime in the early 2020s.

Initial cost estimates for the project were set at $26 billion. But that could potentially rise to more than $40 billion, depending on the number of ships constructed.

Irving Accused of Conflict of Interest with BAE in Future RCN Warship Contract

By: Lee Berthiaume, The Canadian Press

OTTAWA — The multibillion-dollar effort to replace the navy's warship fleet is being buffeted by concerns about a potential conflict of interest involving the Halifax company that is leading the project.

Canada's Irving Shipbuilding and British shipbuilder BAE Systems recently announced they have paired together to bid on a $5-billion maintenance and support contract for the navy's new Arctic patrol vessels and resupply ships.

But BAE is also expected to enter its Type 26 frigate into a competition being run by Irving, in conjunction with the Defence Department, to select the warship design to replace the navy's 12 frigates and three destroyers.

Irving will ultimately build the vessels.

Irving and the federal government say measures have been taken to ensure full transparency and fairness around the warship project, which previous estimates have pegged at as much as $40 billion.

The warship project "is being conducted in such a way that ensures that all bidders are treated equally, with no unfair advantage given to any individual bidder," Irving spokesman Sean Lewis said in an email.

Part of that has involved Irving and BAE putting safeguards in place to avoid any conflict, Lewis said, including the creation of separate teams for the maintenance contract and warship design competitions.

"All members of both teams, as well as senior management at both Irving Shipbuilding and BAE, have been thoroughly briefed on these measures and the government of Canada has been made aware," Lewis said.

Defence Minister Harjit Sajjan said Tuesday that the government has worked hard to make sure the process for selecting the next ship design is open, transparent and "done in a manner that is fair for all."

Some of BAE's competitors had already been grumbling about the Type 26 being allowed to compete, given that the ship has never actually been constructed, as well as Irving's role in selecting a design.

The announced partnership between BAE and Irving for the maintenance contract ratcheted those complaints to higher levels on Tuesday.

Several industry representatives, speaking on the sidelines of an aerospace conference in Ottawa, worried Irving would give BAE and the Type 26 preferential treatment during the design competition because of their existing relationship.

"This is an outright conflict," said one industry source, who like the others did not want to be identified because of a clause in the design competition restricting what companies can say publicly.

The warship project, known in defence circles as the Canadian Surface Combatant or CSC, is the single largest military procurement in Canadian history.

It forms the backbone of the federal government's national shipbuilding strategy, which includes new Arctic patrol vessels and resupply ships for the navy and a variety of Canadian Coast Guard vessels.

Previous estimates have put the budget for CSC at between $26 billion and $40 billion for 15 ships.

But the Liberal government has since said it will not discuss cost or how many ships it plans to buy until more information is available.

Defence officials have said they are trying to shave off the amount of time it will take to get the warships in the water, to both save time and ensure the navy has what it needs to operate.

The first CSC is expected to be ready in 2026, though officials would like to cut that back to 2024.

Any legal challenge to the process could scuttle those efforts, costing taxpayers millions of dollars and leaving the navy short of ships.

The British government announced earlier this month that construction on the first of eight Type 26s would begin next summer after years of delays.

Bids for New Canadian Warships Delayed

By: David Pugliese, Defence Watch 

The Liberal government’s plan to accept bids for the navy’s future warships has been delayed because of a battle over the amount of Canadian content needed in the vessels and the decision to allow a British design that only exists on paper into the competition.

Bids were to be requested from companies in August.

But a government spokesman now says the request is expected to go out to companies sometime “in the fall” although no specific date was given.

The bid package, called a request for proposals or RFP, has gone through various drafts, the latest handed to industry representatives on Sunday for comments.

The new ships called Canadian Surface Combatants are estimated to cost more than $26 billion and will be the backbone of the Royal Canadian Navy’s future fleet.

The project has seen repeated delays with the navy at one time expecting the ships by 2015. The vessels are now planned for sometime in the early 2020s.

Procurement minister Judy Foote has said only designs from ships already in service or mature existing designs will be accepted because it means there will be less risk and vessels could be built faster.

But industry sources say the RFP has been delayed because of questions raised about the amount of Canadian content and the Liberal government’s decision to consider a British warship that has yet to be built.

Nicolas Boucher, spokesman for Public Services and Procurement Canada, said companies will have until Friday to provide their comments on the final RFP. “Once the industry feedback has been assessed and any resulting revisions made, the formal RFP will be released to the pre-qualified firms in fall 2016,” he stated.

Industry sources say the government is facing a dilemma as it wants to have the maximum amount of Canadian content on the ships but at the same time a proven, existing design.

Such designs already have on board systems functioning and suppliers selected. It becomes a challenge to take out existing working systems and replace them with Canadian ones.

Other company officials have questioned attempts by some government officials to change the bid package to allow the Type 26 ship from the British firm BAE. Under the previous rules outlined in the draft RFP, the ship design was to have been completed and reviewed by the government purchasing the vessel, in this case the United Kingdom.

An Artists rendering of a BAE Type-26 Global Combat Ship (GCS)

Industry sources say that hasn’t been done.

The United Kingdom has so far balked at signing a deal for the Type 26. British defence secretary Michael Fallon said last month he won’t sign a contract for the ship until he is persuaded it’s in the best interests of UK taxpayers and will provide value for money.

The move to rewrite portions of the Canadian bid package to allow for the Type 26 have sparked concern among some competitors about whether bureaucrats favour the vessel even though it exists only on paper.

Boucher stated in an email that BAE has been pre-qualified as a warship designer. Bids will evaluated by Irving Shipbuilding Inc. and the government of Canada, he added. “Evaluation of the bids will include financial and technical performance, maturity of the design along with the economic benefits criteria,” Boucher noted in the email.

BAE official Anne Healey said the company can’t comment on the criteria used to outline the maturity of a ship design. “We are confident that we will be able to compete for the Canadian Surface Combatant and we are looking forward to competing in a fair and open competition,” she added.

“The Type 26 Global Combat Ship is the world’s newest and most advanced surface combatant design,” she added. “ We are planning to cut steel in 2017, which is ideal timing for the CSC programme; being 3 years ahead of the Canadian program.”

Sean Lewis, spokesman for Irving Shipbuilding, said in an email that the request for proposals is expected shortly after feedback is received from industry.