Firms Skipped CSC Bib for Fear of Loss of Proprietary Information

By: David Pugliese, Ottawa Citizen 

In December Fincantieri of Italy and Naval Group of France decided not to bid on the Canadian Surface Combatant project. Instead, they offered the Canadian government a direct proposal that would see the the companies build 15 of the consortium’s FREMM frigates at a fixed price of roughly $30 billion.

The Liberal government rejected the offer.

A FREMM frigate sails off the coast of France in 2016. BORIS HORVAT/AFP/GETTY IMAGES

Fincantieri and Naval Group knew they were taking a chance when they passed on the formal bidding process for the CSC. Sources close to the European companies said at the time they felt they didn’t have anything to lose. They alleged the Canadian competition was 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.

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

Giuseppe Bono, the CEO of Fincantieri, recently told my colleagues at the U.S. publication Defense News of another concern that led to the decision not to bid on the CSC. Bono said that the firms were willing to turn over their sensitive technical data to the Canadian government but that they drew the line at providing the proprietary information to Irving and its team.

“We said we were prepared to give the information to the Canadian government but not to a rival company if we didn’t know if we were going to win the bid or not,” Bono said.

Fincantieri and Naval Group, along with other companies, have voiced concerns about Irving’s alliance with the U.S. firm, Gibbs and Cox, a top U.S. naval architecture firm that designs surface warships. Gibbs and Cox is also the main competitor for many companies – including Fincantieri and Naval Group – pursuing ship contracts around the world.

Irving, however, has rejected such concerns and has stated it is committed to protecting any sensitive data provided by companies bidding on CSC.

But Fincantieri and Naval Group weren’t buying that reassurance.

The firms still have their proposal ready in case the Canadian procurement falls apart and the federal government decides on a different course of action.

In February, the U.S. Navy named the FREMM design as one of five it could consider for its future frigate program and has provided Fincantieri $15 million to look at a design concept.

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.

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Irving Shipbuilding’s $26-billion warship procurement deal under review, senior source says
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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.