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.

Forbes: Why We Are Buying Canadian Warships

By: Gordon Forbes, The Ottawa Citizen - Opinions 

It is so simple, according to some: Just go out to your foreign new warship dealer and buy the warship of your dreams for billions less than you can build it is Canada. Take the savings and pay ex-shipyard workers Employment Insurance for 10 years.

This would, of course, close every shipyard capable of building large ships in Canada – all three of them. Why did nobody think of it before?

Well, they have, and for decades the idea has been rejected by every type of government. Because it is not just the shipyards that would lose business, but hundreds of small, medium and large businesses across the country. Businesses that not only provide such things as steel and copper but that produce products ranging from anchors to the integration of combat systems. Does anyone remember the hundreds of businesses that suffered when the Avro Arrow was canceled in 1959?

Canada can take a lesson from the fate of the Avro Arrow fighter program. COPY PHOTO BY IAN ROBERTSON, SUN

But the most important loss would be the loss of intellectual property (IP) that would go along with such an idea.

Intellectual property belongs to those who design the millions of things that go into a modern warship. This IP would belong to those offshore companies who designed the ship and it systems. We have already seen an inkling of this problem with the current attempt to buy offshore designs for the Navy’s Canadian Surface Combatant (CSC). Several countries and their shipyards have balked at the requirement for Canada to have access to the IP of their proposed designs.

But why is this IP important? It is primarily because it limits the amount of maintenance and modification that Canada can carry out. Without the IP, you cannot fix anything, you cannot modify anything and you cannot sell your technology to other countries. It would mean that we would have to send the ships back to their parent shipyards for dockings and other essential work. It would mean that maintenance of any ship systems, from main engines to combat systems, could only be done by the holders of the IP. It would mean little or no work for Canadian workers on any of these systems.

Artists Renditions of the Future Vessels of the RCN

But surely we could buy the IP from the selling shipyard? Well, that would also mean buying it from every IP holder who has equipment on the ship. And it would cost us billions, many of those billions we might also have to put toward payment of ex-employees. This is a sellers’ market and Canada would have very little leverage to acquire IP for minimal cost.

To those who argue the point: It is just not that simple to buy all our warships offshore.
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Gordon Forbes, LCDR (ret’d), has been involved in the naval procurement business for the most part of 38 years, both in the Navy and in the defence industry. He lives in Orléans.

Ottawa faces revolt among ship designers over intellectual property demand

By: Murray Brewster, CBC News

A key behind-the-scenes battle, which could affect the future of the Trudeau government's multi-billion dollar frigate replacement program for decades, has been fought this week in the backrooms of Ottawa.

It relates to an overarching demand by National Defence and Public Services for ship designers to hand over virtually all their intellectual property data for the complex combat systems that would be installed on the warships.

A copy of the draft request for proposals, obtained by CBC News, shows the federal government is asking companies competing to design Canada's next generation of warships for all their foreground and background data.

Related:

Liberals noncommittal on number of frigates
Canadians won't see price tag until 2019
Warship designers, government huddle

The government will be the owner the information — including critical software coding — but will license it to Irving Shipbuilding, the prime contractor on the project.

An expert in defence procurement calls it an outrageous blunder by the former Conservative government that the Liberals urgently need to correct.

"The bureaucrats that have proposed this have gotten themselves in a bind here, and no minister should tolerate this," said Alan Williams, who used to be procurement boss at National Defence.

A series of closed-door meetings took place this week involving federal officials, Irving representatives and ship designers who want to bid on the Canadian Surface Combatant program, which is expected to cost $30 billion or more.

Among the companies in line to provide an off-the-shelf design include British-based BAE Systems Inc.; DCNS, the French warship-maker; and U.S. defence giant Lockheed Martin.
High stakes for taxpayers

The intellectual property issue is "huge," according to several government and industry sources who spoke to CBC News on background because they were not authorized to discuss the matter publicly.

The data is crucial not only for ship construction, but for the lucrative long-term maintenance contracts that will follow.

If the government doesn't get the negotiation just right, it could cost taxpayers untold hundreds of millions of dollars down the road in licencing fees, and even restrict the military's ability to update and use its own equipment.
'They might say: It's not worth it; I'm just not going to bid.'— Alan Williams, former DND procurement director

Williams said the growing disagreement could see a significant number of designers and combat systems companies bow out of the competition even before the government issues a request for proposals.

That tender call could come in late August or early September, according to sources who have knowledge of the file.

"They might say: 'It's not worth it; I'm just not going to bid,'" said Williams. "Every company is going through this soul-searching exercise, asking themselves, 'How badly do we want this? And how much of our business are we willing to compromise in order to get it?'"
Who gets access to data?

The fear among bidders is not necessarily what Irving might do with data as much as who among the shipyard's partners and consultants — including the U.S. naval warship architecture firm Gibbs & Cox — will have access to the licenced information.

Irving Shipbuilding has negotiated a 25-year property deal with Halifax concerning the new property where Canadian navy ships will be built. (Paul Palmeter/CBC)

In a statement, Irving Shipbuilding said it was committed to safeguarding the data.

"For the CSC program, discussions with Canada have only contemplated that any long-term IP rights will flow to Canada, with Irving Shipbuilding having a right to use CSC IP to the extent required to satisfy its CSC design and build contracts," said spokesman Sean Lewis.

"There has been nothing discussed that would put Irving Shipbuilding at an unfair advantage or unique position during the operational life of the ships."
Liberal commitment to technology

For a Liberal government committed to innovation and growing the economy, the intellectual property issue playing out this summer is not inconsequential.

The government has been under enormous pressure for the frigate replacement program to deliver technology transfers for Canadian companies.

Some defence industry sources say the issue is not so much about Irving's management of the information, but more about how the federal government is asking for too much data from the bidders.

Williams says federal lawyers assigned to the file should be more sophisticated and that the issue is being handled in an amateur fashion.

It also, in his estimation, speaks to the pitfalls of the Conservative government's decision to name Irving as the prime contractor.

"This kind of nonsensical situation could have been easily foreseen," he said.

Recent published reports have raised separate concerns about how much sway Irving Shipbuilding has in the process.

Companies wanting to bid on the frigate replacement program have been told that, if they win, they can't lobby the federal government without written approval from the East Coast shipyard.