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.

Liberals select Thales for $5.2-billion AOPS Maintenance Program

By: David Pugliese, The Ottawa Citizen 

A subsidiary of French defence giant Thales has been selected for a $5-billion contract to maintain Canada’s new Arctic patrol vessels and supply ships, but according to documents obtained by the Ottawa Citizen, the Canadian government had earlier been warned by some officials at the Department of National Defence that its strategy of having one firm do maintenance for both fleets could cost taxpayers more money in the long run.

Pierre-Alain Bujold, a spokesman for Public Services and Procurement Canada, said Friday that all the bids received for the maintenance contract have been evaluated and the government will now enter into negotiations with the highest-ranked bidder. Despite the Liberal government’s vow of openness and transparency, the department declined to name the winning bid, citing reasons of commercial confidentiality.

But multiple industry sources say Thales Canada and was told in late December it had won the $5.2-billion project.

The deal would see the firm provide in-service support for an initial period of eight years, with options to extend services up to 35 years. Bujold said the actual contract is expected to be awarded in the fall of 2017. “If the parties cannot reach an agreement on the financial aspects of the contract within an allocated 45 calendar days, the GoC will invite the next highest ranked bidder to enter into negotiation,” he added.

The first Arctic Offshore Patrol Ship is being built by Irving on the east coast and is expected in 2018. Construction has yet to start on the two new Joint Support Ships. The first of those supply ships, to be built by Seaspan in Vancouver, is expected in 2021.

Thales Canada did not respond to requests for comment.

The Canadian government announced in July it was seeking bids from companies to repair and maintain the two new fleets over a 35-year period.

But some Department of National Defence officials warned the government years ago that selecting one company for a single in-service support (ISS) contract covering two types of ships could give one firm too much control and end up being more costly. “A single ISS provider may assume a ‘take it or leave it’ attitude at the time of contract option renewal, forcing prices up,” warned an April 2012 DND briefing note for then-deputy minister Robert Fonberg.

A dispute with the contractor could also force the Royal Canadian Navy to resort to conducting maintenance and support for the ships on a piecemeal basis, a development that would affect its operations, added the briefing obtained by the Citizen.

DND also warned that not all companies would be happy with such a strategy as it would take a significant amount of business out of competition for a long time. Other DND officials, however, argued that the single contract strategy would work and any risks could be handled by increasing the level of oversight on the deal.

Last year, the government said the competition to pick one firm to provide in-service support, including refit, repair and maintenance and training for the two fleets, would benefit Canadian industry and the public. “By combining the Arctic Offshore Patrol Ships and Joint Support Ships In-Service Support into one contract, we ensure the effective maintenance and support of these fleets over their operational lives,” Judy Foote, the Minister of Public Services and Procurement, said at the time.

The federal government also noted, “that combining the contracts for the AOPS and JSS In-Service Support under a single contractor will benefit industry by increasing workforce stability and benefit Canadians by reducing costs through economies of scale.”

Industry sources say there is no need for the intense secrecy about Thales being the top bidder since the news has circulated over the last couple of weeks among various companies. They warn that there is a growing pattern of secrecy over defence purchases at Public Services and Procurement Canada.