Competition

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.

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.

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

 

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 wining shipyard building the first three warships complete with Canadian systems and delivering them to Irving. The ships would have then been 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.

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