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Cost and Canadian content concerns hover over warship plans

The Trudeau government formally launched the design competition to replace the navy’s fleet of frigates and destroyers on Thursday, but the cost to taxpayers will be a mystery for years to come.

Federal defence, public works and industry officials say price tags to design and eventually build the new warships will be negotiated down the road through the prime contractor, Irving Shipbuilding of Nova Scotia.

Twelve pre-qualified bidders are being asked to submit their designs and plans to integrate the complex electronics and combat systems by April 27.

It will be later next year before a winner is declared, and only then will officials be able to estimate how much the design contract will cost and what the price per ship will be.

The officials steadfastly refused to be pinned down on how many warships the program will produce, saying they are committed to possibly 15, but not guaranteeing it.

They say it will be a decades-long process involving multiple flights of ships.

Internal government estimates have suggested the cost of construction could top $40 billion.

Opposition demands guarantees

The opposition wants to see clear, concrete guarantees that the federal government is not writing a blank cheque to the defence industry, in particular the prime contractor. “Taxpayers are going to have to foot the bill here,” said Conservative MP James Bezan.

But federal officials argue one of the fundamental underpinnings of the National Shipbuilding Strategy is financial transparency, where the government can challenge the prime contractor about what it is being charged.

“We have absolutely open-book accounting in the work that is done,” said Pat Finn, a retired rear admiral who now heads the procurement section of National Defence. “We can audit. We do that. We go in to make sure. We have pre-established rates.”

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Conservative MP James Bezan wants guarantees that the cost of shipbuilding will not spiral. (Adrian Wyld/Canadian Press)

Public Works Minister Judy Foote insisted the government will save money because it has reorganized the acquisition process and in doing so has shaved years off the expected delivery timeline.

It was the former Conservative government that established the shipbuilding program and tied future federal governments into dealing with only two shipyards — one for combat; the other for civilian ships.

Bezan said he accepts the premise and risks for taxpayers associated with limiting competition, but added that under the Liberals, it appears, there is more bureaucracy — something he believes will drive up costs even further.

Devil in the details

He pointed to a leaked draft of the request for proposals, obtained by CBC News, where federal officials ask bidders, up front, for an accounting of all anchors, bolts, nails, nuts, rivets and rods to be used in ship construction.

Government officials argue it is reasonable and helps refine the cost estimates the public wants to see, but Bezan said that at this stage of the game it is only busy work.

“Every time we add red tape, every time we add bureaucracy, it adds cost to the taxpayer,” he said. “Does it give us bigger bang for the buck? No, it doesn’t.”

Some of the most expensive components of the new warships will be the electronics and combat systems — everything from radar and sonar to missile launchers. The design competition asks bidders to bring along their existing systems, which would be subject to a certain degree of modification to suit Canadian needs.

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Public Services and Procurement Minister Judy Foote wants to ensure Canadian companies get contracts out of the shipbuilding program. (Adrian Wyld/Canadian Press)

Karen Corkery, a senior official at Industry Canada, said competitors have been encouraged to partner with companies in this country and will receive more points in the evaluation for their Canadian content.

Even still, high-tech manufacturers are nervous and have written to the government insisting that the winning bidder be forced to work with a Canadian supplier.

Officials said they conducted extensive consultation with industry, steering bidders toward as many as 80 Canadian suppliers.

“There will always be issues, but we’re all about making sure we respond to those issues in a positive way,” said Foote. “We’re about making sure Canadian companies get significant contracts as a result of this.”

Off-the-shelf design

One of the most important decisions the Liberals have made since taking over the program involves insisting on a proven off-the-shelf design.

However, Finn laid down a subtle, but important qualification on Thursday, one that could help BAE Systems Inc., one of the pre-qualified bidders.

The British defence giant, which is already working with Irving on the new Arctic offshore patrol ships, is expected to offer its Type 26 frigate as the warship for Canada.

It has yet to be constructed and has been “indefinitely delayed,” according to the media reports last summer in Britain.

Given the number of expected Canadian-driven design changes, Finn said every bidder could be seen as offering “paper ships.” The navy, he said, needs a modern ship that has the flexibility to be updated, and whether that ship is already in the water is a lesser consideration.

“We want to make sure the design is mature,” he said.

The head of the navy, Vice-Admiral Ron Lloyd, was asked whether the navy will be asked to make trade-offs as the design and budget numbers are crunched.

“There is always a tension between cost, capability and scope,” said Lloyd, who oversaw the development of the Arctic offshore patrol ships, where the navy was forced to accept fewer capabilities because of budget.

Lloyd said he’s confident the process for the frigate replacements will be rigorous and they will strike a balance among the three considerations.