Grits to take bids on $5B ship maintenance deal
‘Winner take all’ contract covers two naval fleets
The Canadian government announced Thursday it will solicit bids from companies to repair and maintain two new fleets of navy ships, a strategy it had been warned earlier could cost taxpayers more money.
The federal government is proceeding with the strategy of awarding the $5-billion “winner take all” support contract for the Joint Support Ships and the Arctic Offshore Patrol Ships, even though documents obtained by Postmedia warn there is a risk the selected company could boost prices once it clinches the deal.
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, will 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,” said Judy Foote, the Minister of Public Services and Procurement.
But some Department of National Defence officials warned years ago that the single-contract strategy 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 Postmedia.
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.
Some analysts, such as Alan Williams, the former head of procurement for the DND, have recently warned that the federal government has taken too much of back seat role when it comes to the multi-billion-dollar naval projects now underway.
Williams pointed to the Canadian Surface Combatant program that will be run by Irving Shipbuilding on the east coast. Irving, not the government, will select the winning bid for that project, valued at more than $26 billion. Federal officials will observe the process and then sign off on Irving’s selection of that new fleet of warships.
“Under this system you have a private company ultimately deciding what ship is best for the navy,” said Williams. “This opens up serious questions about accountability.”
Irving officials have countered that navy representatives will be on hand to provide input on that project.
In its announcement Thursday the federal government 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.”
The contract will include an initial service period of eight years, with options to extend services up to 35 years.
The first patrol ship is expected in 2018 while the first Joint Support Ship will not be delivered until around 2020.
The support ships are to be built by Seaspan in Vancouver while Irving in Halifax is building the Arctic patrol vessels.
Bids for the support contract are to be submitted by Oct. 25.
The Joint Support Ships and the Arctic Offshore Patrol Ships were announced as part of the previous Conservative government’s shipbuilding strategy. Those projects, however, are supported by the Liberals, who have said they want to transfer more money to shipbuilding.