Lockheed Martin picked to design new warships

Canada, U.S. defence giant set to launch high-stakes talks over $60-billion deal

OTTAWA — The federal government and Lockheed Martin are preparing to launch high-stakes negotiations after the U.S. defence giant was given the first shot at a contract to design Canada’s $60-billion fleet of new warships.

Government officials said Friday that Lockheed’s proposal beat out two rival submissions in the long and extremely sensitive competition to design replacements for the navy’s entire frigate and destroyer fleets.

That doesn’t mean a contract has been awarded. Negotiators for both sides as well as Halifax-based Irving Shipbuilding, which will actually build the warships, must now hammer out the details — including the final cost — before a deal is formalized.

At the same time, Lockheed’s victory could be a catalyst for legal action by the other bidders after questions about why the company’s bid, which was based on the British-designed Type 26 frigate, was allowed in the first place.

Lockheed was up against U.S.-based defence company Alion, which proposed a design based on a Dutch frigate, and the Spanish firm Navantia, whose proposal was modelled on a frigate used by the Spanish navy.

The government is planning to build 15 new warships starting in the next three to four years, which will replace Canada’s 12 aging Halifax-class frigates and already-retired Iroquois-class destroyers and serve as the navy’s backbone for most of the century.

The stakes will be high for government, Irving and Lockheed negotiators, with hundreds of millions of dollars in play as well as pressure to make up lost time after numerous delays in the project.

Irving has warned that it could be forced to lay off hundreds of employees if work on the warships is not ready to start by the time it finishes building the navy’s new Arctic patrol ships in 2021 or 2022.

Patrick Finn, the Defence Department’s head of military procurement, acknowledged the need for urgency, but noted the need for care as the talks could have ramifications for the navy and taxpayers for decades.

“So it behooves us to stop and make sure we do the final checks in all of the areas,” Finn said, adding that the hope is to start construction in three to four years.

One of the key negotiating points is the amount of intellectual property that Lockheed will be required to hand over, which Ottawa wants so it can operate and maintain the vessels on its own after they are built.

The intellectual-property issue has proven contentious in the past, which is why the government and industry agreed to wait until now to iron out the details.

The government has reserved the right to walk away from the talks if Lockheed drives too hard a bargain and negotiate instead with the second-place bidder, which was not identified. Officials hope that won’t be necessary.

“We have notional time frames allocated,” said Andre Fillion, who oversees military and naval projects with Public Services and Procurement Canada.

“And should everything go according to plan, we’re looking at winter 2019 for the award of the contract. If it doesn’t go according to plan, then we go to Plan B — and obviously that would take longer.”