$26B contract to build warships under review

The multibillion-dollar solesource deal to build a fleet of warships for the Royal Canadian Navy is being reviewed by a newly formed Cabinet committee set up to take a closer look at controversial defence procurement contracts.

Irving Shipbuilding in Halifax was awarded the build contract as part of Canada’s largest-ever defence procurement project, the $26-billion Canadian Surface Combatant (CSC) program.

Irving was also named as the prime contractor on the design phase. That role allows Irving a say in designating subcontractors for the project, and awards Irving a cut of their payment — which could be even more lucrative than building the ship hulls, since up to 70 per cent of the cost of the vessels derives from the complex combat systems that will be installed on them.

That role as prime contractor is now “under active discussion,” said a senior industry source.

Irving’s appointment as prime contractor was greeted with shock in the industry. Since the contract was awarded without being put out to tender, accusations followed that the taxpayer might have received a better deal had competing bids been received.

The Conservatives justified handing Irving the work without a tender on the basis that it would save money having one contractor instead of two (one for the build, one for design), each charging a percentage fee on every dollar spent.

Government and industry sources say Irving put out calls last fall for information and data from pre-qualified defence companies interested in bidding on the design and combat systems integration phase of the project.

However, that process stopped “dead in its tracks” after the new Liberal government indicated its plans for a new ad hoc Cabinet committee, chaired by Environment Minister Catherine McKenna, to review key projects including the warship program and the plan to replace the CF-18 fighter jets.