NEWS

Irving named prime contractor for Canadian surface combatant warships

01/20/2015 04:29 EST | Updated 03/22/2015 05:59 EDT
A major decision in the federal government's nearly $26-billion program to build new combatant ships for the navy has been made behind closed doors and announced only quietly today at a meeting of defence industry insiders.

The government announced Tuesday that Irving Shipbuilding in Halifax will be the prime contractor on the 15-ship Canadian surface combatant program.

That program is seen to be the crown jewel in the government's $35-billion national shipbuilding procurement strategy to rebuild the capital fleet. Irving was long ago selected to build all the military's combat ships, but Tuesday's announcement also puts Irving in charge of almost the entire project.

That status theoretically affords the privately held company the opportunity to take profit as both shipbuilder and prime contractor. It would also give Irving significant power or sway in decisions about which subcontractors are invited to participate in the program, and at what price.

The government has not said how much the contract is worth, but the value of the prime contractor position is significant enough to have attracted the interest of large defence contractors such as Lockheed Martin, DCNS, Thales and others. Some of those companies will likely also bid on other key parts of the ship program and had their own stakes in being named prime contractor.

Prime contractor does the hiring

The position is best explained as akin to the general contractor in home building or renovation. The general contractor oversees the project but also hires all the subordinate trades, including roofers, plumbers, carpenters, drywallers, electricians and others.

The government in effect has decided to make Irving both carpenter and general contractor. It's done this after soliciting the defence industry for feedback about the way ahead.

As part of the shipbuilding procurement program, the government has been consulting with industry.

There were at least five options under consideration, all but one of which included competition as a key part of the process. The fifth, a "shipyard-led process," appears to leave much of the decision-making up to Irving, making the builder responsible "for demonstrating that each of the selections satisfies Canada's operational and contractual requirements," according to public contract documents. 

It's not clear to what extent these processes have evolved since they were first made public in 2013. 

Alan Williams, the Defence Department's former head of procurement, said the strategy is guaranteed to be confusing.

"No one really understands what's going on, and I think [the government] prefers to keep it that way," he told CBC News.

Williams said the government should have held a competition to determine who would be prime contractor on the multibillion-dollar project.

"A prime [contractor] determined by the government is a problem in the sense that it has determined who is going to be accountable for the product, and where it is going to be built."

Under such a system, teams of contractors would group together and compete with other teams to win the government's business. The only restriction in this context is that Irving would always remain the builder. In this case, that process is skewed, Williams said.

"In other words, $26 billion or so will go to Irving and they will decide who will get to help build these ships, under what terms and conditions.

"Of course, their primary interest and responsibility isn't to the Canadian taxpayer, isn't to the government, isn't to the navy, but it's to their shareholders."

Competitive process more cost-effective?

Much of that would also be true if another company were made prime contractor, but Williams said a fightbetween rivals to win the government's work would encourage better outcomes at lower costs.

"It would be much more cost-effective through a competitive process."

The decision to make a builder the prime contractor was always an option under the shipbuilding program, but the decision to award it to Irving surprised some defence insiders.

A source familiar with the government plan suggests the decision is smart, because it makes Irving accountable to the government for the entire project.

Typically, large projects of this sort have one team in charge of project definition and design and another in charge of the build and the complicated combat systems integration process. The transition between teams sometimes becomes difficult and hard to manage, as one group is forced to implement another contractor's plan.

In this case, the source says, the government has reduced that risk by having one company run both sides of the effort.

MORE:cbcNews