OTTAWA - Former defence minister Perrin Beatty says he was amazed to learn a German firm spent millions in lobbying fees trying to win his backing for a project to build armoured military vehicles in Canada.

"To put it mildly, when this was first raised it came as a major surprise to me," Beatty told a public inquiry Wednesday.

"If anybody was ever paid for my signature ... it was worth more to somebody else than it's been to me."

Evidence at the inquiry has indicated that Thyssen AG paid German-Canadian businessman Karlheinz Schreiber $6.5 million for securing a 1988 "understanding in principle" with the federal government on the so-called Bear Head project.

Schreiber passed on at least $610,000 to various Canadian lobbyists -- including a $90,000 cheque to Fred Doucet, a former aide to Brian Mulroney who had recently left the Prime Minister's Office.

Schreiber has described the payments as "success fees" for facilitating the understanding. But Beatty called the paper signed in September 1988 nothing more than a "letter of comfort" that didn't legally bind Ottawa to anything.

"What was the success?" said Beatty. "All I know is that not one penny of the taxpayers' money ever got to Thyssen."

The Bear Head project, though it never came to fruition, is at the heart of the inquiry headed by Justice Jeffrey Oliphant, who is examining the business dealings between Schreiber and Mulroney that eventually flowed from the proposal.

Schreiber has testified he hired Doucet as part of his lobbying team specifically to get a reluctant Beatty to sign the 1988 understanding.

Doucet has adamantly denied that, and Beatty said Wednesday he can't recall ever discussing the project with Doucet.

Nor did Mulroney ever put personal pressure on him to support the Bear Head deal, said the former defence minister.

Despite the supposed understanding in 1988, the project continued to encounter fierce bureaucratic resistance from the Defence and Industry departments.

The fact that the proposed Thyssen plant would be built in Cape Breton also sparked a split in the Conservative cabinet between ministers from Atlantic Canada and Ontario.

One of the main objections to the Bear Head deal was that Thyssen was seeking a sole-source contract to build vehicles for the Canadian Forces without competitive bidding.

Beatty, an Ontarian, said he was keenly aware the government had made a "good-faith commitment" to create jobs in Cape Breton. But he also felt the strategic needs of the military had to take priority in any decision.

"If it meant sacrificing (the ability) to choose the equipment that best suited the needs of the Canadian Forces, that was too high a price to pay as far as I was concerned."

Beatty acknowledged, under questioning, that he later backed a sole-source contract to General Motors to build vehicles for the military reserves in London, Ont.

Thyssen was told it could still bid on a bigger contract anticipated later to supply the regular forces. But Tory MPs from the Atlantic feared GM would have an insurmountable advantage in the later bidding based on its work for the reserves.

Beatty defended his decision as a matter of national rather than regional policy, saying there were fears the long-established GM plant might have shut down if it didn't get the reserve contract.

That would have eroded Canada's "defence industrial base" and undermined longer-term strategic goals, he said.

Schreiber has said he later paid Mulroney $300,000 to lobby in 1993-94 for a modified version of the Bear Head project, in which the site of the plant was to shift from Nova Scotia to Mulroney's home province of Quebec.

He says he expected that, in exchange for the money, Mulroney would promote Bear Head with his Conservative successor Kim Campbell who took office in June 1993 -- only to lose the following election to Jean Chretien's Liberals.

Campbell, in a quick half-hour of testimony Wednesday, said Mulroney never mentioned the project to her after she took power. Nor had he raised it earlier, when she briefly held the defence portfolio in his cabinet.

"There was never any effort to ask me to take an interest in any kind of project like that," she said.

Mulroney has acknowledged taking money from Schreiber but puts the total at $225,000. He says his lobbying was confined to foreign leaders in search of export markets for the Thyssen vehicles.