Future government on the hook for navy supply ship deal

HMCS Preserver, a Royal Canadian Navy supply ship, is docked in Halifax on Wednesday, Feb. 5, 2014. (Andrew Vaughan/THE CANADIAN PRESS)

OTTAWA -- The navy's urgent need for a supply ship recently prompted the Harper government to quietly change regulations governing sole-source military purchases, but it also put a future government on the hook if an arrangement with a Quebec shipyard falls through.

The amendment was needed to kickstart negotiations with the Davie shipyard in Levis, Que., and Project Resolve, a subsidiary which plans to retrofit an existing civilian cargo vessel to replenish warships at sea.

A line was added to contracting regulations in June and gives the federal cabinet authority to award a deal to a single company if there are urgent "operational reasons" and it fulfills an interim requirement.

The amendment comes to light just weeks after Defence Minister Jason Kenney's announced the Conservatives intended to acquire an interim supply ship.

Defence analyst Dave Perry said the letter slipped mostly under the public radar because it was announced on a Saturday during the August long weekend, one day before the federal election call.

He said changing the regulation is significant and perhaps overdue because other countries have given themselves that kind of authority.

"It's nutty that they had to do this in order to justify it on a sole-source basis," he said. "The sole-sourcing of this to get it done in a expeditious manner, to me, is a common-sense move. This is a capability that's needed now."

The navy is in a bind because it has retired its supply vessels -- both of which were over 40 years old -- and its joint support ship replacement project with Vancouver's Seaspan yard isn't expected to begin delivering until 2020 at the earliest.

The letter commits the federal government to negotiate a contract that would essentially lease a single, retrofitted civilian ship to the navy for up to five years.

If a deal can't be struck, the government acknowledges it will cover legitimate costs the shipyard has sunk into preparation.

"We don't have any idea, right now, what's involved in those financial offsets," said Perry, an analyst with the Canadian Global Affairs Institute.

The cost of hiring the ship, estimated between $65 million and $75 million a year, and the cost to taxpayers if the proposal is rejected have yet to surface in the election campaign.

There is support from the Prime Minister's Office and backing from the navy, but the bureaucracy at both National Defence and Public Works worry about how the plan affects the government's politically popular national shipbuilding strategy.

"This is a capability that's needed now," said Perry, who has done extensive research on the Harper government's failed initial bid to deliver new supply ships. The first replacement was cancelled on the eve of the 2008 election because the bids were too high.

A parliamentary budget office report last year said if the government had stuck with that project, the navy would have its ships by now and they would have cost less than the $2.9 billion price tag for the rebooted support ship plan.

Defence sources with knowledge of the negotiations say the company has already lined up a ship for conversion, the 24,000-tonne, double-hulled Asterix. Part of the work is to be done at Aecon Pictou Shipyard in Nova Scotia before moving on to the modern Davie facility outside of Quebec City.