Years until true value of $800M navy contract is known, says defence analyst
'As the value goes out of the contract over the years ... the relationship gets tougher,' says Ken Hansen
The federal government is touting an $800-million contract for maintenance and repairs on navy vessels as a measure that will create jobs across Canada, but one defence analyst says the true value of the contract will not be known for many years.
The contract is for the new Arctic and offshore patrol ships and joint support ships, some of which are under construction in Halifax.
The contract was awarded to Thales Canada and Thales Australia, subsidiaries of a French multinational.
The contract initially covers eight years but can be extended up to 35 years for a total of $5.2 billion, plus taxes.
Halifax-based defence analyst Ken Hansen said the relationship between private contractors and the Department of National Defence may change over time.
"It can be very good. Depends on the arrangement between the contractor and the fleet," he said.
"Typically in early days they're quite responsive. As the value goes out of the contract over the years, depending on the usage rate, the relationship gets tougher."
This may be a particular problem for Canada, Hansen said. Some of the now-decommissioned ships which are being replaced under the National Shipbuilding Procurement Strategy served for decades and had a history of mechanical problems.
"Canada has the tendency to operate its ships well past their best before date — about 25 years," he said.
"So once you get into that twilight zone of age for warships, the cost of maintaining them escalates dramatically, by two- and three-hundred per cent per decade. So typically contractors become reluctant to put effort into a contract for which really there's no return for them anymore."
But Hansen said the Thales deal may a good one depending on how hard the ships are used.
As well, he added the durability and performance of the new class of ships is not known yet. It will take Canadians the next several decades to find out how hard-wearing the ships will be.
At the federal announcement Thursday morning, Jim Carr, the acting federal procurement minister, estimated the maintenance and repair work on the ships will create or maintain 2,000 jobs over the life of the contract.
He also said all subcontracting will be tendered to Canadian companies.
But the president of the Union of National Defence Employees said he has concerns about allowing a private company to take on the work.
"The contract itself was not going to allow the public service that are now currently doing the work to do any of that work in the future," said John MacLennan.
"That raises concerns about accountability about the cost. Who's going to hold the company accountable?"
Hansen agreed, saying he thinks the unions have reason to be concerned. From what he has heard, Hansen believes the contract will force a "tricky situation."
"The work will be done in the naval dockyards, using DND facilities, equipment and in some cases, their people. So it's a three-quarter step toward privatizing the navy's fleet maintenance facilities on both coasts," he said.
The president and chief executive officer of Thales Canada said his company is prepared to work with in-house workers whenever possible, but he does not know yet exactly which docks will be used.
With files from Michael Gorman and Tom Murphy