Irving Shipbuilding and the federal government have signed a contract to build six Arctic offshore patrol ships and the deal guarantees the Halifax yard five ships with a ceiling of $2.3 billion.
The agreement was announced Friday in Ottawa with little fanfare during a technical briefing with federal bureaucrats.
Irving Shipbuilding president Kevin McCoy said he is confident the heavily "incentivized" yard will produce six ships for the Royal Canadian Navy, with the first vessel expected in 2018.
"Should costs increase due to unforeseen factors, the contract will guarantee the delivery of five ships within the same ceiling price," said a senior government official, who spoke on background at the technical briefing.
Essentially, officials have agreed to a benchmark cost and if it isn't met, Irving's fee goes down. If the company manages to beat the benchmark, then its fee goes up.
Senior government officials told reporters the overall project budget has gone up from $3.1 billion in 2011 to $3.5 billion today.
Budget break down
The lion's share of the budget will go to building the patrol vessels, which will cost $2.3 billion. The remaining $1.2 billion will be spent on infrastructure such as new jetties, contingency funds, ammunition, spare parts and training.
Irving Shipbuilding said employment for the Arctic offshore patrol ship project will reach 1,000 during the peak of construction. Another 600 to 800 workers will be employed on other projects, the company said. The yard will start to recall laid-off workers in the fall.
Ed Hatch, president of UNIFOR, MWF, local 1, said the shipyard workers are excited about today's news.
"I got everything from high-fives to 'Yippee, here we go. Let's start!'" he said.
Hatch said the news provides the workforce with stability.
"It allows them the freedom now to go out and if they want to buy homes, cars. They know the work is here. We know it's guaranteed and it gives them that ability to start looking at the future of their lives," he said.
Test modules in June
In the briefing, McCoy said the steel fabrication yard it recently bought in Dartmouth will be ready in the spring and the modernized Halifax Shipyard will be ready by summer.
The company will begin construction of test modules in June with "first steel" on the first ship on track for September.
Unlike other developments in the three years since Irving was selected to build ships for the navy, no federal Conservative politicians were on hand for the announcement.
Last fall, a series of defence and government sources told The Canadian Press that with existing funding the program was on track to deliver five, not six ships — a report McCoy denied at the time.
A few days later, the parliamentary budget office came out with a report that warned delays and inflation would force the Conservative government to buy fewer ships, if it stuck with the original budget.
McCoy was adamant Irving will deliver six ships by the end of the program in 2022.
But in order to do so, the company will have to keep a tight rein on not only its costs, but those of its suppliers, who are already feeling the pinch.