The Conservative government has quietly scuttled the navy's $2.9-billion project to replace its aging supply ships, saying bids from the shipbuilding industry were "significantly" higher than the money set aside for the program.

It has also cancelled a tender call for the purchase of 12 mid-shore patrol ships for the coast guard.

The decisions were announced in a statement issued Friday night by Public Works Minister Christian Paradis.

"These vessels are a key priority of the government of Canada," Paradis said in the release.

"However, the government must ensure that Canadian taxpayers receive the best value for their money."

Both National Defence and the Fisheries and Oceans Department are considering "the next steps," Paradis added.

The decision to halt the Joint Support Ship project is a major blow to a navy that is already struggling to keep its existing 1960s vintage replenishment ships — HMCS Preserver and Protecteur — in the water.

The "tankers," as they are known in the navy, are vital to keeping warships supplied with fuel, ammunition, spare parts and supplies during long overseas operations.

Longer lifespan for ships

Both were expected to reach the end of their service life between 2010 and 2012, but Friday's announcement means they'll likely have to remain at sea longer.

The program to acquire three new multi-role ships was announced in Halifax in June 2006 by former defence minister Gordon O'Connor. The announcement was heralded at the time as the beginning of a new era for the navy.

Almost right from the beginning, the plan ran into trouble as designers tried to incorporate everything into the ships that naval planners had requested.

The ships were expected to function as resupply vessels, cargo carriers for the army, a floating headquarters and possibly a hospital ship, depending upon the mission assigned.

Defence sources said the two consortiums that were bidding basically determined the ships could not be built for the amount of money the government had set aside.

The decision is also a blow to the coast guard.

Fisheries Minister Loyola Hearn announced last year that $324 million had been set aside for the purchase and maintenance of six new vessels for the coast guard fleet. The plans included the purchase of 12 new mid-shore patrol vessels.

They were to be used primarily for fisheries conservation and protection duties in the Maritime, Quebec and Pacific regions.

But at least four of the ships were to be tasked for maritime security duties on the St. Lawrence Seaway-Great Lakes system.