The new Liberal government is delaying approval of a deal to convert a civilian cargo ship into a badly needed military supply vessel, leading to concerns the plan will soon be scuttled and the navy will be left unable to properly defend Canada or deploy its force abroad.

Shipbuilder Chantier Davie had proposed a new-for-Canada plan to buy a cargo ship and turn it into an interim supply vessel able to support a Canadian naval task group at sea by providing fuel, food and ammunition.

The government signed a letter of intent earlier this year, and in October finalized a roughly $700-million, seven-year contract with Davie. The deal was dependent on cabinet approval, expected to flow out of a cabinet committee's meeting this week.

But CBC News has learned that on Thursday, the committee has delayed deciding on the deal for at least two months, provoking anger inside some corners of the shipbuilding industry and fears inside the navy.

There is also an economic consequence to the decision to delay. 

The letter of intent signed by the government offers Davie $89-million if the finalized contract is not signed by Nov. 30.

Davie has already bought the ship and has brought it to its yard on the St. Lawrence River near Quebec City.

Meddling by Irving Shipbuilding?

There are also allegations from different high-level sources in those same corners that Irving Shipbuilding Inc., a longtime competitor of Davie, meddled in the decision by sending letters to several cabinet ministers about the deal, an event that in the words of one defence source "tipped over the apple cart."

Davie, based in Lévis, Que., has long done government work, but was frozen out of the government's $39-billion National Shipbuilding Procurement Strategy. Irving was that strategy's key beneficiary, winning the lion's share of the work available. The lesser portion of the work, the so-called non-combat package, was awarded to Seaspan in Vancouver.

New supply ships are part of that deal, but none are expected to be operational until 2020 at the earliest, leaving Canada with a significant gap in capability.

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Chantier Davie plans to convert a civilian cargo ship into a military supply vessel it will lease to the navy. On Thursday, Justin Trudeau's government delayed the $700-million deal from forging ahead. (Project Resolve/Davie Shipbuilding)

The navy's own ability to replenish itself at sea was lost when the 45-year old HMCS Protecteur was written off following a massive 11-hour blaze in 2014 that threatened the lives of 279 crew members and effectively destroyed the ship. Protecteur's sister ship was also retired early after it was found to be too rusty to take to sea.

The lack of a supply ship has left Canada's navy hobbled and unable to sustain long-term operations without a hand from allies. CBC News has learned cabinet was warned Thursday that foreign support was drying up.

Canada unable to defend itself?

Liberal ministers were warned Thursday that without guaranteed access to a supply ship, Canada will have "dramatically diminished capabilities to defend Canada" and to go abroad in support of coalition operations, or to aid in natural disaster or support humanitarian missions, CBC News has also learned.

Davie created the idea of the interim supply ship deal in 2014 and pitched unsolicited to government.

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Chantier Davie created the idea of the interim supply ship deal in 2014 and pitched it unsolicited to the previous Conservative government. (Project Resolve/Davie Shipbuilding)

Several sources say the idea was viewed with suspicion by bureaucrats inside the government's shipbuilding offices who worried the proposal would undermine or threaten the National Shipbuilding Procurement Strategy.

The Irving and Seaspan yards subsequently offered their own interim proposals, leading to the bizarre situation of NSPS shipyards offering to build an interim supply ship for Canada that was only necessary because the NSPS program had yet to deliver supply ships.

Whatever those yards offered, the Davie deal appeared to win the Conservative government's favour.

Irving letter to ministers

It's that decision that the Irving team complained about in its letter, obtained by CBC News, and addressed to new Defence Minister Harjit Sajjan and Minister of Public Services and Procurement Judy Foote. The letter was also sent to President of the Treasury Board Scott Brison and Finance Minister Bill Morneau.

In his letter dated Tuesday, James D. Irving, the firm's co-chief executive officer, accused the government of pursuing a sole-source contract with Davie, despite an offer from Irving and Maersk Lines to provide a lower-cost option.

"This was done on a non-competitive basis without transparency and without a full evaluation of cost, delivery schedule, capability and risk associated with the Irving-Maersk proposal."

Irving requested its proposal be evaluated once more, before the government signs off on the Davie deal.

Emails to several Irving staff went unanswered Thursday.

The Davie deal is, indeed, a sole-source arrangement as Irving complained. But cabinet was told Thursday the deal had won an exemption to the government's contracting regulations and that there was little risk it could be successfully challenged.

Davie has already bought the ship it is to convert and has brought it to its yard on the St. Lawrence River near Quebec City.

In a statement, Davie said it had an agreement with the government.

"All audits have been successfully completed and we expect the services contract to be signed before the end of this month."