A proposal to end a federal program that supports Canadian defence contractors bidding on U.S. contracts has been shelved by Public Works Minister Rona Ambrose.

Under the proposed policy change, Public Works was to stop performing "assist audits" on Canadian companies seeking contracts in the United States on Jan. 1 — and that had defence contractors warning of lost business and jobs.

CBC News Network's Power & Politics obtained an exclusive copy of a strongly worded letter from a leading defence supply company raising the alarm about the planned change.

"Due to budgetary constraints, Public Works and Government Services Canada has shifted policy regarding the conduct of assist audits on behalf of U.S. customers seeking to procure defence-related materials from Canadian suppliers," the letter says.

"It is highly likely that the position adopted by Public Works will reduce our ability to compete in the U.S. and will cost Canadian exports and jobs," the letter warned. "Further, the loss of funding from contracts in the U.S. will undermine our ability to pursue contracts domestically in Canada and internationally."

Public Works did not initially respond to requests for comment Monday, but a spokesman for Ambrose told CBC News Tuesday morning the change would not go ahead.

"This is a cost-savings proposal considered by officials and rejected by our government," Michael Bolkenius wrote in an email.

"The Minister gave clear directions to her officials last fall to continue offering this service as has been done for a number of decades. We recognize that Canada's defence sector creates high-quality jobs and can compete with the best for contracts here at home and on the international stage."

U.S. told of change last summer

A spokesperson for the U.S. Department of Defence said Public Works notified it of the pending change on Aug. 23, 2012. The letter from Public Works cited "fiscal restraints" as the reason for the termination and offered to perform the audit services for a fee, but the U.S. declined to pay for the services.

On Nov. 20, 2012, the Department of Defence issued a policy memorandum outlining contracting activities and responsibilities for audits.

"Effective January 1, 2013, Canada will no longer perform audits on U.S. DoD contracts that are awarded directly to a Canadian company or perform assist audits on Canadian contractors in support of subcontract work under U.S. prime DoD contracts," reads the correspondence from the Office of the Under Secretary of Defence, which was circulated to various high-level military brass, including commanders, deputy assistant secretaries and directors.

But another Public Works letter sent to the U.S. Department of Defence Nov. 23 said the Jan. 1 deadline had been extended to the end of the fiscal year on March 31 in the hope that "extensive internal discussions" underway at Public Works would "resolve our financial constraints."

Speaking on Power & Politics Monday, Tim Page, president of the Canadian Association of Defence and Security Industries, told host Evan Solomon the assist audits have been an "excellent practice" that costs the federal government only about a million dollars annually, but produces about a billion dollars in sales for the Canadian economy.

"So [the proposed change] looks like it's a bit of pound foolish, penny-wise," Page said before the response from Public Works. "The government has a responsibility to look after taxpayers' money and they're looking to find ways of trimming Public Works' budget.

"But in an environment where competition in the defence market is as intense as it is, and where the U.S. defence department has a familiarity and a confidence in the department of Public Works and their conduct of these assist audits, it seems to us that maybe somebody forgot to look at the forest for the trees on this one."