Davie Shipyard's $700M deal for navy supply ship retrofit to go ahead

The federal government will proceed with a $700-million plan to retrofit an interim navy supply ship at Quebec's Davie Shipyard. The deal was put in jeopardy two weeks ago when the Liberals put it on hold for 60 days while they re-examined the initial contract.

Rival companies Seaspan and Irving had complained about procurement process

Naval officers attend HMCS Protecteur's paying-off ceremony at CFB Esquimalt in B.C. last May. The federal government is going ahead with a $700-million plan to retrofit an interim supply ship for the navy, a contract it acknowledges was sole-sourced. (Chad Hipolito/Canadian Press)

Following two weeks of uncertainty and debate, the new Liberal government announced today it would no longer delay a $700-million deal to have Quebec's Davie shipyard construct a supply ship for the navy.

The seven-year Davie deal was negotiated over the last year by the previous Conservative government. A letter of intent had been signed and a contract finalized but not signed.

But a committee of Liberal ministers decided on Nov. 19 to delay the deal for 60 days, leading to fears in some corners of the navy and the shipbuilding industry that the plan would be killed outright.

CBC News was the first to report that decision. The coverage led to public concerns from Davie's unionized yard workers and Quebec Premier Philippe Couillard.

Couillard told CBC News the Davie deal should not be cancelled.

"The ship is in the yard. Two hundred and fifty workers are there. Four hundred more are going to be hired in a few days. It's a $700-million investment," he said. "We will simply not accept that there is any change in the plan."

Workers react

At the Davie yard in Lévis, Que., workers reacted with a mixture of happiness and pride Monday.

A cancellation of the deal would have resulted in more than 200 layoffs.

"I think [the workers] are very ecstatic, very happy to see the work here," one man told Radio-Canada.

"It means we are going to put out a good product for the navy, that's what it means. We are all proud of what we do."

Politics or policy?

It's unclear whether concern over a fight with Quebec was what motivated the government to announce Monday it would approve the Davie deal, but a statement from Public Services and Procurement Minister Judy Foote and  Defence Minister Harjit Sajjan said circumstances favoured the deal proceeding.

"The process is at an advanced stage. If we restarted this initiative by launching a competition, we would lose precious time in providing the navy with a critical refuelling and naval support capability," the statement said. "The ship has been purchased by Chantier Davie Canada Inc. and is in the yard undergoing conversion. According to public reports, several hundred employees have already been hired."

But the statement also suggested the cabinet had little choice and was hemmed in by "the structure of the agreement entered into by the previous government."

Conservative deal

The previous government had signed a letter of intent with Davie that authorized it to start the conversion of a civilian cargo ship for the military's use.

That letter provided Davie up to $89 million in expenses should the final contract not be signed by Nov. 30.

Military procurement has historically been difficult and sometimes politically dangerous work. And the Davie deal proved no different for the new Trudeau government.

Its ministers faced slings from Davie supporters and arrows from Davie's competition. Both Irving Shipbuilding Inc. and Seaspan ULC, who respectively own shipyards in Halifax and Vancouver, sent letters to the government complaining the Davie deal was a sole-source contract awarded without competition.

Deal followed change to rules

The admittedly unconventional project was approved following a change in the government contracting regulations to allow for an "urgent operational requirement of an interim nature."

Davie proposed the deal on its own initiative following the sudden retirement in 2014 of Canada's last two naval supply ships, one due to rust, the other due to fire.

The government asked shipbuilders in January to provide a rough outline of what they could provide the government and at what cost. The Davie yard won that process.

But both Seaspan and Irving complained it was not a real competition.

Today, Foote and Sajjan agreed it was a sole-source deal.

"The government of Canada will undertake a review of the process for sole-source contracts for military procurements, including looking at current regulations and policies and those regulations amended by the previous government."

Navy's own supply ships are years away

The deal is for Davie to acquire and convert a supply ship that it will then find crew for and charter back to the navy to provide replenishment at sea. Davie has already acquired the ship it plans to convert, the MV Asterix. It is scheduled to be delivered in summer 2017. 

The almost $700-million cost includes $490 million for the ship and its services, and the remainder to cover five years of operating costs, including fuel, port services, tugs and other marine costs. The navy will provide a small crew to perform security and other military tasks such as refuelling of warships at sea.

The navy does have new supply ships on order with Seaspan under the $39-billion National Shipbuilding Procurement Strategy, but the first of those is not due to arrive until 2020.

Davie called its proposal Project Resolve. Monday, the head of that program, Spencer Fraser, said the deal was the best one for Canada.

"We are delighted and honoured that the Trudeau government has decided to proceed with our solution, and as of today we have now entered into a full contract," Fraser said in a statement. "It confirms that our solution had the greatest merits to meet the [navy's] urgent operational needs."

Rival company 'disappointed'

But those feelings were not echoed by Seaspan in Vancouver, whose CEO, Jonathan Whitworth, said the company was willing to offer an interim solution, too.

"We are disappointed by the government of Canada's decision, yet we certainly understand the Royal Canadian Navy's need to find an interim solution for its fleet."

Irving Shipbuilding president Kevin McCoy said he appreciated that the new government had heard out his company`s concerns. "If the government decides to add a second interim ship so that [the] Canadian navy can have refuelling capability on both the East and West Coasts, we would hope that our proposal would be given careful consideration."

In its own statement, the Royal Canadian Navy said the interim supply ship deal will allow the fleet to "continue to operate for extended periods away from home port, without relying on foreign ships or port visits for frequently required support/resupply."

In the absence of its own refuelling capability, the navy has relied on the goodwill of allies. It has also leased capacity from Chile and is currently negotiating with Spain for the use of one of its supply ships.

"Though this serves as an adequate mitigation strategy in the present circumstance, it imposes significant constraints on Canada's flexibility to conduct independent operations and limits the RCN's ability to train and retain key skill sets that will be required to operate joint support ships once they are delivered."