Bidder urges overhaul of design tender in $60B navy frigate program

Canada's plan to buy an off-the-shelf design for the navy's new frigates faces a "very high risk of failure" unless the Liberal government rewrites its proposed requirements, one of the bidders has told the shipyard running the competition.

Documents obtained by CBC News show the unidentified company, which is bidding to supply the design and help with the $60-billion construction program, has warned the plan is more complex than initially advertised by the government. 

In a written submission last month, the company told Irving Shipbuilding the government's request for proposals needs a major overhaul.

But Irving dismissed the bidder's concerns, according to an exchange contained in a collection of questions and answers with prospective bidders that were circulated to all bidders by Irving on May 12, 2017, a copy of which was obtained by CBC News.

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When the Liberals retooled the national shipbuilding strategy last year, they made a point of saying they want a proven warship design, rather than something done from scratch.

They said it would be faster and cheaper.

Given all of the conditions in the request for proposals, the bidder said that expectations are too high.  

"To the best of our knowledge, neither we, nor any other prequalified bidder, possesses an off-the-shelf ship design which could be modified to meet all of the [request for proposal] requirements without, in effect, becoming a new design with all of the risks that would stem from a massive redesign effort," said documents.

Risk of failure

The unidentified bidder did not mince words.

"Not only will we not be in a position to make a proposal, which we believe will best meet Canada's objectives, but we have reason to believe that most, if not all, other prequalified bidders with an existing ship design will be in a similar situation," said the documents.

"In such an event, a failure to respond positively to our enquiries might put the (request for proposal) process at a very high risk of failure, either because an insufficient number of bids are received or because the bids which are received do not meet Canada's value for money objectives."

Irving responded: "This has been considered and no change to the [request for proposals] will be made."

The government has already extended the deadline for submitting ship design bids until August — or perhaps later.

Irving Shipbuilding said in a written statement that it has conducted multiple rounds of industry engagement on the project. It said each question has been carefully considered and answered and it is the government that decides what kind of warship it wants.

"Delivering the right [Canadian surface combatant] capabilities to the Royal Canadian Navy, on time and on budget, is a priority for Irving Shipbuilding," said spokesperson Sean Lewis.

"In doing so, we will work closely in partnership with the government of Canada in selecting a design that is most suitable for Canada and the requirements of the Royal Canadian Navy. These requirements are set by the Canadian government."

Complex process

In the past, Irving officials have expressed concern publicly that too many design changes will mean lengthy delays.

Retired vice-admiral Bruce MacLean said the process of designing and building a modern warship is complex and requires give-and-take from all sides.

"You have to be sufficiently flexible to make change, whether it's a cost issue or a capability issue," Maclean told CBC News.

He noted that the navy's first attempt to replace its supply ships was scuttled in 2008 because the navy's requirements exceeded the hard budget cap imposed by the former Conservative government.

The Liberals intend to build 15 frigate replacements and recently acknowledged the cost will be in the range of $56 billion to $60 billion — a huge increase from the initial $26-billion forecast made almost a decade ago.

And MacLean said that underscores the importance of the unfolding backroom debate.

"Is it really an off-the-shelf design? Or are the modifications so extensive [that] it will turn it into something else? There's the rub," he said.

Intellectual property debate

Bidders have also quietly expressed concern that the initial order will only involve three warships, which are meant to replace the navy's command and control destroyers.

The government intends to build a total of 15 surface combat ships, but they will be constructed in batches in a manner similar to the frigates they will eventually replace.

There is also an indication that a key behind-the-scenes battle over intellectual property rights, which has been raging since last year, has not been resolved.

National Defence and Public Works has demanded that ship designers hand over virtually all their intellectual property data for the high-tech electronic combat systems that would be installed on the new warships.

They asked bidders for all their foreground and background data necessary to maintain equipment such as radar and combat management suites. The problem is many of Canada's allies, including the U.S., Britain and France, paid for the development of those essential electronics individually and don't want to share the data for their own national security reasons.

But some of the bidders look at it from a competitive point of view.

"The grant required by the [request for proposals] would permit Canada and [Irving Shipbuilding Inc.] to use 'background' intellectual property supplied pursuant to the [request for proposals] to compete with the bidder supplying the intellectual property for subsequent military procurement contracts with other nations," said the documents.