U.S. firm Lockheed Martin gets first crack to design $60B warship fleet

The Canadian Press</span>
Published Friday, October 19, 2018 12:39PM EDT
Last Updated Friday, October 19, 2018 1:15PM EDT

OTTAWA -- The federal government is giving U.S. defence giant Lockheed Martin the first crack at inking a contract to design Canada's $60-billion fleet of new warships.

Government officials say Lockheed's proposed design beat out two rival submissions in what has been a long and extremely sensitive competition to design replacements for the navy's entire frigate and destroyer fleets.

While the announcement marked the start of an important new phase in the largest and most expensive military purchase in Canadian history, it could also prove to be extremely controversial as some had questioned why the bid was allowed in the first place.

Still, Lockheed executives may not be popping the champagne just yet. Negotiators for both sides as well as Halifax-based Irving Shipbuilding, which will actually build the vessels, must now work out details -- including the final cost -- before an actual contract is awarded.

The stakes will be high for both sides, with hundreds of millions of dollars in play as well as pressure to make up for lost time as numerous delays -- including in the design competition -- have pushed the schedule for construction.

Irving has warned that it could be forced to lay off hundreds of employees if work on the warships is not ready to start by the time it finishes building the navy's new Arctic patrol ships in 2021 or 2022.

The Defence Department's head of military procurement, Patrick Finn, acknowledged the need for urgency.

But he also noted the need for care as whatever decisions are taken during the negotiations could have ramifications on the navy and taxpayers for decades.

"So it behooves us to stop and make sure we do the final checks in all of the areas," Finn said this week in an interview.

Lockheed's victory is likely to be contentious as the federal government had originally said it wanted a "mature design," which was widely interpreted as meaning a vessel that has already been built and used by another navy.

But the Type 26 frigate, upon which Lockheed's proposal is based, is only now being built by the British government and has not been used on operations.

The federal government has reserved the right to walk away from the talks -- if Lockheed drives too hard a bargain -- and negotiate with the second-place bidder, which was not identified. However, officials hope that won't be necessary and a contract will be signed this winter.

"We have notional time frames allocated," said Andre Fillion, who oversees military and naval projects with Public Services and Procurement Canada.

"And should everything go according to plan, we're looking at winter 2019 for the award of the contract. If it doesn't go according to plan, then we go to Plan B -- and obviously that would take longer."

Lockheed's design was up against a pitch by U.S.-based defence company Alion, which proposed a design based on a Dutch frigate, and Spanish firm Navantia's proposal, which was modelled on a frigate used by the Spanish navy.

One of the big questions heading into the negotiations will be how much of Lockheed's design will need to be changed to reflect the navy's needs and how much the navy will have to shift its requirements because changing the design will take more time and money.

Government negotiators are also facing a potential battle over the amount of intellectual property that Lockheed will be required to hand over, which Ottawa wants so it can operate and maintain the vessels on its own after they are built.

Companies had originally been told that the winner would be required to turn over the full blueprints, but after significant resistance the two sides agreed the matter would be negotiated before a contract is awarded.

Officials remain focused on getting "the intellectual property access and rights that we need to not only build the ship but also to operate and maintain it for its entire life cycle," Fillion said.

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