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Ottawa can take over defaulting shipyards, $33-billion deal states

Two ships are seen on the dry dock at the Vancouver Shipyard in North Vancouver, Wednesday, Oct. 19, 2011.


The Canadian government will have the right to take over Halifax or Vancouver shipyards to complete vessels if a builder defaults on contractual obligations, according to the draft umbrella agreement that will govern a massive $33-billion in marine construction.

This provision is rarely included in procurement deals, federal officials say, and is an effort to keep a tight rein on decades of public shipbuilding that Ottawa set in motion on Wednesday.

While the deal must be finalized, federal officials say that yards consented to the draft's language when they filed their bids. Builders submitted bid certificates that committed them to the wording and agreed the language would change only with mutual consent, Ottawa says.

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Federal officials insist Ottawa will not remove the "step-in" rights from the deal. Section 5.2 of Part 3 of the umbrella agreement obliges the builders to hand over a "deed of license" to the federal government that spells out these rights.

The deed would allow Ottawa, after a default on material obligations, "to use, occupy, enjoy and possess those lands and any and all chattels of the company necessary or useful in the construction of ships."

This week's big shipbuilding awards for Halifax and Vancouver constituted a political victory for Stephen Harper; it enabled Ottawa to pick winners for massive procurement contracts without triggering serious charges of regional favouritism. That's because the Conservative government left the decision to a cadre of civil servants who firewalled their decision-making from political interference.

But whether the National Shipbuilding Strategy is a procurement success remains to be seen because Ottawa must still negotiate contracts for up to 31 vessels and find a way to avoid the twin demons of big-ticket government purchases: missed deadlines and cost overruns.

Negotiations on the umbrella agreement for the combat and non-combat construction packages will start soon, and Ottawa hopes to have them completed by year's end. Irving's Halifax yard has won the right to build $25-billion worth of combat ships, and Seaspan Marine's Vancouver yard has secured $8-billion worth of work for non-combat vessels.

Both companies will also have to grant Ottawa unhindered access to all of their books and records of account, so government officials can ensure yards aren't charging exorbitant rates or making excessive profit. This provision is often included in contracts that are sole-sourced without competition.

The first combat ships order is six to eight Arctic offshore patrol vessels, and the first non-military ones will be four coast guard scientific and research vessels. It could take until 2014 before the first Arctic ships are completed, federal officials estimate.

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The yards and Ottawa will start negotiating individual contracts for the vessel-building packages in 2012, and they will include penalties for missed deadlines and cost overruns.

Interim Liberal Leader Bob Rae called on Mr. Harper to apply the successful strategy for choosing shipbuilders to other areas of government procurement, such as the purchase of stealth fighter-bomber jets. Mr. Harper's government picked the F-35 Lightning without a competition.

"If he can have a competition which is non-partisan, if he can have a process which is generally seen as being fair and objective when it comes to the shipbuilding contracts, why can the government not see the logic of doing the same thing with respect to the purchase of several billion dollars worth of new fighter jets for the country?" Mr. Rae said.

Under the deals, Ottawa will also commit to a schedule so companies can carefully time the investments they make for the construction.

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About the Author
Parliamentary reporter

Steven Chase has covered federal politics in Ottawa for The Globe since mid-2001, arriving there a few months before 9/11. He previously worked in the paper's Vancouver and Calgary bureaus. Prior to that, he reported on Alberta politics for the Calgary Herald and the Calgary Sun, and on national issues for Alberta Report. More

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