Ottawa handed shipyards too much control of $105-billion project, researchers say

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The Canadian government has lost control over costs in its $105-billion shipbuilding program because it's handed too much power to shipyards placed in charge of the project, a new report argues.

Authors Michael Byers, a University of British Columbia professor of political science, and researcher Stewart Webb are calling on Ottawa to put a tighter leash on the program or risk seeing costs spiral even higher. Irving Shipbuilding on the East Coast and Seaspan on the West Coast have been selected to build the bulk of the vessels.

Professor Byers and Mr. Webb point to trouble with plans for six to eight Arctic/Offshore Patrol Ships – a central plank in Prime Minister Stephen Harper's mandate to assert Canadian control in this country's northern region.

"Problems with the Arctic/Offshore Patrol Ship project, including delays and an inflated design contract, indicate that the Harper government has lost control over the management" of the project, say the authors, writing in a report for the Rideau Institute and the Canadian Centre for Policy Alternatives.

"The Harper government made a serious mistake by confining the only truly competitive portion of the National Shipbuilding Procurement Strategy to the choice of two shipyards, both of which are now also in the de facto position of 'prime contractor,' " the report says. "The absence of competition from this point onwards creates a significant risk that the shipyards will overcharge for design and construction," Prof. Byers and Mr. Webb write.

"The current situation amounts to Irving and Seaspan being given blank cheques by the Harper government."

The report charges that Canada made a serious mistake in departing from what it calls the standard approach to naval procurement "which begins with the definition of requirements, followed by the setting of a budget, and only then by the selection of a prime contractor."

Instead, Ottawa first selected two shipyards that will divide the work between them – Irving and Seaspan – and gave them right of first refusal to build the ships.

"As a result of that approach … and the largely uncompetitive and unsupervised process of sub-contracting by the shipyards, the NSPS is already showing signs of mismanagement and overspending that may well lead to lower quality, less capable, and perhaps fewer vessels," the authors write.

One option Ottawa does have, however, is to step in if things go sideways.

The 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 umbrella agreement that will govern the marine construction.

This provision is rarely included in procurement deals and is an effort to keep a tight rein on the public ship-building program.

Part 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."

The Conservative government rejected the report's criticism in a statement Wednesday and took a swipe at one of its authors who once stood for election as an NDP candidate.

"The National Shipbuilding Procurement Strategy is the most transparent military procurement in Canada's history," said Alyson Queen, director of communications for Public Works Minister Diane Finley.

"It is unfortunate that Mr. Byers, a former NDP candidate, failed to mention that industry analysts have estimated that over 15,000 jobs will be created and over $2-billion will be generated in annual economic benefits over the next 30 years."

Ms. Queen cited a November Auditor-General review of the ship-building program as proof it is on track.

"Just last month the Auditor-General indicated that the NSPS shipyard selection process was 'successful and efficient' and that NSPS model should be applied to future procurements," she said.

"The Auditor-General also stated that 'the government is managing the acquisition of military ships in a timely, affordable, efficient and transparent manner that will support the shipbuilding industry for years to come."