Bloomberg News

Irving, Seaspan Win Canada Military Shipbuilding Contracts

October 19, 2011

(Updates with expert comment in fifth paragraph.)

Oct. 19 (Bloomberg) -- Irving Shipbuilding Inc. of Halifax, Nova Scotia and Vancouver-based Seaspan Marine Corp. were named the winning bidders in a C$33-billion ($32.4 billion) procurement project to build ships for the Canadian Navy and Coast Guard, the government announced today.

Irving was awarded the combat component of the project, consisting of 15 warships and six patrol ships, Francois Guimont, deputy minister of public works said. Seaspan will build as many as eight non-combat vessels, including support ships and a polar icebreaker.

Three shipyards, including Davie Canada from Quebec, had submitted bids in July on the tender, the biggest government procurement in Canada’s history.

Irving and Seaspan will now negotiate construction contracts with the government on the different types of ships. Most of the estimated value of the contract may eventually flow to large defense contractors such as Lockheed Martin Corp. and Thales SA, who will likely be subcontracted to supply weapons and other systems, said Ugurhan Berkok, chair of defense- management studies at Queen’s University in Kingston, Ontario.

“They will eventually have to team up with combat-system manufacturers,” he said by phone. “You’re talking about easily 60 percent that will not be manufactured in Canada.”

Under Canada’s policy on defense contracts, foreign suppliers will be required to invest one dollar in Canada for every dollar of the contract they earn, Berkok added.

Merit, Hard Work

The contracts will create about 15,000 jobs across the country, said Defence Minister Peter MacKay, who represents a district in Nova Scotia.

“They won this on their merit. They won this on hard work,” MacKay told reporters in Ottawa. “They put forward a very competitive bid into a process that was merit-based,” said MacKay, who represents a district in Nova Scotia.

A spokesman for Davie Canada said that while the company is disappointed with the results, it has no complaints about the bidding process.

“If it all went as it appeared to go, based on our observation, I think the process was run exactly the way it said it would be,” said John Dewar, a vice president at Upper Lakes Group, which acquired the Davie shipyard in July. “It was open, it was fair and it was transparent,”

The combat part of the contract is worth about C$25 billion, and the non-combat portion about C$8 billion, Dewar said.

Davie Uncertainty

The decision creates uncertainty for the Davie yard, which is based in Levis, Quebec, said Nycole Turmel, interim leader of the New Democratic Party, the biggest opposition party in Canada’s House of Commons.

A C$2 billion contract to build 116 small ships, will be awarded to shipyards other than Irving and Seaspan, Guimont said. As well, maintenance and repair work worth $500 million annually will be open to all shipyards through normal procurement processes.

Turmel called on the government to accelerate the awarding of the remaining contracts so all Canadian shipyards can benefit. “We have to build this industry everywhere, not pick winners and losers like the Conservatives have done,” she said in an e-mailed statement.

A committee of senior bureaucrats was responsible for choosing the winning bids, and Prime Minister Stephen Harper’s cabinet wasn’t involved in the decision, said Michelle Bakos, a spokeswoman for Public Works Minister Rona Ambrose, in an e- mail.

‘Great Day’

Jim Irving, chief executive officer of Irving Shipbuilding, called it a “great day for shipbuilding in Canada.”

“We’d like to assure the government of Canada, and all Canadians, that we will continue to devote our efforts to building quality vessels for our men and women in uniform and delivering best value to Canadians for this important investment, one that will provide economic benefits across Canada,” Irving said in a statement.

A spokeswoman for Seaspan didn’t immediately reply to a phone message seeking comment.

The Nova Scotia, Quebec and B.C. governments all lobbied for the bids to be awarded to companies from their provinces. The federal government’s tender process prohibited companies from using corporate lobbyists.

--With assistance from Theophilos Argitis in Ottawa. Editors: Paul Badertscher, Gail DeGeorge

To contact the reporter on this story: Andrew Mayeda in Ottawa at amayeda@bloomberg.net

To contact the editors responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net; David Scanlan at dscanlan@bloomberg.net.


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