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A proposal to build military vehicles in Canada that failed to get off the ground under the Brian Mulroney government was still alive after the Tories were banished to the back benches.

Liberal cabinet heavyweight André Ouellet waged an intense backroom fight in the mid-1990s to rescue the project, which lobbyist Karlheinz Schreiber was aggressively promoting, according to federal documents obtained by The Globe and Mail.

The ministerial correspondence shows that Mr. Ouellet, the foreign affairs minister and Quebec lieutenant at the time, was a major booster of the plan by one of Mr. Schreiber's European clients, Thyssen AG, for a factory to build light-armoured vehicles in Canada.

While then-industry-minister John Manley argued that the project, known as Bear Head Industries, was "illogical," Mr. Ouellet urged his colleagues to look at it "very seriously," according to letters between the two marked "secret" and written in French.

Bear Head was promoted from 1986 to 1995 by Mr. Schreiber, who will testify again Tuesday on Parliament Hill about his past dealings with Canadian politicians.

Last week, the German-born deal maker told a House of Commons ethics committee that he gave Mr. Mulroney $300,000 in cash in 1993 and 1994 to promote the project.

Mr. Schreiber's company gave $10,000 to the Liberals when they returned to office in 1993. In addition, Mr. Schreiber worked on the promotion of the project with lawyer Marc Lalonde, a Trudeau-era minister who pushed Bear Head to the Chrétien government.

In a letter dated July 25, 1994, Mr. Manley consulted Mr. Ouellet one last time before Ottawa informed Thyssen Bear Head Industries that the project was "of no interest to the federal government."

Bear Head wanted federal funds to build a plant and to test two prototypes of its tracked vehicles.

Mr. Manley told Mr. Ouellet that he agreed with the conclusions of an interdepartmental group (made up of officials from the Privy Council Office, National Defence, ACOA, Industry Canada and Mr. Ouellet's own department, Foreign Affairs) that opposed Bear Head.

"However, knowing that you have a particular interest in this project and that it's a delicate question, I would wish to obtain your advice before giving an order to my bureaucrats to inform the company of our decision," Mr. Manley wrote to Mr. Ouellet.

While Mr. Schreiber had initially proposed to install Bear Head in Nova Scotia, the prospective location was switched to Quebec in the 1990s. In his response to Mr. Manley, Mr. Ouellet said the military facility would create 500 jobs in east Montreal, a poor part of the city.

"This is in line with the federal government's policy that all investment proposals should fully take into account the net economic advantages to Canada," Mr. Ouellet wrote to Mr. Manley on Sept. 21, 1994.

"That is why I suggest that you consider very seriously this request from a foreign company that is willing to invest in Canada and to export a military vehicle that could be in increasing demand in the context of peace missions that are more and more numerous around the world."

In his response to Mr. Ouellet on Jan. 18, 1995, Mr. Manley said he did not want to give "false hopes" to Thyssen, but agreed the company could provide an economic analysis of the benefits of its plan.

He added that the government was unlikely to buy Thyssen vehicles, and that it had no money for the company.

"Please let me know if you need additional information and if you wish that I pursue the development and analysis of a Thyssen project in Quebec," Mr. Manley said.

On Feb. 20, 1995, Mr. Ouellet responded that he understood the odds of federal funds for Bear Head were "thin."

Mr. Ouellet added that the government was about to buy new light-armoured vehicles, and that the best solution was to ensure an open competition. That echoed Thyssen's call for a chance to bid on the contract.

Mr. Ouellet wrote that buying new vehicles "without a tendering process would go against the rules of equity."

In mid-1995, the Chrétien government effectively ended the project when it hired General Motors in London, Ont., to build a new fleet of wheeled light-armoured vehicles, which are currently deployed with Canadian Forces in Afghanistan.

(Mr. Mulroney had said in 1990 that the project was "dead" after learning that it would cost $100-million, according to his former chief of staff Norman Spector.)

Mr. Ouellet was shuffled out of the Chrétien cabinet in 1996 and went on to lead Canada Post.

In that position, he helped Lafleur Communication and Marketing win untendered contracts from the Crown corporation, a situation that earned him criticism in the final report from the Gomery inquiry.

Mr. Ouellet is seeking $3.2-million in damages from the federal government for what he says was his effective firing from Canada Post in the midst of the sponsorship scandal.

Mr. Manley is advising the Harper government on the shape of the Canadian mission in Afghanistan.

Mr. Manley, Mr. Ouellet and Mr. Lalonde could not be reached for comment.