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Augie Ventura greases the wheel on barge cradles used to move barges in the yard as the Seaspan Queen tugboat undergoes maintenance behind him at Washington Marine Group Shipyards in North Vancouver, B.C., on Wednesday February 2, 2011. (Darryl Dyck for The Globe and Mail/Darryl Dyck for The Globe and Mail)
Augie Ventura greases the wheel on barge cradles used to move barges in the yard as the Seaspan Queen tugboat undergoes maintenance behind him at Washington Marine Group Shipyards in North Vancouver, B.C., on Wednesday February 2, 2011. (Darryl Dyck for The Globe and Mail/Darryl Dyck for The Globe and Mail)

Billions in shipbuilding contracts will make waves for Harper Add to ...

Stephen Harper is poised to kick off the greatest round of government shipbuilding in Canada since the Second World War.

The massive equipment purchase is also going to give him a political headache.

Pegged at $35-billion, the sums involved easily dwarf the funds committed for the Conservatives' controversial and hotly contested plan to buy $9-billion worth of F-35 fighter jets from Lockheed Martin.

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It will ultimately pit three regions of Canada against each other and force a difficult choice upon Mr. Harper. He'll have to decide which region to leave in the cold during what could be an election year: the East, the West or Quebec.

The federal shopping list includes a fleet of new defence, patrol and scientific research vessels, from frigates to the John G. Diefenbaker, which will be the most powerful icebreaker Ottawa has ever owned.

The Conservative government will select two marine construction yards for the job of building $33-billion in large vessels - companies that will end up dominating public shipbuilding in Canada for decades.

But by giving two yards the bulk of the work, Mr. Harper is inviting trouble.

Regional anger over procurement decisions are stuff of legend in Canadian politics and have damaged incumbent governments. A 1986 decision by the Mulroney government to award a CF-18 fighter maintenance contract to a Quebec firm over a superior bid by a Winnipeg-based company enraged western Canadians and helped spur the rise of the Reform Party.

Five yards are expected to bid for either one or both of the shipbuilding packages: the larger order to assemble frigates, destroyers and patrol ships - and the smaller to build non-combat vessels including the polar-class Diefenbaker icebreaker.

Ottawa hasn't attached an official dollar figure to these packages, but sources familiar with the matter value the combat order at roughly $25-billion, the non-combat around $8-billion. In the first five to eight years, both packages will pour roughly the same level of investment in shipyard work - and the non-combat order is expected to grow over time to include more replacement Coast Guard vessels.

The bidding competition will heat up this month when Ottawa invites bids for the two large-vessel packages. The federal government is expected to render its decision by August or September.

Winning a contract will mean the right of first refusal to build all the vessels in the package.

Of the five yards that have made the shortlist for bidding, three are considered major contenders. They include Irving Shipbuilding Inc.'s Halifax yard, Davie Yards of Lévis, Que., and Washington Marine Group's Vancouver Shipyards in North Vancouver, B.C.

Mr. Harper's National Shipbuilding Procurement Strategy is an attempt to change the playbook for Canada's boom and bust shipbuilding industry, laying out a 30-year plan that ensures a steady stream of construction work for at least two yards.

There's a strategic military reason for this too. It ensures Canada, like many of its NATO allies, maintains a constant capacity to build naval vessels.

A politically risky feature of this new procurement style however, is that it concentrates the work into just two shipyards. From an accountant's perspective this makes sense: The winners have better economies of scale, thereby reducing costs - as well as ensuring a buildup of skilled labour at the yards in question.

It's a departure from the way regional politics have forced Ottawa to conduct government shipbuilding in the past, when contracts have been chopped up and spread around. Traditionally, a single ship might be assembled by different yards - ultimately increasing the vessel's price tag.

The consolation price for three losing shipyards is they will be able to bid on an estimated $2-billion of construction work for smaller non-combat ships.

Ottawa says there's enough of these smaller jobs to suffice.

"That's a debatable point," says Peter Cairns, a retired vice-admiral who heads the Canadian Shipbuilding Association.

The Irving yard, one of Canada's largest, is considered a strong contender to win one of the big contracts - which would leave Quebec and B.C.'s Vancouver Shipyards fighting for the second.

It will be hard for the Tories to ignore Quebec, a province where they're working hard to preserve their hard-fought political gains in the run-up to a possible election. The Davie yard is located in Quebec City, where the Conservatives hold many of their Quebec seats and the need to keep this region happy exerts a powerful pull on Mr. Harper's government. The Tories are even considering abandoning their fiscally conservative principles to help fund the construction of a professional sports arena in Quebec City.

Quebec's Davie shipyard is currently insolvent and under court protection from creditors, but is looking for an investor to help it move forward.

Washington Marine Group CEO Jonathan Whitworth said the process Ottawa has set up has been fair so far. He said, however, that Davie's insolvency "has to be" one factor considered in Ottawa's evaluation of possible bidders.

"In traditional businesses, either inside or outside government procurement projects, usually you have to be a solvent, going concern."

Mr. Cairns, however, said it's hard to imagine Quebec being excluded from such a significant procurement project. The political blowback would be immense. Even as it demanded $5-billion in concessions to support the 2011 budget, the Bloc Québécois called for the Davie shipyards to get its fair share of the large vessel work.

"Historically, the idea of leaving Quebec out of a major building program has not been considered politically viable," Mr. Cairns said.

He said he believes the process that Ottawa has put in place will be fair, but then again, he adds, "Beauty is in the eye of the beholder" and the loser might not see it that way.

The contrast between how the Harper government has handled the F-35 fighter jet purchase and the shipbuilding packages couldn't be more stark.

The Tories opted to go with a U.S. aircraft but made the decision without a competition - a move that's come under heavy fire.

In shipbuilding, the Conservatives have gone to great lengths to firewall the competition from accusations of political influence and ensure the yards are chosen based on the best bids.

They've hired KPMG to design the procurement process, enlisted U.K. marine construction experts to verify each yard's capacity and appointed a "fairness monitor" to referee how decisions are made.

In the end, Ottawa's decision will dramatically change the future for the winning shipyards, which will be able to make a living as construction yards rather than repair shops. A generation of young workers in two regions will be able to plan an uninterrupted career in building new ships.

"What it would mean is there is a future for the industry on the West Coast," George MacPherson, president of the B.C. Shipyard General Workers' Federation, said.

"If B.C. loses, then I think what you are left with on the West Coast is a bunch of small yards. I think you would see the major yard go out of business."

The alternative is sporadic contracts and repair work.

"It's been feast or famine. … We had full employment four or five years ago. Today we have high unemployment," Mr. MacPherson said.

Two years ago, he recalled, there were up to 110 shipyard apprentices training, and today three quarters have been lost in the economic downturn.

"If we're successful ... it will be boom days again in North Vancouver."

Follow on Twitter: @stevenchase

 

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