A British Columbia consortium has won a $1.5-billion maintenance contract for Canada's four Victoria-class submarines in a controversial decision that defence sources say went all the way up to the Prime Minister's desk.
The Conservative government informally awarded Canadian Submarine Management Group phase one of the 15-year contract almost a year ago. But a signed, written agreement was put on hold last year after a lawsuit was filed by a group that includes Maritimes-based rival, Irving Shipbuilding.
There were suggestions last fall the contract would be re-tendered, but the navy has told Defence Minister Peter MacKay and the Privy Council Office that such a move would create an unacceptable delay in the submarine program, which is already years behind schedule.
"Going back out to tender and getting it totally put to bed means three years," said a senior defence source. "We can't afford that."
The issue was shuttled up the chain of command early last fall to the point where Prime Minister Stephen Harper became involved - and ultimately gave the green light for negotiations to resume "and get this done," said a second defence source.
"There will be no re-tendering," a senior government official said on background.
A spokesman with the Defence Department's material branch confirmed yesterday that negotiations with the B.C. consortium, headed by Victoria Shipyards, have resumed and a final contract would be awarded in a few months.
"Due to legal and other issues, negotiations were delayed for several months," David Martin said.
"Detailed contractual negotiations are under way, with completion expected in a few months."
Almost 18 months ago, the Conservative government announced it would publicly tender the contract. It identified Canadian Submarine Management Group or CSMG as the "most compliant" with the contract aims and began negotiating a final contract.
But Irving Shipbuilding and Fleetway Inc. - part of a rival consortium led by British defence giant BAE (Canada) Systems Inc. - called for a judicial review of the decision. The Irving-owned companies stood to gain $750-million in work.
The lawsuit alleges one of the companies that participated in the winning bid played a role in developing the statement of work and evaluation criteria for the contract.
Last summer, a Federal Court judge dismissed an attempt by Ottawa to have the case thrown out of court.
A spokeswoman for Irving Shipbuilding said she wasn't aware that negotiations with CSMG had resumed and confirmed the lawsuit was still on track.
"We continue to believe the contract was awarded unfairly, contrary to applicable law," said Mary Keith.
"There has been a preliminary exchange of information between legal counsels and the case is proceeding."
The contract has also been the subject of some intense, powerful backroom lobbying.
Long-time Tory heavyweight Fred Doucet was hired to plead the Irvings's case to federal officials and politicians.
Stephen Dover, of Capital Hill Group Inc., registered as a lobbyist on the file for Weir Canada Inc., one of the partners in CSMG.
Canada bought the four mothballed diesel-electric submarines from the Royal Navy in the late 1990s for almost $900-million.
BAE Systems built them in the late 1980s and early 1990s, but they were taken out of service when the British decided to go with an all-nuclear fleet.
Reactivating the submarines has proven to be a huge challenge for the navy, especially since a fatal fire aboard HMCS Chicoutimi in October, 2004.
HMCS Corner Brook is the only submarine in service. HMCS Windsor and HMCS Victoria are undergoing repairs and upgrades.
The Chicoutimi is not scheduled to have its fire damage repaired until 2010 and is being used for spare parts.