The Liberal government has hit the pause button on a plan to acquire a temporary supply ship for the navy — a decision that has shocked the shipbuilding industry and prompted stiff opposition from Quebec Premier Philippe Couillard.
Defence sources tell The Canadian Press that Justin Trudeau's government is uncomfortable with sole-source nature of the arrangement and the way the Conservatives handled the arrangement with Project Resolve, a subsidiary of Levis, Que.-based Chantier Davie shipyard.
The company's plan is to upgrade a civilian tanker to act as military replenishment ship while the navy's long-delayed, joint support ships are built.
In order to get the deal going last spring, the Harper government quietly made an unprecedented change to the cabinet regulations governing sole-source purchases.
Documents obtained by The Canadian Press last summer revealed a line was added to contracting regulations in June. It gives the cabinet authority to award a deal to a single company if there are urgent "operational reasons" and it fulfills an interim requirement.
The letter of intent signed with Project Resolve and the planned contract were put before the federal Treasury Board but defence sources say the plan puts the Liberals in a political jam.
For years the Liberals have demanded open competitions in military procurement, but the first program they're asked to approve is a sole-source arrangement that required a special cabinet fix.
Industry officials said the contract was expected to be worth $400 million, but defence sources insisted it could be higher.
Couillard said putting the breaks on the project is unacceptable.
Work is ready to start in the shipyard, 250 people have been hired, and another 400 are on standby, the premier told reporters in Ottawa.
"We will not accept any change to the project planning," he said, adding that he had not received any official word about the decision from the federal government yet.
The organization representing the country's shipbuilders was startled by the decision, considering the amount of spade work that had been done on the project.
"Davie's Project Resolve is lean and innovative and leverages the best-practices adopted by our allied navies throughout the globe," The Shipbuilding Association of Canada said in a statement issued late Friday.
"Following an exhaustive industry solicitation process and then months of deliberations by all the relevant governmental departments, Davie's solution was selected as the only one which met the needs of the Royal Canadian Navy. After further months of negotiations and independent audits, the agreement was concluded and is ready to sign. There must be no further delays. The navy needs ships and Canada needs its navy. Now more than ever."
But defence sources, who were not authorized to speak to the media, said there are a number of questions about the deal itself that need to be answered. For instance, the letter signed by the Conservatives puts the federal government on the hook for costs that the company has incurred if the deal falls through
Industry sources with knowledge of the negotiations say the company has already lined up a ship for conversion, the 24,000-tonne, double-hulled Asterix.
Part of the work is to be done at Aecon Pictou Shipyard in Nova Scotia before moving on to the modern Davie facility outside of Quebec City.
The company — perhaps sensing the deal was in trouble — recently produced a slick presentation that highlighted the ability of the ship to respond to a humanitarian disaster, such as the Syrian refugee crisis. The proposal noted that the vessel could be converted to carry hundreds of people and provide floating hospital services.
The Liberals are also facing pressure from the two companies involved in the national shipbuilding program — Irving Shipbuilding, in Halifax, and Seaspan, in Vancouver.
Both yards, which are the federal government's contractually preferred military and civilian builders, have written letters and protested vigorously about the deal with Chantier Davie.
The Harper government went looking for a temporary supply ship after the navy was forced to retire its existing, 45-year-old vessels — HMCS Protecteur and HMCS Preserver. The promised new support ships, to be built by Seaspan, are still years away.
Some internal defence department estimates don't have the replacements arriving until 2020, or even later. The federal government has yet to negotiate a construction contract for the ships.
Without replenishment ships, the navy's frigates are forced to rely on other nations for ammunition, fuel and food while on long overseas deployments.
It also affects the navy's ability to deploy more than one warship at a time.