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New contender emerges to bid on shipbuilding project

Racing against time, a powerful new Canadian shipbuilding entity has emerged at the last minute to enter the high-stakes competition for part of the federal government's massive $35-billion vessel-building contract, tendering a bid just moments before Thursday's closing deadline.

The yet-to-be-named joint venture includes Quebec-based engineering giant SNC-Lavalin Group Inc., which will control 70 per cent of the new entity, and Ontario-based Upper Lakes Group, which was granted court approval on Thursday morning to purchase the financially troubled Davie Yards Inc. in Lévis near Quebec City.

Blessed with financial backing from the Quebec government's venture capital group Investment Quebec, the joint venture becomes an impressive contender from Central Canada when the lucrative contracts are awarded, likely in October.

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Upper Lakes and Davie Yards had each qualified individually to enter bids. The new entity is now also required to meet the federal government's eligibility criteria for its bid to be considered valid. Ottawa is expected to decide that within the next few days.

"Ontario and Quebec aren't competitors, they are partners," said the Quebec Minister of Economic Development Clément Gignac. "The bid proposes to increase Canadian content … and we also gain the expertise from two shipyards."

After going through six owners in 20 years, the historic 186-year-old Davie shipyard, which has been under creditor protection since February, 2010, may avoid the liquidation of its assets that has threatened the company for years.

According to the purchase agreement filed in Quebec Superior Court late Wednesday night, Upper Lakes Group, which operates shipyards in St. Catharines and Thunder Bay, formed a partnership with South Korean shipbuilder Daewoo to buy the Davie shipyard.

Once the court approved the acquisition on Thursday, the company, now called Davie Canada, was able to legally form a partnership with SNC-Lavalin and table its bid on the federal contract.

The deal allows the Quebec government to receive reimbursement for the $27-million it had advanced in guaranteed loans to Davie Yards Inc. to keep the company afloat. But most of the money will immediately be re-injected into Davie Canada as well as the new joint venture to help secure the federal contracts.

"I don't mind injecting another $20-million in guaranteed loans when I know that it will generate $90-million in fiscal revenues over the next five years. I think that's a good investment," Mr. Gignac said.

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The federal government will award two contracts. The larger package involves the assembling of frigates, destroyers and patrol ships, and the smaller contract includes non-combat vessels. Along with the newly formed Ontario-Quebec joint venture, two other shipyards are in contention for the federal contracts, Irving Shipbuilding Inc. of Nova Scotia and Seaspan Marine Corp. in British Columbia.

According to SNC-Lavalin vice-president Armand Couture, the new joint venture is seeking to obtain the contract for the non-combat vessels. He said his firm has the financial backbone to provide the joint venture with the working capital needed to meet the contract requirements. Mr. Couture didn't reveal how much money that would entail.

However Mr. Couture noted that the acquisition of Davie Yards Inc. by Upper Lakes Group was an unconditional deal. If the joint venture fails to secure a federal contract, the consortium will seek to obtain other government or private shipbuilding contracts.

"There will be consolation prizes (in the spin-off to the federal program) if we don't get the contract," Mr. Couture said. "But we are making a solid bid to be able to win."

Upper Lakes Group insisted it acquired the Davie shipyard for the long haul as part of a firm commitment to operate the shipyard whether or not it wins the bidding war for the federal contracts. Company vice-president Richard Bertrand said the Davie shipyard has the potential for instance to build oil rigs and said that other projects are being examined.

"I spent all last night signing documents with banks, with Investment Quebec, with their lawyers, the Quebec government, with everyone and I can tell you it wasn't just about signing papers, it was about making a fundamental commitment to the future (of the company)," Mr. Bertrand said.

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If the new joint venture wins its bid as many as 1,100 jobs could be created at the Lévis shipyard in the next few years according to the investors as well as several hundred more in Ontario. They added it will also involve reinvesting into the development of a strong marine industry in Canada.

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