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A Canadian military CH-148 Cyclone conducts training exercises with HMCS Montreal in Halifax Harbour in March, 2010.

ANDREW VAUGHAN/THE CANADIAN PRESS

The federal government has spent more than $1-billion on a delay-plagued acquisition of naval helicopters, sources say – a deal that Ottawa is now threatening to scrap.

Those sources say that if a contract goes unfulfilled, the government would launch a legal claim to recover monies paid, a standard practice in procurement deals. In the event the contract is cancelled, Sikorsky, the manufacturer of the Cyclone helicopters, would likely launch a countersuit.

The government has made milestone payments over the years on the procurement deal for 28 choppers, originally signed by the Liberal government in 2004.

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Last week, Public Works Minister Diane Finley signalled Ottawa is contemplating pulling the plug on an acquisition the Auditor-General has estimated would total $5.7-billion when all costs, including setup, maintenance and training, are included. Ms. Finley said the government is shopping around for alternatives to the Sikorsky CH-148 Cyclone.

Ottawa and Sikorsky have been knocking heads over the project. The federal government has refused to officially accept delivery of four "interim configured" Cyclones at a Canadian Armed Forces Base in Nova Scotia on the grounds they do not meet contracted requirements.

But while she's threatening to scrap the purchase, Ms. Finley's office and her department refuse to discuss how much money Ottawa has already poured into the acquisition. The minister's office forwarded a question about expenditures to the department and the bureaucracy avoided answering it, saying only that the choppers don't yet pass muster.

"The government expects suppliers to meet their contractual obligations and Canada will not accept the helicopters until contractual requirements are met," Public Works spokesman Pierre-Alain Bujold said. "The helicopter is not compliant at this time."

Public Works also declined to explain in what respects Sikorsky has fallen short of contract terms. A 2010 Auditor-General's report said Ottawa "understated the complexity of configuring this helicopter," and noted that while the Defence Department treated the procurement as an off-the-shelf purchase, it was far from that. "This will result in an aircraft that never existed before."

Should the Conservative government scrap this purchase of Cyclone choppers, it would be the latest in a line of pullbacks on headache-prone military procurements – from F-35 fighters to army trucks to supply ships.

An independent evaluation of the contract conducted for Public Works has not yet been released, but excerpts of the report obtained by CBC last week make it appear as though Ottawa is being advised to relax the requirements of the helicopter deal. It reportedly urges Ottawa to "sacrifice less important requirements in order to deliver relevant capability" to the Royal Canadian Air Force.

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A spokesman for Sikorksy declined to discuss how much money Ottawa has spent for the acquisition, but said the manufacturer's "singular focus" is fulfilling the contract.

Paul Jackson said Sikorsky has another five "flight-ready" Cyclones at a secure New York facility awaiting transfer to Canada. The four currently at Canadian Forces Base Shearwater are being used for initial pilot, aircrew and maintenance training.

He said Sikorksy stands ready to work with Ottawa on a "pragmatic approach" that could speed things up. "We are in ongoing discussions with the government regarding delivery schedules and the best way to expedite them."

The Canadian government recently sent a team to Britain to consider the Royal Navy's Merlin helicopters. This service branch recently received upgraded Merlin Mk2 helicopters.

Another chopper maker, AgustaWestland, publicly appealed to Ottawa this week to consider its AW101 helicopter instead. Its CH-149 Cormorant is used by the Forces for air-sea rescue.

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