Trying to Evade the Terms of the Strategic Partnership Agreement?

By Dan Middlemiss, 21 June 2022

As noted in earlier posts to this Forum, several recent media reports have indicated that Irving Shipbuilding is seeking at least $300 million in funding from the federal government to upgrade its facilities at the Halifax Shipyard to accommodate the Canadian Surface Combatant (CSC).1

While details of the funding request are sparse, Irving Shipbuilding President, Kevin Mooney, shed some light in a recent interview with Canadian Defence Review. When asked what changes Irving was anticipating in moving from the construction of the Arctic and Offshore Patrol Ships to building the future CSC, Mr. Mooney replied:

“In terms of transitioning from the AOPS to the Canadian Surface Combatant, there are a series of changes that are needed. The largest and most visible one, to folks that would be looking at this from the outside, would be how are we going to launch the CSC. Right now, for AOPS we have a barge that we rent, but that barge is not big enough for the CSC. So, we have a proposal to modify our facility and we’re working on that with Canada. In all likelihood we’ll go with the ship lift capability, which is actually overall a good value proposition for Canada because it will also be available for repair because our graving dock, where we currently do maintenance on the Halifax-class frigates, does not have the capacity for a CSC ship. So, we're excited to upgrade the shipyard in that area for CSC.”2

However, one reporter suggests that this request for funds constitutes a potential ‘boondoggle’ insofar as it contravenes the terms of the original Umbrella Agreement between Irving and the federal government. This agreement, according to an authoritative source, stipulated that any upgrades required by the builders be financed with their own funds.3

According to Mr. Tom Ring, a former Assistant Deputy Minister of the Acquisitions Branch at Public Works and Government Services Canada and in part responsible for implementing the selection process of the then National Procurement Shipbuilding Strategy, a key provision of the ‘strategic partnership’ agreements signed with the two major shipbuilders in February 2012 was:

“The shipyard capability to build large federal ships in Canada in a timely and affordable manner would be built at no cost to Canada. Clearly, the investments being made by the shipyards to upgrade their facilities will be funded through profits earned over the course of the program as one would expect in any private sector undertaking. BUT, the open book accounting included as part of the UA and referenced below ensures that the actual capital costs and associated financing charges needed to modernize the shipyards cannot be charged to Canada, at any time. Only the ongoing operating costs of the shipyard are an eligible expense (this is the normal practice).”4 (Emphasis added.)

While the federal government has not commented on the reported request for funding from Irving, Canadians should be concerned if Irving is indeed seeking to alter the basic terms of its original agreement under the National Shipbuilding Strategy (NSS). Irving is earning solid profits which are more than enough to finance the upgrade of its facilities. The NSS was not intended to be a government welfare program for wealthy shipbuilders. In addition, there needs to be greater openness and transparency regarding any proposed changes to the basic partnership deal.

Notes

1. David Pugliese, “Liberals mull giving Irving an extra $300 million to build warships,” Ottawa Citizen, 13 June 2022, https://ottawacitizen.com/news/national/defence-watch/liberals-mull-giving-irving-an-extra-300-million-to-build-warships; Aaron Beswick, “Bigger warships will require big investment in Halifax Shipyard,” Saltwire.com, 9 June 2022, https://www.saltwire.com/halifax/news/bigger-warships-will-require-big-investment-in-halifax-shipyard-100742268/

2. Interview with Mr. Kevin Mooney, Canadian Defence Review, Vol. 28, Issue 1 (2022), p. 51.

3. Pam Frampton, “Watch out, Canada’s warship program – there’s a boondoggle dead ahead,” Saltwire.com, 16 June 2022, https://www.saltwire.com/atlantic-canada/opinion/pam-frampton-watch-out-canadas-warship-program-theres-a-boondoggle-dead-ahead-100744450/

4. Tom Ring, “The National Shipbuilding Procurement Strategy: How did we get to where we are now?” Canadian Global Affairs Institute, Calgary, AB, March 2016, p. 7, https://d3n8a8pro7vhmx.cloudfront.net/cdfai/pages/884/attachments/original/1458850491/The_National_Shipbuilding_Procurement_Strategy.pdf?1458850491

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