The Canadian Press - ONLINE EDITION

Failed navy supply ship bid costs Harper government up to $8 million

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OTTAWA - The Harper government paid out as much as $8 million to settle legal claims arising from the collapse of the first failed bid to build new supply ships for the navy, The Canadian Press has learned.

One of the companies that received payment has subsequently been hired to work with Vancouver-based Seaspan Shipyards to provide the design for the new program, which hopes to deliver vessels by 2018-19.

The bid to replace the navy's two existing replenishment ships has been long and fraught with complications — the military was forced to announce last fall that HMCS Preserver and HMCS Protecteur would retire in 2015, well before the new joint support ships are ready.

Originally conceived in 1994, but not ordered until 2004 by the Liberal government of Paul Martin, the ships were meant to be the navy's floating supply bases, but also to act as long-haul transports for the army and its equipment.

The program was shut down in 2008, on the eve of the election that year, when the bids exceeded the Harper government's cost limits.

It has now been incorporated into the new national shipbuilding strategy and relaunched with a $2.6-billion purchase budget, along with an additional $4.5-billion lifetime operating plan.

However, buried deep in National Defence documents obtained under the Access to Information Act, is a reference to a previously unknown litigation fund related to the first failed procurement.

The issue of compensating defence contractors over failed procurements was front and centre last month when the Harper government announced it was cancelling a multi-billion dollar armoured vehicle program.

A spokeswoman for the Department of Public Works confirmed that one of the bidders, ThyssenKrupp Marine Systems of Germany, filed a statement of claim, which was quietly settled through negotiation in late 2010.

Annie Trepanier, the department's manager of media relations, confirmed the money was taken out of the project budget, but she refused to say how much it cost taxpayers, citing the settlement's terms of confidentiality.

The budget for legal settlements was $8 million as of 2012, according to defence documents. The figure represents a $500,000 increase from what was set aside in 2010, prior to the agreement with the European shipbuilder.

Requests for comment from ThyssenKrupp Marine Systems in Germany went unanswered.

The other bidder on the failed 2008 program, Montreal-based SNC Lavalin, issued a cryptic response when asked to confirm whether it had received a separate settlement, and how much it might have been.

"We are bound by confidentiality provisions with the Crown and we cannot disclose that we have settled with them, nor the terms of the settlement, without asking the permission of the Crown," public relations manager Lilly Nguyen said in an email.

The cancellation of the initial program has been a political lightning rod since the parliamentary budget office reported last year that the new program would deliver less capable ships at a higher cost — a claim disputed by both the navy and the government.

Government officials say they learned a lot from the failed bid, lessons they say are incorporated in the national shipbuilding strategy.

Alyson Queen, the director of communications for Public Works Minister Diane Finley, said the comprehensive approach resulted in the most open and transparent procurement plan in the country's history.

But the documents show the decision to postpone construction put the navy in a bind: separately, the federal government signed an international commitment that required it phase-out of single-hull tankers by 2015.

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