Military contracts fizzle

Gear in Procurement Limbo. Company withdraws from competition to upgrade frigates; bidding for drones restarted after requirements not met

 Dave Pugliese

The Ottawa Citizen

An Ottawa company’s decision to withdraw from a project to upgrade the navy’s frigates has left government officials scrambling to drum up competition for the $1-billion program, while a separate plan to buy aerial drones for the Afghanistan mission has had to be restarted because bidders couldn’t meet the requirements.

Government procurement officials are trying to cope with the latest setbacks in the two major projects to purchase gear for the Canadian Forces.

General Dynamics Canada, which has 1,500 employees in Ottawa and was leading one of two major consortiums approved by the Defence Department to bid on the frigate upgrade, informed the government it would not proceed. General Dynamics decided against participating because the firm determined the project was not commercially viable.

That decision would have left the federal government in the position to award the only remaining bidder, Lockheed Martin, the contract, likely further fuelling complaints about another non-competitive deal.

And in what defence industry officials say is a highly unusual turn of events, the government quietly decided on the weekend to extend bidding on the frigate program for another two weeks in the hopes other firms might come forward.

The frigate modernization contract involves upgrading the combat systems on the vessels with new computer software, improved sensors and communications gear and other items. It is separate from other work to refit the ships with upgraded mechanical systems.

In addition, on Friday, the same day the frigate bids were due, Public Works and Government Services Canada had to restart a $100-million project to lease aerial drones for the Kandahar mission. That came about after Public Works determined the bids submitted by industry did not meet qualifications.

“This will not delay the project or our anticipated date for the awarding of the contract in July 2008,” Public Works spokeswoman Lucie Brosseau said of the aerial drone lease.

Industry officials say the aerial drones and the frigate upgrade are just the latest large-scale defence equipment programs to slide off the rails. Several weeks ago, a $2.9-billion project to build a new fleet of supply and transport ships for the navy ran aground after the industry consortiums involved informed the Defence Department that more money was needed.

Earlier this month two firms, Thales Canada, of Ottawa, and General Atomics, of the U.S., informed the Defence Department they were declining to bid on the aerial drone lease. Officials with both firms have said the financial risk on the project was just too great to entice them to compete.

Thales was also part of the General Dynamics consortium bidding on the frigate upgrade.

In addition, Defence Department and Public Works procurement officials are trying to rejig the $5-billion project to purchase new Cyclone maritime helicopters after U.S. aerospace giant Sikorsky informed them that they had fallen behind schedule on delivery. That delay could be about nine months, but some military officers have suggested it could be as long as three years.

Numerous defence industry officials, who asked not to be named, say the problem with the military procurement system is that the Defence Department and Public Works expect top-of-the-line equipment for relatively modest budgets.

In some cases, the government expects custom changes to existing equipment that are unreasonable because Canada is buying such a small amount of gear, according to industry officials. In other cases, procurement budgets are unrealistic. For instance, in the case of the supply ships, industry officials say the military did not take into consideration that the price of steel has risen 40 per cent in the last several years.

The Defence Department has consistently declined to answer questions about the ongoing procurement projects and the associated problems. It has been referring such questions to Public Works.

Ms. Brosseau said in the case of the frigate modernization, Public Works cannot comment since the procurement process is ongoing. She noted in the case of the lease of the aerial drones, the aerospace and defence industry was consulted when the bids were being solicited.

Amy MacLeod, director of communications for General Dynamics Canada, said the firm conducted a detailed analysis of the frigate modernization project, but determined it was not financially viable to bid.

“In this instance, it was a tight budget compounded with commercial conditions, which just increased the industrial risk to unacceptable levels,” explained Ms. MacLeod.

Steven Yankowich, head of the General Dynamics Canada team, previously said the firm had planned to increase its Ottawa work force if it had won the frigate modernization.

Under government regulations, the modernization contract should be awarded to the only bidder left, Lockheed Martin Canada, of Ottawa, if that company can fulfil all the requirements. But the government has instead extended the bidding process for another two weeks in the hopes other firms might submit a proposal.

The first modernized frigate will be delivered to the navy by 2011. The work on the frigates will continue until 2017 with each refit taking about 18 months.

Contract Complications


– Drones: $100-million project to lease aircraft for war in Afghan-istan restarted because submitted bids did not meet targets.


– Frigates: General Dynamics Canada withdraws from frigate upgrade on grounds the project is not commercially viable. Lockheed Martin only remaining bidder on $1-billion upgrade.


– Helicopters: U.S. firm says it can’t deliver new maritime helicopters on time. $5-billion project could be delayed by years.


For more Canadian Forces and Defence Department news go to David Pugliese’s Defence Watch at:



Defence Watch: Read David Pugliese’s blog at

© The Ottawa Citizen 2008


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    […] Defence Department officials will be before Treasury Board soon to request funding for the Leopard 2 tank project.Defence Watch has been told they are hoping to either make their presentation to TB on June 8 or June 18.Cabinet has given its approval for the project to refurbish 20 Leopard 2 tanks in Germany so they can be sent as quickly as possible to Afghanistan. Another 20 Leopard 2 tanks will also be refurbished in Germany and those turned over to the government there as payment for tanks that nation had earlier loaned the Canadian army. The package to be presented to Treasury Board also includes approval for work on the 40 Leopard 2 tanks now stored in Montreal.Although Cabinet has approved all this work, the mechanisms of government require that those who hold the purse-strings approve the financial portion.The Harper government announced the purchase of 100 used Leopard 2 tanks from the Netherlands in April 2007 as well as the loan of another 20 tanks from Germany for use in Afghanistan. The German-supplied tanks are currently in Kandahar, along with other older Canadian Leopards.Forty of the tanks purchased from the Netherlands have been sitting in the depot in Montreal since November. For previous articles I have written on procurement go to the following links: […]

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