Federal officials felt 'pressured' to direct frigate repair work to Halifax: documents

Federal officials overseeing the country's shipbuilding program warned the Liberal government that they were being leaned on to steer up to $1.2 billion worth of repair and upgrade work on naval frigates toward the Irving-owned Halifax Shipyard, internal documents reveal.

Marie LeMay, deputy minister of Public Services and Procurement Canada, used remarkably blunt language to draw the attention of her minister at the time, Judy Foote, to backroom discussions related to an impending construction gap between different classes of warships.

The documents paint a fascinating portrait of the behind-the-scenes political, bureaucratic and corporate tension over the multi-billion dollar shipbuilding program, which has been beset by cost escalations and delays.

The memos and briefings lend context to the intrigue at the heart of the breach-of-trust case involving Vice-Admiral Mark Norman, who is accused of leaking cabinet secrets to one of the Halifax Shipyard's rivals.

They also show Halifax West Liberal MP and House of Commons Speaker Geoff Regan was slated to meet with Foote to "raise questions" about support work for the yard under a separate contract.

There is expected to be a delay of 18 months — or more — between the completion of the Arctic Offshore Patrol Ships and the beginning of construction on the Canadian Surface Combatants, which eventually will replace the navy's frigates.

Irving Shipbuilding Inc. (ISI) "is pressuring the government to direct, without competition, in-service support work for the Halifax-class vessels," LeMay wrote in an undated briefing note last summer, obtained by CBC News under access to information legislation.

The issue was raised on July 11, 2017 at a meeting between shipyard officials and a committee of deputy ministers which oversees the shipbuilding program.

In February 2017, Irving executives publicly lamented the anticipated delay and focused on their highly skilled workforce, suggesting there would be "massive layoffs" if the delay remained unaddressed.

"ISI officials suggested that big shipyards, such as ISI's Halifax Shipyards, should be 'loaded up' with maintenance work as a means to primarily manage overhead and cash flow, but also to maintain workforce stability, a suggestion repeated at the July 11 (Deputy Ministers Governance Committee), where ISI executives requested that future repair, refit and maintenance contracts for the Halifax-class frigates be directed to ISI's Halifax Shipyard," said the briefing note.

Government has little leeway

A spokesman for Irving said the company has been up front and consistent in expressing to the federal government its desire to keep the yard working.

"Our advocacy for having new construction and in-service support at the same shipyard is not new," Sean Lewis said in an email statement.

"Our shipbuilders know the Halifax-class frigate better than anyone. Our knowledge, expertise and our close proximity to the Halifax Dockyard are an asset to the Royal Canadian Navy."

Lewis pointed out that, between 2010 and 2016, the yard completed the mid-life overhaul of the frigates "on schedule and under budget" and continues with maintenance during docking periods for the warship.

A defence industry source, speaking on background, said what Irving was looking for was simply an extension of the kind of work it has already been doing.

The federal government, in its marquee shipbuilding strategy, has two go-to shipyards for construction: Halifax Shipyard and Seaspan in Vancouver.

Under that strategy, contracts for ship repair, refit and maintenance requirements are to be divided between all Canadian shipyards.

Officials underscored that fact to Foote. They also insisted the government had little leeway to grant Irving's appeal.

"Canada's current contracting framework restricts the solutions that can be implemented to mitigate the negative consequences of a production gap," said the briefing. "There are exceptions, but none of them would be justified in the case of ISI's requests."

Cost of work stoppage

Lemay also said she believed saying no wasn't going to end the pleas and that "Canada will receive further requests to direct in-service support contracts to ISI."

Sources with knowledge of the file say that, in the months since the written warnings, federal officials have conducted an internal analysis of the anticipated construction gap.

The cost of a work stoppage after completion of the Arctic patrol ships was estimated at $350 million.

One of the solutions under consideration is the construction of additional Arctic patrol ships. The current public services minister, Carla Qualtrough, said at a recent defence trade show that the government is trying to figure out a way to deal with the slowdown.

"Our goal, of course is to keep people working," she said. "And so, (we're) working with Irving (on) what is the best way to achieve that. We're creatively brainstorming the best way to do that and when we have a final answer, we'll definitely let you know."

The documents show bureaucrats have felt it necessary to repeatedly flag the limits of what the government can do under the National Shipbuilding Strategy.

They did that in anticipation of the meeting between Regan and Foote, telling the minister in a memo that "Government Contracting Regulations would not appear to permit directing work to a particular shipyard."

"There are numerous contractual and legal risks associated with directing in-service support and maintenance work to a particular shipyard," said the memo, dated June 9, 2017.

As it turned out, the meeting did not take place because Foote was unavailable. Regan did eventually get to express his thoughts in a phone call to Natural Resources Minister Jim Carr, who filled in for Foote briefly before she resigned.

'Cause for concern'

Brian Underhill, Regan's chief of staff, said the Speaker was simply passing along concerns he had heard through a number of constituents, and treated those concerns as he would any other riding issue.

The internal back and forth underscores the need for the Liberal government to conduct a wholesale review of the shipbuilding program, said an expert in defence procurement.

Dave Perry, of the Canadian Global Affairs Institute, said Irving's concerns raise the question of how far the federal government has been willing to go to respect the shipbuilding program's original goal of keeping two major shipyards operating.

"I think it's cause for concern," he said. "If you listen to government, everything is going great. If that was case why do you need these mitigations?"