Top of the line Canadian-made naval equipment shut out of $70-billion warship program

A spokeswoman says DND is “confident that we have competitively selected the best design to meet Canada's needs.”

David Pugliese • Ottawa Citizen

Dec 16, 2020 • Last Updated 1 day ago • 6 minute read

Canadian equipment that taxpayers spent hundreds of millions of dollars to develop isn't being used on the country's new $70-billion fleet of warships because the consortium that won the bid selected its own affiliated companies and their foreign systems.

A number of Canadian firms repeatedly tried to warn ministers and deputy ministers at the Department of National Defence, Public Services and Procurement Canada as well as Innovation, Science and Economic Development Canada that they would be shut out of the Canadian Surface Combatant project, according to federal government documents obtained by this newspaper.

Those concerns were ignored. Instead, Canada left it up to the winning consortium, in this case, the U.S.-controlled Lockheed Martin Canada and BAE of the United Kingdom to determine the equipment that would make up key components of the proposed 15-fleet Canadian Surface Combatant, or CSC fleet. By selecting the consortium's Type 26 warship design for the CSC, the Royal Canadian Navy automatically agreed to what Lockheed Martin had determined was the best equipment for it to use.

In the last week, this newspaper has chronicled multiple issues with the CSC project, the most expensive military procurement in Canada's history. This newspaper reviewed thousands of pages of documents, obtained through sources and through the access to information law, to reveal how the CSC's budget has spiralled upward and upward and how government officials previously tried to block the cost of the project from becoming public.

In an email, DND defended its choice that shut out inclusion on the CSC of Canadian-made propulsion systems, sonar and communication systems, as well as radar. The Canadian-based firms that build those systems employ hundreds of people in the high-tech sector.

“By selecting the design, Canada has selected the associated equipment,” said DND spokeswoman Jessica Lamirande. She noted DND is “confident that we have competitively selected the best design to meet Canada's needs.”

As a result, a radar built by Lockheed Martin in the U.S., which hasn't yet been certified for naval operations, will be installed on the CSC. Passed over was a state-of-the art naval radar developed with the help of Thales Canada in Nepean. Canadian taxpayers contributed $54 million to the development of that radar, which is now being used on German, Danish and Dutch warships.

Also shut out of the CSC competition is SHINCOM, a naval communications system built by DRS Technologies of Ottawa and considered one of the top such systems in the world. SHINCOM is in service on other Royal Canadian Navy vessels as well as 150 warships of allied navies around the world, including Australia, the U.S., Japan, New Zealand and South Korea. It was originally developed for Canada's Halifax-class frigates and taxpayers have poured millions of dollars into its development.

Also left on the sidelines was General Dynamic Mission Systems of Ottawa, Canada's top developer of anti-submarine warfare and sonar equipment. The firm has its systems on aircraft or warships of militaries in Canada, Japan, South Korea, Portugal and various South American nations.

Top government officials and politicians were repeatedly warned key Canadian firms would be shut out of the CSC project.

Steve Zuber, vice president of DRS Technologies, wrote on Aug. 31, 2016 to alert innovation minister Navdeep Bains that the way the CSC procurement was designed would work against Canadian firms. “The CSC procurement approach may actually disadvantage Canadian companies,” Zuber warned. “The current evaluation approach puts our world-class Canadian solutions at serious risk of not being selected for Canada.”

At the heart of the matter was a procurement system that penalized bidders if they deviated too much from their original ship designs to accommodate Canadian equipment. In addition, no competitions were held for key components of the new warships, such as sonar, radar or communications systems.

General Dynamics Missions Systems Canada also tried to warn government officials in November 2019 that the lack of competition shut out high-tech Canadian systems developed over the years with both private and tax dollars.

Company vice president David Ibbetson told navy commander Vice Adm. Art McDonald, DND deputy minister Jody Thomas, PSPC deputy minister Bill Matthews and ISED deputy minister Simon Kennedy about the lack of competition on the CSC anti-submarine warfare systems. That resulted in a “largely foreign solution with only limited Canadian content,” he noted.

The documents also show bureaucrats at ISED countering such concerns by pointing out that the CSC program will include equipment from other firms such as L-3 and CAE in Quebec and MDA in B.C. Lockheed Martin has also committed to invest in priority areas such as cybersecurity, clean technology and the marine sector, innovation minister Bains was told.

But the federal government has declined to release other documents requested through access to information law about specifics of the industrial benefits and job creation plan linked to the CSC. There is concern by some in the country's defence industry that the Liberal government has put at risk existing Canadian high-tech jobs, developed and established in part by federal contracts and development money, in exchange for the promise by foreign companies to create new jobs in the future linked to the CSC.

In addition, in November 2019, the Lockheed Martin Canada executive responsible for delivering on the industrial commitments admitted the system had major problems. Walt Nolan said the policy the Canadian government developed has prompted defence firms to significantly overcommit on the jobs and industry benefits they claim they can deliver on the CSC.

But Lockheed Martin has significant support from the leadership of the Royal Canadian Navy, including Vice Adm. McDonald. In July, McDonald took to Twitter to promote the company and its SPY-7 radar, noting that such a system is critical to a warship's survival and how it performs on missions. “For these reasons, the Royal Canadian Navy is delighted that Canada's Combat Ship Team under Lockheed Martin Canada leadership will fit the SPY-7 in CSC,” wrote McDonald, in retweeting the company's press release about the radar.

But McDonald's enthusiastic corporate plug left out some critical information, namely that the SPY-7 radar had never been installed on an actual warship. Less than a month before McDonald's tweet, Japan's government, which had been hoping to use SPY-7 radar for a land-based missile defence system, suspended the project. Japan cited technical issues and cost for the decision and is now trying to figure out what to do with the systems it has already paid for.

Japan's military has suggested using the SPY-7 on new frigates but some of the country's lawmakers are trying to scuttle that plan. They are worried that Japan will pay significant development costs to get the radar ready for maritime use and since the U.S. Navy will use a completely different system there will be problems operating with a key ally.

While the SPY-7 radar issue has been debated in Japan's legislature, Canadian politicians have been silent.

Lockheed's rival, Raytheon, the firm which will provide the SPY-6 radar for the U.S. Navy, has made several presentations to the Liberal government. It tried to convince politicians and bureaucrats the Lockheed Martin system could become a money pit that would potentially put Canadian sailors at risk.

Switching to SPY-6 would save Canada tens of millions of dollars as the U.S. Navy would finance future research into modernizing the radar to deal with new threats, federal officials were told.

In addition, Raytheon pointed out that unlike the SPY-7, the testing of its radar, which included intercepts of targets, was completed in 2019. The U.S. Navy intends to install the system on 50 of its warships.

But cabinet ministers and federal bureaucrats dismissed Raytheon's overtures as an attempt to reverse the CSC procurement process that had already been completed.

Neither Lockheed Martin nor the DND could provide a date on when the SPY-7 will be ready for naval operations and certified for use on the CSC. But they noted the company is supposed to deliver the first radar system in 2025.

“Once fully integrated into the CSC design, the SPY-7 will provide Canada the capabilities it needs to meet the operational and interoperability requirements of the Royal Canadian Navy well past the middle of this century,” added DND spokeswoman Lamirande.

Responses from DND and Lockheed Martin to questions posed by this newspaper for this story were answered in nearly identical fashion.

Canadian taxpayers will finance the development and testing of any of the radar requirements for the CSC. The cost of that, however, is not known at this point.

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