NEWTOWN, Conn. -- A team of Lockheed Martin Canada and BAE Systems has been identified as the preferred bidder in the Canadian Surface Combatant program, which will result in the construction of 15 frigates to replace the Royal Canadian Navy's fleet of 12 Halifax class frigates and its three former Iroquois class destroyers. The consortium offered the Type 26 frigate being built for the United Kingdom, and recently selected by Australia to replace its ANZAC class.
Source: BAE Systems
Lockheed Martin Canada is the prime contractor on the winning team, which also includes CAE, L3 Technologies, MDA, and Ultra Electronics. The Type 26 beat out a number of other contenders. Alion Canada partnered with Damen Shipbuilding, Atlas Elektronik, and Hensoldt to offer a ship based on the Dutch De Zeven Provincien Air Defense and Command frigate, and Navantia proposed a variant of the Spanish Navy's F-105 frigate with the help of Saab and CEA Technologies. Fincantieri and France's Naval Group attempted to bypass the competition by offering an unsolicited fixed-price deal for 15 FREMM frigates valued at around CAD30 billion, roughly half of the estimated CAD62 billion program cost (then-year dollars). The Liberal government rejected the proposal on the grounds that it undermined the competitive process.
Canada has not actually awarded a contract for the ships. The preferred bidder status means that negotiations between the government and the winning industry team will commence with the intention of awarding a construction contract in winter 2019. Construction would begin in the early 2020s. Should negotiations fall through, the government will move on to the next highest-ranked bidder. The ships will be built by Irving Shipbuilding in Canada, meaning part of the negotiations will focus on intellectual property rights. The technical data transfer issue will also be an important factor for the sustainment portion of the new fleet, whereby Canada will seek to utilize domestic industry for future work on the class.
In 2008, the program was given a budget of CAD26.2 billion, meaning projected costs have more than doubled compared to earlier estimates. A 2017 report from the Parliamentary Budget Office estimated the program would cost CAD40 billion in FY17 dollars, or CAD62 billion in then-year dollars. The report suggested the original program budget would only support the acquisition of six ships. The PBO estimate included development, production, spare parts, ammunition, government program management, and facilities upgrades. The estimate did not include the cost of operations, maintenance, and midlife upgrades.
When the program was first launched, Ottawa also said it would only consider proven ship designs in an effort to control costs and delivery timelines. That stance was later walked back to allow the Type 26 to enter the competition. The Type 26 is a new design that has not yet entered service for any Navy.
It is important for Canada that the program remain on schedule. The Navy, for one, lost its long-range air defense capability with the retirement of its last Iroquois class destroyer in 2017. The service will have to rely on the U.S. and NATO allies for this capability until the CSC is ready. On the industry side, Irving Shipbuilding has expressed concern about a potential downturn in its workload ahead of the start of construction on the CSC. To prevent this scenario, the company is pushing to retain more maintenance work on the Halifax class frigates, and has even called on the government to expand the Arctic and Offshore Patrol Ship program. A lull in Irving's workload could potentially impact both the cost and schedule of the CSC as the shipbuilder brings its facilities back up to speed for construction of the new fleet.