Impasse over intellectual property is tying up warship bids

The federal government's plan to buy an off-the-shelf design for the navy's new frigates is facing significant pushback from at least one of Canada's allies, which appears to question timelines and the fundamental structure of the high-stakes $60-billion project.

Documents obtained by CBC News show one of the 12 companies competing to design and help construct the warships has been blocked from handing over "supporting data and services."

The unidentified bidder says one of Canada's allies, which owns the rights to the sensitive electronics embedded in the warship, is refusing permission to include the information and instead wants direct negotiations with the federal government.

The nation, which is also not identified in the Aug. 2 document obtained by CBC News, has no interest in dealing directly with Halifax-based Irving Shipbuilding Inc., which is the federal government's go-to company for warship construction.

Diplomatic exchange

The issue is serious enough that it has already been the subject of a diplomatic exchange, and Canada's ally finds certain terms in the federal government's request for proposals unacceptable.

"Bidder has been advised directly by Foreign Government that Foreign Government has communicated concerns directly to Canada and is awaiting Canada's response," said the internal documents, which are a collection of questions and answers between prospective bidders and Irving Shipbuilding.

Since they are circulated to everyone in the competition, the name of the company and the country raising the objections have been censored.

"Bidder wishes to advise Canada that until appropriate terms for transfer of [government to government] supporting data and services are negotiated directly between Canada and Foreign Government, Foreign Government will not permit Bidder to submit mandated [Government to Government] supporting information."

Faster, cheaper process

The federal government intends to build 15 warships to replace the navy's frigates.

Last year, the Liberals went to great lengths when they relaunched the national shipbuilding strategy to say they wanted a proven warship design rather than something done from scratch.

They said it would be faster and cheaper.

A design competition, involving a dozen pre-qualified companies, was launched last fall.

But there has been growing skepticism among the bidders, particularly when it comes to the amount of technical and intellectual property data requested by the Canadian government.

Officials have asked for all the data necessary to maintain equipment such as radar and combat management suites.

The problem is many of Canada's allies, including the U.S., Britain, France and Australia, paid for the development of those essential electronics individually and don't want to share the data for their own national security reasons.

Defence analyst Dave Perry said he's heard informally that as many as three governments, including the United States, are balking at handing over the data.

"It's critical because the ship designers need the information in order to submit a compliant bid," he said. "There is a high degree of frustration."

Bidder's responsibility

The Canadian government made it the responsibility of ship designers to acquire the sensitive data for inclusion in their proposals, and a defence industry source with knowledge of the file says the provision should be no surprise.

The Public Services and Procurement Department has yet to set a deadline for submission of final proposals, although it is widely expected to be in mid-September, and the source said it's likely some bidders are feeling the pressure to get their respective governments onside.

Even so, the documents show, at least one bidder believes negotiating state secret data is best done government-to-government.

"Whilst the Bidder respects Canada's absolute right to define the terms of any solicitation process, bidder respectfully suggests that Canada, rather than Canadian industry retains responsibility to conduct diplomacy and that it is up to Canada to negotiate terms with foreign governments," the documents said.

"Will Canada engage directly with foreign governments to resolve this issue?"

Ottawa calls its request 'reasonable'

Perry said putting the onus on bidders is a "unique arrangement" that has the potential of severely limiting the number of design submissions.

"There is still work to be done to solve this in order to get to a situation where several companies can successfully bid," he said.

Public works officials, however, have insisted they're not asking for anything out of the ordinary and remain confident they will have a number of bids to evaluate.

"I want to emphasize we're only asking for a reasonable amount of [intellectual property] — owning what we paid to develop and a limited licence access so we can design, build and maintain, and ultimately dispose of these ships over the next several decades," said Lisa Campbell, the assistant deputy minister of defence and marine procurement, in a conference call with the media on July 28.

• Design competition on track, officials say