Ottawa gives South Korean, German submarine builders opportunity to revise bids

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The Canadian government has given the two submarine builders vying for a massive defence contract an opportunity to revise their filed bids – a move that also provides the companies an opportunity to enrich the industrial benefits they would provide to Canada.

Both South Korea’s Hanwha Ocean and Germany’s TKMS already submitted their bids weeks ago to meet an early March deadline.

Now they’re being given about 20 more days to rewrite them.

The Canadian government said Friday it has taken this measure because it wants to give the bidders more time to tailor their proposals to the federal defence industrial strategy that was released Feb. 17 – shortly before the March submarine bid deadline.

Defence Investment Agency spokesman Jeremy Link said the organization is giving the bidders a “time-limited opportunity” to amend their proposals “because Canada’s Defence Industrial Strategy was released late in the proposal period.”

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He said Ottawa hopes this opportunity will “ensure proposals fully reflect updated government priorities on sovereignty, domestic industry and value for money – without reopening or restarting the competition.”

The defence industrial strategy identified ten areas of “sovereign capability” where Ottawa wants to make domestic production a priority, including aerospace, ammunition, personnel protection, sensors, space, specialized manufacturing, training and simulation and “uncrewed and autonomous systems” such as drones or robots.

TKMS told The Globe and Mail Friday in an e-mailed statement that it was not able to discuss finer details of its proposal because of this development.

“Since the customer has recently initiated a Proposal Amendment Phase (PAP), both competitors now have until April 29 to revise or expand their respective proposals. Under these circumstances, we ask for your understanding that we will not comment on such details at this time,” the statement from TKMS official Julian Kloss said Friday.

Hanwha confirmed Friday it had received notice from the Canadian government on Thursday giving it until April 29 to revise its proposal. It declined further comment.

The stakes are high. Canada could end up spending tens of billions of dollars for the 12 submarines it intends to buy over their life cycle.

Industrial benefits are a key component of many defence contract bids. Canada expects suppliers to spend significant dollars in this country while fulfilling a contract.

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Philippe Lagassé, an associate professor at Carleton University who researches defence policy and procurement, said the acquisition process for subs has been taking place at breakneck speed – an abbreviated timetable that reflects the Carney government’s effort to buy military goods faster.

He said it’s possible Ottawa is seeking more industrial benefit promises from bidders.

“It’s not unheard of where they would want to go back and say, ‘The bids need to be kind of buffed up a bit.’ Or ‘Here’s some initial feedback that you may want to consider.’”

Prof. Lagassé said it seems prudent to give the sub bidders an opportunity to revise their pledges so the losing company can’t later cry foul. If the contract award “turned on something that one of the companies felt that they could have revised, but they weren’t given a chance, then they could run to their lawyers,” he said.

“So this is also the government being careful, saying ‘If you’ve got something else here that you think you might want to put in there, in light of the defense industrial strategy, in light of feedback we’ve given you – here’s your chance.’”

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The total value of the submarine contract could be $60-billion to $120-billion over the vessels’ full life cycle, including $24-billion to $30-billion for the acquisition itself, Prof. Lagassé said.

Prime Minister Mark Carney recently said his government expects to pick a winner by the end of June.

The DIA’s Mr. Link said Friday that a decision on a “preferred supplier” is still on track for “later this year.”

Hanwha’s offer to Canada is the KSS-III Batch-II submarine, while TKMS, as part of a joint German-Norwegian project, is offering the 212CD. Both are diesel-electric submarines, as Canada has ruled out purchasing nuclear-powered boats.

Either option leads to a significant international partnership between Canada and the country or countries behind the winning bidder – a de facto alliance – that will last more than 50 years.

Canada’s planned submarine purchase will be transformative for this country’s military might, making it the first time in history the Royal Canadian Navy will have more than a token presence underwater.

Canada hasn’t purchased unused submarines since the 1960s, during the Cold War, and has never ordered anywhere near 12 at once. Canada currently has four second-hand subs, but only one is operational.