Can USN sink Canada’s IP Piracy policy?

DANNY LAM  –  Jul 24, 2017

24 Jul 2017

The U.S. Navy has decided it needs some new ships. Canada has been toying with the idea of a new Surface Combatant for years now, with very little progress. Will the IP requirements of one project impact the other? Let's compare.

With the goal of keeping costs down by using common equipment, the U.S. Navy’s new FFG(X) program (Guided Missile Frigate Replacement) is requesting information from both domestic and foreign shipbuilders for derivatives of an existing design for a class of 20 guided-missile ships that can be delivered starting in 2024.

At first, the USN had considered upgrading and enlarging its Littoral Combat Ship, but realized the time constraints would not permit such an extensive redesign. In theory, the requirements can be met with an upgraded Coast Guard National Security Cutter or a refreshed Oliver Hazard Perry Frigate, but the turnaround will be faster and price tag cheaper if chosen from an existing design. From that field, the ARGE F125, Fincantieri FREMM, Naval Group FREMM or its new Belharra, Navantia F-105, BAE Type 26 GCS, and Odense Iver Huitfeldt, are known to be in the running of foreign designs. The deadline for a response to the U.S. RFI (Request for Information) on the FFG(X) is 24 August 2017.

Canada is presently in the midst of a major procurement for the over 7000 ton displacement Surface Combatant vessels. Not surprisingly, most if not all of the qualified bidders for the Canadian program are also candidates for America's newest frigate replacement program, the 4000-7000 ton FFG(X).

Other than size, the biggest difference is that Canada is looking to select both a platform design and a combat system, whereas the U.S. RFI is for a platform design only, however, the FFG(X) will be equipped with many sophisticated systems, weapons and unmanned technologies.

A quick comparison of the two schedules, however, is astounding. The CSC procurement process for up to 15 vessels is twice as long as for the 20 completed FFG(X) ships – 16 years for 20 U.S. ships vs 38 years for Canada's 15 ships.

  • CSC: Industry Day (late 2012); Design contract (2018); Build contract (2021); First delivery (2026 or later); Final delivery (2050).
  • FFG(X): Industry Day (mid-2017); Design and build contract (2020-21); First delivery (2024); Final delivery (2033).

Another key difference is that the U.S. Navy's procurement department has a full time staff of knowledgeable experts to evaluate and make decisions on the FFG(X) design, whereas in Canada, the Navy is not in the lead. Instead, the evaluation team of the privately-owned Irving Shipbuilding Inc (ISI) is a key decision-maker for the Government of Canada.

According to a spokesperson for ISI, "the Government of Canada has set the requirements for the CSC design RFP. Short-listed bidders will submit their RFP response to Irving Shipbuilding. Using the Government of Canada approved Evaluation Plan and Criteria, Irving Shipbuilding and the Government of Canada will assess the submitted proposals. The Government of Canada will make the final decision on selection of a design. All stages will be monitored by Canada’s Fairness Monitor."

Canada's Department of National Defence budgets the CSC platform and combat system at $26.2 billion, while the Parliamentary Budget Officer says a more realistic number is $61.8 billion. Experienced European shipbuilders are baffled by this figure, saying the vessels can be built for much less, which leads us to ask: who is accountable? As for the FFG(X), no budget has yet been determined.

How do these two programs relate? In fact, there is a direct security risk based on the procurement process alone. Let's look at the global picture first.

The security of commercial and military intellectual property is always a major issue, as Canada's spy agency, CSIS, openly warned less than a year ago. Western defence contractors – from major primes to small subcontractors – are all being targeted by Chinese, Russian, Iranian, North Korean, and other spies and agents who are eager to acquire commercially and militarily sensitive information. Thus, program security is a major concern.

What are the ramifications of these security and corporate espionage issues, and how will Canada's Surface Combatant procurement process impact the U.S. and its FFG(X) program?

The Canadian program is unique in that it is managed, not by the Canadian Federal Government, but by a private company – Irving Shipbuilding Inc. – in a process that has a private company setting the requirements, soliciting the bids, and evaluating the submissions. Irving had been chosen through a competitive process as the builder of the CSC ships and later given authority to choose the design for the Canadian Navy (as well as to select with whom they want to work on the project).

Obvious conflicts of interests aside, Irving’s management of the CSC program has raised major security concerns.

Irving, backed by the Government of Canada, required bidders for the CSC program to submit, as a part of their proposal, “virtually all their intellectual property [IP] data for the complex combat systems that would be installed on the warships…. [Including] all their foreground and background data… [inclusive of] … critical software coding.” (Brewster, CBC, 28 June 2016)

The data/IP to be handed over by each bidder for review by Irving's engineers and consultants will then become the property of the Government of Canada, who will in turn license it to Irving Shipbuilding. Is it any wonder that no American shipbuilder has expressed interest?

These sensitive military and commercial secrets are not subject to any known licensing terms or restrictions on transfer, or limitations on other use beside bid evaluation by either the Government of Canada or Irving Shipbuilding. For that matter, no known minimum standard of care by the Canadian Government or Irving Shipbuilding for data protection is stipulated a priori.

In other words, both the Government of Canada and Irving will have seen all the bidder’s IP or that bidder will be deemed non-compliant and disqualified. The original RFP deadline for the CSC was April 27, 2017, but has been extended to mid-August 2017 at the earliest. Irving had set a date of June 15, 2017 for review of draft proposals for compliance with the RFP.

Any bidder that submits a qualified proposal to Irving / Canada will presumably have met the requirement to have disclosed all their IP with no limits or restrictions on the use of the data by the Government of Canada and Irving Shipbuilding.

What are the security consequences?

First of all, recognize that every CSC bidder is required to submit detailed specifications and intellectual property for their proposed candidate to Irving Shipbuilding. Aggregating the dataset will enable analysis to discern the design principles as well as good and bad points of every competing vessel. Some may see this next comment as paranoid, but it is not a great leap to contemplate how Canada could either come up with a superior design that cherry picks the best-of-the-best solutions, or, in the case of Irving Shipbuilding, set up to become a competitor to every bidder worldwide (whose IP they now have unrestricted use of).

Clearly, under the guise of a multi-billion dollar Request for Proposal, this can only be described as Canadian-government-sponsored intellectual property piracy of military and commercial secrets from Western allies. How is it different from what communist China did with the Z-10 attack helicopter program and Pratt & Whitney?

Major European shipbuilders have expressed extreme concern, many publicly stating they have never seen such demanding requirements for IP and sensitive info from other countries.

The security implications of what I term "Canada’s piracy policy" go well beyond the obvious potential for theft of commercial secrets by Canadian state-sponsored pirates. The repository of this data in Canada’s government agencies and Irving Shipbuilding will become the principal, top priority target of every spy agency anxious to get ahold of a database that is available nowhere else in the world to any other party.

Given Canada’s lackadaisical attitude toward safeguarding sensitive technologies – particularly with a Trudeau regime desperate to curry favor with China for a “free trade” deal – it is only a matter of time before this knowledgebase is compromised, whether by neglect or accident or subversion. Hacking into this database will compromise the entire allied fleet of frigates (minus the US since none have chosen to bid).

That is over-and-above the risk of copycat tactics by China’s allies, like Pakistan, Malaysia, etc.

The security issue was raised and extensively discussed in October 2016 by both the bidders and independent observers. However, the Liberal regime and their minion Irving Shipbuilding, brushed off the concerns and refused to budge as recently as 28 June 2017 (Brewster, CBC). As it stands, it has to be assumed that every bidder who submitted a draft proposal to the CSC program have their IP and data compromised.

What are the potential consequences for FFG(X)?

Could a foreign shipbuilder's designs be vulnerable due to their participation in bidding for the CSC program? The U.S. Navy will not be amused by the prospect of having the design for a major new class of 20 ships effectively given away to peer competitors like Russia and China before even the first ship is commissioned.

That said, disqualification of foreign FFG(X) bidders due to such concerns would significantly narrow the field, and make it more difficult for its aggressive schedule to be met.

Whereas the Pentagon and U.S. Government have both worked diligently to revamp and upgrade security against the threat environment of the 21st century, some say Canada's Liberals, at least in the case of the CSC program, have diluted its existing security regime, with predictable consequences. Will the U.S. turn a blind eye?

Under the present conflicting requirements for the FFG(X) and CSC program, bidders have a choice to make in the next month: They can participate in one or the other, but likely not both.

CSC or FFG(X)?

Is it in the best interests of a major shipbuilder to put its IP and data at significant risk by vying for the Canadian project when there is a better alternative for corporate growth at hand? Given the quantity, the timeline, and detail of specifications for each (high-level from the US, micro-level from Canada), it should not be a hard choice for any shipbuilder with a world class product.

It is safe to say the USN FFG(X) project looks much safer to European platform designers. This project is being described as: more mature, more realistic, and more thoughtful than the CSC process.

Canada can do better than this.

– Danny Lam is a defence and security analyst based in Calgary.