May 10, 2019 / 12:12 AM / 2 months ago

UPDATE 3-After U.S. complaint, Canada to soften rules for jet competition to allow Lockheed Martin bid -source

(Adds Lockheed declining comment)

By David Ljunggren

OTTAWA, May 9 (Reuters) - Canada is softening the rules of its multibillion-dollar competition for 88 new fighter jets to allow Lockheed Martin Corp to submit a bid, following a complaint by Washington, a Canadian government source said on Thursday.

The source, who requested anonymity given the sensitivity of the situation, said Ottawa was acting after the United States told Canada the regulations would exclude Lockheed Martin's F-35 fighter, the plane the Canadian air force wants.

The complaint was the latest challenge for a trouble-plagued process that has dragged on for more than a decade.

Canada initially said bidders for the contract - worth between C$15 billion and C$19 billion ($11.1 billion to $14.1 billion) - must commit to give Canadian businesses 100 percent of the value of the deal in economic benefits.

But that contradicts rules of the consortium that developed the F-35, a group to which Canada belongs. The U.S. military's F-35 office wrote to Ottawa last December saying it would not bid unless changes were made.

"The U.S. government told us they were unable to offer contractual guarantees of economic benefits," said the source.

Ottawa is therefore dropping the requirement that firms give a legally binding promise they would spend the value of the fighter contract in Canada.

"A bidder that is not willing and able to sign a contract and guarantee them (the benefits) can still bid and still be competitive but they will get less points in the economic benefits category" than firms that offer a watertight commitment, said the source.

The planes will be judged on capability, which makes up 60 percent of the points available, as well as price and benefits, which make up for 20 percent each. The final requirements for the jets are due out in July, said the source.

The policy change could prompt protests from Boeing Co , Airbus SE and Saab AB, the three other contenders. Industry sources have long predicted that Lockheed Martin's rivals could pull out if they felt Ottawa was tilting the race in favor of the F-35.

The source added that Canada had made changes that benefited the other firms. For example, Ottawa initially insisted the European planes be fully compliant with strict U.S. rules on exchanging secure data.

The rules now say European bidders need only outline how they planned to meet the U.S. security requirements.

Airbus, Saab and Lockheed declined to comment. Boeing did not immediately respond to requests for comment. (Reporting by David Ljunggren; Editing by Peter Cooney)

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