A long-awaited contract to design the Canadian navy's next generation of warships — the kickoff to a $60-billion project — was formalized in Halifax today, even as a challenge of the contract process goes forward in Federal Court and critics question how completely the bids were evaluated.

All of the paperwork for the design contract was signed in Ottawa on Thursday between the Liberal government, Lockheed Martin Canada, BAE Systems, Inc. and Irving Shipbuilding, the prime contractor, CBC News has learned.

The event in Halifax, involving two federal ministers and Nova Scotia politicians, marked the ceremonial start of a project that's expected to produce 15 warships to replace the navy's frontline frigates over the next decade and a half.

The initial contract is worth $185 million, but will increase over time as more support work is added as the warships are constructed.

"Our government is providing the Royal Canadian Navy with the ships it needs to do its important work of protecting Canadians," Procurement Minister Carla Qualtrough said in a statement. "This procurement process for Canada's future fleet of Canadian Surface Combatants was conducted in an open, fair and transparent manner that yielded the best ship design, and design team, to meet our needs for many years to come."

The decision to award the contract to the Lockheed Martin-led team is the subject of a legal challenge by one of the other companies in the competition — Alion Science and Technology Corp. — and its subsidiary Alion Canada.

A third team, led by the Spanish company Navantia, also submitted a bid but has not challenged the decision.

Winning contract was only one screened for cost: sources

Sources within government and the defence industry said Thursday the federal officials running the competition who evaluated the bids did not look at the financial portion of the Alion and Navantia bids.

The competition was broken into multiple phases, with teams of federal officials evaluating different aspects of the complex pitches — screening them to ensure they met the navy's requirements and the federal government's demand for participation by Canadian industry.

The very last aspect to be considered, once the bids passed and were deemed compliant in those early stages, was cost and pricing.

The federal government, according to sources, said the only bid to be screened for cost was the Lockheed-Martin proposal, which pitched the British Type 26 design, also known as the Global Combat Ship.

It was the only bid deemed compliant, according to sources with knowledge of the file.

That has raised questions within the defence industry and among analysts, given the fact that both the Alion and Navantia designs involve warships that are already in service with other nations.

The Type 26 is just coming into production in Britain — a fact that figures prominently in the Federal Court case launched last fall by Alion.

In court filings, Alion argues that the winning bid was "incapable of meeting three critical mandatory requirements" of the design tender, including one requirement regarding speed.

The company said its proposal, the Dutch-designed De Zeven Provinciën Air Defence and Command (LCF) frigate, was the best solution for the Canadian navy.

Critics of the federal process have long claimed that the fix was in for the Lockheed-Martin Canada bid and that the design tender was tilted in order to ensure the company remained in the competition.

A 'hypothetical' price tag

Neither losing bidder has been told precisely what was wrong with their bids, but they are slated to be briefed now that the contract has been signed, said defence industry sources.

Defence analyst Dave Perry said the process was deliberately structured so that the navy got the ship it needed, not the cheapest one.

He also said that, at this point, the price tag is "still a hypothetical cost" because the federal government and the navy have yet to spell out in precise terms the electronics and weapons that will be included in the warships.

"There's a process of requirement reconciliation still to happen, with Irving and the Government of Canada going in and taking a hard look at what kind of design" they have got and how it can be modified to meet the navy's needs, he said.

An official in Qualtrough's office would not comment on the bidding results, but defended the process, saying it was a "complex and rigorous procurement" that included extensive consultations with the bidders and opportunities for them to correct deficiencies.

The selection was also overseen by a fairness monitor, the official added.