MONTREAL -- Via Rail has selected Siemens over Bombardier Inc. for a $989-million contract to modernize its passenger rail service along Canada's key rail corridor between Quebec City and Windsor, Ont.

However, the German manufacturer could receive up to about $500 million more from the state-owned railway if it exercises options for another 16 trains on top of the 32 awarded Wednesday.

The increased order could take place if the federal government approves Via Rail's plan to add more departures between Quebec City and Toronto, said chief executive Yves Desjardins-Siciliano.

It expects Ottawa will announce a decision next year on the project that includes a rail network dedicated to passenger traffic.

Under the contract, which doesn't require any local content, Siemens will build the trains at its North American headquarters in California.

The new trains, which will maintain Via Rail's capacity of 9,100 seats, should enter into service in 2022, with deliveries staggered until 2024.

Via Rail and Siemens also announced a 15-year technical services and parts agreement valued at $355.5 million.

Rumours of Via Rail's decision not to select Bombardier have provoked resentment in Quebec, where the company is struggling to fill the order book at its La Pocatiere plant.

In a press conference, Desjardins-Siciliano repeated an argument previously made by federal Transport Minister Marc Garneau -- that the decision to bypass Bombardier is justified because Canada's free trade agreements with the European Union and the United States don't allow Via Rail to favour Canadian firms in the awarding of contracts.

He said Via Rail couldn't consider economic benefits in its evaluation of tender bids.

"The opinions of our experts were that Via Rail is named in these agreements and is prohibited from demanding Canadian content," he told reporters. "We have complied with the rules."

Siemens has opened the door to offer up to 20 per cent of the value of contracts announced Wednesday to Canadian subcontractors, but there is no guarantee they will be selected from bids submitted.

Bombardier said in a statement that it is "inconceivable" that a contract for a train that will pass through "two national capitals" does not generate a maximum of local benefits.

It claimed that Via Rail twice refused to consider a revised proposal.

"This offer was supported by the Quebec government, had increased local economic benefits, and included the use of green technologies," the company's statement reads. "We will take the time necessary to analyze the Via Rail process and its decisions, and evaluate our options."

Despite this defeat on Canadian soil, Bombardier achieved a major victory in the United States by winning a US$669 million order from New Jersey Transit.

The value of the contract could balloon to nearly US$3.6 billion, making it one of the largest agreements ever won by Bombardier Transportation in North America.

Due to Buy America-like clauses requiring a minimal threshold of local content, Bombardier's plant in Plattsburgh, N.Y., should primarily benefit from the order, rather than the site of La Pocatiere.