Defence Minister Art Eggleton was fired Sunday in a sudden and startling shuffle of the federal cabinet, after reports surfaced of an apparent conflict of interest.

Don Boudria, who is facing patronage allegations of his own, was also dealt a blow in the shuffle, losing his position as head of the Public Works department to be sent back to his old job of House leader.

Eggleton lost his job after word broke this weekend that he awarded an untendered contract to a former girlfriend, Maggie Maier -- a clear violation of patronage guidelines.

Boudria has also been accused of a conflict of interest this week, after it was learned his family stayed at a luxury cottage owned by the head of a company that received numerous plum federal contracts.

Boudria says he paid for the March stay, but the cheque was cashed only last week, when the opposition attacks began. The opposition contends Boudria never planned to pay for the rental.

John McCallum becomes the new minister of defence. McCallum was Senior Vice-President and Chief Economist of the Royal Bank of Canada before joining Parliament less than two years ago.

Boudria was replaced by veteran MP Ralph Goodale, who had held the role of House leader. Goodale also remains minister responsible for the Canada Wheat Board and federal interlocutor for Metis and non-status Indians.

Other changes in the cabinet shuffle include: the appointment of Jean Augustine as minister of women's issues; Maurizio Bevilacqua to the position of junior Finance minister. And Veterans Affairs Minister Rey Pagtakhan adds secretary of state for science to his duties.

While there are only three weeks left before Parliament begins its summer recess, CTV's Ottawa Bureau chief Craig Oliver points out that Chretien likely made his decision over concern about his legacy of an honest cabinet.

He is also likely tired of defending Eggleton, who caused an embarrassment earlier this year over his knowledge about the arrest of al Qaeda suspects in Afghanistan.

Report not needed

Eggleton hired Maier, with whom he was romantically linked in 1997 and 1998, in November, to produce a 14-page study on environmental illness and post-traumatic stress disorder, or PTSD, among Canadian forces.

Furious opposition MPs noted though that two other reports on the same issue were being done at the time, including one by the Canadian Forces ombudsman, and that the Maier report wasn't needed.

Chretien told reporters that federal ethics counsellor ruled on the weekend that Eggleton was in "clear breach'' of the cabinet conflict-of-interest code. The PM said when he discussed the matter with Eggleton later on Sunday, the minister did not agree that he had done anything wrong, but accepted the decision.

"The mistake was made, it's now known... and it was against the guidelines. Mr. Eggleton did not profit personally. But he helped a friend and under the guidelines, you cannot give preferential tretment to a friend or family," Chretien said.

As for the removal of Boudria from the Public Works ministry, Chretien says it was the best decision that could be made.

"Mr. Boudria did not break the guidelines but he realized he made a mistake of judgement. We discussed it and we decided together that this was the best decision," Chretien said.

Boudria himself said he still doesn't believe he did anything wrong but is happy to re-claim his former position as House leader.

"I did nothing illegal or immoral or anything like that, but that threshhold is obviously not high enough in public office," Boudria said. "And I accept that."

'People got too comfortable'

Asked about the corruption-free legacy of which he has always been proud to boast, Chretien conceded that it was lamentable that he wasn't going to be able to achieve that.

"Perhaps after nine years, people got too comfortable," Chretien said.

Canadian Alliance Leader Stephen Harper told reporters that the shuffle is proof that ethical standards and competence have been declining in the Liberal government.

"They are beginning to admit this, but quite frankly, I think the mini-shuffle tonight will only underscore the problems, it will not resolve them,'' Harper said.

Harper told CTV Newsnet that he thinks that Boudria should have also lost his cabinet job.

"I actually thought the Boudria case was more serious, with the misleading of the House, the judgment involved. I think both ministers should have been sent to the back bench," Harper said.

Progressive Conservative leader Joe Clark says the cabinet shuffle is just a decoy to the real systemic problems within the Liberal bureaucracy.

"The pattern of abuse runs far deeper than this, this is just the beginning," Clark said from Calgary. "And there needs to be now a complete public inquiry that allows us to find out who else has been abusing the public trust."

Eggleton defends contract

On Sunday morning, Eggleton spoke to CTV's Question Period about the contract scandal, clearly unaware that he was about to lose his job. He defended awarding the $36,500 contract to Maier's company One World Communications, noting the money came from his own discretionary funds as minister, not from his ministry's budget.

"Much ado is being made about nothing here, by the media and then the opposition," Eggleton said. "Every member of Parliament hires people and they don't, none of them, do I ever recall, ever (put) that out to tender."

Maier also defended herself to CTV Newsnet, saying she was qualified to write the report and ethical standards were met. Maier said she had first-hand knowledge of environment-related health issues due to a personal experience with an incapacitating environmental illness.