Navy frigates: Rejected Dutch supplier writes to Alejano

Carmela Fonbuena
Navy frigates: Rejected Dutch supplier writes to Alejano
Magdalo Representative Gary Alejano says the letter also confirms how Hyundai Heavy Industries employed the 'bait and switch' stratey to win the bid. It offered known and top caliber systems – including Tacticos – but later switched to cheaper systems.

MANILA, Philippines – The rejected supplier of the Combat Management System (CMS) of the Philippine Navy’s frigates raised suspicion about a claim that the Philippines needs to pay extra P700 million to install Tacticos, a proven technology unanimously preferred by senior Navy officials.

Thales Nederland CEO Gerben Edelijn wrote to Magdalo Representative Gary Alejano on March 14, 2018 in response to his questions about the frigates deal. The Dutch company sought to set the record straight about the cost of Tacticos and the company’s dealings with shipbuilder Heavy Hyundai Industries (HHI).

“The value of $14 million (about P700 million) claimed by HHI for the selection of Tacticos is therefore not based on Thales price evolution between SOBE (Submission and Opening of Bid Envelopes) and the date of the FAP (Frigates Acquisition Project) contract award,” Edelijn said.

“We suggest that it may rather be explained by a strategy aiming at increasing the HHI profit on the FAP after having won the project,” Edelijn said.

In a February 2018 Senate hearing, Defense Secretary Delfin Lorenzana claimed Hyundai rejected Tacticos and went for the alternative CMS – Naval Shield of Hanwha Systems – because of supposed P700 million price increase. 

What else did the letter reveal? Edelijn also claimed Hyundai had been in touch with his company from the very beginning.

He said the shipbuilder “explicitly” offered Tacticos to the Navy, meaning the P15.7 billion bid it submitted in March 2016 was calculated based on the cost of a specific system configuration that included Tacticos.

Edelijn said Thales Nederland did eventually increase the price of Tacticos but only by 247,630 euros or about P15 million but the company kept the price unchanged for months to accommodate the request of Hyundai.  

Edelijn did not divulge the cost of Tacticos but he said his company even accommodated the request of Hyundai to keep the price unchanged until January 31, 2017 or a good 3 months since Hyundai signed the contract with the Department of National Defense. 

“HHI therefore had up to January 31, 2017 to grant a subcontract for Tacticos to Thales without any price increase,” Edelijn wrote to Alejano.

It was in January 2017 when Mercado wrote Lorenzana to oppose Hyundai’s decision to install Hanwha. It was followed by Malacañang meeting to discuss the CMS selection.

Hyundai informed Thales on May 30, 3017 that it has rejected its CMS in favor of Hanwha Systems.  

What do the revelations mean? The revelations in the letter appear to support the position of ousted Navy chief Vice Admiral Ronald Mercado that Hyundai can’t use the cost of Tacticos as the reason to install the cheaper CMS of Hanwha Systems.

Lorenzana ousted Mercado over his insistence on Tacticos, accusing him of insubordination to favor the company.

Alejano said the letter also shows “deception on the part of Hyundai,” accusing the shipbuilder of forcing the Philippines to “settle with Hanwha Systems than paying PHP 725M more for Thales Tacticos.”

Alejano said the letter also confirms how Hyundai employed the “bait and switch” strategy to win the bid. It offered known and top caliber systems – including Tacticos – but later switched to cheaper systems.

“This was carried out by introducing the so called “maker’s list” which contained disadvantageous provisions,” Alejano said. 

What is wrong with Hanwha? In a Senate hearing in February, senior Navy officers including new Navy chief Rear Admiral Robert Empedrad were unanimous in their preference for Tacticos.

In a House hearing, however, Empedrad appeared to change tune when he also vouched for the CMS of Hanwha Systems.

Empedrad stressed the Philippines cannot insist on Hyundai installing Tacticos because the contract gave the shipbuilder the “sole right” to choose the suppliers. 

What went wrong? Senator Panfilo Lacson and Alejano, who argued that the Navy should decide the systems, blamed the “sole right” provision for the problems in the frigates project. (READ: Senate probe exposes root of frigates deal mess)

Mercado also cited a number of reasons why Hanwha’s CMS does not meet the requirements of the Navy, but Empedrad opposed his arguments each time. 

The Philippine Navy also initially declared the CMS of Hanwha Thales – a joint venture that has since split apart – as post-qualified. Mercado argued the new company – Hanwha Systems – cannot be declared post qualified because it’s a different entity. New technical requirements were also apparently added after Hanwha was post qualified. 

What is the status of the project? Empedrad said it is a done deal. Hyundai had supposedly already signed a subcontract with Hanwha Systems. 

It is unclear how Hyundai this happened because the DND said Mercado was ousted because he was delaying the contract over the CMS selection.

Edelijn said they will continue to cooperate with Alejano. “We stay at the disposal of [House of Representatives] in their effort for the manifestation of the truth relative to the Frigate Acquisition Project,” he said. 

Alejano urged the government to look into the frigates project. “If necessary, cancel the contract if the disadvantageous and problematic issues of the frigate project are not addressed,” he said. 




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