Senate probe exposes root of frigates deal mess

Carmela Fonbuena
Senate probe exposes root of frigates deal mess
(UPDATED) Senators fail to probe deeper into why the defense department and the Navy did not come to a compromise

Part 2

(READ Part 1: 5 nagging questions after the Senate frigates probe)

AT A GLANCE: 

  • Senior Navy officers present in the Senate unanimously agreed that they prefer the Combat Management System (CMS) of Tacticos Thales over the one that the shipbuilder plans to install.
  • Senator Panfilo Lacson said the root of the frigates deal mess is the provision in the contract giving away to the shipbuilder the power to choose the suppliers for the subsystems. The probe failed to identify who allowed this provision that the Philippine Navy categorically opposed.
  • As former Navy chief Vice Admiral Ronald Mercado protested the provision, the office of Special Assistant to the President Christopher “Bong” Go called Navy officers to a meeting in Malacañang to discuss the CMS selection. Mercado was relieved in December 2017.
  • Defense Secretary Delfin Lorenzana said the frigates project will proceed and the department will implement the contract.
  • Senator Ralph Recto proposed that the country pay extra to install the CMS that the Navy wants.

MANILA, Philippines (UPDATED) –  If there’s one thing that came out of the Senate probe on February 19, it’s the unanimous conclusion of senior Navy officers that they preferred Tacticos Thales as provider of the Combat Management System (CMS) that would be installed in the warships that the Navy planned to buy.

So why did the Department of National Defense (DND) agree to install the inferior CMS of Hanwha Systems against the recommendation of the Philippine Navy? 

“Did we compromise [our] capability?” Senator JV Ejercito asked. “Won’t the CMS be an obsolete system?” Senator Edgardo Angara asked.

While the Senate probe did not dig deeper into Malacañang’s involvement in the multi-billion-peso frigate project, it shed light on what caused the impasse between the defense department and the navy that apparently prompted the complaint that got Malacañang involved. 

The office of Special Assistant to the President Christopher “Bong” Go called Navy officers to a meeting in Malacañang to discuss the CMS selection. (READ: 5 nagging questions after the Senate frigates probe)

Graduates of the Philippine Military Academy (PMA) who were expected to appreciate the significance of the project led the probe, navigating through technicalities to get to the bottom of the dispute. (Watch the hearing here.) 

The PMA alumni among the senators are Panfilo Lacson (PMA ’71), Gregorio Honasan (PMA ’71), and Antonio Trillanes IV (PMA ’95). The opposing sides in the controversy are led by Defense Secretary Delfin Lorenzana (PMA ’73) and former Philippine Navy chief Vice Admiral Ronald Mercado (PMA ’83), who was removed in December last year for alleged insubordination over the frigates project. (READ: Timeline of the PH Navy’s frigates project)

Here are 5 conflicts during the Senate probe that exposed the main disagreements over the project.

1. Lorenzana vs Mercado: Did Mercado favor a frigates supplier?

UPHOLDING THE CONTRACT. Defense Secretary Delfin Lorenzana says shipbuilder Hyundai Heavy Industries has sole right to choose makers of the subsystems of the Philippine warships. Photo by Angie de Silva/Rappler

The ousted Navy chief, Vice Admiral Ronald Mercado, got a boost at the start of the probe when Lacson vouched for his integrity amid speculations he had vested interests in his choice of Tacticos Thales.

“You have built a solid service reputation, respected by peers, superiors and subordinates. Based on my initial findings, it is quite difficult for me to doubt your integrity. I hope I will not be proven wrong in the course of this hearing,” said Lacson.

Mercado’s ouster in December 2017 tainted his sterling record in the military, where he served key positions such as commander of the Philippine Fleet and then chief of the Western Command guarding the West Philippine Sea before he became Navy chief.

Lorenzana said he had ordered Mercado relieved because of insubordination over the frigates project. In the Senate, he slammed the former Navy chief’s alleged “personal interest” in pushing for the CMS of Tacticos Thales. 

Lorenzana told senators the contract agreement gave Hyundai the “sole right” to decide the maker of the subsystems of the ships, and it chose the cheaper CMS of Hanwha.

“The frigate project is aboveboard and should have proceeded as scheduled if not for the meddling of a certain individual and his strange fixation on a certain product,” Lorenzana said.

RELIEVED. Former Philippine Navy chief Vice Admiral Ronald Mercado was relieved for alleged insubordination over the frigates project. Photo by Angie de Silva/Rappler

As Navy chief, Mercado fought to get Hyundai change its mind and install Thales technology – until his abrupt relief

Openly disagreeing with Lorenzana, his superior, in the hearing, Mercado reiterated that the provision giving Hyundai the “sole right” to choose its supplier was wrong to begin with. It was inserted, he said, and stressed that retaining it would make the frigates very expensive to maintain because different suppliers would need to be tapped for maintenance.

Based on the technical requirements provided in the same contract, the Navy said only Tacticos Thales is qualified to supply the CMS of the warships. The Navy also wanted Thales technology for the other systems of the warships. (READ: ‘CMS not the only issue in frigates dea;’)

Mercado said he was merely echoing the recommendation of the Navy’s Technical Working Group (TWG).

“I was the Flag Officer in Command. I was desigated to be the head of all the officers and men of the Navy, so I’m going to stand up for what they want,” Mercado told reporters after the hearing. 

“I may be wrong, but so be it.” (READ: Ousted PH Navy chief wanted ‘proven technology’ for warships)

Mercado denied he was unduly favoring Tacticos Thales. “In the first place, how did Tacticos Thales become involved in the Philippine Navy frigate acquisition project? It was HHI or Hyundai that offered Thales Tacticos during the bidding process,” said Mercado.

He also debunked Lorenzana’s complaint that the Navy already gave him (Lorenzana) the go-signal to sign the contract in October 2017, only to raise problems later.

“With all due respect, I’d like to state that the recollection of Secretary Lorenzana on what transpired during the signing of the contract was not accurate. I was just there invited to see the contract signing because I was the commander of the Western Command in Palawan. I was invited, I think out of courtesy, because I was the first head of the Technical Working Group. For two years, we crafted the technical specifications of the frigates. I was just there. I didn’t know what was in the contract,” said Mercado.

2. Lacson vs Dayao: Who gave Hyundai sole right to choose subsystems?

LEAD PROBER. Senator Panfilo Lacson navigates through the technicalities in the frigates project to get to the bottom of the problem. Photo by Angie de Silva/Rappler

Who inserted the provision giving Hyundai the sole right to choose the subsystems of the warships?

Lacson said this is the root cause of the mess, the original sin. “Yung uppended Annex ang sa tingin ko pinagsimulan lahat ng gulo dahil na-incorporate sa contract agreement (I think it’s the uppended Annex that caused all the problems because it was incorporated in the contract agreement),” Lacson said.

Commander Sergio Bartolome, a member of the TWG, testified that he categorically opposed that provision when it was presented by Hyundai. 

“During [a] workshop, your honor, it was discussed that HHI will select subsystems. I did not agree [to] that so I asked for a suspension of the meeting to ask the HHI management and Navy leadership to [discuss it]. It is no longer a technical issue. It was referred to our legal officer of the TWG,” Bartolome said. 

That legal officer was Major Marlon Dayao, who supposedly told Bartolome that the provision was within the law. Dayao initialed the Annex that included the fineprint giving Hyundai the “sole right” to choose the subsystems. 

“Who authorized you to sign?” Lacson asked Dayao.”You were a junior member of the TWG. There were several members of the TWG. You alone signed an Annex that others are disowning, di ba (right)? Sabi nila wala sa minutes ‘yun (You said it’s not in the minutes) but you signed the Annex that was inserted in the contract agreement. Who authorized you to sign that?” Lacson said.

ORIGINAL SIN? Commodore Sergio Bartolome and Major Marlon Dayao discuss how a provision supposedly disadvantageous to the Philippine Navy was inserted in the contract. Photo by Angie de Silva/Rappler

Dayao said the Annex was taken up by the TWG and that he initialed it as “customary practice” for all attachments coming from the TWG. 

“That maker’s list was part of the attachment of the contract along with the building specifications and general arrangement of the project. I signed all those documents, Sir,” said Dayao.

Despite Dayao’s broad and vague answer, the questions stopped there.

Magdalo Representative Gary Alejano said this was a big cliff hanger. “A very important aspect of the whole frigate controversy was also missed – who allowed Hyundai Heavy Industries to have the authority to decide on which CMS to use? Shouldn’t the Philippine Navy, as the end-user, dictate what mission critical equipment and system its frigates would use?” Alejano asked.

3. Mercado vs Empedrad vs Vila: Is Hanwha’s CMS compliant with Navy’s technical requirements?

NEW NAVY CHIEF. Rear Admiral Robert Empedrad replaced ousted Navy chief Vice Admiral Robert Empedrad. Photo by Angie de Silva/Rappler

The former and current Navy chiefs – Mercado and Empedrad – know the project by heart. They previously served as chiefs of the Project Management Team (PMT) that supervised the process.

Empedrad agreed that Tacticos Thales was the superior CMS that he wanted installed in the warships. “I’m not pushing for Hanwha. I’m still preferring Tacticos,” Empedrad told senators. 

Yet, Empedrad echoed the position of Lorenzana that Hyundai ultimately had “sole right” to choose the supplier. (It was Empedrad who led the briefing in Malacañang that was called by Go’s deputy and who would take over the position of Navy chief after Mercado’s ouster.)

Mercado disagreed with this interpretation, citing a requirement that the CMS should be compliant with Tactical Data Link (TDL) 16, a connection standard adapted by the Armed Forces of the Philippines in 2016 for its frigates, fighters, and long-range patrol aircraft. 

Mercado said Hanwha’s CMS is not compatible with TDL 16 and is thus disqualified, leaving Tacticos Thales the only remaining option for the warships. Empedrad said this isn’t the case.

The two Navy chiefs apparently referred to different lists of technical requirements. Empedrad referred to the requirements listed in the Navy’s bidding documents released in 2013. Mercado referred to the requirements listed in the contract agreement signed in 2016.

The TDL 16 requirement was apparently added during a workshop between the Philippine Navy and Hyundai a month before the contract signing in October 2016.

“The technical specifications in the post-qualification stage was improved during a workshop conducted one month before the signing of the contract. It’s different from what are stated in the contract,” said Mercado.

The additional requirement effectively disqualified Hanwha even if it was declared compliant after the post-qualification assessment conducted in June 2016. 

Still, Empedrad said that Hanwha is compliant as far as the TDL 16 requirement is concerned because the company committed to develop the TDL 16 compatibility by 2019 or before the first ship is expected to be delivered.

Commodore Sean Villa, also a former chief of the PMT in charge of the frigates project, disagreed with Empedrad. He argued that Hanwha is disqualified because a prototype cannot claim to be “proven” technology as required in the contract. 

COMMANDER OF WARSHIPS. Commodore Sean Villa underscores the importance of installing a proven CMS technology in the warships. Photo by Angie de Silva/Rappler

Villa, a former commander of the Offshore Combat Force of the Philippine Fleet, underscored the importance of the frigates project and the need to install a proven CMS on them.

“I am in charge of the warships. Right now, we are having difficulty maintaining our legacy vessel,” he said during the Senate hearing. But Empedrad said they need not be strict about the TDL 16 requirement because it was only a bonus feature inserted in the contract.

Empedrad was confident Hanwha would comply. “Hanwha already gave a conformance that the TDL 16 is already compatible to our CMS. It’s no longer an issue. In the first place, if the ship will be delivered and it is not compatible, eh di huwag tanggapin ng (it shouldn’t be accepted by the) Philippine Navy,” Empedrad said.

4. Lacson vs Hyundai: Did the DND and PN exercise due diligence in this process?

Two other factors complicate this debate.

While Villa said Hyundai approved the additional advantageous requirement before the contract signing, Department of Budget and Management chief Benjamin Diokno said it might be illegal to change technical specifications after bids are opened.

“As a matter of rules, as far as I know, hindi puwede magpalit ng specs after the opening of the bid. Hindi na puwede (you can’t change the specifications after the opening of bids. You can’t do that),” Diokno said at the hearing.

Trillanes also said the firm that passed the post-qualification stage was Hanwha Thales, not Hanwha Systems. In July 2016, or a month after the post-qualification tests, Korean media reported that Thales divested its 50% stake in Hanwha Thales.

The legal impact of this development on the project is unclear. 

Lacson also confronted the country representative of Hyundai Heavy Industries, Korean Sandra Han, about the two-year ban imposed by the Supreme Court of South Korea on the shipbuilder. 

Hyundai cannot participate in any public bidding for government projects in South Korea for a period of two years, or until November 2019, because of a bribery conviction that sent its officials to jail. (READ: Bribery scandal hounds Korean firm tapped for PH warships)

Lacson said Hyundai should have informed the Philippine Navy and the defense department that a ban was imposed on the company by a lower court.

But Han said there was nothing to report during the bidding. They were not yet blacklisted because the case was pending appeal. The final decision was handed down in December 2017. 

“The point here is we didn’t have the obligation to inform the Philippines. We didn’t have any blacklist at that time,” Han said.

Senators however did not push the defense and Navy officials hard enough about why they did not even know that a case against Hyundai was pending in the first place.

Former defense secretary Voltaire Gazmin and Lorenzana both said they didn’t know about the case until it hit the local news. 

Lacson asked if the country conducted proper due diligence, which he said, could have prevented the frigates deal mess. 

Lorenzana said he wouldn’t have signed the contract had he known about its record. 

5. Gazmin vs Lorenzana: Is the Aquino administration to blame?

Before the Senate probe, government spokespersons blamed the previous Aquino administration for the mess.

Most of the work in the frigates project was completed in the past administration, but Gazmin said they decided to let the next administration finalize the deal. Lorenzana signed the contract in October 2016. 

In the Senate probe, Gazmin said they cannot be blamed for the mess because the new government had the option to review and cancel the contract.

Lorenzana noted that Gazmin encouraged him to proceed with the contract, assuring him that it was aboveboard and it was badly needed by the Philippine Navy. 

Lorenzana claimed they didn’t change the contract prepared by the previous administration, apparently unaware of the technical requirements the Navy and Hyundai added a month before the signing. 

Lorenzana and Gazmin both previously served as commander of the elite command of the Philippine Army, the Special Operations Command (SOCOM).

What comes next?

WIN-WIN? Senator Ralph Recto says the country should consider paying extra so the Navy can get a superior CMS for the ships. Photo by Angie de Silva/Rappler

At the end of the probe, both Lorenzana and Mercado said they were happy they were able to explain where they stood in the controversy.

Lorenzana acknowledged that Mercado made valid points in the hearing but said the contract agreement had to be followed. Mercado said he continued to respect Lorenzana despite their bitter exchange at the hearing.

“There is no bad blood. I respect the actions of the Secretary of National Defense. He did it with a purpose. I was the Navy chief. I have to protect my people,” Mercado said.

What happens now to the frigates deal?

Nothing changes so far. The Navy’s two frigates, envisioned to become its most capable warships, will have an inferior CMS – unless the project is stopped.

Lorenzana said they have the obligation to implement the contract.

Senator Ralph Recto offered a solution: Why doesn’t the country pay for the additional cost of installing the superior CMS of Tacticos Thales so the Navy can get what it wants?

Lorenzana called it a “good proposal” that he would not oppose. Mercado called it a “win-win solution.” – Rappler.com

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