Maritime Helicopter Procurement Process

On 17 August, 2000, the Ministers of Public Works and National Defence made a joint announcement that the Crown Project to replace the Canadian Forces' Sea King helicopter fleet would commence immedi-ately. The "Maritime Helicopter Statement of Requirement" which had been approved over a year earlier but kept under wraps, was also released to the public the same day. The announcement indicated that the procurement would be split; separate competitions would be held first to procure the helicopter and second for the mission systems. The Ministers also stated that selection would be based solely on the principle of "lowest cost compliance" (LCC). Industry was also informed that a "Letter of Interest" (LOI) would be made public soliciting interest from helicopter and mission system suppliers wishing to participate in the two competitions.

The Letter of Interest was made public on the DND website on 22 August. It established a project structure and an approximate schedule. Each competition is divided into two phases: a pre-qualification evaluation, which is itself multi-phased; and a proposal evaluation phase. Each bidder in the second phase must also include a bid for long term "in service support" for which a separate contract will be awarded.

The pre-qualification process is designed to eliminate or mitigate the potentiality of a contender being judged technically non-compliant during the proposal evaluation phase. Presumably, although not clearly stated, any con-tender judged technically non-compliant during the evalua-tion will not be invited to submit a bid in response to the subsequent "Request for Proposals".

The selection of the helicopter and support system (called the "Basic Vehicle") and the mission system and its support system (called the "Maritime Helicopter Integrated Mission System") will occur at the end of the respective proposal evaluation phases and will be based solely upon lowest cost. However, there are other factors, such as direct and indirect Industrial Regional Benefits, which have to be factored into the final evaluation. It is not made clear though how such subjective factors can be determined based upon a lowest cost principle.

The government's stated objective is to have the competition for the "Basic Vehicle" completed before the end of 2001, and to have the mission system competition completed before the end of 2002-all with the aim of having the first fully integrated helicopter delivered by the end of 2005. All deliveries are to be completed by the end of 2008.

Of the original $2.9 billion announced for the project, the Letter of Intent allocates a maximum of $925 million for the "Basic Vehicle" and a maximum of $925 million for the support systems. The allocation of the more than one billion dollars remaining is not explained.

The split and staggered process and the principle of "lowest cost compliance" has set a precedent for the major procurement of complex military hardware in Canada. In the proposed process, the "so-called" Basic Vehicle will be built and delivered according to specifications that cannot possibly take into consideration the size, weight, shape, power needs, etc., of a yet-to-be-determined mission suite. It is not made clear who will pay for the modifications to the airframe that the systems contractor requires in order to fit the mission suite equipment into the basic helicopter. Nor is it made clear who will do the metal cutting and modifications and then re-certify the modified helicopter as airworthy once all of this is done. And who will pay for this? Moreover, who will be held accountable when all the extra modifications and work required result in "unfore-cast" project and delivery delays?

Experience has shown that a single acquisition with a single prime contractor responsible and accountable for all aspects of the end product is a superior way to contain and minimize cost, schedule risks and all other associated project risks for a complex crown acquisition of this nature. No explanation is offered as to why the government elected a process containing built-in hazards that risk cost and schedule overruns as well as integration nightmares down stream.

The Letter of Intent states that the government "is committed to utilizing new and innovative procurement processes while adhering to the [Treasury Board's] Govern-ment Contract Regulations (GCR)" and that "to this end, industry will be involved early in the procurement process". However, there is no indication that all of industry was consulted in the development of the proposed procurement process. In fact, the opposite appears to be the case judging by the reactions of some to the procurement process. Furthermore, the Treasury Board's contracting policy contained in the contract regulations (GCR) clearly requires all Government departments to seek "best value" in their procurements and states that

inherent in procuring best value is the consider-ation of all relevant costs over the useful life of the acquisition, not solely the initial or basic contrac-tual cost. Often, the goods and services offered by different suppliers are not identical. Assessments and evaluations should be made between different performance characteristics, costs, delivery dates, follow-on procurement and logistic support. Equal-ly important are those cases in which a product or facility has been designed to meet specific government requirements. In such in-stances, detailed analysis of materials and compo-nents in terms of their function and price may be needed before the contracting process. This should clarify the requirement which should, in turn, result in best value.

It appears in the case of the Maritime Helicopter Project that the government has chosen to ignore its own procure-ment regulations-without explanation or accountability.

On Wednesday, 11 October, 2000, E.H. Industries, the Anglo-Italian consortium that makes the Cormorant heli-copter, and which is already under DND contract for the supply of 15 helicopters to replace the ageing CF Search and Rescue Labrador helicopters, filed a complaint with the Canadian International Trade Tribunal stating that the MHP procurement process was flawed in not taking into account the obvious benefits and savings to the taxpayers of "fleet commonality" and citing the government's own rules that the evaluation should be based on "best value" principles.

A second contender, Sikorsky Aircraft Corporation, has asked the federal government to reconsider and change one of the compliancy rules it has established. Specifically, Sikorsky questions the stipulation that helicopters offered must be certified airworthy by transportation authorities when the contract is signed in 2001. Sikorsky's new S-92 helicopter will not be ready for official certification until 2002, three years before the helicopters are to be delivered in 2005.

After canceling the Sea King replacement project in 1993, the government promised in its Defence White Paper of 1994 to replace the Sea Kings "by the end of the de-cade". This did not happen. Then the government waited for over a year following the approval of the new Maritime Helicopter Statement of Requirement before announcing the Maritime Helicopter Project, wherein they indicate only a strong desire to have delivery of the first helicopter before the end of 2005. Now the government has issued a convo-luted and controversial procurement policy that has promp-ted a reaction from two of the three leading helicopter contenders. This process does not bode well for a replace-ment project for the Sea King fleet, which is already long overdue.

Regretfully, the Maritime Helicopter Project was politicized and personalized by the Prime Minister in 1993 when he made the cancellation of the EH-101 an election promise in the Liberal platform during the campaign. Perhaps it is time for a public hearing into the apparent continuing politicization of the Maritime Helicopter Pro-ject.

This article was prepared in consultation and coopera-tion with retired officers with extensive experience in military procurement and project management.

Colonel (Ret'd) Lee Myrhaugen is the coordinator for the Friends of Maritime Aviation (FOMA).