Continuing Cyclone shenanigans

First the government won't tell us what exactly we are paying Sikorsky $117 million for to get a useable helicopter. Now we learn there is still a legal dispute and the first aircraft we receive, two years late in 2010, still won't be fully capable:

The helicopter-maker that will replace Canada's aging Sea Kings is embroiled in a secret legal battle with Ottawa that could lead to higher costs for an aircraft that was bought on a fixed-price basis in 2004.

The government quietly announced two weeks ago that it is giving $117-million in extra funding to Sikorsky International Operations Inc. to settle a dispute over the helicopters' design.

In addition, the government acknowledged that it will not impose penalties that could have reached $36-million against the company for a four-year delay in the delivery of the first of 28 fully equipped helicopters to replace the Sea Kings.

The news release announcing the extra funding to Sikorsky came out just before Christmas, which guaranteed it would receive minimal coverage.

However, the release did not include any hint that Sikorsky and Ottawa are set to face off in a new round of legal talks. Industry and government officials said Sikorsky will allege before an arbitrator that Ottawa is seeking further improvements on the helicopters, which the government ordered in a $5-billion contract in 2004 [Emphasis added--why for pity's sake weren't the original specs adequate? If they weren't that's the fault of the CF.].

The government refused to provide details on the fight with Sikorsky, except to acknowledge it involves a different issue than the one that was settled for $117-million on Dec. 23.

"The contractor has proposed to submit the topic of scope creep (or out of scope work) to arbitration. Arbitration is one of the dispute resolution processes included in the contract and is an agreed-upon method for resolving issues," Public Works spokeswoman France Langlois said in an e-mail.

Ms. Langlois said Sikorsky is still working on the helicopters and Ottawa cannot discuss the matter further.

A spokesman for Sikorsky did not respond to requests for further information.

The government is refusing to explain exactly why it is spending an additional $117-million to obtain the helicopters it agreed to buy in 2004. So far, the government has said it wants improvements in the "tactical data exchange" that is part of the aircraft's communications system, and a boost in engine power.

Sources in the defence industry said the government seems to be trying to cover up the fact that it had to climb down from its tough negotiation stand last year.

While he was public works minister last spring, Michael Fortier told The Globe and Mail that the government was refusing Sikorsky's requests for $200-million to $500-million in additional funding for the requested improvements.

"When the government signs a deal with a supplier for a specific good at price x, that's the price the government should pay for that good," said Mr. Fortier, who has since left office.

"In this case, the price was set at contract signing."

A few months later, a senior official told The Globe that new funding could be necessary to obtain the Sikorsky helicopters. However, the official said that the amount would be relatively low and would produce a better-equipped helicopter.

"It's now well under $100-million, and that figure could be as low as $40-million for a better helicopter, essentially. Our holding line throughout these discussions has been: we're not paying a penny more for the helicopters that we ordered. We will pay a little more for a better helicopter," the official said.

The Department of National Defence will start receiving "fully capable helicopters" in 2012. That means that the first helicopters delivered in 2010 will not include all of the equipment that was requested in the contract four years ago [emphasis added].

According to the 2004 contract, DND was supposed to receive the first fully equipped helicopter in 2008.

As I wrote in an earlier post:

There should be a formal investigation, with the results made public, into how Sikorsky won the competition and into the subsequent management of the project. I think it disgraceful that the Liberal government of Paul Martin, the CF, and Public Works chose in 2004 to buy a paper aircraft--that still has no other buyer, an aircraft that in reality simply could not meet the contract's terms without major changes to the original specifications of the machine. It also seems that management of the project has been, to say the least, troubled (opaque too) from its inception some years after the Chretien government, as one of its first acts, cancelled the contract for the "Cadillac" (hah!) EH-101 as our new maritime helicopter. At a cost of $478.3 million.

This pork must have been a factor in 2004 [see penultimate link]--and for keeping with the Cyclone now:

...
As part of its winning bid, Sikorsky has committed to undertaking more than $4.5 billion in industrial activity across Canada. The direct benefit of this activity for Canadians will continue long after the delivery of the last helicopter, with work on the helicopter project continuing over the next 20 years. Sikorsky has committed to partner with 170 firms, both large and small, and from our Aboriginal business community, with most regions of the country being home to significant portions of the project activity.

Sikorsky’s commitment includes more than $1 billion in Atlantic Canada—an unequivocal acknowledgment of the expertise of individuals and firms in the aerospace industry across the Atlantic region. Sikorsky’s bid also involves major activity in the West, totalling more than $390 million and involving innovative companies across the region—from Vancouver to the established industry in Manitoba. As well, Canada’s traditional aerospace centres in Ontario and Quebec will host significant portions of the project, including more than $2 billion in Ontario and $955 million in Quebec.

The procurement strategy encouraged bidders to include and involve Aboriginal businesses in their proposals. Sikorsky’s bid is very reflective of the Government of Canada’s restated commitment to developing business and training opportunities for our Aboriginal people. Work on the Maritime Helicopter Project is a great example of action in this regard, with Sikorsky committing to partner with Aboriginal businesses on upward of $37 million of activity.

Equally significant is Sikorsky’s commitment to involve Canadian small business in work on the helicopters. Indeed, its winning bid includes fully $685 million in industrial activity to be undertaken in our small businesses. This is indicative of the innovative skills and processes that exist in not only our larger enterprises, but in the small businesses that are at the heart of Canada’s economy.

Canadian efforts on this project will involve innovative companies and talented individuals from British Columbia to Newfoundland and Labrador. These industrial partnerships will mean that Canadians will participate in innovative work on a variety of initiatives, including advanced mission systems, electronics, software development, and sophisticated components that are integral to the helicopter’s design and function. Canadians will also work on components of the helicopter’s airframe and engine.

Importantly, Sikorsky’s work on the Maritime Helicopter Project represents a lasting opportunity for Canada. Firms and individuals across the country will participate in the long term support of these helicopters. Canadians will be fully involved in areas such as the maintenance and repair of the helicopters and their mission systems, and the provision of simulation and training services. Equally important are the relationships that Canadian companies will establish within the international aerospace and defence industry. In the coming years, Sikorsky will continue to work with Industry Canada to develop these opportunities for Canadian industry, and to follow through on its commitment to delivering industrial and regional benefits to Canada. Canadian involvement in this project will position our industry to access future opportunities, and for participation in other significant projects like the MHP in the years ahead.