Hyundai’s pick for frigate system ‘not bad for Navy’

DND Legal Affairs Service Chief Atty. Norman Daanoy, DND Sec. Delfin Lorenzana, AFP Vice Chief of Staff LtGen Salvador Melchor Mison Jr., Philippine Navy Flag-Officer-In-Command Vice Admiral Robert Empedrad during the House of Representatives’s Committee on National Defense’s inquiry into the Philippine Navy’s Frigates Acquisition Project (FAP). INQUIRER PHOTO/LYN RILLON

Defense officials have again insisted that granting Hyundai Heavy Industries (HHI) the “sole right” to pick its preferred combat management system (CMS) — the brains of a warship — for the two Philippine Navy frigates it is building, is not “disadvantageous” to the government.

Current and former military officials faced the House of Representatives’ national defense committee in a hearing on Wednesday that revolved around the issue of giving HHI the sole right to select the major and minor components of the warships.

A provision in the disputed contract allows Hyundai to install the Naval Shield ICMS supplied by South Korean firm, Hanwha Systems.

Philippine Navy officials told a Senate hearing on Feb. 19 that the more widely adopted Tacticos system made by the Dutch firm, Thales Group, was superior to Naval Shield.

‘Legally binding’

Defense Secretary Delfin Lorenzana reiterated during the House hearing that Vice Admiral Ronald Joseph Mercado, the former Navy flag officer-in-command, was relieved last December for pushing Tacticos, despite the “legally binding” provision on Hyundai’s “right.”

Retired Vice Admiral Caesar Taccad, the Navy chief at the time of the frigate procurement process, said he was not informed of the “maker’s list” that contained the “sole right” provision in fine print.

Taccad said that under the doctrine of privity of contracts, the government could only transact with “prime contractors” like Hyundai, and not the CMS supplier.

Ernesto Boac, the former defense undersecretary, said that subcontracting was the norm for “any other modernization program which involves very complex systems.”

Mercado’s replacement, Rear Admiral Robert Empedrad, stressed that both Naval Shield and Tacticos met the specifications set by a technical working group (TWG).

“It would be inaccurate to state that an inferior system will be placed in the frigate because the TWG crafted the specifications for the best systems at the time of the bidding,” Empedrad said.

Alarming statements

Taccad noted that such technical specifications Naval Shield apparently met were actually modeled after Tacticos. But, the specifications were set without specifying the brand name to avoid violating the Government Procurement Reform Act.

Still, Minority Leader Danilo Suarez, whose House Resolution No. 1589 triggered the inquiry, found the statements alarming.

“Are we going to be at the mercy of the selection process of the supplier?” he said.

Rep. Romeo Acop warned that the Department of National Defense’s explicit provisions for “sole rights” in its contracts could hurt future acquisitions.

“Here we are asking Congress to change the law to allow the Armed Forces to select [equipment] …,” Acop said. “But if we box ourselves in in this kind of contract, when the time comes that Congress passes the authority to be exempted from the procurement law, [the suppliers] we deal with the future would invoke this kind of provision.”