Cost overruns endanger copter deal
Ottawa warns it could kill contract after U.S.-based Sikorsky requests up to $500-million more in its bid to replace aging Sea Kings
DANIEL LEBLANC and STEVEN CHASE AND BRIAN LAGHI
From Wednesday's Globe and Mail
April 30, 2008 at 1:30 AM EDT
OTTAWA — Federal officials are threatening to cancel a $5-billion contract with Sikorsky Inc. because the U.S.-based helicopter maker is asking for up to $500-million in extra funds to replace Canada's 40-year-old Sea Kings.
Senior sources said the relationship between Ottawa and Sikorsky took a turn for the worse after the firm acknowledged this year that it was running late in its plans to provide 28 high-tech Cyclone helicopters to the Canadian Forces.
The government's controversial efforts to replace the Sea Kings, which go back to the early 1990s, are now complicated by Sikorsky's request for more funds to deliver replacement helicopters.
Sikorsky officials refused to comment on the current negotiations, but senior federal officials said the company has requested between $250-million and $500-million in new funding.
Sikorsky Inc. won a competition in 2004 to provide 28 Cyclone helicopters to the military, agreeing to deliver the first helicopter in January of 2009. Now, sources say, delivery could be delayed by nearly two years. (The Canadian Press)
Sources said there is talk in government that the Cyclones need a “more powerful engine” to meet Canada's requirements, and that delivery could be delayed by nearly two years even with additional money. High-ranking sources said the contract dispute is causing concerns at the highest levels of the government, and that cancellation of the contract is a possibility. If new funding were to be offered, the government would be seeking ironclad guarantees that Sikorsky would deliver the aircraft at the new agreed-upon time.
“All of the options are on the table,” a federal official said.
“We can cancel or come to a compromise.”
The Conservative government of Brian Mulroney had ordered new helicopters to replace the Sea Kings in 1992, but former Liberal prime minister Jean Chrétien cancelled the purchase as soon as he came to power the following year.
Conservative officials are still furious at the Liberal decision, arguing that the deal would have already allowed the Canadian Forces to replace the Sea Kings with Cormorant helicopters.
Sikorsky won a competition in 2004 to provide 28 helicopters to replace the fleet of Sea Kings. At contract signing, Sikorsky agreed to deliver the first helicopter in January of next year.
The maximum penalty on the contract for late delivery is $36-million.
Sikorsky president Jeffrey Pino was in Ottawa recently to discuss the delays in the production of the Cyclones with government officials. A spokesman for Sikorsky, however, refused to elaborate on the ongoing negotiations.
“We hope to have an agreement within the next several weeks, by the end of May,” company spokesman Paul Jackson said.
The government is now working to determine when it can take delivery of the first helicopter, and what it needs to do to get there.
“Once we have completed our review of the contractor's claimed reasons for delay, we will be in a position to determine Canada's next steps,” said Lucie Brosseau, a spokeswoman for Public Works Canada.
“Canada is keeping all of its contractual and legal options open to minimize delay in procuring new maritime helicopters,” she said.
A defence source said that the government is in discussions with Sikorsky to determine “what capabilities could be delivered and at what point.”
Another government official said there are concerns within the government regarding the aircraft that will be delivered by Sikorsky.
The issue, according to the source, is “a perception that Sikorsky cannot deliver a helicopter that is compliant to what was ordered.”
However, sources in the defence industry said a cancellation of the contract would not help the Canadian Forces meet their original need, which is to replace the Sea King helicopters as soon as possible.
“There is no plan for what they could do after,” an industry specialist said.
“Whether they like it or not, [the government and Sikorsky] are married.”
General Rick Hillier, the Chief of the Defence Staff, has expressed frustration at the delay in the delivery of the helicopters.
“We just need to get an aircraft, we need to get it quickly, and we'd like to have it in service as soon as we possibly can,” he said earlier this year.
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