U.S. firm racks up millions in fines


BY DAVID PUGLIESE, POSTMEDIA NEWS JUNE 24, 2013



U.S. aerospace giant Sikorsky has racked up almost $86 million in penalties for failing to deliver Cyclone helicopters to Canada's military but has yet to pay the money.

There is also still no word when the helicopters, already more than four years late, will be delivered to the Royal Canadian Air Force.

But Public Works did confirm in an email that, "as of June 14, 2013, the total amount of liquidated damages accrued for late delivery is $85.7 million." The maximum amount of damages that Sikorsky could be hit with is $88.6 million, the email added.

"When the government signs a contract with a supplier, it expects their obligations under the contract to be met," the email noted.

Public Works, however, will not say why the penalties have not been paid. Sikorsky spokesman Paul Jackson said the company is in discussions with Public Works and the Defence Department about "contractual disputes" and will not comment.

The original contract called for the first Sikorsky Cyclone helicopter to be delivered in November 2008, with deliveries of all 28 helicopters completed by early 2011. But Sikorsky has yet to turn over a single helicopter to Canada under the $5.7-billion program. The Cyclone is supposed to replace the military's aging Sea King helicopters.

The Conservatives have laid blame on the Liberals for the problem-plagued program because Paul Martin's government awarded the contract to Sikorsky in 2004. Liberals have countered that the mismanagement has occurred under Conservative watch. Liberals have pointed out there are substantial penalties in the original contract the government has not enforced.

SPOOLING UP THE CYCLONES
2013-07-11 13:49:43
by Ken Pole
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There are four Sikorsky CH-148 Cyclones at Canadian Forces Base Shearwater, N.S., the vanguard of an eventual fleet of 28 replacements for Canada's 50-year-old Sikorsky CH-124 Sea Kings. All of those Shearwater Cyclones remain the property of Sikorsky Aircraft Corp., as do five more in a secure facility in Plattsburgh, N.Y., at a former U.S. Air Force base located about 30 kilometres (20 miles) from the Canadian border. Two more are undergoing testing at Sikorsky's facilities in Florida and Connecticut, and the rest of the Royal Canadian Air Force (RCAF) machines are in final assembly. But to date, not one of them has been accepted by Canada.

Overall, the Cyclone has the potential to deliver a huge capability gain to the RCAF. However, the highly-politicized project has been fraught with problems – not only at Sikorsky, but also within the Canadian government, where the complex procurement process involves at least three departments: National Defence, Public Works & Government Services Canada (PWGSC), and Industry Canada.

Throughout the program’s troubled history, Sikorsky has remained largely silent about contractual issues and aircraft development. Recently, however, Vertical asked the company to respond to criticism from PWGSC over the delays. Sikorsky’s reply: The RCAF can immediately roll out its pilot training program using the existing “flight ready” aircraft. In the meantime, sources said, the manufacturer has proposed a way to keep the program moving by continuing to perfect the helicopter’s software package, introducing upgrades in blocks – a traditionally accepted method for new aircraft to reach fully compliant status. This concurrent action plan would bring the Cyclones into service much sooner – and would allow the Sea Kings to retire that much earlier.

The parties seem to have reached an impasse, however, because the government has thus far refused to take delivery of any helicopters until they are deemed 100 per cent compliant. PWGSC said in a July 8 email to Vertical that Sikorsky was required to begin delivering "fully compliant" helicopters in June 2012, and that, "The government expects suppliers to meet their contractual obligations, and we continue to enforce the aircraft manufacturer's contract provisions, including those related to late delivery."

In the meantime, during our research for this article, a troubling indicator of the program's lengthy and problematic history emerged: men and women who joined the RCAF amidst promises of new maritime helicopters have gone through their entire careers, and then retired from the military, without seeing the aircraft become operational!



Development and Evolution

The need to replace the Sea Kings – which entered service in 1963 after an exhaustive procurement program – was first identified in 1978. That set the stage for what eventually became the New Shipborne Aircraft (NSA) project. After almost three decades of political wrangling between the Progressive Conservatives and the Liberals on Parliament Hill, then-Prime Minister Paul Martin unveiled plans to acquire 28 Sikorsky Cyclones in 2004. Delivery was slated to begin in November 2008, 48 months after contract award, but that was later postponed to 2012 – an extended deadline which was barely met by Sikorsky.

Evidently, the main issue was that DND considered the aircraft to be "non-developmental," in that it would rely on "off the shelf" technologies. In fact, it was anything but. In her Fall 2010 report to Parliament, Auditor General Sheila Fraser said it was obvious that the Cyclone procurement would be complex. Sikorsky had to convert its civil S-92 to military standards, marinize it, and integrate new components and technologies. "National Defence has, in effect, entered into an agreement . . . to develop a new helicopter, and this should have been reflected in project risk assessments and in information provided to decision-makers."

Fraser also pointed out that the PWGSC-managed pre-qualification process required bidders to submit "proof of compliance" for 476 of the 3,000 technical requirements that were deemed high risk. But there was absolutely "no consideration" of off-the-shelf solutions, a shortcoming the Office of the Auditor General suggested put the program at "significant technical risk associated with the developmental nature of this helicopter."

A veteran Sea King pilot and senior officer – one of those whose entire career held the promise of new helicopters – told Vertical that the program has "always been very political" as the government's requirements evolved. He said that when Prime Minister Jean Chretien pulled the plug on the EHI contract in 1993, operational specifications for the new project were initially scaled back by a third, evidently in the hopes of quickly restarting the competition by making it possible for more aircraft to meet the requirements.

But, it was soon evident that it would be a drawn-out process, which kicked off a debate between operational and political stakeholders about "what the aircraft should and shouldn't be." They did agree, however, that it could not be the EH101. As well, when the prospective suppliers bid, it was "lowest cost compliant" even though, from the RCAF perspective – and eventually, that of Sikorsky – it would be "a developmental aircraft, notwithstanding the rhetoric of the day from the politicians, that we were buying off-the-shelf," the former officer explained.

He also faulted a fundamental lack of project management sophistication for handling developmental programs at DND and PWGSC, due mainly to the fact that Canada has not been the lead customer for a developmental aircraft since the Avro Arrow. That project began as a design study in 1953, and ended with the delta-wing fighter's still-unexplained destruction by government order at the end of that decade. "We always bought after someone else has paid for that first five, six or 10 years of pain: the CC-130J; the CF-18. So the politicization of this project continued, and it became only acceptable in the last few years to accept ‘fully compliant’ [aircraft], because this was a lowest-cost compliant program – 100 per cent on delivery. Everyone else understood it to mean the aircraft would reach 100 per cent compliance, but the initial delivery would occur when the aircraft reached a level of maturity that was acceptable to the air force."

One of the challenges for Sikorsky was its early assumption that Canada's procurement sophistication was similar to that of the U.S. Air Force, U.S. Navy and others, and that a developmental aircraft would naturally continue to evolve during its first few years in service. Notwithstanding the government’s point of view that the Cyclone has not met 100 per cent of the required specifications, Sikorsky takes the position that the aircraft can be flown as is, with later refinements – including those to the helicopter’s system software – to be added in blocks.

"With the aircraft at this stage of maturity, they'd come back at an agreed-upon time and install a software patch, and another at the next mutually agreeable time, until the aircraft is 100 per cent in compliance,” said one source familiar with the Cyclone program and the block upgrade approach. “This would allow crews to start training on the aircraft now. But, there's a reluctance to do that, since the contract apparently does not reflect the reality of a development program.”



PWGSC declined to explain what level of compliance Sikorsky has achieved to date, even though the manufacturer maintains that all Cyclones at Shearwater and Plattsburg are fully "flight ready," and could be used now for basic training purposes only. Informed sources concur that the aircraft in Shearwater are "materially complete" though without operational mission systems yet. Sikorsky also declined to provide information on any technical aspects of the program, citing contract confidentiality.

Nor would PWGSC identify the "independent consultant" hired to review the Cyclone project by Rona Ambrose, minister of public works and government services and minister for status of women. This recent development is generally seen as a way to relieve some of the procurement-related pressure on the government. If the consultant approves or criticizes the project, the government can say it has carried out due diligence and act accordingly. However, sources allege an agreement apparently existed between the government and Sikorsky that prevented the company from talking about the consultant publicly, even though Ambrose then discussed the matter during a recent CBC interview, which was picked up by other media.

Sikorsky spokesman Paul Jackson said it was difficult to comment on Ambrose’s remarks “without knowing more about the context within which they were made, or whether they were accurately reported.”

When asked to describe the program’s state of readiness, Jackson responded that, "The aircraft are there and ready to fly pending the government’s approval; the state-of-the-art training facility at Shearwater is fully equipped with simulators and the other requisite training devices."

One former Sea King pilot had this perspective: "I think Sikorsky has acted in good faith all along; they're been very quiet," he said, adding that he was not implying that the company wasn't without fault. "They've had more challenges developmentally than they'd hoped. But I don't think they were naïve going into it; it was a developmental program with a lot of challenges."


Safety at Stake?

Many in the military are reluctant to raise the fundamental safety issues resulting from the Cyclone's delay into service. There is no escaping the fact that the mission effectiveness of the Sea King fleet diminishes the longer it is in service. Back in 2001, the Auditor General reported that 30 hours of Sea King maintenance was required for each hour's flying time. While Shearwater personnel say that ratio has been drawn down, thanks mainly to modern diagnostics, it remains a significant cost factor which is exacerbated by a growing scarcity of key spares.

The former pilot interviewed for this article said that the Sea King community has been wrestling with these and other issues since the replacement process became mired in government delays. "Thirty-five years!" the pilot exclaimed, adding that despite the frustration, there are tremendous hopes for the Cyclone.

"When you see the two aircraft side by side, you can't even compare them; they're night and day. I love the Sea King dearly; it's carried me all over the world and brought me home. But if I was going to war tomorrow and had a choice, I'd pick the undelivered, uncertified aircraft, because it's so much more capable. We're talking about the technology jump from our current CF-18 to the F-35 Joint Strike Fighter being huge? This is akin to jumping from the CF-104 Starfighter to the F-35. The 104 and the Sea King were both first delivered in 1963!"

With a procurement system divided between a contract management agency (PWGSC), and the end-user community (DND), the end result can be a kind of stasis in which neither department seems capable of making decisions. The process is further complicated by Industry Canada and its focus on contractual spinoffs, known as industrial regional benefits.

On the Sikorsky side, Jackson acknowledged there have been problems with the project. These include issues with the mission systems development, which has proven to be far more complicated than imagined, due to the Cyclone’s high level of sophistication. Sikorsky and General Dynamics Canada have assigned top experts to the challenge, he said.

“We are continuing to have very productive discussions with the government and have high confidence we will find an agreed-upon path to move the program forward,” Jackson concluded. “Sikorsky remains fully committed to this program; and, in the end, all of us want what’s best for the Canadian Armed Forces.”

A defence industry source said Thursday that the Canadian government recently sent a team to the U.K. to look at Royal Navy Merlin helicopters.