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BEYOND SIGHT: The Controversial Frigate

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By Monsi A. Serrano

Not everyone knows why the controversial awarding of the Department of National Defense to the Hyundai Heavy Industries’ frigates being sold to the Philippines must be on our radar because there has been a lot of holes and violations in the procurement process that led to the disqualification of the lowest bidder, the Garden Reach Shipbuilders & Engineers Ltd and has a better offer which is the most innovative warship to be equipped by all Thales components and systems and lower than P700M compared with the inferior and downsized offer of Hyundai Heavy Industries.

While the project started during the Aquino administration, as inevitable the Duterte administration has now the ball and they called the shot. Apparently, they made sure that during the post-evaluation, the one that offered the most sophisticated and cheaper than P700M Garden Reach Shipbuilders & Engineers Ltd was disqualified in spite of the fact that apart from the Indian state-agency that has a proven track record for building frigates with Thales components and systems and has Combat Management System that can communicate through the air, water, and land in favor of the controversial Hyundai Heavy Industries. Given this scenario, the Philippines seems to be naive not to know that by rigging the bidding, we are risking our diplomatic relations with India which has been our strong trade partner for so long a time now.

What is perplexing here is the fact that even the South Korean government has long banned Hyundai Heavy Industries from bidding in any warship construction project in their own country. But here in the Philippines, we allowed a banned company to participate in the bidding which I find not only preposterous but also intriguing. Who is going to gain from this? Is there any bribery involvement here in this unreal deal? For those who do not know why HHI is banned from its own country to participate, it is because they are held liable for corruption and bribery practices perpetuated by their executives for their client for a project in the United Arab Emirates.

Laban o Bawi

After Hyundai won the bidding, they wanted to install the CMS (Combat Management System) of Hanwha Systems and not what was stipulated in the contract which was the CMS Tacticos Thales, a more superior and tested system. But Philippine Navy Technical Working Group, under the tutelage of Philippine Navy Chief Vice Admiral Ronald Mercado, rejected the CMS of Hanwha Systems that Hyundai insisted to use because it is not what was agree and written in the contract they signed. Hence, Mercado wrote Defense Secretary Delfin Lorenzana to protest the fine print that Hyundai added. For Mercado, he felt that if this would be permitted, it is like the buyer is dictated by the seller (Hyundai) on what to buy”. And I agree with Mercado, even under ordinary purchases one would like to do, no one would like to be dictated on what to buy much more by the seller! Because of this, it seems like this was the reason why Mercado was relieved unceremoniously and put in a floating status. Because Mercado felt that it would be disadvantageous to the Philippine government to agree with the terms and conditions of Hyundai.

In fact, in a nutshell, this is the primary concern of Mercado in buying frigates whoever the vendors would be. “’Everyone in the Navy wants that frigate because it’s a combat ship. Anong mangyayari sa navy natin kung walang punch, di ba? You cannot have only a transport ship. We should have a punch. The frigate is the capital ship and this is the first in the history of the Navy that we will have a frigate that is newly constructed with missile capable, air surface, undersea.”

Empedrad in, Mercado out: Who Made it Happen?

With the adamant stand of Mercado not to accept the similar technology Hanwha Thales that Hyundai wants to use which is a deviation from the contract, but rather stick to the Thales Tacticos which is not only what is in the contract, but also proven more reliable and widely used. When Hyundai made the offer, they offered the Thales but after they win the bidding, they wanted to use Hanwha which is not capable of doing the tasks required by the Navy. For Mercado, he just wanted to make sure that the deal is not disadvantageous to the Philippine government and allowing Hawna instead of Thales being used in CMS is akin to buying a cellphone capable only of calling and texting.

Because of that, Mercado was accused of insubordination for disregarding directives from the DND to allow the winning bidder HHI to select the supplier of the Combat Management System of the ships. But mind you, when it comes to what is right and at stake is the security of the country, what Mercado did does not call for his removal but instead a commendation for doing what is right, for wanting to have reliable frigates that have a “punch” and for sticking to what was agreed in the contract and that Hyundai would not use the “bait and switch” strategy at the expense of the country. Nonetheless, Mercado was replaced by Rear Admiral Robert Empedrad. But the unceremonious replacement of Mercado did not sit well to many people knowing he is fighting for principle and he is retiring in March 2018.

And the plot thickens

Now because of the removal of Mercado, more questions and suspicions are inevitably coming out. Who is behind this? It is known to everyone that the name of Special Assistant to President Christopher “BONG” Go was dragged into the controversy of the frigates’ purchase. And based on the documents, Go’s name was dragged not once but thrice for allegedly intervening. The documents linked Go are as follows: (1) A Post-it Note on a white paper endorsing a supplier of the Combat Management System (CMS) that was to be installed in the ships, (2) A letter inviting the Navy officer in charge of the project to a meeting in Malacañang about the CMS selection, and (3) A report submitted by the same Navy officer addressed to President Rodrigo Duterte and Go himself.

In the white paper where Go’s name appeared in marginal note endorsing a supplier that now stands to be selected to provide the critical Combat Management System (CMS) to be installed in the warships, Defense Secretary Lorenzana said. “In this document, it appeared that it was given to me by Bong Go. I assumed it came from him. But I realized it did not come from him personally but it came to me while I was in Malacañang.”
This denial is like asking a question if the Pope is a Catholic! But the fact remains someone in the Palace has made this disadvantageous deal happened and the removal of Mercado and put him in floating status.

Now, given the information above, there are things that needed to be done in order to rectify this quagmire and not to create a bad impression to the administration of Duterte especially in the international community and would-be investors and these are: Why did a post-disqualification of GRSE happen without just cause or proper investigation when there was an erroneous application of NFCC by tampering the substantive and qualifier term in the GPPB-prescribed form which is the standard formula for all. The GPPB rendered a ruling where NFCC (Net Financial Contracting Capacity) determines the financial capability of the bidder to undertake the project application was correct in the first place. Hence, that is the very reason why GRSE (the Lowest Calculated Bidder) was post-disqualified. And being an Indian-state agency, the sovereign guarantee is already given.

The DND-BAC deleted a portion of one provision to allow HHI to participate and be eligible in the pre-qualification stage and this is a gross violation in the bidding process. There are also many more violations committed by the DND-BAC such as (a) changing of specs and items to be delivered, (b) nonexistence of components where it was offered; (c) downsizing of the platform of the frigate; (d) authenticity and validity of their “bank guarantee” considering HHI’s financial woes and labor problems that even their own country is questioning the capability of their military equipment and capability. If the DND is allowing Hyundai to select and decide the content/make of our frigate by simply calling it “Maker’s List”, something is really wrong here as pointed out by Navy Chief Vice Admiral Ronald Mercado. Why would you allow the seller to tell you what to buy? These violations warrant to be considered as “MISPROCUREMENT” and calls for cancellation of the contract.

The GRSE had built more than 100 frigates/warships, while Hyundai had only a handful since they are mostly into commercial vessels and not warships that are tested and have the right specs. Therefore, if we will compare the two Frigates, GRSE is generally equipped with Thales systems for all major components i.e. Navigation, Communication, and Combat Management System – and yet it is still cheaper by P700-M compared to HHI.

Now, given this fact, should we not all be alarmed with this deal? This is the reason why this project must be on our radar and make the winning bidder Hyundai Heavy Industries be disqualified and make the bidding void ab initio under the procurement law Article I on General Provisions Section (a) says and I quote, “Transparency in the procurement process and in the implementation of procurement contracts.” Another issue that should have disqualified HHI is based on Article IX Bid Evaluation Section 32 that says, “For the procurement of Goods and Infrastructure Projects, the BAC shall evaluate the financial component of the bids. The bids that passed the preliminary examination shall be ranked from lowest to highest in terms of their corresponding calculated prices. The bid with the lowest calculated price shall be referred to as the “Lowest Calculated Bid.” Was HHI was the lowest calculated bidder? Nope, people of the Philippines. It was the Garden Reach Shipbuilders & Engineers Ltd that gave a lower calculated bid of US$14,912,000.

Already, HHI has violated transparency by not disclosing their involvement in the corruption and bribery charges which were found out by the South Korean government. Apart from the financial turmoil that they have been experiencing including labor unrest and tax evasion. Please check these related links:

Under the procurement law, a bidder must have sound financial capability and has no involvement in any form of corruption and bribery. Why would we not inevitably doubt this deal when we know that there are more questions that need to be answered on this seemingly shady deal. Is this deal really beneficial to our country or to those some people who favored a supplier that should not be qualified to bid? If the bid of Garden Reach Shipbuilders & Engineers Ltd is US322,000,000 and Hyundai Heavy Industries’ bid was US$336,912,000 based on the prevailing exchange rate then of ₱46.732/US$, where would the US$14,912,000 difference go? Who would benefit from it?

We have been wooing investors to come to the Philippines, but if you think that the Indian government will take this rigged bidding sitting down, then you are naive. The Philippines will continue to be a laughing stock in the international community, by favoring a company that is rejected by its own government to supply in their country and reject another one that has a proven track record in their field. Worst, no one would trust us anymore to invest in our country if this is how it is being governed now.

As American Lawyer and Politician Kirsten Gillibrand said and I quote, “I find that when you open the door toward openness and transparency, a lot of people will follow you through.”

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