Canwest, December 28 2008

The Conservative government has decided that U.S. aerospace giant Sikorsky won’t have to pay $36 million in late penalties even though the maritime helicopter it is building for the Canadian Forces is being delivered two years late.

The penalties were put in place when the contract was signed in 2004 as a way to ensure the aircraft would arrive on time.

The original contract called for the first Cyclone helicopter to be delivered to Canada last month but now that won’t happen until November 2010.

Instead the government has cut a new deal with Sikorsky, resetting the clock on when the firm would be liable for late penalties, if at all. The U.S. company has been given another two years before facing any sanctions.

Both Liberal and Conservative politicians, as well as Sikorsky officials, have in the past highlighted the penalties as evidence that there were severe consequences if the firm didn’t deliver on time. The clause allowed the federal government to charge the company $100,000 a day for every day it was late. The maximum penalty was $36 million.

The new helicopter is to replace the Sea King, which was first deployed in the 1960s.

In January, Defence Minister Peter MacKay brought up the penalties after news reports suggested Sikorsky would fail to deliver the aircraft on time. "There are penalties and clauses that will kick in," he warned.

In June a response from Prime Minister Stephen Harper’s office to reports there were problems with military equipment projects, including the Cyclone deal, noted that "all companies are expected to live up to their contracted obligations and our suppliers are expected to provide what was agreed to."

Duff Conacher, co-ordinator of Democracy Watch, said the decision by the Conservatives not to enforce the penalties is "practising politics . . . just like the Liberals would."

Conacher said the announcement timing, on the night of Dec. 23, and the fact the original press release did not mention the Conservatives were setting aside the contract fines, is another indication the government is trying its best to hide the deal.

Under the new deal, Canadian taxpayers will now pay Sikorsky $117 million extra for improvements to be made to the Cyclone as well as changes to the long-term in-service support package for the aircraft.

However, the government is not discussing the exact nature of those improvements. The Defence Department and MacKay’s office declined to comment, referring inquiries to Public Works and Government Services Canada.

An e-mail from Public Works notes the extra money would go for "an alternate design solution to the helicopter communication tactical data exchange and providing additional capabilities for the helicopters." The helicopters would be able to carry more cargo or fuel if needed but the e-mail doesn’t explain further.

Other unspecified improvements in the design of the 28 helicopters would "provide the helicopter with growth potential for the engine, main transmission and drive system."

When asked to further explain what changes would be made to the Cyclone’s design, Public Works re-sent the same information it provided the first time. At one point there was talk about more powerful engines being installed than originally offered to Canada by Sikorsky but the government is not saying whether this will happen.

Sikorsky also declined to detail what changes will be made. But it did release a statement that it was pleased with the new deal. "We’ve worked hard with the Canadian government to reach an agreement that will provide these highly sophisticated and capable aircraft to the Canadian Forces in the shortest amount of time possible," added Sikorsky spokesman Paul Jackson. "We are continuing to push ahead at full speed with the program."

The e-mail by Public Works suggested the government did not hold Sikorsky responsible for the two-year delay but it did not elaborate.

Steve Staples, president of the Rideau Institute in Ottawa, said the Conservatives should hold Sikorsky to the original terms of the contract signed as well as hit the firm with penalties.

"Why have financial penalties if you’re not going to enforce them?" said Staples, whose institute has spoken out against defence spending and procurement.

Sikorsky is teamed on the contract with General Dynamics Canada of Ottawa and L-3 Communications MAS Canada Inc. of Mirabel, Que.

Agusta-Westland, Sikorsky’s rival in the original helicopter contest, predicted in 2004 that the firm would not be able to meet its timetable since the Cyclone was a developmental aircraft and not in production at the time.
(original link)

 

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THE DOCTOR: I think the opener should read "Sikorsky decided they don’t have to pay $36 million in late penalties for not delivering their aircraft on time." Instead of delivering the helicopter the company promised, they sold the government a new fleet of 28 vehicles to be delivered in 2010. Sikorsky had almost five years, and according to this article, $5 BILLION! Per aircraft, that’s almost $175 million. Now Sikorsky is getting an additional $117 million, but what for?
Also, are there no Canadian companies the federal government could be doing business with? And if not, why doesn’t the government do something about it? Why is doing more business with the United States the solution? Could this be further evidence of the countries integrating?
I wouldn’t be surprised if there was another delay due to the economy, or perhaps the company will bust altogether.

 

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