Backgrounder: the Maritime Helicopter Project
(Source: Canadian Department of National Defence; issued Nov. 23, 2004)

(Note: all amounts in Canadian dollars)
INTRODUCTION

There is no question that the Canadian Forces (CF) needs a new maritime helicopter suitable for the operational demands of the 21st century. The CH-124 Sea King has been in service since the 1960s and, despite the many upgrades and meticulous maintenance it has received throughout its service life, today it is obsolete and increasingly expensive to maintain. To meet current and future defence requirements, Canada clearly needs a maritime helicopter capable not only of the myriad operations possible in today's global environment, but also of integrating smoothly into the Navy's fleet of modern, highly interoperable patrol frigates.

Until that helicopter can be identified and acquired, the Sea King will continue to perform in a wide range of important roles wherever Her Majesty's Canadian ships are deployed.

A helicopter extends the offensive reach and defensive perimeter of a warship to about 175 km (more than 100 nautical miles) on the surface of the sea, and adds hundreds of metres of altitude as well. It also contributes:

--A significantly enhanced ability to detect and destroy submarines;
--An enhanced ability to observe and identify marine traffic, and to provide close security for boarding parties;
--A faster, longer-range, and more versatile search-and-rescue or surveillance capability; and
--The vital ability to transport anything, from people to parts, quickly and safely.


THE MARITIME HELICOPTER PROJECT

In 1999, once the Statement of Operational Requirements (SOR) was approved, development of the specifications began, led by the Maritime Helicopter Project Management Office. During this phase of a procurement project, the military needs set out in the SOR are described in the technical language of industry, so potential suppliers can make a fully informed decision on whether to bid on the contract, and so government contract authorities can establish the criteria required to evaluate the bids. The early draft specifications produced by the Maritime Helicopter Project Management Office were circulated widely, not only to stakeholders in the Air Force, but also to industry, producing hundreds of hours of consultations and thousands of observations.

Commentators both inside and outside the Canadian Forces observed that the early specifications were so robust that it was questionable whether any helicopter on the market could meet the standard. But the aim of the process is to collect and analyze such feedback and to achieve a balance between what the industry can deliver and what the military wants and needs. Before any changes were made as the specifications went through various drafts, concurrence was sought from the Air Force. To ensure that the specifications remained consistent with the SOR, they were evaluated twice by a credible, independent, non-profit engineering firm in the United States and, although the specifications passed through many levels of departmental approval, the leaders of the original military analysis team say that they remain consistent with their findings.

In 2000, the government announced that DND would proceed with the maritime helicopter procurement. In 2001, the procurement strategy was announced: the airframe and mission system would be contracted separately, and each contract would include long-term maintenance services. The all-up cost of the project was estimated at $2.9 billion, and the winning bid would be the one evaluated “lowest cost compliant.” In the words of Alan Williams, Assistant Deputy Minister (Materiel) and the senior government official responsible for the Maritime Helicopter Project: “Our approach is to specify exactly what we require and to select the company that meets our requirements and presents the lowest-cost solution for the full 20-year life cycle of the helicopter.” This approach will ensure that the needs of the Canadian Forces are met and the interests of the Canadian taxpayer are protected.

In December 2002, in an effort to expedite the procurement, the government announced that the helicopter would be acquired by means of a single contract for the airframe and mission systems, comprising the procurement of 28 fully integrated maritime helicopters, a simulation and training suite, integrated logistics support, and a 20-year in-service support contract. With inflation factored in, the new project cost was set at $3.2 billion, not including the long-term maintenance contract.

A Letter of Interest issued to industry in December 2002 produced replies from three companies:
--AgustaWestland (formerly EH Industries), offering the Cormorant helicopter with a Boeing mission system;

--Sikorsky, offering the H-92 helicopter with a mission system from General Dynamics Canada; and

--Lockheed Martin Canada, offering the Eurocopter NH 90 basic helicopter with a Lockheed Martin mission system.

In March 2003, the Maritime Helicopter Project Management Office began pre-qualification screening of the three bidding consortiums. This is a new process that allows potential bidders to determine whether their proposed equipment complies with the technical specifications demanded for the Maritime Helicopter Project: it ensures that suppliers are fully aware of the requirements, and gives them an opportunity to correct deficiencies before the formal Request for Proposals (RFP) is issued.

On December 17th, 2003, the Government announced the results of the pre-qualification process and the issue of the RFP. AgustaWestland and Sikorsky were deemed compliant and thus eligible to submit bids in response to the RFP. The deadline for submissions was May 14th, 2003, followed by the formal evaluation of the two bids.

Having received the submissions, the Project Team evaluated a number of important elements such as price, the responses to the Statements of Work (SOW) for both the MH acquisition and long term In-Service Support, delivery, contract terms and conditions, and Industrial and Regional Benefits (IRBs). The Project Team also evaluated specific plans such as the Project Management Plan, the System Engineering Management Plan and the In-Service Support Management Plan.

The evaluation was based on proposals meeting mandatory requirements and achieving minimum passing marks on the rated requirements established in the evaluation plan. The selection process identified the bidder who submitted a technically compliant bid, at the lowest price with acceptable delivery, terms and conditions and Industrial Regional Benefits.

After a thorough examination of every aspect of the submissions, the bid by Sikorsky represented the lowest cost for the airframe, mission systems, associated logistics and 20-year in-service support, and was declared the winner.


BENEFITS FOR ALL CANADIANS

As part of its winning bid, Sikorsky has committed to undertaking more than $4.5 billion in industrial activity across Canada. The direct benefit of this activity for Canadians will continue long after the delivery of the last helicopter, with work on the helicopter project continuing over the next 20 years. Sikorsky has committed to partner with 170 firms, both large and small, and from our Aboriginal business community, with most regions of the country being home to significant portions of the project activity.

Sikorsky's commitment includes more than $1 billion in Atlantic Canada — an unequivocal acknowledgment of the expertise of individuals and firms in the aerospace industry across the Atlantic region. Sikorsky's bid also involves major activity in the West, totalling more than $390 million and involving innovative companies across the region — from Vancouver to the established industry in Manitoba. As well, Canada's traditional aerospace centres in Ontario and Quebec will host significant portions of the project, including more than $2 billion in Ontario and $955 million in Quebec.

The procurement strategy encouraged bidders to include and involve Aboriginal businesses in their proposals. Sikorsky's bid is very reflective of the Government of Canada's restated commitment to developing business and training opportunities for our Aboriginal people. Work on the Maritime Helicopter Project is a great example of action in this regard, with Sikorsky committing to partner with Aboriginal businesses on upward of $37 million of activity.

Equally significant is Sikorsky's commitment to involve Canadian small business in work on the helicopters. Indeed, its winning bid includes fully $685 million in industrial activity to be undertaken in our small businesses. This is indicative of the innovative skills and processes that exist in not only our larger enterprises, but in the small businesses that are at the heart of Canada's economy.

Canadian efforts on this project will involve innovative companies and talented individuals from British Columbia to Newfoundland and Labrador. These industrial partnerships will mean that Canadians will participate in innovative work on a variety of initiatives, including advanced mission systems, electronics, software development, and sophisticated components that are integral to the helicopter's design and function. Canadians will also work on components of the helicopter's airframe and engine.

Importantly, Sikorsky's work on the Maritime Helicopter Project represents a lasting opportunity for Canada. Firms and individuals across the country will participate in the long term support of these helicopters. Canadians will be fully involved in areas such as the maintenance and repair of the helicopters and their mission systems, and the provision of simulation and training services. Equally important are the relationships that Canadian companies will establish within the international aerospace and defence industry. In the coming years, Sikorsky will continue to work with Industry Canada to develop these opportunities for Canadian industry, and to follow through on its commitment to delivering industrial and regional benefits to Canada. Canadian involvement in this project will position our industry to access future opportunities, and for participation in other significant projects like the MHP in the years ahead.


THE FUTURE

On November 23, 2004, Sikorsky International Operations was awarded two separate, but interrelated contracts. The first contract, with a value of $1.8 billion, covers the acquisition of 28 fully integrated, certified and qualified helicopters with their mission systems installed.

The second contract, worth $3.2 billion, is for the 20-year in-service support for the helicopters, and includes the construction of a training facility, as well as a simulation and training suite.

Delivery of the first helicopter is required to be no later than November 30, 2008 with the remaining helicopters to be delivered at a rate of one per month thereafter. Built into the procurement contract is a series of bonuses for early delivery and penalties [up to $C36 million – Editor] for late delivery that make it very much in the company's best interest to deliver the helicopters as quickly as possible.

The Maritime Helicopter Project has faced its share of challenges, but the Government of Canada and the Department of National Defence are confident that it will result in an unrivalled helicopter at the forefront of modern technology.

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