Opinion: Open Tenders Cripple Defence Procurement At Great Cost
(Source: Defense-Aerospace.com; posted June 25, 2018)

By Giovanni de Briganti
The Belgian ministry of defense published a 247-booklet setting out the rules governing its Request For Government Proposals to select a successor to its F-16 fighters, but barely a year later the process has imploded.
PARIS --- The recent implosion of Belgium’s competition to find a successor to its F-16 fighters is but the most recent failure of a fashion that appeared after the end of the Cold War and which holds that open competitions are the best and most proper way of buying military equipment.

It is not clear where this trend originated, but it was heavily influenced by free-marketeers who are convinced, in the face of all the evidence to the contrary, that open competition always ensures the best outcome in any human pursuit.

One of the primary goals of competitions is not only to select the best available piece of equipment at the lowest possible price; it is to ensure, through an open and transparent process, that the deal is free of the sort of corruption and irregularities that had become a byword in defense procurement.

Widespread corruption is what led the Organisation for Economic Co-operation and Development (OECD) to draw up its celebrated anti-bribery rule : the “Convention on Combating Bribery of Foreign Public Officials in International Business Transactions” in 1997, which was reinforced in 2009 by the “Recommendation of the Council for Further Combating Bribery,” and the “Recommendation on the Tax Deductibility of Bribes to Foreign Public Officials.”


Together, these legal instruments – now signed by the 35 OECD countries and 8 non-OECD countries: Argentina, Brazil, Bulgaria, Colombia, Costa Rica, Lithuania, Russia, and South Africa – have very substantially reduced the scope for bribery simply by establishing that corporations and their chief executives can be held liable – and prosecuted -- for any form of corruption committed by their employees.

Other international organisations have also played a role in popularizing competitions in public procurement, for example the rules imposed internally by the European Union, and internationally by the World Trade Organization, calling for open tenders for all public procurement contracts above a certain amount of money – even if defense is specifically excluded.

But these free-market principles managed to spill over into defense procurement, even if no constraints have ever been – nor can ever be -- placed on a sovereign nation’s absolute right to buy whatever defense equipment it wants, by whatever process it chooses.

In fact, the European Union’s own rules governing the internal market recognize this, even if grudgingly, as Article 346 of the Treaty on the Functioning of the European Union (TFEU) allows EU member states to avoid strict public procurement regulations simply by invoking the protection of their essential national security interests.

Open competitions are easy to manipulate

This is in theory. In practice, it is very simple to manipulate an open competition by setting a few, seemingly innocent conditions.

In the case of Belgium’s Air Combat Capability Program (ACCP) to replace the F-16, giving offsets a weighting of only 10% in the final decision ensured that Lockheed’s F-35 offer would not be unduly penalized by the company’s inability to guarantee any offsets whatsoever, due to the rules governing the international F-35 program.

In the same manner, specifying that the maker of the winning aircraft was required to support its fighter on foreign deployments guaranteed that Saab’s Gripen would not compete, because Swedish law forbids its industry from supporting any form of armed conflict.

Boeing, a fourth competitor, dropped out after reading the Request For Government Proposals issued by Belgium, while France, also suspecting that the dice were loaded to favor the F-35, declined to respond to the RFGP and instead offered a “strategic partnership” outside the framework of the competition.

Thus, with just two rules, Belgium reduced the original field of five contenders to only two, one of which -- the Eurofighter Typhoon – is offered by the British government, whose 2016 decision to leave the European Union severely undermines its claim of carrying the only truly European bid.

The ACCP competition finally imploded when Prime Minister Charles Michel decided that Defense Minister Steven Vandeput’s manipulations had become too obvious to overlook. Vandeput’s position has been eroded over a period of months by leaked Belgian Air Force memos that showed he had – willfully or not – first not been informed of, and then ignored, the possibility of extending the service life of the F-16s instead of replacing them, at a cost he estimated at €3.4 billion.

Furthermore, Vandeput insisted – without any supporting legal opinion, and contradicting the disclaimer in his own RFGP document – that he was legally bound to complete the competition, and could not thus even look at the French offer.

This was so obviously biased that it became impossible for the Prime Minister to condone such a flawed process to justify spending billions of euros. So, after the June 15 Cabinet meeting, he postponed the result of the tender to mid-October, and ruled that both the F-16 like extension and the French Rafale offer would be fully examined, together with the two offers of Typhoon and F-35.

Competitions do not rule out manipulation

Manipulation of competitions is not only simple; it also is far more frequent than one would imagine.

In Europe, for example, Dassault refused to take part in Denmark’s fighter competition, which was clearly set up to favor the Lockheed F-35. Boeing, however, did, and found the result so flawed that it sued the Danish government, but eventually lost because the Danish court ruled the government was under no obligation to explain its decision.

Our story at the time explains how the Danish competition was hijacked, and how it arrived at an obviously flawed result despite having followed all the rules.

While Belgium’s ACCP is the most recent defense procurement competition to fail, it is by no means the first. In fact, most competitions fail because.

One famous example is India’s Medium Multi-Role Combat Aircraft (MMRCA) competition, which India ran three times in a vain attempt to buy 108 modern fighters. After a decade of competition and still no fighter, Indian Prime Minister Narendra Modi finally decided to drop the competition and instead sign a government-to-government (G2G) agreement with France to buy 36 Dassault Rafales.

Now, India seems to have launched another competition to buy new fighters, but it is most likely that this one, too, will be abandoned, and that India will probably buy additional Rafales for its Navy as well because it makes no sense whatsoever to introduce yet another type of fighter.

The major factor in Rafale’s success in India, and later in Egypt and Qatar, is that the French government finally agreed to a G2G deal, which gave the buyer the assurance that the deal is backed, and will be policed, by the manufacturer’s own government, and that the equipment is built to the same specifications and quality as it is for the selling government. The cherry on top of the cake is that there is little if no chance of bribery or of other irregularities – or at least they are far fewer than in case of a commercial deal between a manufacturer and a government buyer.

Other countries have run fighter competitions continuously for years, without arriving at any satisfactory conclusion, thus losing time and money. This is notably the case of Bulgaria and Slovakia, to name but two European countries who still have not found a satisfactory solution to their need to buy a new fighter.

Canada’s imaginary competition

Another well-known manipulation was tried by Canada’s then Prime Minister, Stephen Harper, again in favor of the F-35. One day, Harper announced that the F-35 had won a competition, and would thus be ordered for the Canadian air force – although no competition had, in fact, taken place, and that the F-35 had been secretly selected only by Harper and a few like-minded military officers.

This example shows one reason why governments favor competitions, or in this case the appearance of competition: they propagate the impression of a fair contest, where competitors are objectively compared to each other before the best one is finally selected after less suitable candidates are weeded out.

That is all the population generally wants to hear, as the specifics tend to bore laymen to sleep, if not to death. That’s why Harper gambled by saying the F-35 had won a non-existent competition, and he probably would have won were it not for the integrity of a former defense procurement minister, Alan Williams, and the courage of Parliamentary Budget Officer Kevin Page and Auditor General Michael Ferguson, who revealed, documented and explained the true extent of Harper’s lies.

Brazil is another example of where a fighter competition went bust. In this case, it ended when visiting French President Nicolas Sarkozy baldly announced that Rafale had won, and twisted Brazilian President Luis Ignacio Lula’s arm to say so in public. Sarkozy went home, and Lula was succeeded by a party colleague, who promptly reviewed the options, chose the Saab Gripen-E and signed a G2G deal with Sweden to organize its co-development and coproduction in Brazil.

Competitions galore?

If competitions are often used to buy fighter aircraft, they are also used for other types of defense equipment, and they fail there, as well.

The most recent example is Slovakia where, after three years of running an international tended for 3-D radars, Defense Minister Peter Gajdoš said that, “based on available analyses, Government-to-Government (G2G) sales have proved to be the most effective and transparent method of purchasing defence equipment, insofar that deliveries and prices are guaranteed by the selling government. Most importantly, this method of procurement rules out any form of corruption.”

In a June 16 press release, Slovakia’s ministry of defense said it “objects to the claims that a competitive tender is the only transparent method of procurement.” The minister added that, instead, “we strictly proceed in accordance with valid legislation and Government-to-Government transactions [which] are absolutely transparent.”

The United States, who is by far the world’s biggest arms exporter, sells its weapons through the Foreign Military Sales (FMS) process. It signs an agreement with the customer government, adds the export equipment to its own orders, and delivers the equipment to the buyer, taking full legal responsibility for the deal, and ensuring that there are no payment irregularities at government level, although the Original Equipment Manufacturers often take whatever steps they consider necessary to grease the wheels of commerce.

In fact, to continue with Belgium as an example, the original RFGP procedure called for the selected aircraft’s government to sign a G2G agreement with Belgium covering the actual sale and delivery of the aircraft, in addition to the international competition leading to the winner’s selection.

All of this is needlessly complicated. If Belgium wanted to buy the F-35 why did it, like most of the other European countries that selected it, go through the rigmarole of running a “competition” instead of simply announcing it was buying that aircraft?

That’s what Britain, Norway and Italy did when they bought the F-35, and if their decision also attracted criticism at the time it was because of the cost and / or technical problems of the aircraft, and not because their sovereign selection procedure was flawed.

It also is how Italy sold the Eurofighter to Kuwait – a G2G deal that was so closely held by the two governments that very few people had an inkling it was even in the works when it was announced with great fanfare by the Italian government. And, as for other G2G deals there were no complaints from other manufacturers, no accusations of irregularities or corruption.

In conclusion, it is clear that competitions, originally intended to ensure fairness in public contracting, equal chances for all bidders, and the ultimate selection of the best product at the lowest price, check none of these same boxes.

Furthermore, they are simple to manipulate, and offer little in the way of effective recourse to losing bidders who, after losing a tender in which they spent heavily to compete, feel entitled to know exactly why and how they lost.

All of this points to the conclusion that competitions are not worth their cost and, to use a fashionable term, are not fit for purpose as far as defense equipment is concerned.

Sovereign nations should go back to the traditional way of purchasing weapons -- look at the field, request proposals and prices, and then buy whichever product is judged most suitable – safe in the knowledge that direct G2G deals are the least risky of all procurement methods.

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