Modernization projects don’t die. They just get re-labelled

Friday , 5, August 2016 Leave a comment

In the twilight of the Arroyo administration, the AFP was poised to embark upon its most ambitious, most expensive project in AFP history. What would become the largest naval vessel ever to join the fleet the Multi-Role Vessel (MRV) project.

As per PN sources, it was supposed to have consisted of one South Korean-built LPD based on the Makasaar class coupled with a partnership agreement with a yet unselected local partner to build 5 more in the Philippines. After years of negotiation, the DND and the Republic of South Korea had agreed upon project pricing as well as a cap on project escalation costs. The initial vessel would have included the following components


By September 2010, P2B had already been allocated for the project — taking advantage of the then brand new budgetary instrument the DND’s arsenal: the Multi-Year Obligating Authority.

To the horror of the individuals intimately involved in MRV negotiations, when the Aquino administration took over power from Arroyo, all existing projects were suspended. Budgets already allocated — to include the P2B already set aside for the MRV — were earmarked for re-allocation.

The MRV project, as already negotiated, was dead.

However . . . a mere five years after that calamitous turn of events that saw career PN officers resigning their commissions having lost sight of the way ahead for the Philippine modernization program, the BRP Tarlac entered service.


Gone was the original in-country manufacturing deal. In its place was a boost for the Indonesian shipbuilding industry. The AAV component had been spun off into a separate project that is also slated to be awarded to South Korea. The mobile hospital component was no more.

The specific of the MRV project had morphed into the Strategic Sealift Vessel. The Philippine Navy still got its ship.

Fast-forward to 2016. Another President . . . another project.

Reports emanating from the grapevine strongly suggest that the P18B Frigate Acquisition Project is headed for a deal-cancelling delay. While Hanjin Heavy Industries’ bid cleared post qualification hurdles the continued viability of its tender in the face of deferral of actual notice of award is causing the same concerns and general consternation as the original delay of the MRV.

This really should not come as a complete surprise. With a price tag of “P18,000,000,000.00”, it is simply too large of deal to slide through to the contract-signing-state without scrutiny or any form of due diligence on the part of leaders who would then be answerable to taxpayers for the selection.

Will the FAP go the way of the MRV project? There is cause to believe that it would.

That leaves open a number of interesting questions:

Does that put an end to the Philippine Navy’s efforts to acquire Frigates?

Absolutely NOT.

Sail Plan 2020, and the plans that came before it, are products of careful study of the country’s maritime security requirements. While many aspects of the minutiae of requirements definition may post technical challenges, the broadsrtokes for the necessary capabilities are well established. If not completed within the Duterte administration . . . it will be pursued in the next.

As demonstrated by the SSV project . . . the PN will put in the work to get the ships that it needs.

If the deal is indeed cancelled, does this mean that we are back at the start of the bidding process?

What Duterte ultimately decides will be known when he makes it. Predictions about what that decision will ultimately be is a function of the analyst’s faith in — or lack thereof — in the President’s capacity for reason. Setting crystal-ball-gazing exercises aside, we can at least look at the procurement framework within which the President is operating to see what he can do if he so chooses.

Short answer is NO

When the Aquino administration select the FA-50PH as LIFT, it represented the only time that it exercised the following provision in the Implementing Rules and Regulations for the government procurement law:

Negotiated procurement

Negotiated Procurement is a method of procurement of goods, infrastructure projects and consulting services, whereby the procuring entity directly negotiates a contract with a technically, legally and financially capable supplier, contractor or consultant only in the following cases:

. . .

g. Upon prior approval by the President of the Philippines, and when the procurement for use by the AFP involves major defense equipment and/or defense-related consultancy services, when the expertise or capability required is not available locally, and the Secretary of National Defense has determined that the interests of the country shall be protected by negotiating directly with an agency or instrumentality of another country with which the Philippines has entered into a defense cooperation agreement or otherwise maintains diplomatic relations: Provided, however, That the performance by the supplier of its obligations under the procurement contract shall be covered by a foreign government guarantee of the source country covering one hundred percent (100%) of the contract price;

Promulgation of the Defense System of Management (DSOM), comprehensive requirements definition and equipment selection process, within the AFP should have given the Aquino administration the doctrinal and budgetary definition for outright selection of equipment . . . WITHOUT the need for time consuming bids.

Sadly, for reasons that hopefully will come to light in time, after the FA-50 acquisition the Aquino administration refused to leverage this capability for subsequent modernization projects. As a consequence . . . the Frigate Acquisition Project is where it is now. Caught between two administration with an uncertain future.

Will the Duterte administration be gun-shy about using this authority to do away with public biddings and simply pick up where the Frigate Acquisition Project left off, and select South Korean frigates outright?

You be the judge

Contractors with lowest bid not the best for Duterte
Published August 2, 2016 9:53pm
President Rodrigo Duterte said on Tuesday that he would not follow the government’s “lowest bid” rule in awarding contracts for government projects as it led to corruption and usually left the government with sub-standard equipment.

. . .

The president explained that he did not want to purchase equipment that would not be durable.

“Pahabulan ng presyo, pababaan mo ang presyo mo. Iyong iba, 100, ipabili nito ng 20, eh ‘di ipabili mo nalang sa akin iyong made in–alam mo na. Huwag muna ngayon kasi may alitan tayo. Tapos sabihin ng mga sundalo, ‘Sir, nasira agad.’ Kagaya ng jeep ng police. Tignan mo iyong binili nila. Wala na. Sabi ko, ‘Huwag mo akong bigyan ng sh-t na iyan.’ Ako, ang pulis ko doon [Davao City], Isuzu, and it will last for about three to five years. Huwag lang ibunggo ng mga buang,” Duterte said.

“Iyong [medical] equipment ninyo, state of the art. Bahala na mahal. Ayaw ko iyong gagamitin, nasisira,” he emphasized.

Duterte said that to get the best, he would ask experts to guide him on which had the best value.

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