The RASI Huey Procurement: A Black Mark on the AFP Modernization

A UH-1 Huey Helicopter of the Philippine Air Force at the AFP Museum in Quezon City. Photo courtesy of Wikimedia Commons.

The modernization of the Armed Forces of the Philippines (AFP) took a serious blow when allegations of corruption hit another of its procurement programs, this time for the purchase of 21 Refurbished UH-1 Huey Helicopters. This is the SECOND defense procurement hit with serious corruption allegations, the first one was the procurement of M113 Armored Personnel Carriers (APCs).

’History and Milestones’
In order to have a good idea of what really happened to this project, we need to look at the FACTS, and one way to do that would be to take a look at its HISTORY, to take a look at the IMPORTANT MILESTONES that marked it:

- October 29, 2012: The Department of National Defense (DND) announces the bidding for the acquisition of 21 refurbished Huey Helicopters for the Philippine Air Force (PAF) for use in the 2013 elections. Budget is set at USD 1.3 million per aircraft.
(Source: DND to bid out acquisition of 21 Huey Choppers)

- December 6, 2012: The first bidding was declared a failure after the two firms that participated in it failed eligibility requirements. Only the companies Star Defense System/Radom Israel and Rice Aircraft Services Inc. submitted bids.
(Source: Bidding for purchase of 21 Helicopters fails)

- January 22, 2013: Rumors of corruption within the DND start to surface, cites as the main cause for the delays in the AFP modernization.
(Source: Biz Buzz: Lobbying for the Philippines)

- May 27, 2013: The second bidding also failed after the only bidder failed the post qualification requirements. Initially two companies submitted bids, Radom Aviation Systems Ltd and Rice Aircraft Services Inc., but Radom backed out at the last minute for some unspecified reason. The lone bidder, Rice Aircraft, again failed due to problems related to financial, technical and administrative matters.
(Source: DND set to acquire 21 Huey Helicopters)

- September 7, 2013: The third bidding also failed after the only bidder failed to comply with the documentary requirements. Rice Aircraft Services Inc. again was involved in the bidding, this time going into a Joint Venture (JV) with the Canada-based Eagle Copter Ltd., and they failed because some documents turned out to be unsigned, and in one document the signature was questioned.
(Source: Failed bidding in Air Force's 21 refurbished Hueys)

- December 29, 2013: Local media announced that the joint venture of the American firm Rice Aircraft Services Inc. and Canadian company Eagle Copters Ltd. won the contract for the supply and delivery of 21 Huey helicopters for USD 1.3 million each thru a negotiated contract after the three previous bidding failed.
(Source: US, Canada Firms bag PAF Huey deal)

- June 26, 2014: The first four Hueys were delivered at Clark Airbase by Rice Aircraft.
(Source: AFP's new Huey Helicopters arrive, now in Clark)

- March 8, 2015: The Manila Times start to report anomalies about the Huey procurement from Rice Aircraft.
(Source: Choppers bought for P1.2B defective)

- March 12, 2015: DND Secretary Voltaire Gazmin creates an investigating panel to look into the alleged irregularities of the RASI Huey aircraft procurement.
(Source: DND creates panel to look into alleged Chopper deal anomaly)

- March 15, 2015:: Rice Aircraft defended itself from the reported allegations, and also accused Rhodora Alvarez of misrepresenting the company and of corruption. RASI stated that all 21 aircraft had already been shipped to the Philippines and that thirteen had already completed the acceptance process.
(Source: Defense Supplier denies Hueys obsolete, cries extortion)

- March 26, 2015: The DND issues a notice of partial termination to suppliers Rice Aircraft Services Inc. and Eagle Copters Ltd. for failure to deliver the 21 Hueys within the deadline period, which was September of 2014, and exceeding the maximum penalty allowed for the delays, which was reached in January 2015. Only 8 out of the 21 aircraft were delivered as of March 2015.
(Source: DND partially terminates Contract for supply of 21 'Huey' combat helicopters)

- May 20, 2015: Rhodora Alvarez testifies before the Senate accusing DND Undersecretary Fernando Manalo and Rice Aircraft Serv. Inc. of corruption. It was also revealed that only seven Hueys have been delivered and not eight as initially reported.
(Source: Insider tags defense exec in 'anomalous' P1.2-B chopper deal).^[1]

’The Facts, and Questions’
So what are the FACTS above based on the above history of the project? Here are a few, with some questions:

First, Rice Aircraft Serv. Inc. (RASI) participated in EACH and every one of the three failed bidding. In fact, in the last two bidding, they ended up as the ONLY bidder in the project.

Second, despite participating in these three bidding, they FAILED each and every time due to one reason or another, including submitting unsigned documents. How the hell can a company participate in three separate bidding and still fail every time? Couldn’t they learn from their previous mistakes? Haven’t they done this before in bidding in other countries? If so, what is so different from the bidding that we do here that veteran companies end up FAILING the requirements each and every time?

Third, so the company FAILS the bidding requirements thrice, and yet the DND goes thru a negotiated contract with them despite those failures? What happens to those “failures” by the company during the bidding, then? Does the DND now IGNORE those since they are not required anymore? So those requirements were critical for the bidding and yet suddenly they are not so critical now anymore? Really?

Fourth, the deadline for the delivery of the aircraft was in September 2014, and the maximum penalty for the contract was reached last January 31, 2015. If so, how come the DND did NOT terminate right there and then the acquisition as per the contract? Why let the acquisition continue for another four months when they clearly had the right to terminate the contract earlier?

Fifth, the DND only started its investigations when the local media started making noise about the anomalies in the transaction, and then proceeded to CANCEL the contract. So had the media not made any noise, would the DND have taken a second look at the contract? Or would they have just kept IGNORING the fact that RASI already FAILED to deliver the aircraft and exceeded the maximum penalty as per the contract stipulations?

Sixth, the entire procurement program lasted MORE THAN THREE AND A HALF YEARS, and despite all that time, we only got seven helicopters. Take note that we are not buying brand new helicopters here, these are just REFURBISHED aircraft.

Seventh, RASI was quoted last March 2015 as saying that thirteen of their Hueys had already completed the acceptance process, but the records presented to the Senate clearly showed that only seven were accepted. So why the discrepancy in their claims?

’Whistleblower?’
Rhodora Alvarez, a former employee of the Bureau of Internal Revenue (BIR) is testifying before the Senate and alleging that DND and AFP officials conspired to award RASI the contract. But I do NOT find her to be a credible witness at all mainly because she denies being an agent for RASI, and says that her motive was just to “… help the PAF get the choppers …” Clearly she was PRESENT in a number of meetings all throughout the bidding process,^[1] and if she wasn’t a member of RASI, the DND or the AFP, who in their right mind would involve her in such serious business transactions, then? What was she there, a "Miron" ("Kibitzer" in English)? And they allow kibitzers to just walk right in and join business meetings in high security military camps?

I am more inclined to agree to what RASI is alleging against her, that she was acting as a FIXER^[2] (which, as per the Webster dictionary, means "a person who makes arrangements for other people, especially of an illicit or devious kind"), but that somewhere down the line she and RASI had a falling out for some reason, which caused her to now testify against her former employer. So far Alvarez has given nothing but STORIES to the Senate, and unless she can back that up with DOCUMENTARY or some other VERIFIABLE evidences, then her stories are just nothing but GOSSIP, or “Kwentong Barbero” (Barbershop Gossip).

’What Happened?’
For now, we can only speculate on what really happened, and here is my interpretation of the facts: First is that Alvarez either approaches RASI, or was introduced to RASI as someone who is close to the people in the DND and the AFP and who could help them get the contract, so RASI goes on to hire her. However, during the course of the bidding she was unable to “deliver” on her end when RASI kept failing despite her supposed connections.

After the failures, that’s probably when the relationship between Alvarez and RASI turned sour. It's possible that either she kept asking for more money, and/or RASI just decided to just terminate her “services” outright due to her inability to deliver as promised. Either way, the reason why Alvarez is now testifying against the involved parties is to get back at them for firing her.

However, the DND did end up giving the contract to RASI anyway. Not sure why this was so, maybe that is how our current procurement law was set up, that the government can negotiate directly with the same suppliers if the bidding fails. If so, then I don’t think this setup is satisfactory as it could be prone to MALICE and MANIPULATION. Hypothetically, for example, the bidding could be manipulated so that it fails, ultimately allowing an unqualified supplier to get the contract, especially if the previous strict requirements are waived during the next phase of direct negotiations.

The fact that RASI got the business is also the source of all this brouhaha. If RASI had NOT gotten the contract, then there would probably be no corruption allegations from Alvarez because there is nothing to talk about, the DND did not end up doing business with RASI. But they did, and that is why we now have this issue. It's possible that RASI tried to pay off Alvarez to keep quiet after they fired her, but obviously it didn’t work, she was probably steaming from the fact that the deal pushed thru without her.

As for the issue of the DND not cancelling the contract right away after RASI failed to deliver the helicopters on time and exceeding the maximum penalties ... This is hard to explain, and the fact that they had to be prodded by media to cancel the contract tends to add even more to the allegation that there may have been some shenanigans here and there. The non-termination of the contract could be explained off as just a case of incompetence on the part of the DND, but then it’s also not a good reflection on their part considering that they are handling contracts worth billions of pesos.

’Solutions?’
I think that allowing companies that failed in the bidding to still negotiate with the Government is a MAJOR LOOPHOLE that needs to be PLUGGED, or else it will continue to be a source of more controversies. One suggestion I can think of on how to do that would be to perhaps amend the existing procurement laws such that if a public bidding of a major defense equipment or weapon fails thrice, then instead of a “Negotiated Contract” directly with PRIVATE companies, the requirement for the next phase should be to go into a Government to Government negotiation.

A “Government to Government (G2G)” simply means that the buying government will not deal directly with the contractor but thru the government of that contractor.^[3] In the US, these G2G deals are also known as “Foreign Military Sales (FMS)”.^[4] G2G transactions are deemed to be less susceptible (less, but not totally immune) to corruption since governments tend to be sensitive to publicities related to corruption (on most developed countries, anyway), hence the tendency for them will be to avoid such activities as much as possible.

In the case of this transaction for the 21 Hueys, for example, had it gone thru a G2G agreement, it is very possible that the US government would NOT have allowed a company like RASI to go thru with the deal if they see that the company won’t be able to deliver the product at the price and schedule it had set. Because if they did, then that would’ve been a big scandal with serious repercussions for them in terms of negative publicity, or worst.

’G2G All the Way?’
Which brings us to the question: Why not just make all defense transactions G2G, then? Well, it’s because G2Gs also has disadvantages. For one, it may be more difficult to make detailed comparisons between what is really available out there in the market. Second, the buying government may end up paying more than they should compared to a public bidding since they are negotiating only with one source at a time.

Using the RASI deal as an example, the government may have ended up paying more, or ended up getting less Hueys for the same budget simply because a more "legit" and capable supplier wouldn't have been able to meet the low price that RASI set. But then again that is because of prioritizing "Quality over Quantity", and would've ensured that the transaction proceeded with less or no hassles at all, unlike what happened.

In the long term, for a “clean government-challenged” Third World country like ours, G2G may be the only way to go to have more transparent defense transactions. Somewhere along the line, the government will need to find ways to STRENGTHEN the system of how we can select the best equipment available and then buy them thru G2G deals. This will not be an easy task, but it is something which we may need to do, and if done right will make our defense transactions have less controversies.

’Military Secrecy’
On a side note, all these negativity is one reason I am against “secret” military acquisitions being made by the AFP and DND. If “open” transactions like these end up with some questionable items, how much more “closed” or “secret” transactions? Especially if you take into consideration that these deals are worth billions of pesos. The RASI Huey deal for example was worth around P 1.2 Billion, and just a 1% “commission” would be worth around P 12 million already, quite a hefty sum by Philippine standards.

I believe that there is a place for “military secrecy” when it comes to the AFP Modernization, but it should only cover the DEPLOYMENT of these weapons. If they want to keep a secret where and when certain weapons are deployed, then fine, but when it comes to the business transactions like who are we buying them from, how many and for how much, then these should be TRANSPARENT as much as possible. The MAJORITY TAXPAYERS who are paying for these items have the RIGHT TO KNOW how their money is being spent. We should NOT allow “Military Secrecy” to be used as an EXCUSE for corruption.

’Parting Shot’
The RASI Huey procurement is, indeed, a black mark on the AFP Modernization, especially since the accused personalities are also the ones in charge of ALL of the other military procurement, hence this will put those into doubt also. Not sure if the issues in this procurement is really due to CORRUPTION, or just INCOMPETENCE, or a combination of both. At any rate, I am hoping that the other transactions were CLEAN, or that if there really is corruption involved, it is ISOLATED only to this particular transaction.

If not, if they find “dirt” also on the other defense transactions, then that will be a real setback to the modernization. Instead of being just delayed, those pending might end up being cancelled altogether. We will need to keep a close watch on the developments of this issue …

UH-1 Huey Helicopters of the Philippine Air Force in action during the PHIBLEX 14 Exercise. Photo courtesy of the US DVIDS website.

SOURCES:

[1] Insider tags defense Exec in 'anomalous' P1.2-B Chopper deal,
https://web.archive.org/web/20160729135159/http://www.rappler.com/nation/93840-whistleblower-afp-chopper-deal

[2] Chopper Company asks DoJ, Ombudsman to investigate BIR exec for extortion racket,
http://www.tribune.net.ph/metro/chopper-company-asks-doj-ombudsman-to-investigate-bir-exec-for-extortion-racket

[3] Government to Government Contracts in EU Defence Procurement,
https://web.archive.org/save/_embed/http://kammeradvokaten.dk/media/1773/government-to-government-contracts-in-eu-defence-procurement-aei.pdf

[4] Foreign Military Sales (FMS),
https://web.archive.org/web/20160729135733/https://en.wikipedia.org/wiki/Foreign_Military_Sales