Dáil Éireann debate -
Wednesday, 17 Oct 2001

Vol. 542 No. 3

Adjournment Debate. - Defence Forces Equipment.

Mr. S. Ryan

The recent weeks have been a disastrous time for the aviation industry. The crisis which has hit the industry following the attacks on New York and Washington will also have a huge impact on related sectors in the aviation business. The FLS plant at Dublin Airport has suffered a significant down turn in business since the events of 11 September. FLS works mainly on aircraft maintenance. Many of its customer airlines are drastically reducing their services, grounding many of their aircraft and cancelling many maintenance checks and other work. At present there is an excellent opportunity for FLS to diversify its current core business and win a substantial contract from Sikorsky to convert 12 B767 aircraft from civilian to cargo use. Winning this contract would guarantee the current jobs at FLS. However, winning the contract depends on a Government decision relating to the purchase of helicopters for search and rescue and Air Corps use.

This is a crucial issue for my constituency in north Dublin. In recent months the north side has

been devastated by a series of major job losses. Today the Minister for Public Enterprise, Deputy O'Rourke, repeated her demand that Aer Lingus should shed more than 2,000 jobs. It now appears from newspaper reports that the Government is prepared to turn its back on 1,500 FLS workers.

Three companies have bid for the Department of Defence helicopter contract. As part of its bid, Sikorsky included a number of offset deals. This is an investment the company is willing to direct towards companies in Ireland on foot of winning the contract. Offset deals are also known as industrial participation programmes. These are common features among our EU neighbours. As part of its bid for the Air Corps contract, Sikorsky outlined its investment commitments not only to FLS but to Pratt & Whitney in Baldonnel and Dell computers in Limerick. It is a win win situation for Irish industry, workers and the Department of Defence. Yet, incredibly, it appears the Department will not consider the offset aspect of Sikorsky's bid because it failed to include this criteria in its original tender documents.

I welcome the Minister to the House this evening. I want him to explain to the House why this marvellous opportunity for high technology Irish companies to win substantial new business was ignored in drawing up the tender documents for the Air Corps helicopter contract. Industrial participation programmes are not sweeteners, as some have tried to portray them. They are an integral part of defence procurement across the EU and they ensure the State and the economy get the best value possible from a substantial investment in military equipment. It is nothing short of scandalous that the Minister allowed the tender documents to issue without reference to industrial participation programmes. At best the Minister is guilty of gross incompetence. Did he know about the practice of industrial participation but fail to appreciate the critical importance of this mechanism for companies, such as FLS?

Opinion in Irish industry cannot believe the Government will spend up to £100 million on a helicopter contract and turn down the opportunity to secure benefits for companies in Ireland as a result. We are putting ourselves at a huge competitive disadvantage compared to our EU colleagues. I am aware that ICTU and IBEC, which are not natural bed fellows, have lobbied the Taoiseach about the added value of the Sikorsky bid. They joined the FLS workers who have expressed their views to me and other public representatives in north Dublin that this is the way forward.

Is the Minister deaf to this cry for common sense to prevail? Does he have the courage to understand he is responsible for an enormous error which could undermine jobs in FLS and deprive other Irish companies of much needed investment? Does he have the dignity to recognise this error and call a halt to the current tendering process and re-issue the documents with an industrial participation clause if he cannot proceed as I have outlined this evening? The Minister's handling of this contract has not been in the best interests of all concerned. Will he give serious consideration to re-evaluating the terms of the contract documents to ensure it is in the best interests of the country and the employees of FLS and other companies?

Minister for Defence (Mr. M. Smith)

The tender competition for the acquisition of medium lift helicopters for the Air Corps is progressing well. This project forms part of the major investment programme upon which this Government embarked in 1997. In the three year period to 1997 investment on equipment for the Defence Forces was £95 million. In the period since I was appointed Minister almost £180 million has been invested on equipment for the Defence Forces and a £250 million investment programme, including more than £100 million for building projects, has been put in place. We are seeing the fruits of this investment throughout the Defence Forces. The equipment programme is wideranging and covers the Army, Air Corps and Naval Service.

I recently announced my plan to acquire an additional 20 Mowag armoured personnel carriers to complement the 40 to be delivered early next year. Major construction and refurbishment programmes, which will be funded mainly by the proceeds of sales of barracks, are now under way. The second new vessel for the Naval Service, the LE Niamh, was commissioned in Cork last month.

The medium lift helicopter for the Air Corps forms an integral part of this major investment programme. The tender competition is at an advanced stage. The project involves the acquisition of two medium lift helicopters, with an option of a third, for search and rescue purposes as well as an option for two medium lift helicopters for general purpose military transport. Tenders were invited on 5 March 2001 and the closing date was 19 April 2001. Four tenders were received. The four companies involved are Sikorsky from the USA, EH Industries Limited from England, Eurocopter from France and CHC Scotia from Scotland. The tenders are being subjected to a comprehensive evaluation process which included visits to each of the four companies involved. This evaluation process is being undertaken by a project team comprising officials from my Department and Air Corps personnel assisted by an outside consultant. The team's report will be examined by my Department to ensure policy and procedural compliance, after which negotiations will be entered into with a selected contractor.

The tender competition for the supply of the helicopters is being carried out under EU contracts procedures. The award of contract criteria set out in the tender documentation states that the contract will be awarded on the basis of the most strategically and economically advantageous tender applying the following award criteria, although not necessarily in order of priority: functional characteristics; technical merit; all maintenance and on-line technical support; after sales service and warranty terms on offer; cost and ready availability of spare parts; tender prices and life cycle costs over a nominal 20 year period. Other factors cannot be taken into account as part of the evaluation process.

It is not the practice to consider offset or counter-trade issues as it is not possible to measure objectively the value of such offers in the context of the assessment of a tender. The long-term economic effects of such offers would be unquantifiable due to a variety of reasons. Negotiations on counter-trade, were it to be a consideration in the course of a tender competition, would invariably take place between the tenderer and a company or number of companies located here. In such circumstances there could be no control over the conduct of those negotiations by the Department in question. From the point of view, therefore, of maintaining a truly competitive process any consideration of counter-trade should only come into play after a decision to enter into contract negotiations with the chosen tenderer. There is no provision in the EU procurement directives for offset as a criteria for the award of contracts and, therefore, it is not the practice in my Department to consider offset in the formulation of a request for tenders. Once a decision on the merits has been made on a contract it is the practice in my Department to seek offset in Ireland in the case of major contracts. It is made clear to the contractor that there is no legal or contractual obligation to provide such offset. Many contracts have resulted in significant offset to the benefit of the Irish economy.