Identifier
Created
Classification
Origin
05ANKARA1557
2005-03-17 15:53:00
CONFIDENTIAL
Embassy Ankara
Cable title:  

ONEROUS TERMS OF TURKEY'S REISSUED ATTACK

Tags:  MARR MASS MCAP TU 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L SECTION 01 OF 03 ANKARA 001557 

SIPDIS

STATE PLEASE PASS TO EUR/SE AND PM/DDTC

E.O. 12958: DECL: 03/09/2015
TAGS: MARR MASS MCAP TU
SUBJECT: ONEROUS TERMS OF TURKEY'S REISSUED ATTACK
HELICOPTER TENDER MAY PRECLUDE AMERICAN PARTICIPATION

Classified By: Ambassador Eric S. Edelman, reasons 1.4 (b) and (d).

C O N F I D E N T I A L SECTION 01 OF 03 ANKARA 001557

SIPDIS

STATE PLEASE PASS TO EUR/SE AND PM/DDTC

E.O. 12958: DECL: 03/09/2015
TAGS: MARR MASS MCAP TU
SUBJECT: ONEROUS TERMS OF TURKEY'S REISSUED ATTACK
HELICOPTER TENDER MAY PRECLUDE AMERICAN PARTICIPATION

Classified By: Ambassador Eric S. Edelman, reasons 1.4 (b) and (d).


1. (C) SUMMARY: Eight years after Turkey issued its original
attack helicopter tender and one year after it canceled that
tender, the Turkish Undersecretariat for Defense Industries
(Savunma Sanayi Mustesarligi or SSM) issued a new tender for
up to 91 attack helicopters. Three US companies -- Boeing,
Bell Helicopter and Sikorsky -- received the request for
proposal (RFP) for this estimated $2 billion project. US
defense industry reaction to the new tender -- which contains
78 pages of Terms and Conditions (T&Cs) that must be
unconditionally accepted; excessive technology transfer
requirements; 60% offset obligation; a tight delivery
schedule; and onerous liability clauses, including contractor
liability for any government export control process or policy
change that impacts the design or delivery schedule -- has
been uniformly negative. A number of company representatives
have stated that the terms will be impossible to meet;
however, none of the American contenders are likely to submit
a bid. We understand Bell executives will be seeking
meetings with DSCA head LtGen Kohler and USMC Commandant Gen
Hagee to complain about the tender. Boeing officials predict
that the requirement for interested firms to provide a costly
production site survey and a helicopter flight test by the
June 10 bid submission deadline would require companies to
reveal soon whether they intended to play this out until the
end. End Summary.

--------------
TENDER TERMS
--------------


2. (C) SSM on February 10 issued a tender for the purchase of
50 to 91 attack helicopters, with the initial ten to be
purchased off-the-shelf and the remainder, in groups of 20,
20 and 41 to be built as a combination of a foreign platform
with significant local content (including a Turkish mission
computer, weapons targeting and sight systems and electronic
warfare system),as it comes on-line. If all the options are
exercised, the total contract value could equal around $2
billion. During SSM's March 10 Bidders' Conference, SSM

Aviation Office Director Sedat Guldogan characterized the
first 30 helicopters as firm orders, with the next 20 being
fairly firm and the final 41 helicopters as "optional." The
tender was issued in three parts: T&Cs, Systems Design, and
Offset requirements. According to the rules of the tender,
every page of the T&Cs (Note: the only section of the tender
written in Turkish End Note.) must be initialed to indicate a
firm's unconditional acceptance of all T&Cs up front in order
for a bid to be considered.


3. (C) The Attack Helicopter tender is the first tender to be
issued under new standard contract terms developed by SSM.
Sedat Guldogan, discussing the new contract at the Feb. 23-24
Defense Industrial Cooperation (DIC) conference in
Washington, said the new contract reflects SSM's lessons
learned from past tenders, and represents a effort to
simplify and streamline the T&Cs to ensure that all bids are
for like items under the same terms. Boeing officials who
participated in the March 10 Bidders' Conference and who have
worked with Turkey on past projects, however, called the
tender far worse than any they've previously negotiated.
Among the most onerous terms are the requirement for full and
unconditional transfer of the complete system and subsystems
Technical Data Packages (TDPs),transfer of rights to use the
TDP to make modifications to the system, and required TDP
updating for 35 years; preliminary home government
authorization and/or license provision at the time of bid
submission on June 10; corporate assumption of liability for
performance risks associated with integration of a Turkish
unique components into the airframe; and the unilateral right
of SSM to seize the entire Performance Bond (6% of the total
contract value) for deviations in T&Cs or program execution.
Particularly onerous is the requirement for mandatory bond
replenishment within 15 days of seizure.


4. (U) Beyond the T&Cs, the requirement for the first
helicopter to be delivered eighteen months after the contract
is awarded, and to provide a bid that reflects pricing for a
helicopter that contains as yet unspecified (translation:
undeveloped) local content makes calculating the bid
difficult. To ensure that it is covered for unanticipated
component changes a company may artificially inflate its bid,
which could render it un-competitive. Additionally,
companies are required to commit to offsets equal to 60% of
the total contract price as offset work (to be provided
through local production, training or technology transfer).
This is beyond the 50% offset requirement established last
November as the baseline for all new contracts.


5. (U) Adding to the legal concerns, in the event of a
disagreement or dispute between SSM and the winning
contractor, the Turkish-language version of the contract will
be considered the legal version. Additionally, the winning
company must conduct any and all written communication with
SSM regarding the contract in Turkish.


--------------
BIDDERS' CONFERENCE
--------------


6. (C) All six companies that took the tender (Italy's
Agusta, German/French Eurocopter consortium, Russia's Moscow
Helicopter Plant, US Bell Helicopter, Sikorsky, and Boeing)
participated in the March 10 Bidders' Conference. A South
African company is also expected to participate in the tender
but has not yet picked up the bid package, according to the
local Boeing representative. Foreign government
representatives were not allowed to observe the conference.
Participating companies were required to submit questions in
advance. SSM received over 100 questions, which it provided
to conference attendees in writing, together with SSM's
response. In its responses, SSM clarified points of
confusion but emphasized T&Cs were non-negotiable and
underscored that any bid proposal that did not provide
unconditional acceptance of all terms upfront would not be
considered. The only potential area of flexibility noted,
according to Boeing, may be with regard to small technical
design differences.

--------------
US DEFENSE INDUSTRY PERSPECTIVE
--------------


7. (C) Boeing and Sikorsky representatives separately
expressed to PolMilOffs and Office of Defense Cooperation
representatives their concerns with the tender and their hope
that no firm, particularly no American firm, participates in
the bid. Boeing officials do not believe that any firm could
honestly submit a fully compliant bid. They calculate that
Boeing could only achieve 57% compliance over all three
categories of conditions. While the company could currently
comply with 70-78% of the system design terms, and, with a
small additional amount of R&D, could increase that, it could
not reach full compliance. Before the Bidders Conference,
Boeing officials debated the possibility of submitting a
non-compliant bid, under the assumption that no company could
submit a fully compliant proposal, and therefore, SSM would
be forced to choose the most compliant bid. Undersecretary
for Defense Industries, Murad Bayar, reinforced this idea.
When told by the Ambassador that US firms would have
difficulty submitting a fully compliant bid, Bayar encouraged
them to submit a non-compliant one. However, in the view of
Boeing officials, Sedat Guldogan made very clear at the
Bidders Conference that non-compliant bids would be rejected,
wasting the $2-3M corporate investment required to compile
the bid. Boeing lawyers have also expressed a concern that
submission of a non-compliant bid could provide SSM pretext
to drawn down the required $5M bid bond. Finally, Boeing
estimated the costs of providing the required site survey and
flight test at $500,000-$1,000,000, depending on which weapon
systems SSM wanted demonstrated.


8. (C) Boeing called the most burdensome conditions those
that required the companies to take responsibility for their
governments' action or inaction, including approval of
licenses at bid submission and contractor liability for any
change in export control policy that negatively impacted the
production design or schedule. According to Boeing, the
strict US export control requirements put US firms at a
distinct disadvantage to other foreign contractors. Weighing
the high cost of the complete bid submission process against
the numerous risks, Boeing is unlikely to submit a bid. To
show good faith, however, Boeing executives promised to send
a letter to SSM in the next several weeks enumerating the
company's concerns and asking for a meeting to discuss them.
Boeing didn't expect SSM to grant this request, but the
company would be on record as having attempted to bridge the
divide before it announced its withdrawal from the
competition.


9. (C) Sikorsky's local representative said his company took
the tender primarily to show goodwill to SSM, in hopes of
positively influencing SSM's decision on the purchase of 12
Seahawks for the Turkish Navy currently under review, as well
as consideration of additional Blackhawk purchases in the
General Purpose Helicopter tender to be issued mid-year.
While Sikorsky does not have an attack helicopter, the
representative alluded to something in development and noted
that Sikorsky could demonstrate its armed Blackhawk as an
alternative to at least part of turkey's attack helicopter
requirement.


10. (C) COMMENT: Given the stringent tender terms and the
lack of an attack helicopter to offer, post does not expect
Sikorsky to see the process through to bid submission. Bell
Helicopter, which won the original attack tender in 1999 but
lost it when the contract was canceled in 2004, recalled its
resident American representative and maintains only a local
representative in its Ankara office. Bell officials who came
to Turkey to participate in the Bidders' Conference left
immediately afterward without approaching mission officials.
Post understands, however, that the Bell CEO has requested a
meeting with Lt Gen Kohler, Director of the Defense
Department's Defense Security Cooperation Agency, and with
Commandant of the U.S. Marine Corps Gen Hagee to express
Bell's displeasure with the tender.


11. (C) US defense companies that have dealt with the
vagaries of doing business in Turkey for years uniformly
consider this tender unachievable in its current form, and
SSM's consistent mantra that the T&Cs are untouchable gives
them little hope of working through the problem areas. While
all claim a desire to see foreign and US companies reject the
tender across the board, no one wants to be the first to pull
out, fearing that they will be left behind if others continue
to play and manage to get SSM agreement to relax some of the
terms. If, however, they stay in the game, they will
reinforce to SSM that their protests are hollow and that such
one-sided contracts are acceptable. END COMMENT.

EDELMAN