Revisiting the Government-to-Government Process - The Better Acquisition Alternative for the Armed Forces of the Philippines

MaxDefense has been in up online since May 2013, and for the past 2 years, it believes that the Armed Forces of the Philippines (AFP) has been improved a little better now compared to then. A good sign, after a long time of almost no improvements for close to 2 decades. MaxDefense commends the leadership of President Benigno S. Aquino III for bringing such improvements to the armed forces for the past few years.

But all these gains still fail to avoid us from looking at the other side of the coin. As MaxDefense pointed out in its previous blog entry, the Aquino administration took more than 2 years to approve the endorsed wishlist of the AFP for its procurement under the Revised AFP Modernization Program RA 10349. And so far, the AFP has not receive any major equipment that could be used to defend the country's EEZ and interests in the West Philippine Sea other than 2 gun frigates converted from coast guard cutters.

Add to that other disappointing issues. Just within this year alone, the Department of National Defense (DND) has consistently been in the hot seat and named as one of the most corrupt departments of the Aquino administration. Several accusations of graft and corruption, favoritism, bid rigging, and many other issues within its ranks were reported, and although nothing has been proven yet in the courts of law, the mere presence of these reports are disturbing enough. As they say, if there's smoke, there's a fire. And most of these issues were tied to the bidding and procurement under the AFP Modernization Program.

With all these issues, is the current procurement process really the problem that is affecting all the issues mentioned above? Is it still the best way to modernize the AFP? How far did the AFP Modernization Program (AFPMP) really did move from then till now?



The Great Italian Sale - The Maestrale-class Frigate Saga

After a hopeful start with the AFPMP under the leadership of Pres. Aquino, the AFP formulated a list of what it needs to have to properly defend the country from inside and out. And among those being looked upon to boost the AFP's capabilities and equipment acquisition opportunity 4 years ago were the acquisition of cheap, used, readily available, and still capable Excess Defense Articles (EDA) from friendly or allied nations.

For those who can remember these events a few years ago, many were delighted with the plans to acquire from Italy two units of refurbished Maestrale-class frigates, together with several other equipment offered by the said country including the a couple of Soldati-class frigates and Minerva-class corvettes, hundreds of VCC-1 armored personnel carriers, dozens of FH70 155mm howitzers and Centauro tank destroyers and FH70 155mm howitzers, a squadron or two of AMX attack aircraft, and even a few Tranche 1 EF-2000 Eurofighters. Thus called "The Great Italian Sale", or simply "The Italian Package" within those in the DND and AFP circles.

Those where the days when the military was looking forward to acquire a lot from the Italians, with many in the military saying that finally, the Philippines could now catch-up with the rest in the region. It was even among the reasons why MaxDefense started, to discuss to the public what is happening and what these equipment are for to the ordinary Filipino, in anticipation of many questions coming in from the public.

Remember the Maestrale-class frigate saga? This was actually the start and end of the plans to acquire excess defense articles from Italy. 3 years on, the Philippine Navy still has no frigates except for the Hamilton-class cutters from the US.
Photo taken from Wikipedia.

Aside from Italy, many other countries showed interest to sell their excess defense articles to the Philippines, thanks (or no thanks) to the economic crisis in Europe that time. France, Spain, and even the UK and Germany, were all looking forward for a possible sale, which not only helps them get some earnings while reducing their expenses in maintaining their armed forces, but at the same time was looking at this goodwill gesture to improve relations with the Philippines. Suddenly you can hear news or rumors on the possibility of acquiring Mirage 2000 or Mirage F1 fighter aircraft from France, Leopard 2 main battle tanks from Germany, Santa Maria-class frigates and Descubierta-class corvettes from Spain, and many more as an alternative to what the Italians have to offer.

The French offered excess Mirage 2000 fighters, but nothing was heard after on this offer when the Philippine government decided to go brand-new for its military equipment acquisitions.

The Fall of Plans to Acquire Excess Defense Articles from Europe

Then, it happened. Changes in the military leadership, together with alternatives from other countries, suddenly changed the mindset on the acquisition. The Philippines dropped plans to acquire the Maestrale-class frigates in which almost all the offers made by Italy were tied with. This was because the Philippine government decided to acquire brand-new military equipment by tendering in conjunction with RA 9184 Government Procurement Reform Act. One by one, all the offers from friendly countries died down, and instead the government invited arms manufacturers to join the tenders.

The Italians also offered a hundred of their VCC-1 Camillino armored personnel carriers, an Italian version of the American M113. Eventually, the Philippines decided ask the Americans for M113A2 which was provided by grant. But until now, not even 1 of the 114 M113A2 provided by the Americans are in Philippine Army hands.

The intention was good, as it means the AFP will be getting brand new equipment instead of refurbished old units. But 5 years after, the AFP is still nowhere the original plan that was promised by the Aquino administration, and nowhere from the projected force should the government acquired all those used refurbished European military wares.

Reasons vary depending on who you talk to. The Department of National Defense claims that the ships were too old and expensive for their age, and that buying new would be more beneficial and will not as expensive as earlier thought compared to the offers made by Italy. Some people say otherwise, that the deal fell through because of indecisiveness of the defense leadership. 

Other credible sources say that officials within the AFP and DND are against EDA because they won't be earning anything due to the Government-to-Government (G2G) nature of the deals, and other reasons that are only beneficial to the people involved in the procurement system. MaxDefense won't be too specific on these because in the end, it turned out that the AFP will not be as effective as we thought by 2015.




Failures of the Current Acquisition Process of the DND

The introduction of the system as indicated by the RA 9184 has brought transparency to the procurement system, which was unseen for a long time. Theoretically, the system's safeguards and procedures should instill a fair, corrupt-free procurement process to the corruption-hounded DND and AFP, and clean the institutions from the terrible coinage as among the most corrupt in the government.

But it seems that there are still people who were able to manipulate the system, and still enabled them to continue corruption by going around the implementing rules and regulations. This might not just be the case in the DND and AFP, but also in several other government agencies and departments.

Budgetary issues, red tape, favoritism, failed tenders, lack of experience by the DND and AFP planners, graft and corruption issues, delayed product deliveries, failed products, changing policies of military leaders, leadership incompetency, and other reasons have further delayed the acquisition process of the AFPMP.

Among the most painful of all is the corruption concerns because not only is it delaying the process, but also jacks-up the prices of equipment being acquired to the expense of tax payers, and becomes a reason for substandard equipment to be acquired. Among those corruption issues raised only this year against the DND and AFP leadership include the following issues, but not limited to:

- the acquisition of Dornier-Bell UH-1D combat utility helicopters from Rice Aviation Services Inc., in which accusations of corruption, bid rigging, and flawed products were thrown against the DND and PAF;
- the realignment of the Shore-Based Missile System by the Philippine Army, and supported by the DND leadership, which was accused as a way to get commissions and kickbacks, and as a vendetta against the local agent of Israel Military Industries for filing a graft case against the incumbent Chief of Staff of the AFP;
- allegations that some officials of the DND asked arms manufacturers for a "joining fee" to enable them to bid for certain projects of the AFPMP, which includes Israel Aircraft Industries-Elta and Raytheon

Although no proof has been laid forward until now, the point that there is a new damaging issue coming out in almost every month shows that there is really something wrong with the system. And with the elections coming in very soon, MaxDefense expects more negative news against the AFP and DND, further damaging the effort to modernize the AFP in what remains of the limited time until Pres. Aquino steps down from office.

The realignment of the Shore-Based Missile System has been among the most highly debated upon by defense experts and law makers, and may even cost the appointment of an AFP Chief of Staff if proven to be irregular.

2015 - Where is the AFP Modernization Program Now?

As discussed in the previous MaxDefense blog entry, our assessment is gloomy on where the modernization program is right now. A little summary of our previous assessment:

- the old AFP Modernization Program under Republic Act 7898 is still incomplete until now, with several more projects still ongoing, or has not even started. As of last check, the DND still has around 15 or more projects ongoing or for implementation as of this writing, with the acquisition of a 3rd Hamilton-class High Endurance Cutter from the US Coast Guard as probably the last to be implemented.

- the newer Revised AFP Modernization Program under Republic Act 10349 has only 2 of 33 projects awarded as of this writing, although the government announced during the recent State of the Nation Address that it has recently signed 30 projects for implementation and funding by the Department of Budget Management. None of the 30 projects have been awarded so far.

One of its projects, the Combat Utility Helicopter acquisition for 8 Bell 412EP helicopters, is the most advanced of the projects in terms of implementation schedule, with all 8 helicopters already in the Philippines but can't be considered complete until now because they are not yet commissioned with the Philippine Air Force. The other project, the F/SAA/LIFT acquisition wherein the project will be completed only by 2017.

Only the CUH acquisition has so far gained fruit of all the acquisition plans under RAFPMP RA 10349, as all 8 units of the Bell 412EP are in the country. But deliveries can't be considered complete until now because the PAF has not yet accepted all 8 units as of this writing.
Photo taken from Philstar.

To be fair to the Aquino administration, he has so far done more than the combined administrations of 3 past presidents before him. But as MaxDefense said in the past, the expectations from the public and the defense community was so high because it was Pres. Aquino himself who pegged the expectations to the public by his public announcements and promises. He raised it up with his promises of good governance, efficient, and corruption-free government.



With this, MaxDefense is offering this recommendation based on two problems encountered in the acquisition process: time or speed of acquisition, and corruption. The current system has so many loopholes to allow corruption to take place.


Speeding-up the AFP Modernization: Government-to-Government (G2G) Deals

With a limited time remaining, MaxDefense believes that the only way to improve the AFP in such a short time is by returning back to the option of acquiring excess defense articles from friendly and allied countries through Government-to-Government (G2G) process.

So far, several government agencies has already seen that the current system based on the RA 9184 Government Procurement Reform Act is not applicable for defense-related acquisitions. Moves have been made within the AFP and DND to push to Congress reforms that will enable them to bypass the RA 9184, as DND ASec. Patrick Velez confirmed in one report, "RA 9184 seems not to be fully responsive to the needs of the AFP".

Should any legal changes be made to exempt the AFP Modernization Program from strictly following RA 9184, it would then allow the DND and AFP to go for G2G deals with friendly countries.

Being G2G, the Philippine government can minimize or thoroughly avoid corruption and kickbacks by defense and military officials, as the Philippine government, through its defense department, officially deal directly with the defense ministry of the the seller/donor countries including payments and other financial issues. Corruption can probably only happen if the seller/donor country's defense ministry officials are also corrupt.



G2G of Refurbished Excess Defense Articles

Excess Defense Articles are currently abundant in several advanced nations from Europe, Asia, and the US. It may not be immediately available as expected due to the need to refurbish them and meet certain requirements of the AFP, which may take some time but not as long as constructing a new one.

But with the budget for the AFPMP and RAFPMP already allocated for projects, the only way to allow funds to flow to this direction is by either reallocating them from similar projects covered by the current AFPMP/RAFPMP, or by providing a separate budget for projects under this.

As an example, let's look at the current projects of the Revised AFP Modernization Program under RA 10349. The Philippine Air Force (PAF) requires Long Range Patrol Aircraft, while the Philippine Navy (PN) requires Frigates and ASW helicopters.

Currently, the DND and PAF wanted to pursue the acquisition of new aircraft while also discussing with Japan and the US to acquire EDA refurbished P-3C Orion maritime patrol aircraft. If there are no objections from these countries, then the DND should just push through with the procurement of the P-3C through G2G using the budget for the LRPA project. MaxDefense believes that the LRPA budget can acquire more than 2 fully equipped and newly refurbished P-3C Orion.

As for the Navy, acquisition of refurbished frigates from Europe, Korea or the US can be made. After repair and refurbishing, MaxDefense still expects the first ship to be in service earlier than constructing a new one. And with a Php18 billion budget, the PN can definitely acquire more than 2 frigates. The US is also offering refurbished SH-60B/F anti-submarine helicopters, which can be had for a portion of the PN's budget for each new ASW helicopter. Even countries with more financial capability like Spain bought these refurbished helicopters to fill in the requirements.

Instead of waiting for the South Korean government to grant it to the Philippines, the Philippines must offer to acquire EDA ships from South Korea, with the willingness to pay for them. MaxDefense believes than if acquired now, the ships could be in service by next year.
Photo of Ulsan-class frigate taken from warshipsimages.com

Procurement of New Equipment through G2G

Aside from EDAs, the government can also simultaneously acquire brand new defense equipment for projects meeting the medium to long term needs of the AFP. There's still nothing better than brand new if the need is less immediate. And this can be done also by G2G. Although it may not speed up the construction and delivery of new equipment, it can reduce the time needed during the planning and procurement phase, while also discouraging corruption within the DND and AFP. It is currently an accepted way of fast-tracking acquisitions by the DND as seen by the speed of delivery of the Bell 412EP and FA-50PH aircraft that underwent G2G.

If only most bid-ticket projects under AFPMP and RAFPMP can be shifted to G2G negotiations instead of bidding, MaxDefense believes that most of the projects can be completed and the equipment delivered earlier by at least several months up to a year earlier. 

This also avoids being too dependent on the decision to acquire a system because of cost parameters, as G2G ensures that the military can acquire specifically what they need. This procedure will allow the AFP to avoid getting cheap but possibly substandard or not really their top choice, as topnotch defense materiel are not normally cheap especially that the AFP prefer Western-made systems rather than the cheaper Eastern, Russian, of Chinese systems.

An example of where a tender has become disadvantageous over a G2G deal may include the Combat Utility Helicopter for the Philippine Air Force. Based on accounts with officers of the PAF, they actually prefer to acquire the Bell 412 as its next CUH. The specifications used on the tender was based on the Bell 412EP but some specific requirements were loosen up to allow other bidders to join the tender. We all know that AgustaWestland PZL won the project as they were the only one who can provide a similar helicopter at a lower cost than the budget allocated. And we all know what happened afterwards, until the DND decided to go G2G with the Canadian Commercial Corporation to acquire another batch of CUH, but this time acquiring the Bell 412EP.

Projects that have been awarded and are expected to have repeat orders should not undergo bidding as well, but by G2G deal. Among examples are the Harris Falcon II & III radios, the C-295M and NC-212i, and many others. An equivalent to these equipment are expected to be ordered in the next phases of the RAFPMP, and bidding won't help which may also derail standardization should another supplier and product wins next time.

Harris Falcon II and III radios were among those acquired by the AFP through Foreign Military Sales of the US government, which is essentially a G2G deal. Repeat orders were made for the past 7 years, with another major order made just late last year. More are expected to be acquired from Harris on the next phases of the Revised AFP Modernization Program.

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With the DND's procurement process already becoming less reliable and less acceptable to the general public and to the stakeholders in the government, the DND, if they still have some good men left, should push hard for reforms that would allow defense procurement to be faster and less prone to corruption.

Also, the legislative and executive branches of the government should act fast to pass a new or revised law to back-up the said changes. It is good to note that there are now some lawmakers who are putting their foot forward to help the AFP attain its goals even if it seems insurmountable due to the large amount of budget is needed to overcome their needs.