Mercado: Navy did not approve Hanwha Systems as ‘substitute’

MANILA, Philippines – Ousted Philippine Navy chief Vice Admiral Ronald Mercado stood his ground at the House hearing on the controversial frigates deal on Wednesday, March 7, as Defense Secretary Delfin Lorenzana heaped the blame on him. 

Mercado was relieved for alleged “insubordination” over the P15.7 billion frigates project of the Philippine Navy, for supposedly insisting on getting the Combat Management System (CMS) of Dutch company Tacticos Thales installed in the warships. 

In the House of Representatives, Mercado said the CMS supplier he opposed – Korean firm Hanwha Systems – was not subjected to the necessary post-qualification assessements. (READ: Ousted PH Navy chief wanted ‘proven technology’ for warships)

“During the contract implementation, Hyundai Heavy Industries wanted to substitute Hanwha Thales with a different technology – Hanwha System – which was never in the SOBE (Submission and Opening of Bid Envelopes) or in the bidding. It is not post qualified, not in the contract and most especially, not compliant with the Armed Forces of the Philippines  (AFP) modernization law requiring that AFP shall procure those defense equipment and critical systems of proven technology,” Mercado said, reading a statement during the hearing. 

Winning shipbuilder Hyundai Heavy Industries offered in 2016 Tacticos Thales and Hanwha Thales (not Hanwha Systems) in its bid documents. It was an issue that hounded the project but was never addressed until Wednesday’s hearing.

Hanwha Thales – a joint venture company – split up in 2016, shortly after it passed post-qualification assessment of the Philippine Navy. The surviving company of the separation was Hanwha Systems.

Mercado said this means the new company – Hanwha Systems – cannot be declared qualified to supply the CMS of the Philippine warships. 

The House hearing went on to discuss the capability of Hanwha Systems to integrate about 19 subsystems to be installed in the warship without the help of Thales, a company with more experience.

Magdalo Representative Gary Alejano, a former Navy officer, said the Philippine Navy’s frigates project might be the first time for Hanwha to attempt to integrate systems. 

Integration is a key issue. The CMS is a critical component of warships because it is supposed to integrate information from the various sensors of the ship to provide situatonal awareness at sea. Warships without an effective CMS are said to be blind to possible threats. 

Mercado said he had an “honest intention” when he pushed for Tacticos Thales. In an earlier Senate hearing, senior Navy officers unanimously agreed in their preference for Tacticos Thales over Hanwha Systems. (READ: Navy chief still wants proven technology over Korean system for warships)

On Wednesday, new Navy chief Rear Admiral Robert Empedrad vouched for the CMS of Hanwha Systems. He said both makers supposedly passed the inspection of the Philippine Navy and it was “inacurrate” to say that the CMS of Hanwha Systems was “inferior.”

The Department of National Defense (DND) maintained that the shipbuilder had the “sole right” to choose the maker of the CMS, highlighting that both makers passed the tests of the Navy. This was a provision that Mercado opposed.

Lorenzana also accused Mercado of violating the Procurement Act for supposedly insisting on a particular CMS supplier and usurpation of authority for supposedly ordering Navy officers to defy DND instructions.

Based on Lorenzana’s timeline, Mercado started working against Hanwha Systems after HHI informed DND that it was installing the Korean CMS. For months, Mercado sent letters to Lorenzana to appeal the decision until he supposedly threatened to cancel the contract in October 2017. 

The January 2017 Malacañang meeting where Navy officers were called to discuss the CMS selection was not mentioned in the House hearing. 

In the House hearing, Mercado also opposed the statement of Lorenzana that Philippines needed to pay extra if they will insist on installing the CMS of Tacticos Thales. 

“During the bidding, HHI never submitted any validity of their bid proposal. Neither did they emphasize that in case the Philippine Navy will select Thales Tacticos, the Philippine Navy will shoulder the price difference. It is basic rule in public bidding that the price offer by the bidder is always fixed,” he said. – Rappler.com