Ottawa's patience has run its course as the federal government is set to impose penalties of up to $8-million against Sikorsky for the latest delays in the delivery of a new fleet of maritime helicopters.
The aircraft manufacturer is facing a financial hit after failing to meet a schedule that already has been pushed back from the original 2008 deadline. The amount of the penalty is largely symbolic, representing up to 0.15 per cent of the $5.7-billion contract, but the move highlights Ottawa's decision to take a tougher stand against the U.S.-based company.
"It is important to note that when the government signs a contract, we expect the contractor to deliver on time," said a spokeswoman for Public Works Minister Rona Ambrose.
NDP MP Jack Harris praised the government for hitting back at Sikorsky, which has not lived up to its promises in the Sea King replacement program.
"These penalties are there for a reason, which is to provide a disincentive for further delays and to encourage the company to move faster," he said.
According to the original contract, Sikorsky was supposed to start delivering fully compliant helicopters in late 2008. Shortly before that deadline, the government and the company agreed to a major contract amendment under which fully compliant helicopters would start being delivered in 2012.
To allow the Canadian Forces to begin training its helicopter crews, the government agreed at the time to take the delivery on Nov. 30 of last year of six "interim" aircraft, which would offer reduced capabilities in terms of performance and software.
However, Sikorsky has also failed to meet that timeline, citing a problem detected during testing.
"Our first priority is and always will be to ensure a logical, thorough and safe development approach to aircraft," Sikorsky spokesman Paul Jackson said in a statement. "In this case, the temporary grounding delayed final data collection for vehicle certification despite extraordinary efforts to get back on schedule."
The department of Public Works said the actual amount of the penalties will increase with the length of the delays.
"The amount of liquidated damages to be applied will depend on the extent that Sikorsky experiences delays in delivering each interim helicopter. The maximum amount that could be applied is $8-million," spokeswoman Nathalie Bétoté Akwa said.
In a recent regulatory filing, Sikorsky said the first helicopter would be delivered within the first quarter of this year, meaning by the end of this month. However, Ms. Bétoté Akwa stated, "It is expected that the first interim helicopter will be delivered in spring, 2011," which provides a longer timetable to the company.
Auditor-General Sheila Fraser criticized the purchase of the new fleet of helicopters in a report released on Oct. 26. It said the selection of the Cyclone was a high-risk proposition given that Sikorsky was still developing the aircraft at the time of the purchase. Since then, the cost of the project has gone up by $150-million.
"In our opinion, National Defence did not adequately assess the developmental nature of this aircraft, and the risks related to cost, and the complexity of the required technical modifications were underestimated," the report said. "In addition, the original delivery schedule (48 months after contract award) and the identified risk related to the potential for delays were not consistent with the developmental nature of this acquisition."
Ms. Fraser said that the government will pay up to $168-million to keep the Sea Kings in the air between 2008 and 2014.