Swedish defense contractor has Defense Forces over a barrel

CV90. Photo: Ardi Hallismaa / Kaitsevägi

Estonia planned to refit cheap CV90 chassis procured from Norway as support armored vehicles for the Scouts Battalion but finds itself victim to the monopoly of a major manufacturer. The tender was written off on the last day of the year, support vehicles will be at least six months late and no one knows how the matter will be handled.

Christmas was a troubled time over at the Ministry of Defense on Sakala street. While the ministry had successfully showcased long-range anti-tank weapons and new automatic rifles tenders just a week before, one of Estonia’s most complicated defense procurements – the plan to refit CV90 chassis as support armored vehicles – was headed for a dead end.

The matter concerns 37 turretless CV90 IFV chassis that have been sitting idle in a hangar at the Tapa campus of the Defense Forces for two years.

Estonia bought the vehicles from Norway for a pittance of €635,000 after the Scandinavian country wrote them off after 20 years of service.

The vehicles are supposed to be converted into support units for the Scouts Battalion’s CV9035 IFVs that would perform a range of tasks from fire control and close-quarters defense to anti-aircraft and medical roles.

The Defense Investments Center (RKIK) held a tender for the reconstruction of the chassis in August of 2017. The winner would have two and a half years to refit 31 chassis. The remaining six vehicles to be fitted with 120 mm mortars would be rebuilt in the future. The winner would also have to offer service and repairs for all 37 vehicles, as well as spare parts and general support for up to seven years.

The dog lies buried in the latter requirement. Estonian defense planners calculated that the work should cost no more than €30 million. The tender was also open to Estonian defense contractors that was expected to bring down the price further.

Things still seemed to be going fine in May of last year. Four companies qualified for the tender: original manufacturer of the CV90 BAE Systems Hägglunds, German company Flensburger Fahrzeugbau Gesellschaft (FFG), Estonian contractor Bristol Trust and the joint bid of Joint Depots and Scania Estonia.

Spare parts denied

It did not take FFG long to back out after successfully qualifying for the tender. The Germans said that they cannot comply with the requirement for original spare parts. The problem was that BAE Systems and its subcontractors have control of the entire manufacturing chain and simply refuse to supply them. RKIK demanded original parts to rule out the possibility of IFVs breaking down in the heat of battle due to unreliable components.

As there are considerable sums at play and disputes will likely take a long time to settle, several participants refused to comment under their own name.

What they said is that BAE did not wait long to disqualify other participants. “After consultations with BAE Systems, we are forced to notify you that we cannot supply you with spare parts,” a company manufacturing parts for BAE Systems told an Estonian contractor in an email without providing any further explanation.

It has even been suggested BAE Systems tried to have Scania Sweden refuse to supply tender participants with engines for the CV90 that would have dropped them from the running. Scania refused.

By last fall, it had become clear on Sakala street that BAE had simply cut the others off in hopes of making more money. While such powerplays are hardly rare in global competition, it took Estonian officials by surprise.

Postimees was told from the ministry that while they were aware of risks, the ministry hoped it could manage them. Officials believed BAE Systems Hägglunds, that has not manufactured any new CV90s for a full decade, would have a competitive edge even if it agreed to sell spare parts to other participants. Besides, that is the case in Norway and Finland where no obstacles have been made in terms of procuring the necessary parts.

The Ministry of Defense and RKIK contacted BAE Systems but were not given any sensible explanation as to why the group refuses to sell parts to other contractors.

Estonian companies did not give up. Engineers spent nearly two months measuring the CV90 chassis in Tapa last summer. The two participants sent RKIK their bids this fall, hoping spare parts that are equivalent to original components would be deemed acceptable.

When RKIK opened the bids in late fall, the difference was staggering. Information available to Postimees suggests Joint Depots and Scania Estonia and Bristol Trust promised to refit the vehicles for €21.1 million and €21.6 million respectively, while original manufacturer BAE Systems wanted €39.4 million.

The ministry now found itself in trouble. The two Estonian companies failed to qualify because of incomplete documentation and the original parts requirement, while paying BAE Systems what it is asking is out of the question as it would break the bank of the Defense Forces’ armored maneuver capacity budget of €180 million.

RKIK made a decision on the last day of 2018 and found the tender had failed. “All bids were rejected as they failed to meet the conditions,” said RKIK Director Col. Raino Sirk. He said that all bidders, including BAE Systems Hägglunds, failed to present all the necessary documentation or guarantee availability of original spare parts.

Representative of Bristol Trust OÜ Priit Raju said the company does not accept the center’s decision. He maintains that all requirements were complied with. “We offered all necessary spare parts and stand by their quality. Industry has come a long way, and it is possible to acquire much better-quality products than they knew how to make 25 years ago,” Raju explained. The company will decide whether to contest the procurement in the coming days.

No solution in sight

Postimees’ information suggests Estonia has several options. Firstly, RKIK can hold a new negotiated tender for the participants from which the requirement of original spare parts has been removed. It would be cheap but force the Defense Forces to make concessions in quality that might be too risky. Secondly, it is possible to procure new support IFVs and sell or write off the CV90 chassis. This would require different kind of training and be time-consuming, not to mention expensive.

The decision needs to be made in the coming months. “We are in the middle of an analysis right now. Possible solutions include using existing turretless vehicles as well as various alternatives,” said press representative of the ministry Andres Sang.

“The CV90s will be put to use one way or another. They will not sit idle in that warehouse forever. Talking about an alternative platform, we need to take into account not just the purchase price but also how thoroughly they need to be rebuilt and how much they will cost to run,” Sang added.

What is clear by today is that while the Scouts Battalion was initially meant to get its support IFVs in 2021, delivery will be postponed by at least six months now. The target of achieving armored maneuver capacity by 2026 is not jeopardized.

“As things stand, the reconstruction tender will not be postponed long enough to seriously affect armored capacity,” said Defense Forces infantry inspector Lt. Col. Tarvo Luga. “Maneuver units will not have to go without support in a situation where delivery of support IFVs is postponed.” Support will be ensured by using existing Sisu armored personnel carriers.

BAE Systems Hägglunds had not commented on Postimees’ inquiry into possible market manipulation by the time the article went into print.