Power Pack Development Contract Terminated

The tender process of the Power Pack Development Program was launched initially by the Undersecretariat for Defense Industries (SSM) in 2011, to be utilized in the Altay Modern Battle Tank and then in many naval and land platforms in various classes and the tender was won by TÜMOSAN in August 2014 upon the resolution of the Defense Industry Executive Committee (SSIK). However, due to the failure in covering the demands regarding the Selection of the Technical Support Provider, the Power Pack Contract signed between the SSM and TÜMOSAN was mutually terminated

Date: Issue 73 - April 2017

Leaving the HEMA and BMC companies behind upon the resolution of the SSIK in 2014, TÜMOSAN won the Power Pack Development Tender and with the finalization of the contract negotiations with the Undersecretariat for Defense Industries, the contract was signed between the parties on 17 March 2015.

Within the scope of the Power Pack Development Program contract, the indigenous design, development, prototype production, test and qualification of the power pack which was planned to be used primarily in Altay MBT, through the maximum utilization of local facilities and capabilities, with foreign support in required areas by TÜMOSAN, was planned.

Within this context, in line with the details of the contract signed between SSM and TÜMOSAN, the Technical Support Provider (TSP) from a foreign country had to be included in the program. As a result of the negotiations with the candidate countries, TÜMOSAN announced that they signed the Technical Support Provider contract with the Austrian company AVL List GmbH on 7 October 2015. However, especially due to the restrictions on the export license and as the commitments failed to be fulfilled, the contract between the aforementioned parties could not enter into effect. After the intervening 15-month period, a critical declaration was made by TÜMOSAN via the Public Disclosure Platform (PDP).

The declaration made by TÜMOSAN to the PDP on 16 January 2017 is as follows: “Within the scope of the Altay Main Battle Tank Power Pack Development Project and as per the contract signed between SSM and TÜMOSAN, the Technical Support Provider Contract was signed with the AVL List GmbH company as a result the negotiations conducted with the Technical Support Provider (TSP) candidate companies on 7 October 2015. According to the contract, the AVL Company had to deliver the governmental approval after 90 days yet it consecutively demanded extensions and then insisted on an export license containing conditions enabling the Austrian governments’ interference with the internal affairs of our country. The aforementioned export license was not accepted by the Undersecretariat for Defense Industries, thus the commitments were not fulfilled and the TSP Contract was terminated and company’s bond was recorded as revenue. Our company evaluated the potential problems both throughout the preparation stage of the project and after the selection of the Technical Support Provider and conducted activities with the alternative companies and is still executing these negotiations. Recently, due to the sanctions applied to our country by the EU countries in particular, it is understood that critical obstacles would be encountered during the transfer of the technologies regarding both the project and the sub- components within the scope of the project. Within this frame, TÜMOSAN has been continuing its efforts for the accomplishment of the project through the utilization of the most possible domestic resources and shared its suggestions with the SSM. In order for the evaluation of the proposals made by TÜMOSAN and fulfilment of the advance payment obligation, the Undersecretariat for Defense Industries has granted an extension of a month starting from 16 January 2017.”

Then on February 24th, another statement was made to the Public Disclosure Platform by TÜMOSAN and the mutual termination of the contract was announced. In this statement by the company, the process and reasons for termination were summarized as the following: “The Power Pack Development Program Design and Development (Period-1) Contract was signed between TÜMOSAN and SSM on 17 March 2015 and the compulsory Technical Support Provider (TSP) contract was signed on 07 October 2015 between TÜMOSAN and AVL company. From the beginning of the Project, it was agreed as a principle that the Contractor would be able to receive technical support in areas required from abroad and that there would be a single Technical Support Provider in charge of the development of the complete Power Pack. The TSP Companies which were previously identified by TÜMOSAN and other contractor candidates were negotiated with the participation of the SSM representatives and all the companies were regarded sufficiently competent for developing the Power Pack, yet merely the AVL Company committed to present an Export License certificate which did not set any restrictions on the utilization and the sale of the Power Pack to be manufactured in Turkey and thus selected. The period for the accomplishment of the project with a single TSP was projected as 54 months.”

In the ongoing process, the AVL company, which was obligated to present the Export License by 6 January 2016, insisted on an Export License composed of conditions interfering with Turkey’s sovereignty rights and interior affairs that could not be accepted by the SSM and then declared that it could not deliver the Export License demanded. Upon these developments, the TSP contract was terminated and company’s bond at an amount of 500,000 € was recorded as revenue. During the aforementioned licensing process, all facilities were used through diplomatic channels via Turkey’s Embassy to Austria, yet it was understood that as the technologies related with the main battle tank power pack, the ‘National Power Component’ was perceived as very important factors in the international arena and therefore there was a negative attitude of the countries owning these technologies and controlling the market in Turkey’s acquisition of this technology.

Both during the preparation stage of the project and after the selection of the TSP, TÜMOSAN conducted bilateral negotiations repeatedly with the companies from Germany, England, South Korea, Spain, USA, Ukraine, Russia, Japan and Canada in order to set an alternative, and upon these negotiations it was understood that receiving the technical support from western companies was essential due to technical reasons, that a cooperation model based on a single TSP throughout the project period was not possible because of political reasons and that the content and term of the support was going to be limited. 

Moreover, regarding the critical sub systems that were envisioned to be procured Commercial off-the-shelf (COTS) during the TSP interview process and at the award of the contract, the companies commercially manufacturing the similar products did not respond to the calls due to the negative attitude of the EU member countries towards our country, certain sub system manufacturers could not provide export licenses to the TSPs and avoided cooperation with our country because of the incidents occurring in our country and in the Middle East, also avoided making offers. It was learned that certain companies made requests to their governments regarding the export license for the serial production and they would be identifying the principles of cooperation in accordance with the response they would be receiving. During this process, it appeared that all critical sub systems evaluated within COTS would be subject to their country’s export license and that they could not be procured and therefore the Intellectual Property Rights that are the guarantee of the commercial and military independence had to proceed in a way to be owned by the Undersecretariat for Defense Industries in the future. 

In this respect, excluding the Fuel Injection System which could not be procured as part of COTS, the manufacturing and utilization of the critical sub systems such as Hydrostatic Steering Unit, Torque Converter, Retarder, Transmission Hull Casting Technology, Turbo Charger, CGI Casting Technology, Cooling Package, ECU, TCU, Hydrostatic Couplings, Transmission Pumps, Alternator, Starter Motor, Vibration Damper, Brake Lining and Wet Clutches in the prototypes in parallel with the development of the power pack was considered essential.

Upon the European Parliament’s negative attitude adopted towards our country and after the Austrian Assembly’s resolution of 25 November 2016 for preventing their export of military equipment to Turkey indicated that it would be impossible to receive continuous technical support and critical military equipment from the western companies in the future and even if it is based on a contract this support would quite possibly be interrupted.

Since the execution of the contract signed between TÜMOSAN and SSM rendered it impossible especially due to the restrictions set by the western states to receive support from a single TSP until the completion of the project and to procure the Power Pack Sub Systems within the scope of COTS, TÜMOSAN submitted its requests to the Undersecretariat for Defense Industries on 28 November 2016 for the accomplishment of the project through national resources and  requested for the inclusion of the critical sub systems to the project and receiving of specialist support only in required areas. 

TÜMOSAN’s requests for amendments to the contract due to force majeure events were examined and negotiated by the SSM until 24 February 2017, however SSM notified that it would not be legally possible to step out of the contract conditions, and thus the Power Pack Development Project Design and Development Period (Period - 1) Contract signed between 24 March 2015 was terminated mutually. There was no penalty upon the mutual termination of the contract and all bonds of TÜMOSAN were returned.  

Being Turkey’s single domestic diesel engine and transmission design and manufacturing company, TÜMOSAN has been exerting great efforts for the accomplishment of the Power Pack Development Project since 2012, created an R&D Center complex based on this Project’s objectives and invested in human resources. All these efforts and investments are the indicators of TÜMOSAN’s decisiveness on this subject. TÜMOSAN will be continuing to efficiently utilize and develop its human resources that gained essential experiences in the activities so far and its know-how by taking its investors’ interests into consideration. 

With the experiences gained as part of the Altay Tank Power Pack Project, TÜMOSAN will be the most powerful candidate in case there is a new tender for the project.”

With the termination of the Power Pack Development Contract, it is understood that the domestic transmission and the naturalization of the power pack primarily for Altay Main Battle Tank and other Naval and Land platforms initially in line with the serial production process would not be possible in the short and medium term. The attitude and position displayed by the Ministry of National Defense and the procuring authority the Undersecretariat for Defense Industries, after this important amount of lost time, will be shedding light on Turkey’s path in this process in which the urgent requirements of the country grows considerably.