L-12 Ocean - Contract Award
HMS OCEAN was one of the most controversial and different acquisitions in the British Navy, a Landing Platform for Helicopters [LPH], which was put into service in June 1998. HMS Ocean, officially classed as a Landing Platform (Helicopter), was for many years the largest ship in the Royal Navy.
Much of the reason for allowing the Royal Navy's amphibious capability to decline in the first place was due to budgetary concerns. It was the same issue which almost torpedoed the genesis of HMS Ocean. It was also money that dictated the necessity for a revolutionary alliance between the military and commercial shipbuilding industries. The UK Ministry of Defence issued an invitation to tender in July 1987 for an amphibious helicopter carrier for the Royal Navy. By the late 1980s, the Ministry of Defence's unrealistic budgetary provision of £105 million caused the LPH plan to be scrapped. After the end of the Cold War in 1991, the ministry relaxed its budget cap.
In November 1991 the Under Secretary of State for Defence Procurement approved another competition to commence in January 1992 with tenders to be received some 9 months later.After several "false starts" and revisions of requirements, tenders were invited for this ship under a "Whole Ship Procurement" philosophy. This concept required the contractors to design and to build the ship and to take responsibility for all systems [including weaponry] fitted to the vessel. The tenders included only high-level performance requirements, and general guidance drawings of a "typical configuration" to describe some concepts of appropriate physical space configurations. Seven companies expressed an interest in bidding and, in February 1992, the Department invited all seven to tender. The Department originally invited tenders for the LPH in February 1992 with the intention of placing a contract in November 1993. The date for receipt of tenders was 3 September 1992 with the Department intending to place a contract by the end of November 1993. No formal assessment of the technical, managerial and financial competence of the tenderers to complete the contract was undertaken at this stage. In the Department's view this was unnecessary because demonstration of these factors was a requirement of the invitation to tender.
In the event only Vickers Shipbuilding and Engineering Limited [VSEL] and Swan Hunter Shipbuilders submitted tenders in October 1992, at which point the gap between the two bids, before adjustments for non-compliances, was £9 million with VSEL submitting the lower tender. These were evaluated by the Department over the next three months but, because of uncertainty over the future of the program, discussion of the bids with the tenderers did not commence until March 1993. Subsequently Ministers confirmed the place of the LPH in the program and, in order to give Swan Hunter a chance to secure the future of the company, the Department invited Best and Final offers on 26 March 1993. These were received on 22 April 1993 and the decision on contract award made shortly after. At this stage, the price offered by Swan Hunterhad increased while that offered by VSEL had decreased leading to a gap of £71 million between the two bids.
On 11 May 1993 the Minister for Defence Procurement announced that a contract was to be placed with Vickers Shipbuilding and Engineering Limited (VSEL) for the design and build of a vessel known as the Landing Platform for Helicopters [LPH]. The contract was awarded to Vickers Shipbuilding at a fixed-price of £139.5 million [apx $210-225 million, depending on the rate of exchange being applied]. The Ministerial statement referred to the fact that VSEL had won "by a very substantial margin of over £50 million". Two days later, its competitor Swan Hunter went into receivership. VSEL itself was bought over by Marconi Marine in 1995.
Following the announcement there was considerable speculation, both in the House of Commons and in the media, about the circumstances surrounding the order, particularly the price difference between the bids. Although the outcome of the competition was not due to be announced so quickly, the Department considered that any undue delay in the award of the contract could result in Swan Hunter going into receivership and that, in consequence, the benefits of competition would be lost. Contrary to allegations that have been made, the National Audit Office saw no evidence to suggest that the Department had already made a decisionon the award of the LPH contract by the end of 1992.
The price which the tenderers proposed to charge the Department for the LPH and the costs they expected to incur in building the vessel are not necessarily the same. VSEL opted to take the risk of supporting their bid significantly from the company's reserves. This, together with a sharpening in the Kvaerner Govan price, enabled them to reduce their price at the Best and Final Offer stage. Increases in the Swan Hunter overhead rates and the fact that they included additional costs to make their proposal compliant with the Department's specification led to Swan Hunter increasing their prices at the Best and Final Offer stage. Taken together, these factors largely explain the £71 million gap between the two final offers. Through the use of a fixed price the Department successfully transferred most of the financial risk to VSEL. However, as with any major procurement, there remained a risk that the overall cost could rise substantially if changes to specifications were not tightly controlled.
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