The German government, bent on getting tougher with its arms suppliers, wants compensation from two major defense contractors, Rheinmetall and Krauss-Maffei Wegmann, for delays in the delivery of new Puma tanks.
German Defense Minister Ursula von der Leyen has repeatedly stressed that her patience is running out with defense contractors.
Aviation giant Airbus, Europe’s largest military contractor, was the first to feel her ire when she demanded compensation for delays in delivery of the A400M military transport plane. Now it’s the turn of Rheinmetall and Krauss-Maffei Wegmann.
According to a confidential report compiled for the German Bundestag lower house of parliament, the defense ministry’s equipment procurement office is checking the legal basis for claiming compensation for delays and cost overruns for the Puma tank, an infantry fighting vehicle ordered for the Bundeswehr.
The ministry aims to decide by May whether it will demand compensation and how much the claim will be, according to the report obtained by Handelsblatt, which also lists problems with 14 other government procurement projects.
The defense ministry confirmed it may seek compensation, saying Krauss-Maffei and Rheinmetall were to blame for recent delivery delays of the Puma.
Video: A Puma on the move, uploaded to YouTube by: ArMysInAcTion .
“The Bundeswehr, as the companies’ most important customer by far, is irritated by the industry’s conduct in negotiations on this difficult matter, which doesn’t inspire much confidence,” the ministry said.
Krauss-Maffei could not immediately be reached for comment.
Rheinmetall said that production of the Puma was underway and 19 vehicles had been delivered so far.
Industry sources said there was no basis for compensation claims.
Like so many defense contracts, the Puma project hasn’t run according to plan since it was launched in 2004. According to the defense ministry report, the delays have reached 53 months and costs have more than doubled to €4.4 billion, or $4.8 billion, from an original €2 billion.
But the defense contractors aren’t solely to blame.
Over the years, the contract with the German government kept getting revised — the radio technology was changed and the armor had to be reinforced following experience gained in the German army’s deployment to Afghanistan.
According to the defense ministry report, the delays have reached 53 months and costs have more than doubled to €4.4 billion, or $4.8 billion, from an original €2 billion.
Then the government cut the order volume to 350 Puma tanks from an original 405. A large part of the cost increase is attributable to price adjustments for inflation.
In addition, Bundeswehr engineers voiced quality concerns with the Puma, which meant a July 2014 deadline for technical improvements had to be put back to September 2015.
Now government lawyers are checking whether the resulting cost overruns justify compensation. The older infantry fighting vehicle, the Marder, which was due to be replaced by the Puma, has had to be kept in service longer than planned.
Lawmakers from the ruling coalition of conservatives and center-left Social Democrats have encouraged Mrs. von der Leyen to take a tough line with contractors.
Hans-Peter Bartels, head of the defense committee of the Bundestag, said the ministry should exhaust all legal scope available.
If the government has no legal recourse, “the companies don’t have enough incentive to deliver on schedule,” Mr. Bartels said.
Henning Otte, a defense policy expert for Chancellor Angela Merkel’s Christian Democratic Union, said: “Firms that don’t adhere to the contractually agreed quality or delivery date must in future expect contract penalties and far-reaching measures.”
But it’s unclear whether the government will ultimately extract any compensation fromo its contractors. In many defense projects, the government has limited legal scope for compensation because contracts were poorly negotiated, analysts from auditing firm KPMG, hired by the ministry to review procurement, said last year.
The ministry plans to become stricter in future contract negotiations. Talks are underway on deals to upgrade the Puma at the cost of more than €100 million and to purchase 131 Boxer armored fighting vehicles.
Till Hoppe is an editor who covers the defense industry for Handelsblatt in Berlin. Martin Murphy covers the steel industry among others for Handelsblatt in Düsseldorf. To reach the authors: firstname.lastname@example.org and email@example.com