The Government has selected EN Bazan as prime contractor for five new frigates for the Navy. The contract with Bazan is valued at approximately 10 billion NOK, out of which about 45 % represent sub-deliveries from the U.S. company Lockheed Martin. The Government’s decision has been conveyed to the Parliament’s Committee on Defence, Bazan and Blohm & Voss. The contract will trigger attractive offset orders equal to the contract value. These orders will significantly enhance the competence level in Norwegian industry across a wide range of technology areas. Several major Norwegian companies have concluded agreements with Bazan and its sub-contractors which can be described as partnership agreements. They ensure long term co-operation which provide the companies with opportunities to become strategic suppliers of sub-systems, components and other equipment.

Based on an overall evaluation the Government has concluded that the Spanish supplier has the best offer. Independent risk assessment shows that there is a risk that the total project budgetary limit of 12,24 billion 1999 NOK may be exceeded. Analysis shows that action can be taken to reduce the uncertainty. Some measures have already been determined and additional will be implemented. It may still be advisable to make budgetary allowances. In the near future, the Government will table a Proposition to the Parliament which describes all relevant aspects of the project, including uncertainty.

The vessels are scheduled to be delivered between 2005 and 2009.

Needs

Norway manages resources and exercises authority in an ocean area seven times the Norwegian mainland. The primary task of the frigates will therefore be to maintain sovereignty, secure our gas and oil installations as well as protect international sea-lanes. The frigates are also intended to provide support to civil society during disasters and accidents. In addition, the frigates are to assist in handling international incidents in collaboration with forces from other nations. When commissioned and in operation, the new frigates will comprise a significant contribution to Nato’s reaction forces and standing fleet. Of the original five Oslo class frigates which Norway uses today, only three are operational. These were commissioned in the 1960s and are old and worn. It is important to emphasise that the time from when the project was started until the first vessel becomes operational will exceed 10 years.

Negotiation process

The planning process for the new frigates began in 1994. Twelve shipyards were invited to participate in the competition and by spring 1999 only two candidates remained after the Norwegian contender withdrew its bid. After a thorough evaluation of the bids the Armed Forces commenced detailed negotiations with Bazan which was viewed to have submitted the most favourable bid. During the same period negotiations have also been conducted with the German candidate, Blohm & Voss. In December 1999 the Chief of Defence recommended to enter into contract with Bazan. Upon evaluating the negotiated contract, risk assessments and the contents of the offset agreement, the Minister of Defence has reached the same conclusion.

Further action

As indicated in Parliament Proposition no. 65 (1998-99) the Government has pledged to keep Parliament continuously informed of project developments. The Parliament Committee on Defence has been briefed on the Government’s decision earlier today. In the near future, the Government will table a Proposition to the Parliament in which it describes all relevant aspects of the project, including uncertainty. As soon as Parliament has approved the Proposition, the contract will be signed.

Offset

A very favourable offset agreement has been reached with Bazan that will ensure large orders and important transfer of competence to Norwegian enterprises in the years to come. Through a 10-year period, 100 % of the contract amount will be compensated. If the offset agreements are not fulfilled, penalties will apply. In connection with the construction and outfitting of the frigates, Norwegian companies will receive direct offset orders worth some five billion NOK. Bazan commits itself to buying products for at least 450 million NOK from Norwegian suppliers in the naval-technical field. Norwegian defence industry will provide substantial equipment to the frigates and indirectly to the Spanish Armed Forces. So far, negotiations are concluded on e.g. the delivery of Penguin missiles to the Spanish Navy and the air defence system NASAMS to the Spanish Air Force. These contracts amount to approximately one billion NOK. The Ministry of Defence had made these contracts a prerequisite for ordering the frigates from Bazan. Small and medium-size enterprises shall be favoured with offset orders worth approximately one billion NOK.

Risk assessment

The Armed Forces has put great effort into identifying uncertainty aspects related to the project, and has taken action to reduce them. These efforts have in principle been carried out by the Armed Forces itself , but with good support from Det Norske Veritas (DNV). DNV has contributed especially to the estimation of the project’s total uncertainty. The frigate project is the first to be subjected to an external risk assessment. This work has been undertaken by HolteProsjekt. There is a fairly large gap between the estimates, which for the most part can be ascribed to the gauging of the uncertainty and the scope of the uncertainty figuration. HolteProsjekt gives an estimate just above the project’s upper financial limit. It is strongly emphasised that these estimates must not be perceived as a foretold cost overrun, but rather as an indication that it will be advisable to make budgetary allowances so that risk related to the project may be managed in a satisfactory way.

Increased operating costs

A commissioning of five operative frigates of this type will increase the Navy’s annual operational costs by some 450 million NOK. These additional costs shall be financed through restructuring and reductions. The Navy’s total budget for 2000 is approximately 2.8 billion NOK.

Media services

Video materiel, animations and information about the vessels that are not on the Internet may be obtained from the Navy Material Command, the Frigate Project. Contact Project Co-ordinator Paul Kolseth, tel. (47) 92 69 19 19. Frigate suppliers may also be contacted regarding information and materiel. An overview of the Norwegian Armed Forces in English is given in: A summary of White Paper to the Storting No. 1 The Defence Budget 2000 (1999-2000). The document can be found at:

http://odin.dep.no/bud2000/sb/fd/kortversjon/eng/summary.html

For further information please contact:

Ass. Director General Kirsti SkjervenTel: 23092310 or 90849752

Senior Advisor Kåre Helland-OlsenTel: 23092312 or 90947071

Advisor Runar TodokTel: 23092307