ANKARA, Turkey — Turkey's defense procurement authorities have decided to scrap sole-source negotiations with the privately owned armored vehicles manufacturer Otokar for a multibillion-dollar indigenous tank program. They will instead open bidding for the same contract.
The contract involves the serial production of the Altay, an indigenous Turkish tank in the making. An initial batch of 250 Altays will be manufactured, but the eventual contract may involve 1,000 units.
"The Undersecretariat for Defense Industries, [or SSM], informed us today that our [serial production] offer had been turned down due to disagreement over contract terms and conditions, most notably price. This requirement will be met through bidding," Otokar said in a June 9 news release
Otokar's Altay prototypes earlier this year successfully completed qualification tests including mobility and endurance testing on rough terrain and climatic conditions, firing tests with various scenarios, and survivability testing.
In 2008, Otokar, Turkey's largest privately owned defense company, signed a $500 million contract with SSM for the development and production of four prototypes of the Altay.
Under the various clauses of the development contract, Otokar, without competition, was to make an offer for the serial production contract. If Otokar's offer was to be found satisfactory, there would be no competition. If, however, the procurement bureaucracy was not content with the offer, then it had all the legal rights to launch competition for serial production of the Altay.
In January 2016, Otokar officially submitted its bid for serial production of a first batch of 250 Altay tanks and integrated logistical support for the program. And in August 2016, it revised its bid and submitted its best and final offer to SSM. Sources said at the time that Otokar's original January 2016 bid was "surprisingly high."
A senior SSM official familiar with the Altay program said Otokar's best and final offer failed to qualify for a single-source serial production contract. "Under the circumstances, competition seems to be the best way to most efficiently handle this critical and complex program," he said.
Another procurement official said that, in the most likely scenario, three local bidders would be invited to join the race. "The natural bidders with capabilities to handle this program are Otokar, FNSS and BMC," he said. He said SSM would formally announce competition for the Altay program and invite bids later this year, "definitely before the end of the year."
One of Otokar's potential rivals is BMC, whose owner, businessman Ethem Sancak, is known to be a close friend of Turkey's president, Recep Tayyip Erdogan. A Qatari investment fund owns 50 percent of BMC. At the congress of Turkey's reigning Justice and Ruling Party in May, Sancak was elected as a member of the party's executive board.
In August 2016, precisely when Otokar submitted its best and final offer, BMC, Germany's Rheinmetall AG and the Malaysia-based Etika Strategi announced they had formed RBSS, a Turkey-based joint venture for cooperation in armored solutions. The companies said the joint venture would focus on wheeled and tracked armored vehicles. BMC officials said they also aim to win the Altay serial production contract.
FNSS is another armored vehicle specialist and a partnership between Turkey's Nurol company and BAE Systems.
The Altay program involves the production of 1,000 tanks, with an initial batch of 250 to be produced within five years. Under the program, Turkey's military electronics specialist Aselsan is the subcontractor for the fire control system and command, control and communications information system. Also, state-owned MKEK was selected as the subcontractor for the 120mm primary weapon, while Roketsan will provide the armor.
The Ankara government's decision to go for a competition modality for the Altay program comes at a time when there are technological snags around the ambition.
SSM says it will launch local efforts to design and develop an engine for the Altay, but industry remains cautious. "No one knows which engine will power the Altay," one industry executive said. "Worse, the transmission system is an even bigger hurdle than the engine."
Otokar announced in March that its sales in 2016 rose by 14 percent to 1.6 billion liras (U.S. $453.4 million). Its exports in 2016 reached $145 million. In February, Otokar signed a deal in the United Arab Emirates worth $661 million for the production of 400 eight-wheel drive armored vehicles.
That contract will be undertaken by Al Jasoor Heavy Vehicles Industries, a joint venture between Otokar and UAE's Tawazun. The deal is the largest-ever single foreign contract awarded to a Turkish company. To boost exports in the Gulf region, Otokar in 2016 launched its UAE subsidiary, Otokar Land Systems Limited.