Letter to fellow Ateneo MBA alum, DND Secretary Delfin N. Lorenzana

/ 06:00 PM March 08, 2018

(Editor’s note: This is an open letter the writer, Dr. Corazon PB Claudio (above), wrote to Defense Secretary Delfin Lorenzana in relation to the Frigate Acquisition Project of the Philippine Navy. The opinion contained in this letter is solely Dr. Claudio’s and does not represent the views or opinion of on the issue at hand. Secretary Lorenzana is most welcome to make his response to Dr. Claudio’s letter, if he so desires.) 


Secretary Delfin L. Lorenzana

Department of National Defense


Camp Gen. Emilio Aguinaldo

Quezon City

Dear Sec. Lorenzana,

The Frigate Acquisition Project (FAP) of the Philippine Navy (PN) has been bothering me   since the abrupt relief of Vice Admiral (VADM) Ronald Joseph Mercado as PN Flag Officer in Command (FOIC) because I care much for the PN, our country’s first line of defense, and I have much respect for VADM Mercado, the third PN FOIC with whom I have worked. The recent letter of retired Major General Ramon Farolan to VADM Mercado inspired me to send a letter, too, this time to you, a fellow Atenean, who is the top decision maker in the DND.

The PN is an outstanding organization that I have been most proud of. As you must know, the PN has won several national and global awards—the Island of Good Governance award from the Institute of Solidarity in Asia, the global Palladium Hall of Fame award, and the first TOWNS (The Outstanding Women in the Nation’s Service) award in the military. The PN received at least two of these awards during the term of VADM Mercado, who led in creating the environment that enabled the PN to stand out. It was, thus, a shock to me and to many others within and outside the Armed Forces of the Philippines (AFP) and in the marine science and research community to hear about VADM Mercado’s “unceremonious” relief.

We, Filipinos, should be concerned about many of the issues and recommendations associated with this case. How they will be addressed can influence our national security capability and sustainable development as a maritime and archipelagic nation. So far, my short interaction with you and a longer one that I enjoyed with your wife, Edith, at the last Marine Corps Anniversary made me hope that the issues will be resolved with due respect to both the personalities involved and the PN, as well as the entire AFP, whose honorable traditions and practices have been disturbed by some of the decisions taken on this case.

Let us recall a few important matters that have been partly discussed during the Senate hearing and in the media. During the bidding process for the FAP, Hyundai Heavy Industries, Inc. submitted a proposal for the two frigates that we wanted to buy, with offered two options for the Combat Management System (CMS), the “brain” of a frigate—Thales’ Tacticos from Netherlands and the Hanwha Thales’ Naval Shield from South Korea. Under the two-stage bidding process, Hyundai won the bid with a total cost of P15.7 billion, including the two CMS options for the PN to choose from.


Even before you signed that contract, records show that Thales informed the DND about the break-up of the Hanwha Thales partnership, thus legally leaving only one CMS option in the contract—Thales.

I am surprised, therefore, why you were upset that VADM Mercado “was so focused on one supplier for the CMS,” which, as you mentioned during your TV announcement of his firing, was just inserted in the contract. Wasn’t he just supporting the PN technical staff’s choice of Thales’ Tacticos, which is used by 23 foreign countries, including the US, in over 172 ships, way above in comparison with Hanwha Thales’ Naval Shield, which is used only by the Korean Navy and a Malaysian training ship?

DND Sec. Delfin Lorenzana at the House of Representatives’s Committee on National Defense’s inquiry into the Philippine Navy’s Frigates Acquisition Project (FAP). INQUIRER PHOTO/LYN RILLON

Didn’t anyone in your staff remind you that Thales was the first of the two options presented in the bid proposal of Hyundai and, thereafter, included in the contract? Hence, VADM Mercado did not just insert it. After the Hanwha-Thales dissolution, wasn’t VADM Mercado correct in just focusing on Thales, which was the only CMS option left legally in the contract?

Hanwha Thales is already non-existent.  Hanwha Systems, which Hyundai wants to substitute now, is not in the contract and is, thus, also non-existent legally in the FAP.

We understand that Hyundai is now trying to charge us about $7 million more for each Thales Tacticos if we would choose it as the CMS for a frigate. Sen. Ralph Recto was so strongly supportive of giving our PN the best CMS that he said we should just pay the added cost.

We must thank Sen. Recto for his support.  But, fortunately, we don’t really need to pay more.

Again, Hyundai offered Thales as one of two CMS suppliers in the contract with a fixed total cost. If Thales, for whatever reason, is now charging Hyundai more, why should that be our concern? Of course, Hyundai, a for-profit company, will aim to reduce their cost. Is there anyone else who shall benefit from their savings?

Instead of paying that added cost, shouldn’t we negotiate for a discount from Hyundai because we are honoring our contract with them even after South Korea’s Supreme Court decided on Dec. 22, 2017, to ban them from “participating in state-led tenders such as warship construction projects for two years due to the bribery conviction related to the country’s nuclear power project in the United Arab Emirates.” The ban is “until the end of 2019.” We did not know that before you signed the contract. But it is now well publicized that Hyundai’s  “special ship manufacturing division that makes warships and submarines will not be able to take part in any bids from Defense Acquisition Program Administration for the next two years.”

Hyundai needs the Philippines as a buyer, especially at this time when its own country regards it as an “improper” business entity. We surely must negotiate with them better!

Senator Recto recommended also that we aim to develop our own shipbuilding capability so that we won’t have to buy costly ships, including frigates, from other countries. This is achievable especially since our country is now hosting foreign ship builders and we have been strengthening our science and engineering capabilities. We could start soon by focusing on the CMS, which involves both hardware and software. I strongly believe that we have the latent brainpower to produce it.

The management issue

This could have been a simple management case if only it did not involve decision-making, the most important function of a manager, under much uncertainty. This subject is part of the MBA training that both of us went through. I understand that you wanted to specialize in Operations Research (OR) as an MBA student. Although Ateneo does not provide nor require any specialization, our MBA program covers some OR tools for decision making and others under Quantitative Methods, the subject that I taught as professor at Ateneo’s MBA for Senior Executives and Professionals program.

The major uncertainties in dealing with frigates now involve not only the behavior of countries and their people, but also of oceans, where our frigates must operate in. Unfortunately, there is still global ignorance on the behavior of oceans, which is the biggest uncertainty in dealing with climate change. Oceans hold most of the climate’s heat but there is poor understanding of how they will behave. Creating storm surges, which we have already experienced, is but part of their potential adverse behavior.

Faced with these uncertainties, our PN technical team is right in choosing Thales Tacticos, which has proven performance. Any other CMS that has not been well tested just increases the risk to our frigates in oceans. Dealing with these uncertainties also demands from our defense establishment more understanding of each other’s positions and obligations, as well as teamwork of decision makers. Some weaknesses in these areas seem to have led to the controversies on the FAP.

You sounded visibly hurt when you announced your firing of VADM Mercado as PN FOIC. He made the DND look like the “devil,” you said. Watching you on TV, I thought you sounded like a father who was hurt by a son whom he thought refused to follow his order. As a parent, I understand your feelings. But even if subordinates, like the FOIC and the PN technical staff, would passionately give recommendations contrary to your position, you remain as the higher decision maker. Since you could have just thanked them and went ahead with your choice, is there really insubordination here? If in the future, PN sailors would refuse to use the frigate with a CMS of unproven performance, then whoever is the DND Secretary at that time could charge them of insubordination because soldiers are supposed to follow orders even if they could die doing so, right?

Philippine Navy chief Vice Admiral Ronald Joseph Mercado. INQUIRER FILE PHOTO

If there is no insubordination then, is loss of trust in VADM Mercado’s integrity and leadership enough to fire him? Trust is usually based on one’s perception and it is always right relative to the person perceiving it. But in a serious case like this, when a decision and action affect not only personalities but also organizations, trust must be based on facts and good values.

Could the PN have won those awards if their leader, VADM Mercado, lacked integrity and leadership? Who are now creating false “facts” on VADM Mercado’s dealings with Thales? I hope everyone will be careful in creating stories that cannot be supported by facts.

On values, may I ask you, my fellow Atenean, if the decision to fire VADM Mercado is in keeping with our Ateneo motto “Lux in Domino” or “Light in the Lord.” Was the light of Christian faith sought to guide the decision making process that led to the cruel act of firing him a few days before Christmas and a few months before his retirement on March 10, 2018, thus, damaging his career and personal honor, and adversely affecting honorable traditions and practices within the military? Is this the treatment that we should give a soldier who has spent almost a lifetime in serving our country with honor and who just tried to assist you in implementing the FAP well?

I just hope that when your negative feelings are gone, you will acknowledge that VADM Mercado was just doing his job to ensure compliance with the contract. Perhaps, he sounded like a “makulit” son in reminding you that the contract, which was finalized when he was out in the field as Commander of the Western Command in Palawan then concurrently Commander of the Philippine Fleet, has some weaknesses that need to be corrected to make it fair to us, the buyer.

I pray that you will then demonstrate the values that you so correctly expected from VADM Mercado —integrity and leadership—to issue an apology not only to him but also to the PN  technical staff and the AFP. During the Senate hearing you explained the “unceremonious” relief of VADM Mercado so lightly as such because it “did not have a ceremony.” Do you think soldiers who have seriously committed to die in serving our country will also take the unprecedented firing so lightly? When I commented that it was an insensitive remark, a leading marine scientist said “You are being kind when you say insensitive.” The wrongful decision, with serious negative impact on our military, has pained many of us who saw how courageously the families of our marines killed in Marawi accepted the fate of their sons.

Although you took direct responsibility for the firing of VADM Mercado on TV, I understand that you also explained to past FOICs that you just followed the order of President Duterte, who had denied any hand in this case. In fact, he has already demonstrated his caring for our soldiers through salary increases and frequent interactions with them. Whatever the case really is, we just hope that all in the political arena will also recognize that our soldiers deserve more than higher pays, especially if they are doing their job well.  Our marines and sailors, especially those who have risen from the ranks to become FOICs, and the PN support staff take their responsibilities seriously. Let us return their sacrifices for us by respecting and honoring them, too.

Like you, I am a parent, too. So I hope you will also understand my feelings as a mother to my PN family, which are also visible in the tone and length of this letter.

Sincerely yours,

Corazon PB. Claudio, Ph.D.

Member, PN Board of Advisers (BoA) since 2015

(The author is also Board Vice Chair of The Technical Institute of St. Rita and St. Jude, Inc. and a Trustee/Director of the Philippine Foundation for Science & Technology, Philippine Business for the Environment, Asiapro Foundation, Asian Institute of Journalism and Communication, and TOWNS Foundation. A Balik Scientist, she has a PhD in Engineering-Economic Systems from Stanford University.)

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TAGS: column, corazón pb claudio, Delfin Lorenzana, frigate acquisition project, Hyundai heavy industries, INC, opinion, Philippine navy, Ronald Joseph Mercado
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