India has terminated a £466 million helicopter order with British-Italian company AgustaWestland International because of allegations the firm bribed officials.
New Delhi said on Wednesday that it had formally terminated a contract for the supply of 12 AW-101 transport helicopters because AugustaWestland had breached a 'pre-contract integrity pact,' but it declined to give further details.
India's decision follows a lengthy dispute between AgustaWestland and the Indian government in which the company has argued that the contract it formed with the government on February 8, 2010, cannot be terminated while such allegations remain unsubstantiated.
The original bribery allegations emerged from an investigation in Italy that lead to an arrest warrant for Giuseppe Orsi, the chief executive of AgustaWestland’s Italian parent company, Finmeccanica. Investigators claim he paid £25.4m to a British man, Christian Michel, to act as a middleman between the company and family members of India's former air chief, S.P. Tyagi. The Indian government has not specified the nature of the suspected bribery beyond these original allegations.
Such allegations first surfaced in February. A.K. Anthony, India’s defense minister, did not believe AgustaWestland’s and Tyagi's denials and suspended the contract at that time.
AgustaWestland fought back in October, citing a clause in the contract that it says prevents the deal from being canceled until the dispute has been resolved. The Indian Government has repeatedly rejected this interpretation, saying it does not view 'integrity-related issues' as subject to such challenges. Nonetheless, the government appointed an arbitrator to handle the dispute on Wednesday, and AgustaWestland plans to continue fighting the termination on the same grounds.
AgustaWestland had already delivered three of the 12 helicopters and received 45 percent of the contract price when its contract was frozen by the Indian government in February. The aircraft were meant to transport India's high-ranking politicians. Three more were completed, but they have not been delivered, and the remaining six are deemed close to completion in the Yeovil factory.
The Indian government might keep the three helicopters it has received and seek a rebate on the additional monies it has paid. This could be the reason why it used the word 'termination' and not 'cancelation' in its announcement on Wednesday, industry sources said.
As noted in the FCPA Blog in October, India's emergence as the largest importer of weapons in the world has coincided with its need to fix a procurement process that has been plagued with bribery problems.
The loss of a significant manufacturing order is also a blow to the UK defense industry, but a UK Government spokesperson said it would not get involved, saying the dispute was 'a matter for the company and the Indian Government.'
Julie DiMauro is the executive editor of the FCPA Blog and can be reached here.