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Sunday, June 1, 2008

Public Safety Notebook

Lee Benson

Paying the Price

Hello, fellow rotorheads. I must start this article by mentioning the recent Heli-Expo, held in February in Houston. Shannon Bower (another frequent contributor to Rotor & Wing) and I had the great pleasure of arriving in Houston via a Bell Helicopter 412 from Seattle with our trusty mechanic Jim Ring. I also must comment on the industry buzz. My first helicopter flight was 40 years ago and I have never seen the helicopter industry more dynamic than it is today. Outside of shortages of good people and products to sell, from the CEOs of major companies and mid-level aftermarket companies to pilots and mechanics, everyone I spoke with was brimming with optimism.

Last time I wrote about helicopter acquisition, I indicated that this column would have some thoughts on liability and intellectual property. Years ago, when Alaska Helicopters bought the Hiller UH-12E, intellectual property issues weren’t high on its list of concerns.

The UH-12E’s entire option package was one VHF radio. Today, most helicopters used for public safety have an array of specialized equipment: a forward-looking infrared sensor (FLIR), Nightsuns, moving maps, medical interiors, etc. The need for this equipment entails multiple modifications to achieve the final configuration of the mission-ready helicopter.

So, where does the engineering data for these modifications come from? Here is my point. In the past, it seemed reasonable to think that the original equipment manufacturer (OEM) would provide the engineering data necessary to configure the helicopter to accomplish its pre-acknowledged mission. In fact, my previous employer bought a used helicopter from the factory in 1988. This model had never before been used with a fixed-water drop tank. The cost to the agency to acquire the engineering data necessary to mount the tanks was included as part of the sale. Neither the factory nor the agency ever considered it any other way. Today, the regulations are tougher and the OEM would incur a greater cost. I doubt the OEM would absorb this cost.

Unfortunately, the trend is toward the OEMs charging a great deal of money for engineering data. I think that a project manager should be able to mitigate that cost. This may be possible if the project manager states to the OEM rep, from day one, what modifications your aircraft will need. As long as the engineering data would encompass modifications that have been previously installed on the same model helicopter, you should start from the position that this engineering data will be delivered with the aircraft as part of the base price of the helicopter.

Needless to say, if you are mounting a 600-lb radiation detection device on the outside of the aircraft (yes, somebody is trying to make such a thing) your program is going to incur a substantial cost. The unacceptable example of this trend is an OEM that is currently charging $80,000 for the data package to install a hoist on one of its helicopters. This particular model helicopter has had many hoists installed by various operators. I am not talking about a first-article, unique application. The OEM is basically Xeroxing a 50-page package and supplying this to your completion house for $80,000. These are the kind of charges that a project manager should be able to negotiate.

So how do you mitigate the risk of the OEM charging for intellectual property? You must be proactive and have a well-defined requirement for engineering data as part of the sales contract. Only by working in concert with your completion house can you do this. Furthermore, it requires your agency to define the modifications needed to complete the mission package very early in the acquisition process. But I will reiterate that if this is a one-off modification, do not be surprised if the OEM’s position is that your agency will need to pay this cost.

The other area of changing practices that needs to be consider is liability. In this instance, it’s the practice of indemnification. The risk to your project is as follows: You paid attention to the intellectual properties issue and you have appropriate language in your contract that spells out the data package you and your completion house will receive from the OEM; who will pay for the data and the amount to be paid. You need to take this one step further and get a separate letter of agreement between the completion house and the OEM. This letter will define who is liable if the data is faulty versus incorrectly applied. Common sense should prevail and the completion house needs to accept the responsibility of liability if it receives good data from the OEM and, through misapplication of the data, an accident or loss of some nature is incurred. But here is the problem: in some instances, the OEMs have taken the position that the completion house should indemnify the OEM from damages even if the data provided by the OEM was found to be faulty. Any responsible completion house that plans on being in business for the long-term is not going to sign this letter. Again, an issue that you need to resolve before your agency signs the sales agreement.

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