Publication: Business Day Issued: Date: 2000-09-20 Reporter: Sapa Editor:

Auditor-General's Report on Arms Deal "Helps Clear the Air"


Publication  Business Day
Date 2000-09-20
Reporter Sapa
Web Link

CAPE TOWN — Defence Minister Mosiuoa Lekota says he will forward auditor-general Shauket Fakie’s special report on SA’s controversial R30bn arms deal to cabinet for further action. Welcoming the report on Wednesday as one that "helps clear the air", he said it was significant that Fakie had found that the goalposts in the technical evaluation of the bids for the lead-in fighter trainer (Lift) had been moved. Fakie, in his report tabled on Wednesday, said among other things that there were problems with the technical evaluation of the bid for fighter trainers. The contract was ultimately awarded to British Aerospace for the Hawk aircraft.

The fact that a non-costed option was used to determine the successful bidder was a material deviation from the originally adopted value system. "This ultimately had the effect that a different bidder, at a significantly higher cost, was eventually chosen on the overall evaluation," Fakie said. Lekota would not say whether this would open the government to a legal challenge by the unsuccessful bidder, saying it would be up to cabinet to consider the consequences.

However, defence analysts — including Jakkie Cilliers of Institute for Security Studies and Helmut Heitman of Jane’s Defence Weekly — said they believed that a legal challenge was highly unlikely. On Fakie’s recommendation that a special forensic audit be conducted into the subcontracts which fell out of the original terms of reference of his probe, and which have been the subject of repeated corruption claims, Lekota said government could not be held responsible for any problems at subcontracting level.

"Correctly speaking, it is not in the arena where government can be faulted ... the prime contracts are our responsibility. With regard to subcontractors, that cannot be our responsibility." On whether he believed that government officials involved in the deal might be involved in corruption, Lekota said he had yet to see evidence that a particular individual may have acted in bad faith.

Government last year signed contracts totalling R30,3bn to modernise its defence equipment, which included the purchase of corvettes, submarines, light utility helicopters, lead-in fighter trainers and advanced light fighter aircraft. A decision to purchase maritime helicopters was deferred to a later date. The offsets in industrial participation commitments has been estimated at about R104bn, with the creation of more than 65 000 jobs.

However, Fakie said he believed the performance guarantees regarding national industrial participation (NIP) commitments might be inadequate. The guarantees were on average about 10% of the contract price. This might be inadequate to ensure delivery of the NIP commitments, and could undermine the counter-trade element of the arms deal. Referring to the corvettes, Fakie said a local company which was performing certain technological work on behalf of the SA National Defence Force — funded from a previous technology retention project — was not selected for one of the subsystems, namely the integrated management system (IMS).

Although the SA Navy preferred the technical protection offered by the local company, this was outweighed by the prohibitive risk-driven cost implications as determined by the prime contractor. The prime contractor, who had to accept unlimited risk for delivery, added a risk premium of about R40m to the local product, which resulted in the acceptance of the French product.Fakie said a complaint had been lodged with his office on the matter, and as the basis of determining the risk premiums did not fall within the scope of his audit, a forensic audit of the matter should be considered. His report will be discussed by Parliament’s watchdog committee on public accounts next month, during its hearings into the defence force.

The arms deal is also the subject of investigation by the Heath anti-corruption unit and the investigating directorate: serious economic offences. Pan Africanist Congress MP Patricia de Lille on Wednesday appealed to Heath to officially investigate allegations of corruption by applying for a presidential proclamation. Fakie’s audit had identified procedural problems which provided, at first sight, evidence of irregularities, she said. "All people identified in having flouted procedures must also be investigated, and forensic audits should be undertaken of their bank accounts and assets."

In particular, the head of acquisition in the department of defence, Chippy Shaik, should also be investigated, she said. According to recent newspaper reports, companies with close links to Shaik had been awarded the lion’s share of local contracts in the arms deal, although this has been denied. — Sapa

With acknowledgement to Sapa and Business Day.