Publication: Business Day Issued: Date: 2002-02-27 Reporter: Alan Fine Editor:

Probing Questions Asked of Report on Arms Deal


Publication  Business Day
Date 2002-02-27
Reporter Alan Fine
Web Link


The analysis by outgoing standing committee on public accounts chairman Gavin Woods of the report of the joint investigating team into the arms procurement package is a powerful document.

Issued as part of his explanation for his resignation announced on Monday, it is likely to stand for a long time as is its intention as an indictment of government's management of the procurement process.

It also raises extremely uncomfortable questions of the investigating team headed by the director of public prosecutions, the auditor-general and the public protector.

Woods addresses eight areas of unanswered or evaded questions: the cost of the package; industrial participation projects or offsets; the awarding of contracts; policies and procedures followed; selection of subcontractors; conflicts of interest; allegations of criminal wrongdoing; and responsibilities of cabinet and its subcommittee.

He accuses the team of having failed to address the cost implications of the package, particularly since rising costs due to the weakening currency have thrown out of kilter the initially envisaged ratio between the cost of the package and the value of offsets.

"Does this already mean a balance of payments problem will need to be taken care of by discrete sacrifice elsewhere? (it is) disappointing (that) the team tries to excuse itself from undertaking the most important work This attitude seems to be characteristic of team positions taken in other areas, where short, unsubstantiated statements substitute for proper investigation and coincidentally in each case does so to the advantage of the executive government."

On offsets, he says the team did not take into account global norms in relationships between defence industrial participation (DIP) versus national industrial participation (NIP) projects.

The former are more assured benefits as delivery of material bought depends on the DIP programme. The civilian projects can be evaded via the payment of what, in most cases here, seem to be nominal penalties.

According to Woods, international norms suggest a ratio of 85% DIP to 15% NIP. In SA's case, this is a disturbing 14% to 86%: "Almost all the questions (underlying) the public's interest were not responded to by the team".

On awarding of contracts to selected suppliers, Woods comments the team did useful work in documenting procedures used.

"The failing seems to be in the analysis of and deductive reasoning from the facts .... There were well over 50 instances of noncompliance . These go beyond simply being unacceptable. They would represent a credibility crisis for procurement transactions anywhere else."

Woods looks closely at the procedures involving the acquisition of the fighter trainers, corvettes and submarines, and highlights a range of material breaches which, it is strongly argued, led to huge additional costs for the taxpayer.

On the selection of subcontractors, Woods points to proof of government intervention despite government denials. "The team points out where principles of openness and fairness were not followed and goes on to say (somewhat weakly) that in these instances the process could be criticised. The basis for risk loading which left (local supplier) CI out of contention is left unexplained as the team says it was not feasible to pursue the matter further. There is something very wrong if such explanations are just not feasible to pursue'."

Woods examines the team's findings on the conflicts of interest of individuals associated with the package, and in particular the role of defence department head of procurement Chippy Shaik.

The report lists his and his brother's commercial interests in the package, but does not specify beneficiaries among his "political and other associates".

A proper investigation, says Woods, would point to Shaik's "presence and strong influence at virtually every level of the selection process", from the actual evaluation of tenders through to cabinet and its subcommittee.

In this regard, the team report "while doing some good work fails through the poor investigative quality of its work to deliver answers to the questions of Parliament and the public".

He also says the team failed to ask or answer the most basic question of the late former defence minister Joe Modise's investment in a supplier company: "How much did Modise pay for his large Conlog shareholding (and) where did he suddenly get this money from?"

Finally, Woods takes the cabinet to task: "The number of serious deviations from good tender practices that went unchallenged or unnoticed by the decision makers is astounding.

"It is therefore not unreasonable to wonder if it was the members of the cabinet subcommittees' subsequent awareness of their failings that caused their disapproval and ridicule of the standing committee's proposed strategic defence package investigation. A suspicious mind might wonder about the particular interventions which so inhibited further investigative efforts."

With acknowledgements to Alan Fine and Business Day.