Company Slashed Arms Quote by Half
The company African Defence Systems (ADS) slashed its R64,73-million quote for the supply of a computerised naval combat management system by more than half over a period of just one month, according to the arms report.
ADS has come under scrutiny because one of its directors, Shabir Shaik, is brother to the defence force acquisitions chief Chippy Shaik.
The forensic report on the deal, tabled in Parliament on Thursday, says Chippy Shaik failed to recuse himself from key discussions on contracts in which he had declared a conflict of interest, and that this created "a perception of impropriety".
ADS was originally the only supplier listed for the so-called systems management system to be fitted to the four corvettes ordered as part of the procurement package, and submitted an initial quote on March 15 1999 for R64,73 million.
On April 7, it submitted a lower quote of R37,62-million.
After the primary contractor for the corvettes, the German Frigate Consortium, was asked to get competitive quotes, CCII Systems came in with a quote of R30,04-million (sic).
ADS then submitted a third quote, of only R29,65-million.
"ADS was awarded the contract," the report says.
"It is clear that the first ADS quotation was inflated, Furthermore, ADS was given the opportunity of lowering its tender of R64,73-million for the SMS to just below that of CCII over a period of more than a month. CCII was given a maximum of four days to submit its tender.
"This created the impression that CCII was merely requested to quote in order to bring down ADS' price."
"The nomination of a single supplier... created the potential for abuse of the nomination process and potential prejudice to the state, as was demonstrated by ADS' high tender of R64,73-million."
ADS also dropped its quote for a navigation distribution sub-system from R45,9-million to R18,9-million, though the contract eventually went to CCII for R15,99-million (sic).
CCII -- a recipient of R20-million in funding from Armscor under a programme to promote South African defence technology -- was not initially invited to tender on this contract either.
The report said it could not be conclusively proven that CCII's commercial specifications were released to competitors, because the frigate consortium administered the tender process, and had not given evidence to the inquiry.
Referring to the "regularity or not" of the non-selection of CCII's Integrated Management System (IMS), a sophisticated fibre-optic cable system for the corvettes, it said the process had not been properly documented and proper tender procedures were not followed, which made it difficult to assess.
No logical explanation was found for the fact that the navy did not use the IMS as a R20-million technology retention product.
"However, it will probably be impossible to prove that the decision not to select the IMS was unreasonable, in view of the fact that the SA National Defence Force remains either the owner or joint owner of the technology developed.
"While an expectation had been created that this particular technology would be used, the expectation was not contractually enforceable."
The imposition of a risk premium on CCII's bid for the IMS was "not unreasonable", though it had not been feasible for the investigators to evaluate whether the amount -- R40-million -- was justifiable.
CCII managing director Richard Young on Thursday said the document was "unwell".
"It's actually a sick report," he told Sapa. "There are serious omissions and the conclusions are wishy-washy."
Young welcomed the finding that Shaik had a conflict of interest in the procurement of the arms package, and reiterated his belief that this led to the awarding of the contract to Shabir's companies.
"The report on the investigation shows that my allegation was correct," Young said. "That certainly vindicates my position."
In testimony during public hearings earlier this year, Young produced secret minutes showing that Shaik was present at some meetings where the corvettes' combat technology contract was discussed.
He said on Thursday that he was obtaining legal advice on possible litigation.
Earlier, he indicated that he intended suing for damages of between R100 and R200-million.
Auditor general Shauket Fakie told a media briefing soon after the report was released that now the document was public, it was up to Young "to decide whether he wants to pursue this matter from a legal perspective or not."
With acknowledgements to Sapa.