Publication: Salvo Issued: Date: 1999-01-01 Reporter: Frank Sutherland

The Acquisition Package Deals : Where we Stand Now



SALVO, Armscor's Corporate Journal

Date January 1999


Frank Sutherland


The media's interpretation of announcements made at the DEXSA show covering the government-to-government package deals for defence equipment caused some confusion in the public mind. Salvo spoke to Dawie Griesel, who co-ordinates the project on the Armscor side.

Media report late last year gave the impression that the final suppliers of equipment for the package deals had been decided upon and that orders would now be placed. These reports were apparently not correct...

They were not - the impression they created was wrong. The negotiating team had evaluated all the tenders received and had drawn up a list of preferred final suppliers. What happened was that the Cabinet approved this list and gave the team permission to negotiate with the preferred suppliers in order to reach an affordable final package. Although it was a milestone in the process, we are still rather far from actually placing orders.

What is the next step in the process then?

We have to negotiate with these suppliers - that is what we are engaged in at the moment. It may well happen that we cannot come to a final agreement with a particular supplier, in which case we will fall back to the number two on the list. Thus it could be some time before the deals are finalised.

How were the tenders evaluated?

In the fine detail the process was quite involved, because we had to make sure that the country got the best possible value for its money. We also had to ensure that the process was transparent. It was a mammoth task. For instance, Germany alone submitted 450 kg of documentation for just one of the projects. I will not even comment on the man-hours we spent. But basically the evaluation was based on three factors: the functional military performance of the equipment, the industrial participation or countertrade benefit offered, and the proposed financing arrangements. Each piece of equipment had its own dedicated evaluation team, with each team containing representatives from Armscor, the Defence Secretariat, the Department of Trade and Industry, and the Department of Finance. The composition of each team was also such that it included representatives from the army, navy and air force. A number of checks and balances were built into the process to ensure its integrity. In addition, the defence industrial participation component - the "countertrade" - was evaluated by Armscor's Countertrade division in collaboration with the Department of Defence, and the national industrial participation by the Department of Trade and Industry. Armscor's Finance department also had a team which looked at the financial aspects together with the Department of Finance. The teams worked totally independently of one another.

The teams' results went to the Strategic Offers Committee, called SOFCOM. It was jointly chaired by Mr Erich Esterhuyse of Armscor and Mr Chippy Shaikh of the Defence Secretariat. The committee reviewed the submissions from the evaluation teams and formulated recommendations, which went before the Cabinet via the normal channels of approval. The entire process was totally transparent and I believe its integrity is unassailable.

Some items on the original "shopping list" fell off along the way. What exactly are we buying as things stand now?

The current plan is to acquire corvettes and submarines for the navy, as well as helicopters, trainers and fighters for the air force. The items that will not be acquired now are the main battle tanks for the army.

The total cost of the proposal submitted to the Cabinet will be R29,7 billion. Of course, everything will not be delivered at the same time. The corvettes will arrive from 2002 to 2008, the submarines from 2004 to 2010, and the utility helicopters from 2005 to 2007. The maritime helicopters will be delivered between 2006 and 2008. The trainer aircraft will arrive between 2007 and 2009, and the fighter aircraft between 2011 and 2015. Thus acquisition should take another sixteen years or so, and we have already been working on the project for three or four years. This illustrates quite clearly something which the layman often does not appreciate: a defence force cannot be re-equipped within a year or two, when a threat looms. Re-equipping must be an ongoing process, whether there is a threat in view or not.

There has been some speculation in the press that the government might eventually not have the money to pay for everything.

It is true that the acquisition budget we have now is not adequate to pay for all the equipment right away. However, we are still negotiating the financing. Also, as said, delivery and payment will take place over the next fifteen years, and a lot of water will flow under the bridge in that time.

A major aspect of the acquisition project has been the large countertrade or industrial participation component in the proposed contracts. Would you care to comment on this?

The project will indeed generate substantial industrial participation, and this will benefit not only the defence industry but the entire South African and regional economies. I would suggest that you speak to Johan van Dyk of the Marketing, Sales and Planning department, since he is the expert in this field.

With acknowledgements to Frank Sutherland and Salvo.