Predation of Other Segments by Thomson-CSF
Date : 2001-08-27
Transcript : Volume 10, Page 593, Line 8
I, Richard Michael Moberly Young, hereby state that :
Date : 2001-08-28
Transcript : Volume 11, Page 716, Line 9
Predation of Other Segments by Thomson-CSF
356. The other 12 or so nominated sub-contractors got their contracts in the Corvette Combat Suite, except that Grintek Electronics, who was originally nominated to supply the South African-built Ship's Communication System (SCS), with the switching technology being provided by Plessey South Africa, was directed by the DoD to replace this with another system, the FOCON-32 internal ship's communication system, from a Thomson-CSF Group company called Thomson-Signaal.
357. As said earlier, the Combat Suite also originally included two sub-systems called the Action Information System (AIS) and the Weapon Control System (WCS), the latter being derived from the Target Designation Assembly (TDA). Both the AIS and the TDA were developed by ADS for the SAN's strike craft, with both being working systems. However, when Thomson-CSF bought ADS, the latter suddenly contended that the AIS and WCS sub-systems would not meet the requirements of the Corvette and that both sub-systems would have to be replaced by a Thomson-CSF Combat Management System (CMS); this is despite the fact that many millions of Rands of South African taxpayers' money had been spent by ADS on the development of AIS, WCS and TDA sub-systems.
358. As far as know, the only deficiency in the AIS/WCS combination was precipitated by the SA Navy's subsequent decision not to use the strike craft's ELM2208 search radar for the Corvettes. This radar was in fact becoming obsolete and in any case only had two-dimensional search capability which is limiting considering the threat of modern anti-ship missiles. The SAN therefore decided to acquire modern three-dimensional surveillance and tracking radar. The AIS and WCS had only been designed to handle two-dimensional radar data, specifically with regard to Threat Evaluation and Weapon Assignment (TEWA). However, I believe that it was quite feasible for ADS to acquire the TEWA capability from Thomson (or a number of other possible sources) and integrate it into their AIS and WCS. I cannot believe that it became necessary to replace the AIS and WCS with R335 million worth of Thomson-CSF's Tavitac Combat Management System.
359. I believe that the SAN allowed ADS to change the Corvette Combat Suite baseline in order to allow Thomson-CSF to supply their CMS.
360. Another aspect which I believe to be significant and to which I wish to refer, relates to the following three sub-systems of the Corvette Combat Suite, namely :
361. The Surveillance and Target Acquisition Radar (STAR).
362. The Surface-to-Surface Missile (SSM).
363. The Hull-Mount Sonar (HMS).
364. Three foreign systems were initially baselined, i.e. they were preferred by the SA Navy in terms of capability and affordability, namely :
365. The TRS-3D/16 STAR from DASA of Germany.
366. The RBS-15 Mk3 SSM from Saab of Sweden.
367. The ASO 93 HMS from STN Atlas of Germany.
368. However, at the end of the selection process they were all replaced by French companies, namely :
369. The MRR STAR of Thomson-CSF of France.
370. The Exocet MM40 SSM of Aerospatiale-Matra of France.
371. The Marconi 4130C1 HMS of Thomson-CSF of France.
372. I believe that it is significant to note that Aerospatiale-Matra is part of the European Aeronautic Defence and Space Company (EADS). However, 46,5% of Aerospatiale-Matra is owned by Dassault Industries of France, while Thomson-CSF now owns 100% of Dassault Electroniques, which until quite recently was part of Dassault Industries, which in turn owns 6% of Thomson-CSF.
373. It would seem clear that the whole process, under the cover of the declaration of the GFC as preferred supplier of the Corvette negated the requirement for a formal tender process for the Corvette Combat Suite, ensured that French companies and specifically, Thomson-CSF, received the lion's share of the Corvette Combat Suite supply contract.
374. The price of the Exocet SSM contract at R200 million appears to me to be very low. Possibly this only included only the initial supply of the Deck Launching System and Fire Control System onboard the vessels, as well as integration and qualification. Possibly the missiles themselves are not included in this price. Original scope of supply at R1,47 billion for the Combat Suite included 32 missile rounds as well.
375. If this is the case, it implies that there will be extensive future costs in supporting the Corvette Combat Suite, over and above the acquisition cost.
Date : 2001-08-31
Transcript : Volume 13, Page 1055, Line 29
JONATHAN EDWIN GOLD KAMERMAN d.s.s.
PRESIDING OFFICER : You may proceed.
EXAMINATION BY MR MALINDI: Thank you chairperson. Admiral, you have had the advantage of seeing Dr Young's statement prior to him giving evidence and you have listened to him giving evidence, is that so?
And you as a member of the Navy have prepared yourself to respond to some of the allegations made in his evidence and in his statement?
--- I have sir.
Theme No. 5
His theme number 5, he claims that Thomson and France Incorporated, my words was irregularly favoured by the state or individuals to secure the supply of other sub-systems to the corvette against more cost effective equipment preferred by the SA Navy, particularly the surveillance and target acquisition radar, the hull mount radar and the surface to surface missile. It will be shown that this is a mischievous fabrication based on his complete ignorance of the regular and professional tender process followed, which resulted in the selection of the best equipment that the state could afford and which in fact represents the clear and formal preference of the SA Navy.
PROCEEDINGS ADJOURN PROCEEDINGS RESUME
Transcript : Volume 15, Page 1202, Line 25
JONATHAN EDWIN JOHN (sic) KAMERMAN s.u.o.
CHAIRMAN : Admiral, you may proceed.
--- Thank you, Sir. So then the next theme that I come to from Dr Young's evidence is that his claim or statement or innuendo, or whichever you wish it to be, is that Thomson and France as an entity, France Incorporated as I call it, was irregularly favoured by the state to secure the supply of other sub systems to the Corvette against more cost effective equipment preferred by the Navy. Particularly in this case, and he mentions them, the Surveillance and Target Acquisition Radar, the so-called STAR, the hull-mounted sonar, so-called HMS, and the surface to surface missile, or the anti-ship missile, the so-called SSM. He says this in an attempt, I believe, it would appears to be from his evidence, that somehow the fact that these items went to French companies is proof or indication that his overall seem that there was an irregular situation pertaining to the award of equipment to French companies, inter alia the Detexis system, inter alia to French controlled companies such as ADS, etcetera, and then this is his supporting evidence, if you will. Well, in this entire report, I personally find that to be the most scurrilous allegation of all, because it attacks the very fundamental basis of our tendering process, of our integrity as a project team, as a project control board and ultimately, in fact, the government integrity. It also implies that we would stoop to selecting equipment for our nation's defence based on a favouritism towards any particular foreign entity, and that in itself is a scurrilous allegation with regard to not only the processes and our official obligations in terms of officials of the state, but also in terms of the commissions we hold in terms of the Constitution of South Africa to uphold the defence of the state and its constitution. And frankly it is the most hurtful allegation of all with respect to myself and my team. And more than that, he bases it, it would appear, on complete ignorance of that process, complete ignorance of the actual value systems that were applied, of the actual technical specifications that we received, and of course of the actual prices that we received. Dr Young does not appear to have in his possession the evaluation, the very comprehensive evaluation reports and the evaluation process that was followed, or the value systems that were applied in these particular competitions. Now I say this, because these competitions were not competitions pitting a local supplier against an international supplier. These were competitions pitting international suppliers against each other, and to make the allegation that we favoured a particular country or particular company, emanating from a country is simply unacceptable. We have in our records, and they are secret documents but they are completely available to you, Sir, the value systems for those items that were duly recorded and registered prior to the receipt of offers, as the tender regulations prescribe. We have the rough handwritten notes of every single member of the project, of the evaluation teams that took part, as well as of course the final draft evaluations and the evaluations that were duly signed off by the officials responsible. We were exceedingly careful to ensure that quotations from these international companies were received by us only via the German Frigate Consortium, which has no interest in any one of those companies, and I will just like to run through the list quickly. On the STAR, that is the radar, we received quotations from Messrs Thomson, which is one of the world's leading suppliers of naval combat radars. It is not because it is a French company, or controls ADS or had any shares in ADS. It is one of the leading suppliers of tactical naval radars in the world, supplying almost all of the NATO navies with radar, including the German Navy, the Dutch Navy, the French Navy, the Belgian Navy, the Swedish Navy, the Norwegian Navy, and I can go on. Another competitor in this STAR competition was Ericsson of Sweden, completely unrelated to us or to any of the companies that are part of our local industry, except now, latterly, Ericsson and the Celsius group have acquired an interest in Avitronics, but it certainly wasn't so at the time. And the third company was Daimler-Benz Aerospace of Germany, at that time a fully German company, with a radar unit also providing, like Ericsson, very fine suites of naval radars which equip again the Danish Navy, the German Navy and others. These companies are all fierce international competitors, and that was very good for us. And they all are leading suppliers, as I have said, of naval radars. But even then we went to extraordinary limits to ensure that we evaluated it in the most fair and the most neutral way that we possibly could. In fact, we severely inhibited the capabilities of our team, because I and Mr Nortjé decided that we would not allow certain individuals in local industry and from our defence community to participate in the evaluations of these radars, not because the individuals themselves had any interest, but that there was potential links between those people commercially and so on. For example one of the finest radar brains in the country from the naval side is a man called Mr Simon Norval. He works for IMT, but he also worked partially for Avitronics as a company. And Avitronics had started commercial discussions with Celsius at that time. They hadn't concluded any equity sharing arrangements, but they had started. And he is a man of fine integrity, but we could not take the chance that there might be the allegation that he assisted us. We also did not include in our team people like Francois van der Merwe, Mr Francois van der Merwe, probably the leading radar designer in our country. He works for the CSIR for DefenceTech. But again, he would be working on the part of the radar system that would be supplied by Reutech Radar Systems. So we took extraordinary lengths to make sure that the evaluation team was not, could not be, you know, subsequently accused of any bias towards one particular company or another. We assembled for this particular occasion a group of experts, the best that we could. Their activities were led by myself as the project leader, with my colleagues from Armscor and of course from the Navy, but also other experts from other divisions within Armscor, as well as from other scientific institutions. We evaluated the radars, and in the case of the offers that we received, the Thomson STAR radar called the MRR, multi-role radar, won hands down on performance and price. It is by far the better radar of the three options that we had to evaluate, not to say the other radars weren't good. But we are absolutely convinced, and we didn't make up the evaluation as we went along, it was against a value system duly vested and duly closed before the tenders were received. That is on record, sir, in a secret report. We did exactly, followed exactly the same process with the selection or the recommendation rather, we don't select, obviously, we recommend to higher authority for further ratification, the anti-ship missile, the so-called SSM, and the hull- mounted sonar. In the case of the hull-mounted sonar the competitors were Messrs Thomson/Marconi, at that stage a 50/50 joint venture between Marconi Sonar Systems of the United Kingdom and Thomson of France. Again - I beg your pardon, other competitors were STN Atlas, a German, Anglo/German company, operating out of Germany and Alenia of Italy. All three companies being world leaders in their class of frigate sonar supplies, marvellous equipment equipping navies all over the world. That was a close call, because unlike the radar, where the Thomson product won hands down, it was a very close call between the Thomson/Marconi product and the STN Atlas product. The Alenia product didn't pass the first round of our evaluation, because its price performance was very, very poor. And that is no denigration of Alenia, it is wonderful equipment, but their price was rather high and it well exceeded our budgetary estimates and our budgetary abilities. So we had a vigorous competition remaining between STN Atlas and Thomson, who go hammer and tongs at each other every day in the international market. They are the two big contenders, competitors in Europe.
And the Thomson product at the end of the day squeaked past the post in terms of price performance. Again, against value systems duly registered, against a vigorous evaluation by men of character and integrity, and again an evaluation team that consisted of several experts from industry and Armscor and the project team and the Navy. We were inhibited again in this competition from utilising the sonar expertise that lies in our industry, and sonar is a very specialist technology. And the sonar expertise in our country, primarily unfortunately for us in this particular case, lay in the company called ADS. They are the only company that had ever produced a sonar system in use in our nation in operational service, and in fact at that time were busy completing the upgrade of the sonar systems for our submarines. Well obviously we couldn't utilise any expertise from that company, not because they would necessarily have favoured any one or other of the companies, but because of the situation of a link of equity between ADS and Thomson, one of the competitors. Again, those are men of high integrity and I am not alluding at all to the fact that they may or may not have favoured one way or the other. They are engineers. But all I am alluding to is that we took extraordinary measures which inhibited us from utilising the best men in the country to do the job. But I have to tell you that we have no mean engineers in Armscor on sonar and I am perfectly happy that we did a very thorough evaluation. But I reiterate Thomson/Marconi product won on its own merits without any interference, without any inference, or without any pressure to go towards Thomson. And any allegation to that effect is completely scurrilous. On the anti-ship missile side, we had three competitors. One was the MM40 missile from Aerospatiale, a French company. The other was from Saab, a Swedish company, RBS15 missile. And the third one was the Polyphem missile from DASA, Daimler-Benz Aerospace. It really wasn't an even competition as far as the Polyphem missile was concerned from DASA, because they didn't make the very first round of evaluation. In terms of technology risk it wasn't a qualified product and we weren't going to make, this is our main weapon system. The reason the Corvette exists is to kill other ships with that weapon. All of the rest is peripheral. But secondly, it didn't make the grade in terms of our minimum technical requirements, in terms of warhead size, in terms of range, etcetera, etcetera. So it didn't make the first minimum filter that we applied technically on this thing. So the competition was really between Aerospatiale and the RBS15. Again, related to our expectations as a Navy in terms of our requirements for a missile, and the reality of the commercial contracting and buying what we can afford, we would obviously have preferred to have a missile with as long a range as possible, or a meaningfully long range. And our URS states a missile requirement with a range of I think 125 kilometres, if I am not mistaken. And a whole lot of other things, a land attack capability for further upgrading and bla-bla-bla. But again, we were faced with a situation that neither of the two missiles that we had specified, rather neither of the two missiles that were on the table for evaluation before us, and incidentally the missiles that I have indicated to you are the world leading non United States missiles, the Aerospatiale missile and the Saab missile, between them apart from Russian missiles really equip the Western navies per se. We had neither of those two options fully met our user requirement. At the end of the day one of the major decisions that the Naval Board made in its quest to lower the cost of the combat suite and thus the affordability of the whole Corvette as a whole, was to reduce the initial batch of missiles from 32 missiles to 17 missiles. And these are very expensive things. They approach R20 million apiece. So if you reduce by 16 missiles, or 15 missiles, you can imagine that is an awful lot of money. It is a R300 million reduction, just be going there. And because we are not at war, the Naval Board was satisfied that they could save money by not buying as many initially as we intended in the requirements specification, because the requirements specification calls for 32. A bit later on once you have bought the first patch and you have tested them and so on, you can when you have money available due to a better balance between operating and personnel budget or whatever the case may be, you can buy more missiles.
What is the life span of these, incidentally? --- It is a 30 year missile, at least. There are some deficiencies, of course, depending on the propulsion. If you have a solid fuel propulsion system you need to replace the motor. It is a chemical reality, it has a shelf life. If you have a liquid fuel propulsion system, a jet propulsion system, you don't have to do that. But in terms of the missile as a viable round, as a viable piece of ammunition, it has typically a 30 year life.
Well, just a minor digression, these are tested, obviously? --- Yes, fully qualified products. Well, I will come back to that in one of the deficiencies of the Swedish product, but it is from a family of missiles.
May I just refer to a point which has amazed me, look at what happened in Iraq and supposedly one of the best, if not the best Navy in the world, and some if the misses that were happening there, and so on, how does it happen with these modern missiles? --- It happens because the modern missile is opposed by modern counter measure systems, sir. That is, missile warfare is a game - well, it is not a game, it is deadly serious - between the missile trying to find you and you trying to prevent that missile from finding you on the first hand. And it is a game between the missile trying to avoid your weapons and you actually shooting, successfully shooting down. I think I have just lost - have I not? Right. And the missile, and you shooting down that missile. So even in the modern age, if weapons and their counter measures evolve in tandem, then the basic principles of combat remain the same. That in the middle ages, if you had a sword and the other man had a sword, and he got a longer sword, you had better get yourself a longer sword. And if he got on a horse, you had better get on a horse as well. And so on and so forth. But the basic principle of tactics, of stealth, of vigour, of bravery, they all remain the same. So in this particular case a missile is not God's gift to fighting. It is, once it takes off your deck it is a dumb machine and it has got to do its own thing. And you in fact depose it by other machines, and it is a tussle. And that is exactly why we spent so much on the defensive side of the ship and less on the offensive side of the ship, because it is more, much more difficult to defend yourself against a machine, than to use a machine to kill a ship. That is in essence what our problem is. It is a very complicated science, and as I said, a deadly earnest one. And nations spend huge sums of money on this very basic idea, and things get out of date. The get obsolete and one could say well, we have a lot of missiles in our inventory right now, we bought them in the 70s and 80s. Why didn't we just put these missiles on our Corvettes? Why are we going to throw them away when they have still got a few years' life left? They are hopelessly obsolete. The Skerpioen missile we have is an obsolete missile. It will very soon be killed in a modern environment. So the missiles that were on the table in front of us, that is the MM40 Block 2 and the RBS15 Mark 3, represented and still represent the front edge of missile technology, anti-ship missile technology. However, there is a point to bear in mind with regard to the RBS15 Mark 3 which we were not aware of when we went out on tender to the Swedes. I don't say they concealed this from us, they are fine people and we had a lot of discussions with them as well as with their navy. But the fact of the matter was, we discovered through a costing exercise that the RBS15 Mark 3 was a paper missile. It had not yet been tested and qualified. Their navy uses the Mark 2 and they proposed to their navy the Mark 3, which is an upgrade, and quite a significant upgrade to particularly the electronics of the missile, as well as the launching system. And we were not immediately aware of the status of the missile, because like any other person who wishes to sell his products, he does not exactly amplify its deficiencies. The fact of the matter was that when we reduced having had, having accepted a tender for these things, having evaluated them to a certain degree, at that very point we were also going through the cost reduction exercise that pertained to the entire exercise and I will come back to it in a moment, where the Naval Board was reducing the scope of the combat suite to fit this quarter into a pint pot, as I averred to yesterday. In this exercise, by reducing the number to be initially purchased from 32 to 17, we obliged the German Frigate Consortium to go back to the manufacturers, and we had done a technical evaluation of both of them but now we wanted a quote. They had quoted for 32, we wanted them to quote for 17. And of course the quote isn't only for the missiles, the quote is for the missile system, of which the missiles are only a relatively small part. I am afraid, the Swedes came back with the same price, almost the same price for 17 missiles as versus 32, and we couldn't believe this. We went back to them and we said gentlemen, what is going on? And they said well, we have a minimum price, a break even price for our investment in the technology of the Mark 3 to bring it to a qualified product. So all of a sudden the clouds opened and we saw the light, that in fact they needed a minimum order of 32 in order to get a pricing scenario where they could offer the entire system at a certain price. If you went under that minimum level, if you ordered fewer items from them, their price still remained the same. So on a price performance basis, primarily, although there were certain distinct advantages operationally with the French missile and that is a fact of the matter, it was primarily on a price performance basis that the Exocet missile was eventually proposed to the Naval Board, which ratified it, which in turn was proposed to the, or brought to the PCB which in due course ratified it. I want, however, to emphasize that the Exocet MM40 Block 2 is the leading European missile and is supplied to dozens of nations and is in fact the front line anti-ship missile right now for many NATO nations as we speak. It is a superb missile. I also want to tell you that people have raised the issue, why didn't you consider American missiles, the American Harpoon missile, for example. We were inhibited in doing so by the decision by the cabinet right at the beginning of this program, that because of the restraining order that, the restraint of trade etcetera with Armscor at the time and was still extant in the American courts, that we would not solicit or oblige our main contractor solicitors any quotations for main equipment from the United States. So we did not consider United States missiles in the competition at all.
Exocet was Saab, or ... (intervenes) --- I beg your pardon, sir?
Saab, Exocet, is it a Saab, produced by Saab? --- No, Exocet is produced by Aerospatiale Missiles.
Aerospatiale, oh yes. --- Yes. Now I also want to tell you that at the time Aerospatiale was a French company and like Thomson had a very large share holding from the French government, because the French government has historically established their defence industry, for strategic reasons with a very large, in a similar way that we did with Denel and others. But Aerospatiale had a very large share holding by the French government, but there was not a Thomson connection per se at that stage. Subsequent to that, there has been a merging and a re-merging of companies in France, and the company called European EADS, European Aerospace Defence Systems I think, I am not quite sure, but we call it EADS, has emerged. Where that company is a holding company for the Aerospatiale business unit, for the previous DASA wholly German controlled and owned missile business unit and others. So this is a re-alignment of business units in Europe. That didn't concern us at the time at all, and still doesn't concern us. We were evaluating products from all of which were foreign products, and there was no consideration whatsoever in our value system, which can be confirmed by perusing that value system, in the ownership or the links or the connection or anything else, for that matter.
I was asking you whether Exocet is Saab, because with this price performance basis that you referred to, you still found that buying 17 and 32 for the same price didn't make any difference?
--- No, we did. When we reduced our scope and supply from 32 to 17, the Saab price stayed the same. So here we were going to get half a litre, but pay for a litre. It just didn't make sense. And we then discovered that the Mark 3 had not been, in fact, as had been purported it to be, a qualified product. They needed our money to invest in the Mark 3 to bring it to a qualified product. We also discovered that the Swedish Navy had not ordered the Mark 3, and were waiting for an external customer, such as ourselves, to upgrade the Mark 3 and then they would hop onto the program.
Test it for them. I see. --- That is typical of navies and I don't blame the Swedish Navy for doing that at all. But we were not aware at the time that in fact that was the circumstance.
So that turned the scales, as it were? --- I beg your pardon?
That turned the balance in favour of ... (intervenes) --- That turned the balance in favour of the Exocet. But I can assure you and your panel that there was no consideration of the fact that it was a French origin missile, or a Swedish origin missile, or anything else. We don't do things like that. Then I come to the third item of supply, which was - I beg your pardon, I have covered all three items of supply. The point that I am trying to make in this entire exercise is that the allusion and the insinuation, the innuendo that drips in Mr Young's allegation that we favoured French companies in the selection of our primary fighting equipment, is simply not true. It is unfounded, and in fact is a mischievous fabrication. He has no knowledge, I would very much hope, well he certainly hasn't indicated that he has knowledge, of any of those tender documents, any of the technical specifications, any of our value system criteria and any of the prices. He quotes a price for the Exocet missile and then goes on to speculate, well this price is so low, it probably didn't include missile rounds. Well, it is an insane suggestion. We are requiring a full missile capability from Messrs Aerospatiale, including the stock holding that I have indicated to you. So I don't know why Dr Young claims to be an expert in the costing of missiles. It is actually not his science. But I am afraid, it is just simply untrue and unfounded.
Of course, you said the Exocet had been used, or is being used by many NATO countries, leading ... (intervenes) --- Affirmative, sir.
It was used, I believe, between the Argentineans and the British. --- It was used, the Exocet MM38 was used - it is an older generation - very successfully, I might add, as you know. It was also used in the Iran/Iraq war in the 90s. It was also used in the Gulf War, but again, older versions. The MM40 Block 1 was used in the Gulf War, and the MM40 Block 2 is a completely different missile. It is a brand new state of the art missile. It is the leading edge of missile technology today. As I have said, the Naval Board was not prepared to compromise on our primary weapons.
(Discussion about recording)
CHAIRMAN : Carry on.
--- Right. I am then coming to, if there are no more questions on that allegation, apart from the fact that he has alluded to the fact that these are not the preferences of the South African Navy, I dispute the case. It was taken to the Naval Board and the Naval Board minutes are evidence of this and the Naval Board was unanimous in its decision to support those recommendations. And then it was taken to the project control board chaired by the chief of the Navy in his official capacity, where they were ratified.
So I can tell you today that these selections represent the unambiguous preferences of the South African Navy.