LCS audit reports show 'unusual' deal before govt contract awarded

 

Two separate audit exercises on Putrajaya's procurement of six littoral combat ships (LCS) for the Royal Malaysian Navy revealed that there may have been a deal between the main contractor and controversial shipbuilder DCNS before the government issued its contract.

This was based on a quotation issued by DCNS to Boustead Naval Shipyard (BNS) dated Dec 23, 2010, one year before the government awarded the LCS contract to BNS.

DCNS, now known as the Naval Group, is a French-based company that developed the Gowind design for navy vessels, which was the design approved by the then defence minister Ahmad Zahid Hamidi despite objection from the navy as the LCS intended user.

It is also the same company that was key in Putrajaya's controversial purchase of two Scorpene-class submarines in 2002.

According to an audit commissioned by Boustead Heavy Industries Corporation (BHIC), the quotation issued by DCNS was "unusual" and indicated that the deal was "predetermined" between the vendor and "certain vested persons at BHIC/BNS who were at the helm of the decision-making process".

A similar finding was also pointed out in an audit report prepared by the committee on Procurement, Governance and Finance chaired by former auditor-general Ambrin Buang.

It said there were irregularities found in letters of award issued to subcontractors Contraves Advanced Devices Sdn Bhd (CAD) and Contraves Electrodynamics Sdn Bhd (CED) for the six LCS' Combat Management System, where one of them was issued based on the December 2010 quotation from DCNS.

"Be careful about that date, which was issued even before signing the LOA (letter of authorisation) with the government. You can imagine, we call it intent.

"This reflects the intent of those involved in this project. They had no intention to deliver the LCS project. They only want - the intent to maximise their gain which was issued even before the signing of the LOA with the government of Malaysia.

"The LOA was issued by Anuar Murad, sidelining the evaluation process by restricting the involvement of the technical and commercial team. Very important to be highlighted," the report said.

Former navy chief Ahmad Ramli Mohd Nor

Anuar refers to the then BNS LCS programme director. He is a former RMN captain and was heavily mentioned in both audit reports as a person allegedly responsible for effectively suppressing due evaluation processes in the LCS procurement, alongside former navy chief Ahmad Ramli Mohd Nor, the then BHIC managing director.

Ramli had since been charged with three counts of criminal breach of trust for his alleged role in the LCS scandal.

Design issue

It was reported that the Defence Ministry had initially approved the Sigma design for its LCS on May 26, 2011, before changing it two months later to Gowind design - against the navy's wishes.

Sigma class

Sigma-class ships are combat ships designed by the Netherlands’ Damen Naval, while Gowind patrol ships are designed by DCNS.

The BHIC-commissioned audit, which was carried out by Alliance IFA (M) Sdn Bhd, also pointed out that BNS had paid about RM90 million in mobilisation payment for three sub-contracts without any performance guarantee.

The amount was 10 percent of three works to be undertaken by DCNS, namely: “Design and related services including a Variation Order of €3.9 million”; “Program Management Assistance”; and “Complementary services for detailed design and support”.

Gowind class

"We noted that DCNS was paid a mobilisation of approximately RM90 million (10 percent) for the above-mentioned LOAs without furnishing an advance payment guarantee or performance guarantee. Based on the documents provided to us, we noted that the kick-off meeting was not held between the representatives of DCNS and BNS.

"During our review of the payment milestones, we did not find any supporting evidence to confirm that a milestone was achieved for which the payment is being released as per Anuar’s recommendation and Ramli’s approval," the Alliance IFA report stated.

Scorpene submarines

DCNS, previously known as Direction des Constructions Navales (DCN) before it changed its name to DCNS, and now Naval Group, is known to be heavily involved in Malaysia's defence procurement, especially during Najib Abdul Razak’s time as the defence minister and later the prime minister.

Prior to its involvement in the LCS contract, Malaysia signed a deal to purchase two Scorpene-class submarines in 2002, supposedly for €1 billion, from DCNS and Spain’s Navantia. Armaris, a joint venture between DCN and French defence and electronics giant Thales, was to be the prime contractor for the sale.

It was said that RM540 million was paid out in "commission" for the deal, with one of the recipients being a company called Perimekar Sdn Bhd, which is purportedly linked to Abdul Razak Baginda and that the payment ultimately benefitted Najib.

It also emerged later that in addition to the cost of the submarines and the whopping "commission" fee, under the terms of the original agreement the vessels were basically bare of armaments and detection devices.

The Malaysian military must pay an additional €130 million to equip them.

An investigation launched by French authorities sought to determine if Najib had received kickbacks via Razak, for the Scorpene contract. In March 2012, French authorities appointed two examining magistrates to investigate the case.

They purportedly found evidence that the then defence minister Najib had sought US$1 billion (RM3 billion) for Perimekar from DCN’s subsidiary DCNI.

For more detailed information on the Scorpene scandal, read our KiniGuide. - Mkini