Double claims, marked-up prices and no supporting documents

Stories by WONG CHUN WAI from the Public Accounts Committee report on the LCS project

PETALING JAYA: Overlapping letters of award (LOAs), double claims for the same services, marked-up prices and the absence of supporting documents involving the two contractors in the setting up of a Built-in Test (BIT) centre for the littoral combat ships have cost taxpayers over RM898mil.

In its report, the Public Accounts Committee (PAC) named the two contractors as Contraves Advanced Devices Sdn Bhd (CAD) and Contraves Electrodynamics Sdn Bhd (CED).

The two companies belong to Boustead Heavy Industries Corporation (BHIC), which has a 51% stake, while German-owned Rheinmetall Group has the other 49%. CAD and CED are the contractors of the uncompleted six littoral combat ships (LCS) project.

Forensic auditor Alliance IFA Sdn Bhd’s Prabhat Kumar said the involvement of the two contractors had resulted in possible damages, such as overlapping LOAs for the BIT centre and double claims for the same services in the LOAs over the combat management system (CMS) amounting to RM898mil.

The BIT centre is set up to conduct trials and test the functionality of all equipment, supposedly for the six LCS, before these are accepted for installation on the ships.

Prabhat told the PAC of discrepancies, such as payments made without supporting documents.

“Payment milestones without deliverables and necessary documents. We did not see any supporting documents.

“Exceptional mark-up, except for the signature of the person. You know, approve, approve, approve.

“Exceptional mark-up as a middleman resulted in the loss of cash. That is why there was a person who was caught,” he was quoted as saying on page 139 of the 247-page report.

He did not name the person caught.

Prabhat also pointed out irregularities relating to the LOAs for the CMS, which were issued to CAD and CED.

The LOA for the CMS, equipment, and engineering and integration was awarded to CED at RM1.185bil on the basis of a quotation from DCNS, a French company.

DCNS is the former name of France’s Naval Group, which had also built the Scorpene submarines for Malaysia.

Prabhat said the quotation from DCNS was dated Dec 23, 2010, but this was issued even before the signing of the LOA with the government.

“This reflects the intent of those involved in this project. They had no intention to deliver the LCS project.

“They only want – intent to maximise their gain which was issued even before the signing of the LOA with the government,” he said, adding the LOA was issued, “sidelining the evaluation process by restricting the involvement of the technical and commercial team.”

He said within six months, a supplemental LOA was issued in favour of CED by former Boustead Heavy Industries Bhd managing director Tan Sri Ahmad Ramli Mohd Nor and ex-navy captain Anuar Murad, the head of the LCS programme at the Boustead Naval Shipyard (BNS), for the development of the BIT Centre at RM305mil.

“The scope of this LOA appeared to overlap with the original LOA. No specific approval was obtained from the board for the issuance of the LOA. The cost of investment was not budgeted in the LCS programme.

“The most important thing, payment was being made by them. Ownership lies with CAD and not BHIC,” he added.

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