LCS has ballooned into a RM11bil scandal now

PETALING JAYA: It’s no longer a RM9bil scandal. The cost of completing the six Littoral Combat Ships (LCS) may balloon by more than RM1bil to a whopping RM11.145bil.

This is due to variations which led to increasing procurement bills as well as time extensions, the investigating audit committee said in a just declassified report.

Based on Boustead Naval Shipyard Sdn Bhd’s letter dated July 16, 2019, an additional RM1.41bil was needed for some changes to the project.

“According to the letter... following the changes of main equipment and Implementation Schedule, an additional cost which is estimated to be to the tune of RM1,416.44bil, comprising RM58.41mil in direct cost and indirect cost of RM1,358.03bil, were needed to complete the six ships,” the report said.

The direct cost components included variation proposals in three categories namely Surface to Surface to Missile, Decoy Launching System and Integrated Platform Management System.

The indirect cost consisted of the duration of the basic design, design authority, delivery schedule for parts, warranty, insurance and financial cost along with other resources.

The RM9bil ceiling cost for the project has already been breached.

In 2014, the Finance Ministry sanctioned RM128.6mil to the Defence Ministry for interest on cost of borrowings, to be funded by BNS and the government on a 50:50 basis. This pushed the cost of the project to RM9.128bil.

MOF also sanctioned another RM600mil to BNS for the procurement of the Integrated Logistics Support equipment, increasing the price to RM9.7286bil.

The committee said it expects the cost to continue to increase given the changes in the main parts and additional time taken for delivery.

“There are significant weaknesses in the planning and execution of the LCS project, especially in resolving issues such as procurement of equipment, detailed design and production drawings; unsatisfactory construction progress and competency as well as BNS’ financial issues,” the report said.

“BNS did not put all of the components which are the cause for delays. In fact half of the delayed components were completely due to BNS,” the report read.

On May 17, 2019, BNS had put forth another Variation Proposal for Implementation Schedule which would cost RM1.375bil in a worst case scenario and RM693.57mil in an optimistic case scenario. It also meant that the project will be stretched by another 32 to 72 months.

The report said there was a weaknesses in the way Mindef and BNS had handled the issue of changes, allowing it to prolong which resulted in added cost.

It also flagged the late signing of the contracts. Three Letters of Acceptance were issued between 2011 and 2014 before the contract was signed on July 17, 2014. The Treasury Circular Bil 5. 2007 stipulates that a contract must be signed within four months after the letter is issued.