12 LOAs worth RM3.3bil issued to CED, CAD in RM9bil LCS project

PETALING JAYA: Twelve letter of awards (LOA) worth RM3.3bil was issued to Contraves Advanced Devices Sdn Bhd (CAD) and its wholly owned subsidiary Contraves Electrodynamics Sdn Bhd (CED), according to the latest declassified Forensic Audit report on the littoral combat ships (LCS).

The 12 LOAs that totalled RM3.3bil that was issued by Boustead Heavy Industries Corp (BHIC), the 51% partner in CAD and CED, and it made up of approximately 37% of the total contract value of the LCS that’s worth RM9bil.

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The report which was released by the Parliament’s Public Accounts Committee (PAC) had also scrutinised the minutes of the board of the BHIC.

In the board’s minutes, it was mentioned that former Royal Malaysian Navy (RMN) chief admiral Tan Sri Abdul Aziz Jaafar had expressed concerns about over-reliance on CAD and CED for the RM9bil LCS project.

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“He (Abdul Aziz) advised the company to take the necessary precautions to minimise such an exposure by having the involvement of others.

“However, no corrective action was taken, and the matter was never raised again.

The Forensic Audit Report conducted an analysis of the LOA arrangement between Boustead Naval Shipyard (BNS) Sdn Bhd, CAD and CED.

The analysis found that CAD and CED had charged a mark-up of approximately RM180mil for 10 LOAs.

In the 10 LOAs that were marked up, BNS issued two LOAs to CAD as an intermediary for RM1.185bil, which made up of RM898mil and RM287mil, respectively.

“This reflects approximately a three-fold increase against the value of the LOA issued by CEO to DCNS Naval group at RM397mil,” the report read.

Meanwhile, in a review of CAD meeting minutes dated Oct 14, 2014, it was found that the management of CAD was disappointed with DCNS on the progress of the combat management systems (CMS), as they believed the system was under-developed.

“The non-performance of DCNS and an apparent unwillingness to meet its contractual obligations posed a significant risk to the LCS programme,” the report read.

Another meeting by BHIC’s group core committee was subsequently held on Oct 15, 2014, which highlighted serious shortcomings in the execution of the CMS LOA by DCNS.

“However, we did not find any corrective actions taken by the management of BHIC till 2014,” the report read.

Meanwhile, the report found a common anomaly for all the LOAs issued to CAD and CED and several OEMs, that most of the LOAs were issued before the signing of contract between BNS and the defence ministry.

“It appeared abnormal, as several variables pertaining to the contracts had not materialised since negotiations and discussions on technical issues were ongoing during this period.

“The signing of LOA without being certain about the exact requirement proved expensive and fatal to monitor progress milestones,” the report read.

At the same time, the report also found several weaknesses in the preparations of LOAs because they were not vetted by the BNS group legal department before it was issued to suppliers.

“During our review of the BHIC board meeting dated May 14, 2014, Tan Sri Ahmad Ramli Mohd Nor stated that all the LCS contracts were reviewed by competent external lawyers.

“However, we did not find any report/document to confirm that external lawyers were engaged by the management of BNS.

“It was unusual to note that despite having an internal legal department, Ahmad Ramli chose to engage external lawyers to review the contracts,” said the report.

The forensic audit was conducted on BHIC by Alliance IFA(M) Sdn Bhd and it was declassified on orders of the Cabinet.

BHIC had said it handed over the report to the PAC on Monday (Aug 22).

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LCS , littoral combat ship , forensic audit , BNS


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