LCS design contract poorly negotiated, says audit committee

PETALING JAYA: The design contract for the littoral combat ships(LCS) with DCNS was poorly negotiated with common sense lapses, according to the recently-declassified forensic audit report.

In the report, the audit committee also flagged the suspicious role of the French defence shipbuilder, now known as the Naval Group.

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The committee noted that on March 20, 2012 Boustead Naval Shipyard (BNS) issued a letter of award (LOA) to DCNS for the provision of the Gowind class vessel and the support services, based on the evaluation conducted by LCS Programme Director Capt Anuar Murad and team.

However, the original LOA was amended within nine months and the value was revised to EUR 62.8 mil (about RM244.92mil) The revised LOA was issued on Dec 17, 2012, with the scope of the original LOA completely changed.

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“This fact reflected that the initial scoping was vague and weak. The design contract was poorly negotiated with common sense lapses. DCNS then took advantage of these lapses and capitalised on the resulting situation,” said the committee.

It also said that former LCS steering committee member Tan Sri Ramlan Mohd Ali had mentioned that Anuar - who was the Programme Director then - had inadequate expertise on designing a warship, its related costs and associated risks.

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The committee added that three LOA’s and Variation Orders (VO) were issued to DCNS on March 20,2012 and Dec 17,2012.

It said that the first was for the design and related services including a VO of EUR3.90mil (RM15.2mil) for RM252.46mil.

The committee also said that two more LOA’s were issued on Dec 17, 2012 with the first being for the RM150mil Project Management Assistance and RM475.6mil Complementary services for detailed design and support.

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“We noted that DCNS was paid a mobilisation of approximately RM90mil (10%) for above-mentioned LOAs without furnishing advance payment guarantee or performance guarantee,” said the committee.

“Based on documents provided to us, we noted that the kick-off meeting was not held between the representatives of DCNS and BNS,” it added.

The audit committee then said that it could not find any supporting evidence for the milestone achieved for which the payments were released on the reccomendation of Anuar and then-BNS managing director Tan Sri Ahmad Ramli Mohd Nor.

It added that a letter written by former technical and commercial team member Khalid Mohd to Ahmad Ramli which was copied to Anuar and the commercial team members raised red flags, but it did not result in any corrective action being taken.

“This letter clearly conveyed the presence of the team during commercial negotiation seemed redundant and was frustrating, annoying and insulting. It is important to note that the fundamental purpose of having a commercial team was to have proper control and transparency during the procurement process,” said the committee.

It added that DCNS’ offer to design, engineer and support the project was technical in nature and said that without proper understanding and detailed discussion between DCNS and the Technical and Commercial team, it was not possible to understand the various components of the project, it’s relative costs and appropriate milestones.

However, the committee found that DCNS did not provide the Technical and Commercial team with the necessary exposure for them to make the necessary evaluation.

It also found that the commercial team was also not privy to DCNS’s commercial offer made in Dec 2010 and March 2012 and they were not given any opportunity to thoroughly understand the offer.

Additionally, it also found that the former director general of the LCS Project for the Royal Malaysian Navy and current BNS CEO Azhar Jumaat had also made it clear in his letter to the BNS’ board dated May 20, 2019 that DCNS’ original contract to design, engineer and support was accepted despite being very “vague” and “weak” in terms of scoping.

“Similarly the procurement team was also misled due to vague scoping and during the meeting, DCNS was arrogant because they were not transparent in terms of their scope of work, technical specifications, various components and deliverables,” it said.

“This resulted in numerous VO’s issued til FY2018 amounting to EUR67mil as referred in the said letter by Azhar,” it added.

The committee also drew attention to the investigations into the French submarine maker’s Scorpene submarine scandal which took place when Datuk Seri Najib Razak was defence minister.

However, the audit committee said any comments on DCNS’ scope of work, deliverables, extension and issuance of numerous VOs would need experts opinion as it is technical, adding that it is not an expert in technical areas.

The committee has restricted its findings and comments unless a review is done on the entire deliverables, payments and if it is able to understand the reason for the exceptional delay and interview officials concerned.

“Furthermore, the involvement of DCNS actively continued to beyond 2014 and conclusion drawn based on observations made till 2014 would not be appropriate,” it said.

“This review needs to be done in totality and not in partiality to remain objective and independent,” it added.