PETALING JAYA: An audit report red-flagged 12 letters of award (LOAs) worth RM3.3bil given to two companies, which got the lion’s share of 37% of the total contract value of the littoral combat ship (LCS) project that was worth RM9bil.
The report described it as an “over reliance” on these two companies: Contraves Advanced Devices Sdn Bhd (CAD) and its wholly-owned subsidiary Contraves Electrodynamics Sdn Bhd (CED).
In one of the by Boustead Heavy Industries Corporation Bhd (BHIC) 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.
“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,” said the report.
The BHIC report conducted an analysis of the LOA arrangement between Boustead Naval Shipyard (BNS) Sdn Bhd, and CAD and CED.
The analysis found that CAD and CED had charged a mark-up of approximately RM180mil for 10 LOAs.
In these 10 LOAs, BNS issued two LOAs to CAD as an intermediary for RM1.185bil, which made up of RM898mil and RM287mil, respectively.
“This reflects approximately a threefold increase against the value of the LOA issued by CED to DCNS Naval group at RM397mil,” the report read.
Meanwhile, in a review of the minutes of a CAD meeting 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 BHIC 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 original equipment manufacturers (OEMs), that most of the LOAs were issued before the signing of a 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 LOAs without being certain about the exact requirement proved expensive and fatal in monitoring 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’s legal department before they were issued to suppliers.
The forensic audit was conducted on BHIC by Alliance IFA(M) Sdn Bhd and it was declassified on orders of the Cabinet.
BHIC said it handed over the report to the Parliament’s Public Accounts Committee (PAC) yesterday.
