-The Star filepic
PETALING JAYA: Weaknesses have been identified in the procurement of the army’s armoured vehicle fleet including a two-year delay in issuing late delivery penalties claim, the Auditor-General's Department has found.
The weaknesses identified include uncollected late delivery penalties amounting to RM162.75mil under the Gempita armoured vehicle supply contract, unimposed late service penalties amounting to RM1.42mil under the maintenance, repair, and spare parts supply contract, as well as procurements totalling RM107.54mil that were executed through contract splitting.
The Auditor-General also found that there had been delivery delays ranging between six and 1,048 days for 70 vehicles.
According to the Auditor-General’s Report Series 2/2025, which was tabled in Parliament on Monday (July 21), the Defence Ministry had entered into a contract worth RM7.55bil with a company that goes by the registration number 406420-U. The contract to develop, manufacture, supply, deliver and commission 8X8 Armoured Wheeled Vehicles (AWV) for the Malaysian Army involved 257 vehicles.
The purpose of the procurement was to replace obsolete armoured vehicles to step up defence strength. The contract was scheduled to be in effect for 142 months beginning March 7, 2011, until Dec 31, 2022. Four supplementary contracts were also inked.
“The supply of Gempita by the company was carried out in phases based on the Project Implementation Schedule (PIS) stipulated in the contract. The latest delivery period, according to PIS 4.5 in the second supplementary contract and PIS 4.5 Armoured Heavy Recovery Vehicle (AHRV) in the fourth supplementary contract, was scheduled between December 2017 and November 2022,” the audit found.
“Audit verification of the Final Acceptance Test (FAT) certificates and Payment Instructions for the supply of Gempita for the period from 2020 to 2023 revealed that 68 armoured vehicles and two Type B vehicles were delivered during this period. Type B vehicles refer to all non-armoured vehicles, including trailers used to transport personnel or cargo.”
All of these deliveries were delayed by between six and 1,048 days compared to the scheduled delivery timeline in the PIS, which was between December 2017 and November 2022. The audit found that the Procurement Division of the Defence Ministry, only issued a penalty claim notice to the company amounting to RM162.75mil on Jan 15, 2025, which was 746 days (2 years and 15 days) after the contract period ended on Dec 31, 2025,” it said.
The AG said this weakness in managing the contract has exposed the government to the risk of not being able to collect the penalties claim as full payment has been made and the performance bond was insufficient as it was lower than the penalty amount.
The performance bond for this contract amounted to only RM53.93mil, which is lower than the total penalties claimed. The validity period of this performance bond expired on Dec 31, 2024. However, the validity period of the bond was extended to June 30, 2025, following an approval by the bank on Jan 7, 2025.
Performance bond is a type of surety bond that guarantees a contractor's fulfillment of contractual obligations.
The delay in the delivery of the Gempita fleet had hampered the army’s ability to deploy the vehicle within the planned timeframe, aside from leaving the government at a loss due to the failure to collect the fines.
In its response to the audit findings, the ministry said company 406420-U had submitted an appeal letter on Jan 23, requesting for the penalty amount to be reduced by RM4.27mil to RM158.48mil. The team in charge of the vehicles reviewed the request and opined that the amount that can be considered for reduction was RM12.57mil, therefore the company would have to pay RM150.18mil in penalties.
“The basis for the reduction was due to force majeure events, taking into account regulations related to extensions of time or contract period extensions for government contracts affected by the enforcement of the movement control order (MCO) from March 18, 2020, until Dec 31, 2020,” it said in its response in February and April this year.
The procurement division of the Defence Ministry is currently preparing a briefing paper on this matter to be submitted to the Contract Coordination Panel (CCP). The company's penalty waiver appeal paper was submitted to the Legal Division of the Defence Ministry on April 10, 2025, for review prior to presentation to the CCP and approval by the Finance Ministry.
Additionally, the Procurement Division of the Defence Ministry issued a letter to the bank dated April 14, 2025, to postpone the release of the performance bond, which is due to expire on June 30, 2025, until further notice from the Defence Ministry,” it said.
The ministry added that the late penalties have yet to be finalised as the Gempita contract was still in effect and was only scheduled to end on June 30, whereas the contracts for two other vehicles, Adnan and Pendekar would end on Sept 12. A penalty claim notice amounting to RM150,253.46 was also issued on Feb 6, 2025 to another company involved with the Pendekar vehicle.
The Procurement Division has also issued a directive on March 13, 2025, to the relevant centres to ensure that early penalty notices are issued to companies in the event of delays in the execution of contract.
“Additionally, an internal directive dated March 19, 2025, was issued to all Heads of Procurement Units to monitor and follow up on the status of contract implementation and to issue Delay Notification Notices to the companies within seven days of each delay,” it said.
The AG recommended that the ministry enforces its right by issuing penalty claim notices to companies upon any delay in supply or services while the contract is still in force.
It must also ensure that contracts are established and prepared within a reasonable timeframe and prevent the implementation of contract splitting at the Responsibility Centre (PTJ) level.
“If there is a need for PTJs to undertake procurement during periods without an active contract, such procurement must be submitted to the Finance Ministry through the Controlling Officer for special approval,” it said.
