PETALING JAYA: Weaknesses have been identified in the procurement of the army’s armoured vehicle fleet, including a two-year delay in claiming late delivery penalties amounting to RM162.75mil from the supplier of the Gempita armoured vehicle.
In addition to the delivery penalties, the Auditor-General’s Report identified weaknesses such as unimposed late service penalties amounting to RM1.42mil under the maintenance, repair, and spare parts supply contract, and procurements totalling RM107.54mil that were executed through contract splitting.
The Auditor-General also found delivery delays ranging from six to 1,048 days for 70 vehicles.
According to the Auditor-General’s Report series 2/2025, the Defence Ministry had entered into a contract worth RM7.55bil with a company with the registration number 406420-U.
The contract, from March 7, 2011, to Dec 31, 2022, was for the development, manufacture, supply, delivery and commissioning of 257 8X8 armoured wheeled vehicles for the army, intended to replace obsolete vehicles.
“The supply of Gempita was in phases based on the Project Implementation Schedule (PIS) stipulated in the contract.
“The latest delivery period, according to PIS 4.5 and PIS 4.5 Armoured Heavy Recovery Vehicle, 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 refers to all non-armoured vehicles, including trailers used to transport personnel or cargo.
All of these deliveries were delayed, 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 – 746 days after the contract period ended on Dec 31, 2022.
The Auditor-General said this weakness in managing the contract exposed the government to the risk of not being able to collect the penalties because full payment has been made and the performance bond was insufficient as it was lower than the penalty.
A performance bond is a type of surety bond that guarantees a contractor’s fulfillment of contractual obligations.
The performance bond for this contract amounted to only RM53.93mil, which is lower than the total penalties claimed.
The validity period of this bond expired on Dec 31, 2024; however, it was extended to June 30, 2025, following an approval by the bank on Jan 7, 2025.
In its response to the findings, the Defence Ministry said company 406420-U had submitted an appeal letter on Jan 23, requesting for the penalty to be reduced by RM4.27mil to RM158.48mil.
The team in charge of the vehicles reviewed the request and said the sum which could be considered for reduction was RM12.57mil, therefore, the company would still owe RM150.18mil.
“The basis for the reduction was due to force majeure events, taking into account regulations related to contract period extensions for government contracts affected by the Movement Control Order 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 Defence Ministry’s Procurement Division issued a letter to the bank dated April 14, 2025, to postpone the release of the performance bond, which was 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 contract.
Armoured foul-up: An army vehicle contract under the Defence Ministry is under fire as delivery penalties remain uncollected.
