PETALING JAYA: The littoral combat ship (LCS) project is running behind schedule again with weaknesses found in its implementation.
According to the Auditor-General's Report Series 2/2026 tabled in Parliament on Monday (Oct 5), the project was 7.55% behind schedule as of June 25 this year.
All five LCS vessels experienced completion delays ranging from 30 to 108 days, it added.
"The delay poses a risk to the earliest physical handover (PHO) of LCS 1, which was scheduled for Aug 26 this year, or the revised target date of Dec 26 this year, it read.
If the PHO takes place by the revised date, it said: "LCS 1 will be handed over without achieving full operational capability, as training and the weapons systems will not yet have been completed.
ALSO READ: Govt to decide next step after supplier responds on LCS missiles, says Khaled
"Full operational readiness of the vessels depends on the complementary contract, which can only be completed in December 2035, beyond the expiry of the main contract on April 25, 2030."
The report said the PHO delay of LCS 1 would affect the handover of the remaining vessels.
"The procurement was carried out through direct negotiation with Company 199302-K (the contractor) for the construction of six LCS vessels, with an original contract value of RM9.128bil and a contract period of 10 years, from Oct 3, 2013, to Oct 2, 2023," it read.
"During the implementation, eight supplementary contracts to the main contract were signed to amend and align the contractual terms with the requirements of the project’s implementation.
"Following these supplementary contracts, the construction scope now involves five LCS vessels, with a contract value of RM11.227bil and the contract period extended until April 25, 2030," it added.
The payment mechanism has also been restructured from being milestone-based to progress-based.
Cumulative payments under the main contract amounted to RM8.557bil, or 76.22% of the RM11.227bil contract value, leaving a balance of RM2.670bil.
"For the procurement of the complementary contract, the government had made payments of RM100mil for the procurement of integrated logistics support and trial aids (ILS-TA) and 124.35mil euros (RM570.54mil) for the surface-to-surface missile (SSM) system.
"No payments had been made for the procurement of the surface-to-air missile (SAM), ammunition (for the) 3P medium calibre gun (3P MCG) and integrated decoy launching system (IDLS), as the procurements had yet to be finalised," it added.
ALSO READ: Strict LCS timeline, budget
In response to the audit findings, the Defence Ministry said the technical committee had instructed the contractor to take appropriate action to ensure that work progress remains in line with the stipulated targets.
"The contractor submitted an application to the ministry on April 27 to amend the project handover date.
"The proposal is still under review before it can be finalised to ensure that the government’s interests are safeguarded," the ministry said.
However, the progress of the project indicates that several critical activities remain to be completed and coordinated, including construction work, system integration, and testing and commissioning activities, it added.
It aso said the current status of LCS 1, including outstanding works and unresolved project issues, has been reviewed.
"The ministry wishes to inform that one of the outstanding matters concerns the scope for the Naval Strike Missile Launcher System.
"This matter has been delayed following the permanent cancellation of the export permit by the Norwegian government," it said.
It said that as the SSM is part of the LCS’ main weapons systems, handing over LCS 1 without it means the vessel would not be not considered fully operational.
ALSO READ: LCS delivery to go on amid search for Naval Strike Missile system replacement, says Mindef
"Therefore, the ministry may consider accepting LCS 1 on a conditional basis.
"If this decision is taken, it will not absolve the contractor of its contractual obligations relating to the installation and integration of the SSM. All other outstanding obligations must be completed by the Contractor in accordance with the terms of the contract.
"This includes providing sufficient time for crew training and familiarisation, operation of the ship’s systems, and the implementation of related activities before the vessel can be fully utilised for operational purposes," it added.
The Auditor-General recommended that the ministry establish a realistic recovery action plan to ensure that all critical activities under the main contract and complementary contract are coordinated with the scheduled PHO of the LCS vessels.
It also recommended that the ministry ensure any conditional acceptance of the vessels clearly sets out the contractor’s obligations, completion timelines and responsibilities until the vessels achieve the stipulated capabilities.
It also called for the project progress monitoring to be strengthened by setting milestones, designating officers responsible and establishing completion timelines for each critical issue until the project is successfully completed.
