Joint Investigation Report into the Strategic Defence Procurement Packages: Chapter 4-6

Defence

20 November 2001
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Meeting report

Defence Portfolio Committee and the Joint Standing Committee: Joint Meeting

DEFENCE PORTFOLIO COMMITTEE; DEFENCE JOINT STANDING COMMITTEE: JOINT MEETING
21 November 2001
JOINT INVESTIGATION REPORT OF ARMS PROCUREMENT PACKAGE: CHAPTERS 4-6

Chairpersons: Mr J Mashimbye and Ms T Modise

Relevant document:
Joint Investigation Report into the Strategic Defence Procurement Packages

SUMMARY
The Committees met to resume their discussion of the Arms Deal Report at Chapter 4. A topic that raised discussion was what powers the Committee had and what it was expected to do. One clear point was that the Committee would need more information and a meeting with the Department of Defence was a priority in order to properly consider the findings and the recommendations. Some Committee members felt that the 6 December deadline left very little time for the proper consideration of the Report.

So many questions were raised about Chapter 4, that some members felt that the entire chapter should be flagged for discussion with the Department of Defence. However the Chair wished to narrow down the matters for discussion. Further it was gererally agreed that the recommendations and findings at the end of the Chapter could not be discussed until full information and understanding of the Chapter itself had been achieved.

Another discussion, very technical in nature that took up time, related to the precise meaning of the phrase 'note the findings and recommendations' as one committee member believed that 'note' connoted some degree of consensus or agreement with the validity of the findings.

The Committee was concerned that there were not any recommendations for Chapter 5. The Committee believed that the whole of Chapter 6 should be flagged for discussion with the Department of Defence.

MINUTES
Chapter 4: Selection of prime contractors - LIFT & ALFA
Mr J Mashimbye (Chairperson) told the Committee that Chapter 4 would be dealt with in the same manner that Chapter 3 had been dealt with the previous day. This would mean that the members could go through the Chapter and sift out all the matters they thought needed clarification. These matters would be flagged to be discussed after this process had been completed for the entire report. The second leg of discussions would entail meetings between the Committee and the Department of Defence.

The Chairperson reminded the Committee that Chapter 3 had not been exhaustively dealt with as the Committee would need to interact with some of the stakeholders, particularly the Department of Defence. These people would have to be called before the Committee filed its report.

Mr V Ndlovu (IFP) asked what specifically would become of the outstanding matters in Chapter 3.

The Chair noted that yesterday the Committee had agreed that those matters would be raised and discussed in party caucuses but now he felt that perhaps it would be best to deal with them in the Committee after the whole report had been canvassed. The Committee was in agreement that this would be the best way to deal with the matter.

Mr N Middleton (IFP) stated that if the Committee was to perform its oversight function properly it would be necessary for the Chair to write to the Speaker asking for permission to view certain classified documents in much the same way that SCOPA was allowed to. Mr Middleton felt that it would necessary to do this because the Committee would have to look at some of the contracts and recordings of proceedings that took place.

Mr L Ngculu (ANC) asked what the Committee's status and power was in this regard. He cautioned that the Committee should not take a resolution that would hinder its consideration of the matter at hand. If the Committee were to make such a resolution it so done that if the Committee is denied access to such documents, it would still be capable of considering the Report. His comments should not be construed as saying that the documents were not needed - but simply that a cautious route should be taken.

Adv H Schmidt (DP) was in agreement with Mr Ngculu but added that SCOPA was allowed access to those documents under very specific circumstances and under a controlled environment. Despite this, he was of the opinion that their Committee also had a similar power to request the viewing of such documents.

The Chair put it to the Committees they would take the principled view to get all the information deemed necessary for the proper consideration of the Report.

Ms T Modise (Co-Chairperson) noted that the Committee's deadline for the consideration of the Report was the 6 December 2001. She said that the resolution to get documents and other information was fine as long as it did not interfere with this deadline. The Committee had previously stated that it would not be going into another investigation and that information, for clarity purposes, could be requested while being careful not to go into another investigation.

Adv Schmidt said his party was not opposed to a deadline but was opposed to an unreasonable deadline. If they found that the deadline was unreasonable, they would object.

The Chairperson noted Adv Schmidt's concern and said that the Committee would do everything in its power to meet the deadline. He invited the Committee to consider Chapter 4 and bring their concerns to the attention of the Committee.

Adv Schmidt directed the Committee's attention to Point 4.1.8 on page 65 of the Report. More specifically he referred to the last sentence on that page where it stated that no evidence could be found that the relevant authority approved the value system. Adv Schmidt said that this seemed to be an ever-present thread throughout the Report, namely that the proper authority or permission was never obtained. He said that if the bodies responsible for this came before the Committee he would like them to be asked why for value systems such as this, and in other areas where approval was needed, such approval was never obtained. He added that there were leading tenders with only one of them finally being awarded the contract, but if there was no value system the whole process and the awarding of the contract was discredited.

Mr Ngculu agreed with Adv Schmidt's point, saying that the lack of approval was a permeating characteristic of the Report. He directed the Committee's attention Point 4.8.1 (page 107 of Report). Here he mentioned how certain information was not submitted to Cabinet with the result that the extra costs had to accommodated in the Department of Defence's budget. He directed the Committee's attention to Point 4.11 (page 111) where there was mention of how it was unclear what figures were used as a basis for certain allegations. Mr Ngculu said it would be necessary to hear from the Department on this Chapter.

Mrs Z Kota (ANC, JSC) agreed with Mr Ngculu's submission. She took issue with Point 4.12.3 (page 112) where it stated how the Request for Offers (RFOs) were issued before the approval of the revised Staff Target and Staff Requirement. She asked how this could be done as it was putting the cart before the horse.

Mr Ndlovu (IFP) noted how Mr Ngculu had shown that Chapter 4 was permeated with a certain type of problem that would only be cleared up by discussion with the Department. He suggested that Chapter 4 in its entirety be noted and the matters therein not be discussed until the Committee had heard from the Department.

The Chairperson said that he was sensitive to such concerns but he felt it necessary to flag matters for discussion so that when people came before the Committee, the matters for discussion would have been narrowed and only those flagged, instead of the whole Report, would have to be addressed.

Mr R Jankelsohn (DP) referred to Point 4.5.1.12 where the option was changed from a costed to a non-costed one. He asked what the reasoning behind this was and what the role of the Minister was in this regard.

Mr G Koornhof (UDM) commented on Point 4.6.15 (page 112) which showed how some information was not presented to Cabinet and listed costs which were not calculated for each and every package. This resulted in the full cost being much higher than originally approved by Cabinet. Mr Koornhof asked how and why such important information could not be presented to Cabinet.

Adv Schmidt directed the Committee's attention to the first table in Point 4.1.8 (page 66). He pointed out that in this table the Gripen occupied the number one slot while the Hawk 100 found itself fifteenth on the list. Adv Schmidt referred to Point 4.1.9 on the next page where five additional requirements were added. He asked why this had been done.
He directed their attention to Point 4.1.12 (page 68), in the second table both the Hawk and the Gripen were removed from the shortlist. However later on, these come back onto the shortlist without the Report saying why this was.

What concerned Adv Schmidt more however was the last sentence in the first paragraph of Point 4.1.14: "According to the chairperson, the aircraft systems on offer in the British proposal did not comply with the defined operational and logistical requirements of either the fighter or fighter trainer replacement programmes." Adv Schmidt said that there was no clearer demonstration of the inappropriateness of those planes. He asked in light of this why these were the aircraft that eventually won the bid.

Adv Schmidt referred to Point 4.2.3 where it showed how the 2-tier system was opted for by the SAAF. in Point 4.3.1.4 the Minster felt that a 2-tier system would not be sufficient and that the 3-tier system should remain in place for strategic reasons. Adv Schmidt submitted that he knew very little about the military but added that surely the SAAF would be in the best position to say which kind of system would work the best. Despite this however the Minister saw fit to overrule their judgement and decided on the 3-tier system. Adv Schmidt asked why the Minster saw fit to do so and asked what the strategic reasons for doing this were.

Next Adv Schmidt referred to Point 4.3.1.2 where he noted that it seemed that the RFI technical value system was used to weed out five contenders at a meeting held on the 7 October 1997, when the RFI responses were only received on the 31 October 1997. Adv Schmidt said that this seemed strange and was in need of clarification. He submitted that the paragraph could contain a typographical error.

Mr D Bloem (ANC) interjected and said that it was clear that Mr Ndlovu had made a very valuable comment. Chapter 4 was laden with flaws and that the matters therein could not be properly discussed without the Department of Defence being present.

The Chair reminded Mr Bloem that he had made a ruling to continue with the present course of action and had also given reasons as to why this would be done.

Mr W Theron (DP) referred to Point 4.7.2 which contained the minutes of the Ministers' Committee on the 20 January 1999. Reference is made to an increase in procurement cost that was directly related to the technical performance of the equipment and programme management cost associated with equipment acceptance. Mr Theron indicated that those types of costs would affect the entire selection process as it would influence the rating of all the suppliers. Mr Theron thus asked if all other suppliers were given an opportunity to reassess their offers or if this opportunity was afforded only to the preferred suppliers who had already been identified.

Adv Schmidt turned to Point 4.3.4.1 where reference is made to the DIP and NIP rating systems and how there was usually a 50-50 split between the two. In that paragraph however the decision was taken that if 100% Industrial Participation was committed instead, the bidder would not be penalised. Adv Schmidt felt that this was a strange comment to make.

Adv Schmidt referred to the table in Point 4.3.6.2 where there was a 56% financing cost. He asked precisely what this was - adding that it looked to him as if it were an interest rate. He knew nothing about arms procurement and the manner in which such business was conducted but felt that 56% was a bit high, especially if this was an interest rate.

Adv Schmidt said when looking at Point 4.5.1.8 he tried to establish what reason there was for the State eventually purchasing the aircraft it did. Looking at the table Adv Schmidt pointed out that the Hawk occupied the number one position for military value after previously being said to have been entirely inappropriate. Added to that was the fact that the Hawk rated seventh in the cost-effectiveness rating system. Adv Schmidt asked why, despite these factors, the Hawk was one of the aircraft that made it onto the shortlist.

Adv Schmidt turned Point 4.5.1.12 (page 87) where minutes from a special SAAF Command meeting were quoted. In the meeting two decisions were minuted. The first said that a separate recommendation was required where cost is not taken into account as per the request of the Minister. The second decision noted that the final recommendations gave two alternatives. The one was the most cost-effective solution based on achieved military value of the aircraft taking into account the associated risk and the cost of the aircraft system. The second alternative does not take into account the cost of the aircraft system and is therefore the recommended aircraft based on the achieved military value with its associated risks.

Adv Schmidt said that he could understand that there would be a strategic advantage in an uncosted option, but this principle should have been applied across the board. Adv Schmidt said that conduct such as this added up and started to point towards the presence of another force outside of the document, pushing in the direction of the preferred bidders.

In relation to Point 4.5.2.2, Adv Schmidt asked why the evaluators knew the relative importance of some of the parameters. In that paragraph it was explained that the information that the evaluators had would enable them to manipulate the results of the value system. Adv Schmidt was confused as to why the evaluators ever had this information at their disposal.

Adv Schmidt referred to the tables in Point 4.5.7.3 where it showed that the MB339FD was number one in the ranking system. It was only the NIP rating system that caused this position to be reversed. This rating and thus the reversal was based on the Coega project that received bad remarks. Adv Schmidt said that the initial position was a sound one that was eventually reversed on the grounds of the high risk Coega project.

Mr Jankelsohn told the Committee that he had spoken to a Russian official who had said that the Mirages which South Africa was already using could be refurbished and upgraded. He asked whether this avenue had been pursued rather than purchasing new aircraft.

Mr Ndlovu interjected saying that he agreed with Mr Jonkelson that this was a valid question and that if it was a viable option the State should have considered it. However, the State had already entered into a contract and this question was thus irrelevant now.

The Chair asked the Committee to consider the findings and recommendations of Chapter 4.

Findings and Recommendations
The Chair commented that many of the questions asked in the Committee must have been asked by the investigators too. This meant that in considering this aspect of the Report the Committee was really turning on the adequacy of the Report.

Mr Bloem, referring to Point 4.12.1, said that he was clueless as to how the Committee should deal with the findings. He felt this way because of the fact that it was ultimately Cabinet who had the power to select the preferred bidder.

Adv Schmidt asked what the function of the Committee was in this regard. Whether the Committee was to supplement the recommendations or whether it was acting as a rubber stamp or whether they were just there to 'note' the findings.

Ms Kota reminded the Committee that the previous day it had decided to look at the recommendations and supplement these where necessary. She added that the entire purpose of the present process revolved around the development of policy, that would prevent similar incidences when acquisitions are conducted in the future.

Adv Schmidt submitted that the findings and the recommendations would best be discussed only after the Committee had heard from the necessary role-players. This was because it would be difficult to comment on the Report when it was very possible that one's interpretation of the Report could be incorrect.

The Chair agreed, saying that the Committee would need more information before valid decisions could be taken. Mr Jankelsohn added that findings could not be commented on and additional recommendations could not be made if all the background information was not there.

Mr Ndlovu asked what it was that the Committee was trying to achieve. He listed three possible aims. These were debating the findings and recommendations, the noting thereof or the changing thereof. It would be extremely hard for the Committee to consider the findings when it had already flagged the entire Chapter for further discussion.

Ms Kota supported the motion that the Committee note the findings and ask the role-players what they know when they appear before the Committee.

Mr Theron referred to Point 4.12.1 where the decision taken was unusual but not unlawful or irregular. He asked why would the State go through such a tedious process of creating evaluation criteria and the likes when in the end an 'unusual process' is used that negates the need for such extensive evaluation.

The Chair agreed with the Committee's sentiments that more information was required. The whole process was to right the wrongs that had been perpetrated, for this reason the Committee's work would be largely of an 'oversight' nature.

Adv Schmidt mentioned that he was concerned with the use of the word 'note' in the context of the Committee's proposal to 'note' the findings and recommendations subject to its getting additional information. To his understanding, using the word 'note' in such a context connoted to some extent that one was in agreement with or accepted the validity of the statements made. He was not ready to comment on the truth or the validity of anything he had read and thus did not want to 'note' the findings. To do so might preclude him from questioning the findings at a later date. He advised that it would be better to hold the findings in 'abeyance' until further information could be obtained.

Mr Ndlovu noted that in the meeting of the previous day at which Adv Schmidt was not present, the Committee after looking at Chapter 3, had decided it would 'note' the recommendations. Adv Schmidt's interpretation of the word 'note' was different to his own. His understanding was that when one 'noted' something, one simply noted without either agreeing or disagreeing with the statement.

Ms N Shope (ANC) argued that the Committee had used the term 'note' in the previous meeting so it seemed logical to use the same term rather than changing it. Mr Koornhof added that the Report was compiled by the investigating team. The Committee could not change the Report. Instead all that it could do was note the Report.

Mr Bloem interjected raising a point of order. The matter had been discussed the previous day and the Committee had decided that it would 'note' the findings and recommendations where necessary. Adv Schmidt was causing the Committee to lose a lot of time by forcing it to consider a matter that had already been discussed and resolved.

The Chair told Adv Schmidt that he recognised his concern but at the same time assured him that if the Committee noted the findings it would not commit the Committee or any of its members to any position.

Adv Schmidt recognised the validity of the Chair's own comment but added that he wanted it to be made clear that he would 'note' the findings and recommendations only so far as it allowed him to reserve the right to contest or differ on any of those points.

Afternoon session
Chapter 5: consideration
Ms T Modise (Co-Chair) opened the session by remarking that it was not necessary to reopen the debate on "noting the Findings" that the Committee had argued for a full hour that morning. The decision to "note" also extended to the Recommendations. Before the Committees adopt this Report, the different parties will express their opinion on it.

Mr Mashimbye concurred that the Committee should not be allowed to revert to the argument that it had had for more than an hour.

Mr V Ndlovu (IFP) remarked that Point 5.3.1.6 (p 119) should also be flagged as it makes reference to a "Comprehensive Helicopter Logistics User Requirement Statement" document which could not be traced during the course of the investigation.

Mr Jankielsohn (DP) wanted to know more about the "serious impact" the additional cost would have on the helicopter group and also on the other system groups referred to in Point 5.3.1.2 (p 118). Point 5.5.5.2 (p 140) refers to a different number of units. Which one - 60 or 40 units - was correct as well as the difference in the amounts stated in that paragraph.

Ms Kota (ANC) asked for the flagging of Point 5.3.1.2(b) (p 118) as no funds were included in the sum approved by the Cabinet for the implementation of the LUH into service. Point 5.3.1.4 notes that a staff requirement was not worked out first before the acquisition. She remarked that a formal staff requirement would need to have been authorised for the project.

Mr Theron (DP) commented on Point 5.1.2 (p 115) that 16 companies were approached and issued with a Request for Information (RFI) for the supply of the LUH. The following paragraph mentions only three companies were shortlisted. He wanted to know the grounds for the non-shortlisting of the other companies.

Mr Oosthuizen (ANC) raised a concern on Point 5.5.5.1 (p 140) on the difference between the cost presented to Cabinet in 1998 of R2 169 million and the negotiated contract price of R2 303 million. Also it was not clear what the "mission equipment" in Point 5.5.6.3 was. He also asked that Point 5.5.7.4 and 5.5.7.5 (pp 141/2) be flagged so that they may have further clarity.

Mr B. Ntuli referred to Point 5.3.1.6 (p 119) and said that this matters should be flagged so that the Committee could receive an explanation why the document could not be traced during the course of the investigation. Regarding Point 5.6.5.1 (p 146) he asked if the company Agusta that was transferred to the new subsidiary Agusta S.p.A was favourable or detrimental to South Africa because the new company is a subsidiary that does not have the same rights and liabilities as the holding company.

On Point 5.3.6.2 (p 124), Mr Bloem remarked that he was not sure what the Armaments Acquisition Steering Board was because the acquisition had been approved subsequent to the signing of the contract.

On Point 5.3.9.9 (p 131), Mr Theron said that the Committee needs clarity on the phrase "non conformances even with our critical criteria".

Mr Mabete expressed dissatisfaction with the manner in which the Report had been written. He opined that it has been written in a very mechanical and simple manner and this did not help the Committee in going through with the report.

Ms Modise replied that it was unfortunate but the Committee could not change the style of the Report, it simply had to swallow its contents and make recommendations later.

Findings of Chapter 5
Ms Kota said that Point 5.7.1 reflects a matter of policy and that there was flouting of policy. She asked that this Point be flagged as a matter of concern.

Mr Smit (NNP) remarked on Point 5.7.4 (p 147) that he would like to get a list of the minor discrepancies that had been found during the investigation.

Mr Ndlovu referred to the same point and asked certain team members had compiled their own tables instead of using the Master Scoring Matrix.

Mr Theron was concerned that there were no recommendations in Chapter 5.

Ms Kota also expressed concern over the lack of recommendations. She said that Chapter 5 showed the need for the Defence Committees to meet with the DoD and find out exactly what had happened.

It was finally agreed that all the concerns that the members had pointed to were "noted and highlighted" and that they were to be compiled and forwarded to the DoD team that would interact with the Committee.

Chapter 6
Ms Kota asked to flag Point 6.1.9 (p 152) because the contract was initialed at a press conference before the finalisation of all the processes (the initialing occurred prior to the outcome of the affordability study undertaken by the DoF on the strategic defence package as a whole).

Adv. Schmidt remarked that this was indeed a questionable way of doing things, to initial a contract and not to sign it. The impression that was created for the media was that the Minister had actually signed the contract. This opens itself to different interpretations and criticism.

Mr Ndlovu asked that Point 6.4.2.1 (p156) be flagged as one could not have an error of computation of such a big an amount. There was "something fishy". Point 6.4.2.3 should also be flagged as it makes reference to adjustment of the errors.

Adv. Schmidt asked that Point 6.4.5.3(b) & (c) (p162) be flagged as they were questionable, especially (c) mentioning that not all business concepts had been considered by the DTI prior to the submission of the offers and that the above was not in accordance with good procurement practices. He also raised a concern about Point 6.4.5.4(a) as no reasons or insufficient reasons were given for the exclusion from evaluation of certain activities offered by bidders. Paragraph (c) was also baffling in that it states that certain projects, which did not qualify in terms of the list of special projects, were included in the evaluation process. Such was indeed questionable.

Ms Kota remarked that the whole Chapter should be flagged as a matter of concern as it contained deviations from normal or standard procedure.

Mr Jankielsohn was perturbed that no policy was in place with regard to the appointment of the evaluation team - as indicated in Point 6.4.6.5 (p170). Mr Bloem added that the Committee should be furnished with a list of the Evaluation Team.

Mr Ndlovu referred to Point 6.4.5.5(b) & (c) (p163) where Mr V Pillay had advised that DTI industry experts had advised the evaluators on the percentage of local and export sales as well as local content, where this information had not been furnished. No papers were furnished by the DTI to substantiate this. He was also concerned about the difference in the amounts in paragraph (c). He said that Mr Pillay of DTI was responsible for this. The Committee took note that Mr Pillay had since resigned from the DTI.

Adv. Schmidt raised a concern about Point 6.4.7.6 (p180) about the flaw in the value system. If there was a flaw in the value system, this refutes the whole process of any valuation.

Mr Theron asked that Point 6.4.8.1 (p181) be flagged. It states that the submarine technical value system was approved without a policy that prescribes the approval process to be followed or the level of authority at which it should be approved.

Findings of Chapter 6
Mr Mabete asked to flag Point 6.8.8 (p192) which stated that there is no evidence to indicate that any individuals influenced the selection process. The Chapter contained many inadequacies and contradictions and the bidders were not treated in an even-handed manner. It was thus surprising that the compilers of the Report dared to say that there was no evidence to indicate that any individuals had influenced the selection process.

Mr Bloem raised a concern regarding Point 6.8.5 (p192) that a legal opinion from Armscor was not communicated to SOFCOM to enable its members to take it into consideration when making recommendations. The Committee should be furnished with reasons.

Mr Bloem remarked that in his opinion Mr Shaik and Mr Esterhuyse were involved in influencing the selection process. This was contrary to what is expressed in Point 6.8.8 (p192) on the lack of evidence that individuals influenced the selection process.

Mr Mabete commented that the whole chapter should be flagged.

Mr Ndlovu commented that the whole chapter contained references to three individuals, Messrs Shaik, Esterhuyse and Pillay. The information contained therefore denotes suspicion around these three individuals.

Mr Smit said it was unclear who was responsible for conveying the legal opinion in Point 6.8.5 (p192). He wanted to know who that person was and what had happened to that person.

Mr Mabetha remarked that the drafters of the Report should have been aware of the inconsistencies (as raised by the Committee). He cast doubt on the competence of the drafters of the Report.

The Chairperson warned that it was rather too early to cast doubt on the competence of the investigators because there were still investigations being conducted into the matter.

Mr Mabete then withdrew his statement casting doubt on investigative competence.

The meeting was adjourned.

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