Arms acquisition, procurement and stock sales: briefing by Armscor

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Defence and Military Veterans

12 February 2001
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DEFENCE PORTFOLIO COMMITTEE

DEFENCE PORTFOLIO COMMITTEE
13 February 2001
ARMS PROCUREMENT, ACQUISITION AND STOCK SALES: BRIEFING BY ARMSCOR

Chairperson: Ms T Modise (ANC)

Documents handed out: None

Armscor delegation: Mr Sipho Tomo (CEO), Mr Deon Smith (General Manager of Acquisitions) and Ms Sindane (Liaison Officer).
Armscor website: www.armscor.co.za

SUMMARY
Armscor clarified the difference between the terms acquisition and procurement. They described the acquisition process as well as the tendering process used both for acquisition and procurement. The checks used to keep corruption at bay were pointed out. The process for the sale of unwanted SANDF stock was explained and Armscor outlined the history behind the attempted sale of the C-160 Transall aircraft and the Quantam debacle.

MINUTES
The Chairperson mentioned the many articles that had appeared in the media of late concerning the acquisition of and the tendering for arms. She proceeded to introduce the Armscor delegation to the committee.

Armscor Presentation
Arms Procurement and Acquisition
Mr Smith stated that the acquisition process was an extremely complex one and that he intended to provide only a brief overview of the actual process by means of a few overhead projector slides. He explained that the acquisition process was divided into the following steps:

User Requirement - (what the user needs)
Concept Design - (investigate all possible solutions and select the optimum solution)
Definition Phase - (identify or develop the technology necessary for the solution)
Development - (formal approval of specification)
Industrialisation - (contingent on the size of the order warranting this stage)
Production
Operational - (phase out or upgrade product)

Mr Smith explained that the whole process could form a cycle that could be repeated. Armscor managed close to a thousand contracts in a financial year using these guidelines with the help of integrated project teams.

He clarified that procurement differed from acquisition in that procurement dealt with an existing product that was purchased off the shelf. Acquisition would be arms designed from scratch as specified by the client.

Mr Tomo illustrated the tender process necessary for acquisition and procurement by means of a single overhead projector slide: the Procurement Secretariat (finance) served the function of receiving recommendations in the form of submissions from Armscor. After an assessment of the submission it was then passed on to the Tender Board for final scrutiny. A minuted decision is then sent back to the Procurement Secretariat who issues the order to Armscor.

Mr Tomo stressed that at every stage of the process, the parties involved were to declare any interests they had - failing which they would be disciplined for contravening the Armscor code of conduct.

General Viljoen (FF) stated that Armscor as an organisation was vulnerable to corruption and that checks should be added to all functions and not just that of tendering. He added that decisions would have been taken before the process reached the tendering stage and that checks against corruption should also be put into place for these decisions.

Mr Tomo answered that this suggestion would indeed have to be discussed with the Department of Defence but that financial considerations would play a critical role.

Mr Ngculu (ANC) inquired as to the composition of the Tender Board. Mr Smith replied that for contracts worth less that R2 million, a lower level of management would be represented. For contracts between R2-R5 million, General Managers and the CEO as well as the Department of Defence would be represented. For contracts above R5 million the members of the Armscor board would have discretionary power.

Mr Tomo added that the names of the companies were removed when tenders were evaluated and that the evaluations took place individually in isolation and that the scores were only considered at the end thus not making it easy for corruption to occur. Mr Tomo added that transparency was a weighted concern as they often dealt with military secrets of other nations that could not be compromised.

The Chairperson added that transparency could be had so long as it did not compromise the security of the country and was an issue that should be debated by the committee in the future.

Mr Ngculu (ANC) inquired as to the extent to which Armscor led the project teams. Mr Smith answered that the technical leadership had to come from Armscor but that in the past, decisions were not always free of political influences. He said however that he was satisfied with the way the process was operating at present.

The Chairperson asked if uniforms formed part of Armscor's procurement and acquisition programme. Mr Smith replied that uniforms were procured through the State Tender Board and that only specialised clothing fell under the sphere of Armscor's activities.

Stock Sales
Mr Tomo stated that Defence Force equipment had to be disposed of when it became old which also provided a source of revenue. The South African National Defence Force (SANDF) provides the stock lists and marketing permits must be obtained from the National Conventional Arms Control Committee (NCACC) before the goods are advertised. Items are then offered for sale through the Internet, a bulletin, the press and fax notification to database subscribers.

Mr Tomo went on to explain the situation regarding the disposal of nine C-160 Transall aircraft. These aircraft were withdrawn by the SAAF in 1993 and Armscor was asked to find a buyer for the aircraft and the spare parts. The potential buyer would have to satisfy three requirements:
NCACC approval (issue of an end-user certificate)
Demonstrate the availability of funds
Obtain Original Equipment Manufacturer Approval (OEM)

In December 1993 a deal fell through with Africa Air Trade Link due to a lack of funds. In 1995 an investigation was launched to see whether it would be viable to refurbish these aircraft and use them again. The report found that this would not be a viable option. In 1997 the aircraft were again offered for sale. Brugger and Thomet was identified as the preferred bidder. The deal was cancelled again because the bidder failed to meet the requirements.

In March 1998 two bidders were short-listed. The other bidder could not raise the money which left Quantam International Services as the preferred bidder. Quantam produced OEM approval and a bank guarantee for the funds. They were however denied an end-user certificate from the NCACC. Quantam was notified by fax of this development on 10/09/98.

Quantam then proceeded to make allegations against Armscor that bribery had resulted in them awarding the tender to another bidder. Armscor contends that there was no other bidder.

In March 2000 the CEO of Armscor arranged a meeting with Richard Parker and Captain Roy Seegers of Quantam, demanding evidence to back up their claims. Quantam promised to produce NCACC approval in two days' time. The approval failed to materialise. Quantam proceeded to instruct their lawyers to demand that Armscor proceed with the deal. On 25 July 2000 Quantam abandoned their claim.

In September 2000 the aircraft were offered for sale again. Quantam were informed that they were entitled to bid again. Quantam refused this offer.

Heli-lift has now been identified as the preferred bidder and have yet to meet the three requirements listed above.

The chairperson thanked the delegation for their presentation and the light that it shed on the processes of acquisition and procurement as well as the insight it provided into the Quantam debacle. She stated that a meeting was necessary with the Department of Defence to understand their procedures better. Once both were understood greater clarity would be achieved. The chairperson expressed her dissatisfaction at the general response given by the delegation as to what specifically would happen to a person found guilty of corruption. This she said was worthy of attention so that other matters of defence did not experience similar allegations. It was stated that a member of the NCACC should also be present at one of the committee's meetings for the sake of all round clarity.

The meeting was adjourned.

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