official arms deal reports

Special report of the Auditor-General on alleged irregularities at theArmaments Corporation of South Africa (Pty) Ltd

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SPECIAL REPORT OF THE AUDITOR-GENERALON ALLEGED IRREGULARITIES

AT THE ARMAMENTS CORPORATION OF SOUTH AFRICA (PTY) LTD (ARMSCOR)

1. MANDATE OF THE AUDITOR-GENERAL

1.1 The functions of the Auditor-General in supporting constitutional democracy inSouth Africa are described in section 188 of the Constitution of the Republic ofSouth Africa, 1996 (Act No. 108 of 1996). Section 5(1) of the Public Audit Act, 2004(Act No. 25 of 2004) (PAA) provides that the Auditor-General may carry out anappropriate investigation of any institution referred to in section 4(1) or (3) of thePAA if the Auditor-General considers it to be in the public interest or upon thereceipt of a complaint or request. The content of this report is primarily based onthe requirements of section 29 of the PAA and the Auditor-General Directive 1 of2005 issued in terms of section 13 of the PAA.

1.2 The primary responsibility for the prevention and detection of fraud, irregularitiesand error rests with both those charged with the governance and the managementof an entity. Management, with the oversight of those charged with governance,needs to set the proper tone, create and maintain a culture of honesty and highethics, and establish appropriate controls to prevent and detect fraud and errorwithin the entity.

1.3 It is the responsibility of those charged with the governance of an entity to ensure,through the oversight of management, the integrity of an entity’s accounting andfinancial reporting systems and that appropriate controls are in place, includingthose for monitoring risk, financial control and compliance with the law.

1.4 It is the responsibility of the management of an entity to establish a controlenvironment and maintain policies and procedures to assist in achieving theobjective of ensuring, as far as possible, the orderly and efficient conduct of theentity’s business. This responsibility includes implementing and ensuring thecontinued operation of accounting and internal control systems which are designedto prevent and detect fraud and error. Such systems reduce but do not eliminatethe risk of misstatements. Accordingly, management assumes responsibility for anyremaining risk.

2. PURPOSE AND LIMITATION OF THE SPECIAL REPORT

2.1 The purpose of this special report is to make known the findings emanating from anindependent investigation conducted after receipt of certain allegations from amember of the public (hereafter referred to as the informant).


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2.2 The investigation was performed in terms of the South African Auditing Standards,where applicable, and the internal Guidelines for the Planning, Execution,Reporting and Follow-up of Audit Investigations. However, the findings of theinvestigation do not form part of any regularity or other audit report and I do notexpress an audit opinion thereon.

2.3 Although the work performed incorporates my understanding of the law as it stands,I do not express an opinion on the legal effect of the facts or the guilt or innocenceof any person(s) or party, but merely state the facts as they have come to myattention.

2.4 The special report is based on the facts established from documentation providedand/or information obtained during the course of the investigation. Should anyfurther information be obtained, it may influence the conclusion.

2.5 I consider it necessary to quote from the findings of the Project Review Board andother documentation of the Armaments Corporation of South Africa (Pty) Ltd(Armscor) in order to contextualise the nature and extent of the technical complexityof the investigation. Furthermore I have where appropriate provided the commentsof management.

3. BACKGROUND

3.1 An informant requested me to conduct an investigation into alleged irregularities atArmscor relating to an air defence system project.

3.2 A contact meeting was held with senior management of Armscor on 16 July 2003 todiscuss the envisaged investigation. This was formalised on 31 July 2003.

4. PURPOSE, OBJECTIVES AND APPROACH OF THE INVESTIGATION

The purpose and objectives of the investigation were to:

• Investigate the procurement of goods and services by Armscor from aspecific armaments supplier (the supplier);

• Identify and deliver proof of any irregular transactions pertaining to thedelivery of goods and services; and

• Report on the factual findings resulting from the investigation.


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In order to investigate the allegations, the following approach was adopted:

• Reviewed the procurement process followed for the eight allegationsidentified.

• Obtained and evaluated relevant documentation, reports and statements forthe identified allegations.

Where deemed necessary, the services of a technical expert were used to assistme in evaluating technical aspects of certain allegations identified for review. Aninformal procurement process was followed in appointing the specialist. Relevantspecialists were identified in the Pretoria area. Out of the list of 19 technical expertsfour were deemed to comply with the set requirements. Of the four shortlisted, thetechnical expert used was selected based on non-involvement with Armscor in thepast, availability and pricing structure.

5. SCOPE OF THE ASSIGNMENT

5.1 The scope of the preliminary investigation was determined after consultation withmanagement of Armscor. Eight relevant allegations, out of a total of 72 allegations,were identified in order to test the validity of the allegations received from theinformant. The eight allegations were determined based on the availability ofinformation and documentation from Armscor and the supplier, theunderstandability of the allegation received from the informant, and thepersuasiveness of the documentation obtained from the informant.

5.2 In conducting the investigation I relied on the documentation and other informationprovided by Armscor, the supplier, the Department of Defence (DoD) and theinformant. My investigative efforts were limited to the legal and legitimateacquisition and collection of evidence.

5.3 The draft report was submitted to Armscor for confirmation of the factualcorrectness and to afford Armscor the opportunity for timely inputs.

5.4 The period under review was from 1 April 1991 to 31 July 2003 and the conclusionis based on the facts established from documentation provided and/or informationobtained during the course of the investigation.

6. SOURCES OF INFORMATION

The following sources of information were mainly used, which were obtained fromArmscor, the supplier, the DoD and the informant.

• Sworn affidavits• Contracts


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• Amendments to contracts• Minutes of meetings• Reports issued by Armscor• Reports issued by the supplier• Work package plan and work authorisations (WPP)• Statements of work (SOW)• Invoices• Certificates of conformance

7. PROCEDURES PERFORMED

7.1 The procedures performed and methods used were based on documentationprovided and/or information obtained during the course of the investigation.

7.2 The procedures performed during the conduct of my investigation included thefollowing:

• Perused documentation supplied by the different parties.• Analysed documentation and information.• Held discussions with the informant.• Perused relevant legislation, regulations and circulars.

8. OVERVIEW OF ARMSCOR

8.1 The following are extracts from the Armscor web site:

• Armscor is a company dedicated to providing a leading edge service in theacquisition of products and services for defence communities around theworld.

• Armscor was established to meet South Africa’s needs for defence-relatedproducts and services and to maintain key industries and technologies forthat purpose.

• Armscor’s primary aim is to provide the South African National DefenceForce with solutions to all their requirements, with the emphasis on technicalexcellence and value for money.


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8.2 In the year 2000 allegations relating to the mishandling of State funds on the airdefence system project were raised with Armscor. Armscor asked its internal auditdepartment to perform an investigation to determine whether the allegations maderegarding the mishandling of State funds could be substantiated and to confirmwhether the applicable control procedures were sufficient. The memorandumissued by the internal audit department indicated, under the heading “Opinion”, thatan opinion on the allegations was withheld. Subsequently, on 31 July 2000, aProject Review Board was appointed to review the allegations concerning selectedaspects of the entire project from an overall perspective. The objective was to placeArmscor’s Management Board in a position to either refute or place into context theallegations made with regard to contract objectives and the execution of the project,and to decide on further steps to be taken, if any.

8.3 The following are extracts from the Project Review Board’s report on the project:

• The project originated from an earlier air defence system project, which wasan acquisition type project (capital funding). This project’s objective was toupgrade the South African Air Force (SAAF) capabilities in terms of airdefence systems.

• Due to the large cuts in the South African National Defence Force budgetaround 1992 to 1994, the earlier project was terminated. However, aconsiderable amount of money had already been spent; the defence industryhad acquired and accumulated a considerable body of knowledge and, inaddition, done some upgrades. The SAAF then decided to initiate a newproject as a technology project. The main objectives of the project were toretain and expand the technology and to assist the SAAF in the field of airdefence systems when new systems were to be acquired in the future.

• In order to enable the technology project to be initiated, a Project Definition(PD) for the project was approved on 25 May 1994.

• The PD was approved for Rm18,602 (excluding VAT) or Rm21,207(including VAT) over a three-year period (1994/95 to 1996/97).

• On the strength of this PD, a Request for Proposal (RFP) was sent to thesupplier, who submitted a proposal to Armscor. Armscor’s Board of Directors(BOD) subsequently approved order KT422661 on 19 July 1994. This orderwas later amended seven times over the three-year period.

• Issue 2 of the PD for a further three-year period (1997/98 to 1999/2000) wasapproved on 15 January 1997 and the Armscor BOD approved orderKT498943 on 2 July 1997. This order was subsequently amended four times.This order was replaced by order KT444971 on 27 November 1998.

• The approval value of this PD (issue 2) was Rm23,305 (excluding VAT) overa three-year period.

• The combined value of orders KT422661, KT498943 and KT444971 wasRm43,04.


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• The objectives of issues 1 and 2 of the PD were basically the same, namely:♦ Technology retention

Total system capability; Technology expansion in the field of data processing, real time

signal processing, simulation, fire control, etc.; Retention of existing facilities, documentation control, etc.; and Retention of wealth of experience in the field of systems

engineering applicable to air defence systems.♦ Technology application

Maintenance of existing operational equipment; Generation of system specifications for future system; Upgrades to sensors; Integrating designation sources into squadron-level tactical

networking system and sensor fusion; Improving current operational software; and Training of SAAF personnel.

• The third issue of the PD was approved on 26 January 2000 for an amountof Rm17,54 (excluding VAT) for the period 2000/01 to 2002/03.

• According to the Project Review Board report the objectives of the PDdiffered considerably from the previous two PDs and addressed the followingaspects:♦ Retention of specific technologies;♦ Establishment of a generic weapon system, Command and Control

capability through simulations; and♦ Creation of contact-level situational awareness.

8.4 The findings of these two internal investigations are contained in a memorandumissued by Armscor’s internal audit department, dated 23 May 2000, and in theProject Review Board report, dated 20 September 2000.

8.5 The findings of the two internal investigations were accepted by Armscormanagement as having addressed the allegations.

9. EXECUTIVE SUMMARY

The following is an executive summary of eight allegations investigated out of thetotal of 72 allegations received:

9.1 Allegation 3

The allegation stated that the prototype Acquisition Unit (AU) Indicator positionedclose to the AU Planned Position Indicator (PPI), with a milestone cost ofR56 458,00, was never demonstrated during 1993/94 and was never seen bytechnical people in subsequent years.


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Based on the findings contained in paragraph 10.1.2 below, the prototype AUIndicator was a contractual deliverable. The Armscor and supplier managers signedcertificates of conformance (CoC) and Armscor was invoiced by the supplier for acontractual deliverable to the amount of R56 458,00. No evidence was provided ofthe existence of the prototype AU Indicator.

9.2 Allegation 7

The allegation stated that no Acceptance Test Procedure (ATP) documents existedat 9 March 1999 for the contractual deliverable, namely the Extended Inter-VehicleData Link (EIVDL) specification and ATP documents, with a milestone cost ofR42 706,88.

Based on the evidence in my possession, the scope of work of the Work PackagePlan and Work Authorisation (WPP) was changed subsequent to the WPP suppliedby the informant. The investigation team concurs with the findings of the ProjectReview Board that the EIVDL specification and ATP document was not adeliverable in terms of the final WPP.

9.3 Allegation 17

This allegation related to the Data Link of the AU Networking for EIVDL TestResults, with an estimated milestone cost of R10 000,00. It was alleged that no testresults were filed in the supplier’s Document Control Centre (DCC) on 12 August1997 and 9 March 1999. It was also alleged that the EIVDL and Node Computersnever worked up to 30 September 1996.

Based on the evidence in my possession, no documentary evidence was madeavailable containing the specific test procedures or methods, or detaileddemonstration results.

It is not clear whether or not the EIVDL and Node Computers were working prior to1998 based on a statement and report by a DoD staff member.

The conclusion reached by the technical specialist highlights the fact that it is notpossible to conclude that the test on the data transmission was done in accordancewith a laid-down test procedure and that these results compared favourably withexpected results.

I am unable to conclude on the related financial transaction as no specific invoiceswere identified for this deliverable.


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9.4 Allegation 32

The allegation stated that no minutes of progress meetings were available in theDCC on 9 March 1999 as required by the contractual deliverable relating to thedevelopment of the AU Target Engagement and Weapons Assignment (TEWA)model, with a milestone cost of R5 640,00.

Based on the evidence in my possession, proof could not be provided that minutesof the progress meetings were available in the DCC on 9 March 1999. Evidence ofthe TEWA discussions in the minutes of two meetings was, however, obtained. Asno signed (final) WPP could be submitted, it could not be verified that the minuteswere in fact a contractual deliverable.

9.5 Allegation 58

The allegation stated that no flight level command and control interfacerequirements documentation, with a milestone cost of R44 783,00, was filed in thesupplier’s DCC.

Based on the evidence in my possession, the document was not filed in the DCC.

The reason for the CoC being signed in February 1998 is unclear, as the draftdocument, issue A, was dated 3 July 1998. The supplier invoiced Armscor for thespecific deliverable at the exact amount as stated in the Statement of Work (SOW).

The required document was still not finalised as at 16 March 1999 according to theArmscor internal audit report.

9.6 Allegation 60

This allegation related to the fact that the EIVDL did not work. The supplier (anarmaments supplier to Armscor) had to spend approximately one man-year to fixthe problems with the EIVDL, which had the result that the Integrated FlightCommander Station System, with a milestone cost of R555 924,00, becameoperational at a later stage than planned. The fixing of the EIVDL was paid forunder the task of the Integrated Flight Commander Station System.

Based on the evidence in my possession, Armscor could not supply an approvedWPP regarding allegation 60. The only WPP available was a copy of a WPP,signed by an employee of the supplier, supplied to me by the informant.


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It is not clear on what basis the supplier invoices were compiled or on what basisthe CoCs were completed, as no formally approved WPP could be provided byArmscor.

9.7 Allegation 65

This allegation related to the technical firing preparation (activity #3) which providesfor the analysis of the efficiency of the Fast Fourier Transform (FFT) algorithmsused in the Firing Unit (FU) in order to draft a report listing deficiencies andrecommended actions. The report needed to be approved by the Armscorprogramme manager, with a milestone cost of R124 194,00. RIPTO funds (CSIRfunds) were used in order to get the Pulse Doppler Radar Tracker (PDRT) inworking order.

Based on the evidence in my possession, the deliverable provided to theinvestigation team conformed to the required deliverables as per the SOW for itemNo. 274. However, it is not clear why the final deliverable was not available in theDCC.

It is not clear why the CoC, which certified that the task had been completed, wassigned prior to the work being completed.

9.8 Allegation 72

This allegation related to the fact that the supplier double-invoiced the time spentby an employee on the Help Screens of the Flight Commander Station (FCS) and acode development project during the financial year 1996/1997, of which the costamounted to R24 345,60 for the financial year 1996/1997.

The timesheets of the specific employee of the supplier for the period should bemade available and followed through to the actual invoices in order to validate theclaims of the informant. This issue needs further investigation.

10. DETAILED FINDINGS AND CONCLUSIONS

10.1 Allegation 3: Contract Code: KT211763

10.1.1 Task: AU IndicatorDeliverable: Prototype AU Indicator positioned close to the AU PPIMilestone cost: R56 458,00Allegation: This prototype was never demonstrated during 1993/94 and was neverseen by technical people in subsequent years (9 March 1999).


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10.1.2 Detailed findings

The WPP 419-11 was authorised by the project manager on 24 May 1993. TheStatement of Work Table 419-11-060 identifies the scope of work as thedevelopment of an indicator to display the pointing directions of up to three FUs,which would be a separate display conveniently positioned close to the PPI. Thedeliverable is indicated as being a prototype AU Indicator. It is also reflected thatthe acceptance condition is a demonstration and that the delivery date was 30September 1993.

The following summary of the supplier’s invoices indicates that the total amount forthis deliverable was claimed from Armscor:

Invoice no. Invoice date Date capturedon the financial

system

CoC signed byArmscor

representative

Itemamount (excl.

VAT)1765 7 Dec 1993 21 Dec 1993 12 Jan 1994 16 937,001804 28 Jan 1994 3 Feb 1994 4 Feb 1994 15 000,001843 22 Feb 1994 1 March 1994 3 March

199424 521,00

Total 56 458,00

To each of these invoices a CoC was attached signed by the supplier’s programmemanager and the APM, certifying that the work detailed below had been partiallycompleted or completed. The first two certificates indicated partial completion andthe last certificate indicated completion of the task 419-11-060. The amounts of theinvoices add up to R56 458,00, which equals the contracted amount for this item.

The memorandum issued by Armscor internal audit on the Special Investigation,dated 23 May 2000, states that no visible proof other than the APM's signatureexisted to substantiate that the demonstration was held.

In a sworn affidavit, dated 14 June 2000, an employee of the supplier confirmedthat during the period he was working on the EIVDL project, he never saw the AUIndicator inside the AU. He stated that he had not seen any software relating to thisindicator, as he would have noticed the software if it existed due to the fact that hehad access to all the EIVDL and FCS software as part of his duties, and that to thebest of his knowledge not even prototype software was anywhere on record.


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In the report on the allegations issued by the Project Review Board, dated 20September 2000, it was stated that the evidence was inconclusive. A comment wasmade that the AU was in use on operational equipment (not verified during review).It was concluded that the work must have been done as the AU was in operation;however, configuration control was not properly executed – prototype Software(SW) not recorded in the DCC.

The report of the specialist, contracted to assist the office with the evaluation ofcertain of the allegations, dated 17 June 2004, stated, inter alia:

CONCLUSION: No existing AU Indicator could be found or demonstrated.If this item formed part of a software-driven module which was originallydisplayed on the Visual Display Unit (VDU) next to the PPI, then no onepresent could confirm this fact.

10.1.3 Conclusion

The prototype AU Indicator was a contractual deliverable. The Armscor and thesupplier’s managers signed the CoC and Armscor was invoiced by the supplier fora contractual deliverable to the amount of R56 458,00. No evidence was providedof the existence of the prototype AU Indicator.

10.1.4 Management comment

Armscor has decided to further investigate the allegation with the objective ofdetermining whether any further action is warranted.

Additional management comments dated 16 November 2004:

Allegation 3 which pertained to an allegation that the prototype AU indicator wasnever demonstrated and was never seen by technical people in subsequent years.In this regard a further investigation on the allegation was undertook with theobjective of determining whether any further action is warranted. Below are thefindings of this investigation.

As part of the investigation, the original responsible engineers’ notes and otherrelevant documentation have been located and it has managed to shed new lighton the hitherto unanswered questions pertaining to the demonstration or not of the“AU Indicator”. The “AU Indicator” primarily entailed a PC for which dedicatedcommunications software had to be developed for purposes of the demonstration.The development of the communications code was subcontracted by the supplierand hardcopies of this communications code has now been found as part of theengineers technical file documentation and has been made available to Armscor.


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The subcontractor confirmed that he was subcontracted to develop thecommunications software code and that he did in fact provide the code. Hesubsequently made copies available of all the code that he had developed as wellas copies of accompanying documentation. The subcontractor furthermoreconfirmed that he had written test software for the requirement and that he canmake copies of this software available upon request. He also confirmed that he wasinvolved in the testing and is willing to make a statement to this effect.

The suppliers programme manager at the time is no longer in the employ of thesupplier, but he confirmed that he had personally witnessed the demonstration ofthe “AU Indicator” and that the Armscor project manager was also present at thedemonstration.

In the light of the new tangible (ie. technical documentation and copies of the actualcommunications code) that has surfaced during the further investigation intoallegation 3, as well as the evidence supplied by various participants on the projectat the time, there exists little doubt that the specific demonstration did in fact takeplace. The CEO of Armscor is thus satisfied that the allegation in this regard isunsubstantiated and that the matter can be closed.


10.2.1 Task: EIVDL Data Link Specification and ATP documentsDeliverable: EIVDL Specification and ATP documentsMilestone cost: R42 706,88Allegation: No ATP documents existed (9 March 1999)


In terms of an agreement between the supplier and a subcontractor for the period21 June 1994 to 19 September 1994, dated 1 August 1994, the subcontractor wascontracted to generate an ATP document for the EIVDL.

The WPP 591-14 was signed on 11 August 1994 by only the supplier’s projectmanager. The attached SOW Table 591/14/200 indicates the scope of work as,inter alia, to provide Datalink specification and ATP document. The acceptancecriteria are, inter alia, a review of Datalink specification and ATP document.

A final WPP 591-14 was signed 15 December 1994 and 11 January 1995 by therelevant employees of the supplier and the APM. The attached SOW table does notrequire Datalink specification and ATP documents as part of the scope of the work.


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In the supplier's memorandum dated 12 August 1997 an employee of the supplierforwarded the results of a configuration audit held on the AU Network Project to thesupplier’s overall technical project manager and systems engineer. The table,attached to the memorandum, stated that the documents required in terms ofcontact KT442661, task number 591/14/200, were not available.

In the report on the allegations issued by the Project Review Board, dated 20September 2000, it was stated that no ATP existed on 9 March 1999. The deliveryof an ATP was not a contractual requirement in terms of the approved WPP. Asegment specification was the required output. It was concluded that the allegationwas based on a WPP that was subsequently replaced. Hence the allegation wasunfounded and without substance.

10.2.3 Conclusion

Based on the evidence in my possession, the scope of work of the WPP waschanged subsequent to the WPP supplied by the informant. I concur with thefinding of the Project Review Board that the EIVDL Datalink specification and ATPdocument were not a deliverable in terms of the final WPP.


10.3.1 Task: AU Networking: Data LinkDeliverable: EIVDL Test ResultsMilestone cost: R10 000,00 (Estimation by informant)Allegation: No test results were available in the DCC when the manager of thesupplier's DCC brought out an audit report on 12 August 1997 and 9 March 1999. Itis also a known fact that the EIVDL and Node Computers never worked up to 30September 1996.


The unsigned WPP 887-07, with start date 11 April 1996 and finish date 31 March1997, and the attached SOW Tables 887-07-1/2/3, identify the scope of work as,inter alia, the execution of the test and evaluation of phase 2 as per the updatedspecification, and acceptance testing of the Node Computers utilising the testroutines according to the existing AU and FU Node Computer ATPs. Thedeliverables are, inter alia, a phase 2 test and evaluation report, test ordemonstration results and acceptance test results. The acceptance conditions are,inter alia, the successful acceptance test of modified EIVDL drawers according tothe existing EIVDL ATP, the successful demonstration of the laboratory test facility,and the review/acceptance of the FU and AU Node Computer test routine software.


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An AU Networking Phase 1 Test and Evaluation Report, dated January 1996 andsigned by the respective signatories between 23 and 25 January 1996, states thatthe operation of the AU and FU EIVDL drawers during a field deployment wassuccessfully demonstrated.

The minutes of the systems team meeting held on 10 May 1996 reflect that testresults were presented for the Test Procedure Manual (TPM) (Data Comms –EIVDLs).

The supplier, on 26 September 1996, placed an order to the value of R7 500,excluding VAT, with a subcontractor to perform the following:

Modification of the current AU and FU EIVDL controller software toeliminate the intermittent problem in the FU during AU target designation.DELIVERABLES:a) modified software source code, commented where modifiedb) modified BIN filesACCEPTANCE: SUCCESSFUL DEMO OF MODIFIED SW DELIVERY DATE: on or before 18/10/96.

The minutes of the systems team meeting held on 27 November 1996 reflect thatEIVDLs were used during the November 1996 deployment and performed very welland without problems.

A memorandum from an employee of the supplier dated 17 July 1997 stated, interalia, as follows:

1. After a very unsatisfactory start on Monday to integrate the FU Nodefunctions with the rest of the AU Network System, I have decided ona plan of action as described below.

It is very clear that we did not follow sound engineering principles inthe past to systematically test and integrate the various componentsof the system.

I foresee the following steps to be taken in order to integrate and testthe system successfully.

1.1 Person A will design and implement (with the help of Person B) amodem tester. This will enable us to verify correct operation of themodems at the specified bit rate (500k/Bs). This will be completed by24 July 1997 (as was discussed with Person A).


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1.2 In the event that the modems are not performing according tospecifications, then a redesign cycle will be initiated. The monostablein the modem design have to be taken out in any case (this is mostlikely the reason why we experience temperature related problems).Person A will be responsible for this task with the help of Person Cand Person D. We should be able to finish this task not later than 31July 1997.

1.3 The next step will be to verify in the laboratory that we can exchangereliable data at level 1. Remember there are two levels ofcommunication i.e, the target designation communication level andthe AU/FU Node function Communication level. Person F will beinvolved here using the EIVDL test bench. This task will be deemedsuccessful if we can exchange reliable data using different cablelengths and over a realistic temperature range.

1.4 Still at level 1 the next step will be to verify that the unacceptabledelay in target designations have disappeared. I am of the opinionthat this problem is related to bad communications and by this timewe will not experience that problem anymore. The test will beexecuted using test target designations from the AU and observeone second updates on the EIVDL test bench.

1.5 The next step will be to test the EIVDLs at level 2 in the laboratory. Iwill work out a scheme to enable us to test at this level beforemoving out to the vehicles.

1.6 The next step will be to integrate the EIVDLs in the vehicles and toverify FU Node functionality using the AMS 1050B computer.

1.7 The final step will be to involve Person G and Person H to verify FUNode functionality using the new DCI function in FUSC.

In a document with the heading NODE COMPUTER AND RELATEDDEFICIENCIES, dated 15 May 1998, it is mentioned that incorrect information wasone of the major initial problems. Other issues highlighted in the document were themoney-driven invoicing system that was used by the supplier, without regard for thetechnical integrity of the final product, which led to frustration and a probableincreased staff turnover.

In the minutes of the systems team meeting held on 10 June 1998, it is recordedthat the work had been completed on the AU to AU communications, which are nowworking satisfactorily.


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In an internal email dated 10 June 1998 the supplier’s overall technical projectmanager informed the subsystems engineer that he was not satisfied about thereporting at the systems engineer’s (SE) team meeting on the stated date. Hecommented on the inappropriate manner in which the subsystems engineerconveyed essential information and also reminded the client regarding the mistakesmade in the past.

In an internal memorandum addressed to the supplier’s overall technical projectmanager, dated 23 June 1998, the subsystems engineer defended his statementsmade at the 10 June 1998 meeting, stating that only the truth was stated.

In paragraph 15 of an incomplete report (only pages 3 to 5, dated 98-10-01), madeavailable by the informant and signed by an SAAF employee, it is documented that:

What added to the complexity of the deployment, was the fact that theextended inter-vehicle data link (EIVDL) between the systems was usedfor the first time. This was the necessity for the systems to be deployedapproximately two kilometres apart. The systems were aligned with eachother using a Global Positioning System (GPS), which was also a first onthe system.

In the memorandum issued by Armscor internal audit on the Special Investigation,dated 23 May 2000, the comment was made that at that stage no proof existed thatthe required tests had been performed.

In a sworn affidavit, dated 14 June 2000, an employee of the supplier confirmedthat there were no EIVDL Test results when he started to modify the EIVDL andAU/FU Node Computer software during 1997.

In the report issued by the Project Review Board on the allegations, dated 20September 2000, it is stated that no test results could be provided. Comments weremade that no results were available although the AU/FU was successfully used inmissile firing exercises and the EIVDL was functional during the exercises. It wasconcluded that the allegation that no test or demo results existed, was not refuted.The allegation that the EIVDL and the Node Computers never worked up to 1996,was refuted.


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In a letter addressed to Armscor, dated 15 March 2004, the above SAAF staffmember reported on a deployment at an air force base during 1998. The followingstatement was made:

This writing serves to state that the undersigned was involved with theabove exercise during August/September 1998 where new/upgradedfunctionalities of two Firing Units, an Acquisition Unit, a Fire ControlSystem and the required interfacing links were successfullydemonstrated, proving improved operational performance. I cannot recallthe specific report of October 1998, but it was most probably an internalreport required for the applicable operational personnel.

The report of the specialist, contracted by my office to assist with the evaluation ofcertain allegations, dated 17 June 2004, stated, inter alia:

FINDINGS:The files which were inspected contain a report regarding certain teststhat had been done, viz. ‘AU Networking Phase 1 Test and EvaluationReport’ dated January 1996. This report deals with tests conducted at anair force base during the period 7 to 9 September 1995 and another airforce base during the period 9 to 11 October 1995. This report states thatthe test procedure (in paragraph 2.2) applicable is ‘1427T00151-0005: AUNetworking Test and Evaluation Specification for Phase 1, Issue 1’. Inparagraph 3, Summary, the report states: ‘The test and evaluations wereperformed according to the test method of the document referenced inparagraph 2.2 with deviations where it was deemed necessary to makethe tests more executable’. No specific test procedures or methods aredescribed in the document, but certain test results are listed in paragraph3. In paragraph 5, Test Results, point 5.3 refers to Appendix A, whichcontains the results recorded at the first air force base to demonstrate thefunctionality of the FU to AU communication.

This test result sheet has a heading: ‘TEST 1: Transmitting SimulatedData’ and seems to describe a test where elementary data bit words inhexadecimal format are sent from one piece of equipment to another. Thedata transmitted represent a series of bytes with contents from 00000000to 00100111. It is surprising to note that such a simple test had beendone on sophisticated military equipment to verify a secure link whichshould be very reliable. It would be normally expected in systems of thiscomplexity that proper data link tests be conducted to prove data streamtiming, hand-shaking, data stream integrity (correctness), communicationpath immunity to electromechanical interference and radio frequencyinterference and that such test results are properly recorded and testsrepeated to prove the reliability of the data transmission beyond all doubt.


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The actual ATP referred to in the test report is not contained in the filesexamined. However, in the test report reference is made to videorecordings that were made and it seems as if results observed andrecorded on tape were used as a visual test acceptance as well, so thatthe test results could have been augmented by the video recordings.

On 9 June 2004 some new information was received from the informantand this file contains a document ‘EIVDL Demonstration Specification’.The origin of this document is not known, but it does contain testprocedures which could have been used to test data link timing,synchronisation and data correctness. No test results were seen to verifythat any of these were conducted.

CONCLUSION:It is our opinion that the test results of the above-mentioned report are notconclusive enough to prove to a third party that the test on the datatransmission was done in accordance with a laid down test procedure andwhether these results compare favourably with expected results.

10.3.3 Conclusion

Documentary evidence was not made available containing the specific testprocedures or methods, or detailed demonstration results.

It is not clear whether or not the EIVDL and Node Computer were working prior to1998 based on a statement and a report by the DoD staff member.

The conclusion reached by the specialist highlights the fact that it is not possible toconclude that the test on the data transmission was done in accordance with a laid-down test procedure and that these results compare favourably with expectedresults.

I am unable to conclude on the related financial transaction as no specific invoiceswere identified for this deliverable.


The technical expert’s opinion that the test that was conducted was a simple one, isnot disputed. What must be determined is what the objective of that test was, forinstance to test only the functionality of the link (and not the reliability orsusceptibility to electromagnetic interference, etc.). This test report was only for“phase 1”, indicating a first step in the development of the data link.


19

The estimate by the informant of the milestone cost as R10 000,00 and yourinability to link a specific invoice(s) to this milestone is due to the milestone beingclaimed as part of a larger (more complete) milestone contracted.


10.4.1 Task: This activity will cover all the planning, progress review, subcontractormanagement and systems engineering related to the development of the AU TEWAmodel.Deliverable: Minutes of progress meetingsMilestone cost: R5 640,00Allegation: No minutes of progress meetings were available in DCC on 9 March1999.


The draft WPP 995-05-400 and SOW Table 995-05-401 item 2 identify the scope ofwork as an activity that will cover all the planning, progress review, subcontractormanagement and systems engineering related to the development of the AU TEWAmodel. The deliverables are indicated as being minutes of progress meetings.

Attached to the minutes of the systems team meeting held on 15 July 1998 is an airdefence simulator status presentation that covers the status on TEWA, ALPHA,FCS and SE and documentation.

Attached to the minutes of the systems team meeting held on 3 February 1999 isan air defence simulation status presentation that covers the status on TEWA.

In the memorandum issued by Armscor internal audit on the Special Investigation,dated 23 May 2000, the following was stated regarding allegations 32 to 54:

The allegations are directed at sub-tasks of items 115 to 119 of OrderKT489943 (sic) to the value of R 489 127. The allegations made indicatesthat the work was done up to a certain level, was paid for and left on a listto be finalised in subsequent years.

The allegations were furthermore based on an unsigned copy of the‘Work Package Plan and Work Authorisation’ dated 21/05/97 which has a7-page Task List attached thereto indicating the sub-tasks coupled to thecontractual WBS numbers.

- The Contractor indicated that the mentioned tasks correspond tointernal sub-tasks which are up to two levels below the contracteditems and therefore believe that they have no relevance.


20

The Work Package Plan was furthermore only a draft copy and not thefinal document.

However, no approved Work Package Plan as required by the Contractcould be made available. The Contractor indicated that towards themiddle of the contract, in September 1997, it became apparent that theoriginal soft copy and signed hard copy had disappeared. They suspectedthat this was due to the resignation of staff at the time. A copy wasrequested from Armscor who could not supply a copy as it was mislaid.

The supplier then deferred to the original contractual documents and itsown knowledge of the requirements of the tasks and a task descriptionwas redrafted.

The supplier furthermore stated that it is of the opinion that the integrity ofthis task cannot be questioned and that far more has been provided andachieved than was ever initially intended. The supplier is furthermorewilling to accept a technical audit of the task, as they are convinced thatArmscor and the DoD have benefited far beyond the R591 592 paid forthe tasks.

Our comments

Since no Work Package documentation is currently available, we are notin a position to determine what deliverables were contracted and whetherthey were delivered.

The report on the allegations issued by the Project Review Board, dated 20September 2000, stated the following:

Findings:• Original WPPs missing• No new WPPs were generated. Only draft WPPs as per proposal

available.• Documentation presented to Board was sufficient to indicate that the

work was done, but not that all acceptance criteria were met.

Comment:NOTE:• Allegations were based on unsigned draft copies of WPPs.• Board used task descriptions as per contractor’s proposal.


21

• Also a typing error on contract caused some confusion betweenWPP numbers 996-05 on order and WPP number 995-05 used byADS. Available task definition does not allow unambiguous indicationof task completion. The FU model’s blue file was not provided, butwork performed on other and subsequent tasks would not have beenpossible without existence of such a model.

• This WPP addressed the AU/FU and data fusion modes. As for theAU/FU and data fusion models – A presentation was made on15/07/98 indicating that these models were functional. ADS said thatthis presentation was held long after the models were functional in1997. Refer to contractual dates. As for the data fusion modelsspecifically – No evidence of demo exists, but another presentationwas held on a System Engineering Meeting during February 1999,indicating that the work was performed. Also an evaluation reportwas made available to the team.

Conclusion:• The allegations were based on non-formalised WPPs.• The board had to rely on the contract proposal as to evaluate the

allegations.• The broad tasks were performed iaw the contract proposal, with the

following exceptions (based on lack of formal evidence, i.e. allacceptance criteria were not met).

10.4.3 Conclusion

Proof that minutes of the progress meetings were available in the DCC on 9 March1999, could not be provided. Evidence of the TEWA discussions in the minutes oftwo meetings was, however, obtained. As no signed (final) WPP could besubmitted, it could not be verified that the minutes were in fact a contractualdeliverable.


The order number stated in the memorandum issued by Armscor internal audit onthe Special Investigation, dated 23 May 2000, regarding allegations 32 to 54 shouldhave been KT 498943 and not KT489943. This was a mistake in the originalArmscor memorandum of 23 May 2000.


10.5.1 Task: Flight level command and control interface requirementsDeliverable: DocumentMilestone cost: R44 783,00Allegation: No document in DCC on 9 March 1999.


22


Only an undated and unsigned WPP 995-04, with start date 1 April 1997 and finishdate 31 March 1998, with regard to the above project could be obtained. Attachedthereto was SOW 995-04-102, which identifies the scope of work as a task that willprovide a data interface requirements document for the Command and Control ofan Air Defence deployment at flight level. The deliverable is indicated as being aData Interface Requirements Document. The acceptance condition is a designreview.

A CoC certifying that the task had been completed and complies with therequirements specified in the contract between Armscor and the supplier wassigned by the supplier’s project manager and the Armscor programme manager on11 February 1998.

The Flight Level Command and Control Data Interface Requirements draftdocument (1427T0446-250001) Issue A, dated 3 July 1998, which was obtainedwas not signed by all the required signatories.

The supplier issued invoice 963, dated July 1998, with an Armscor date stamp of23 July 1998, in which the Flight Level Command and Control Data InterfaceRequirements document was invoiced to the amount of R44 783,00 (excl. VAT).Based on the Armscor payment stamp on the duplicate invoice, the payment waseffected on or after 25 August 1998.

The audit status report issued by the manager of the DCC, dated 19 March 1999,indicated that the Flight Level Command and Control Interface Requirementsdocument was still conceptual (not approved) and not available in the DCC as at 19March 1999.

A supplier tagged document report dated 1 June 1999 indicated that the FlightLevel Data Interface Requirements document was a draft and still pending (or notapproved) on 1 June 1999.

In the memorandum issued by Armscor internal audit on the Special Investigation,dated 23 May 2000, it is stated that the document is an Issue A document whichdoes not seem to be complete. The report also states that the contractor suppliedus with document 1427T0446-250001 – Flight Level Command and control datainterface requirements dated 3/7/98 but signed on 16/3/99.


23

In the report on the allegations issued by the Project Review Board, dated 20September 2000, it was stated that the Interface Requirements document wasprovided and that Issue A was issued in July 1998 and paid in February 1998. Theconclusions were that the allegation was refuted with regard to the content of thedocument not being acceptable; the allegation was not refuted with regard to thedocument being in the DCC at the time of the allegation; and since no evidencecould be provided for the acceptance conditions, it seemed that payment was madebefore the work had been completed.

10.5.3 Conclusion

Based on the evidence in my possession, the document was not in the supplier’sDCC.

The reason for the CoC being signed in February 1998 is not clear, as the draftdocument, Issue A, was dated 3 July 1998. The supplier invoiced Armscor for thespecific deliverable at the exact amount as stated in the SOW.

The required document was still not finalised as at 16 March 1999 according to theArmscor internal audit report.


Note that the invoice was only paid on or after 25 August 1998 (the certificationdate on the invoice).

10.6 Allegation 60: Contract Code: KT 498943

10.6.1 Task: Flight Commander stationDeliverable: Integrated FCS SystemMilestone cost: R555 924,00Allegation: Because the EIVDL did not work, the supplier had to spendapproximately one man-year to fix the problems with the EIVDL. The fixing waspaid by Armscor under this task while the supplier was supposed to integrate thevarious subsystems with the money that was allocated to this task. Subsequently,the FCS was in operation later than was planned and so the process was repeatedto invoice the client under another project.


24


The signed WPP 996-05, dated 12 August 1997, for the period 1 April 1997 to 31March 1998, identified the results to be achieved as:

• FCS Software Integration• FCS ETHERNET Integration• FCS Systems Level Integration (Phase A)• FCS Systems Level Integration (Phase B)• FCS Demonstration of Phase 1

According to the SOWs the following assumptions were, inter alia, documented:

• EIVDL subsystems perform according to specifications.• EIVDL subsystem is performing to the extent that reliable level 1 and

level 2 data can be exchanged. This is necessary in order to test andde-bug the software.

• Ethernet drivers as supplied are bug free.

In the above SOWs high risk was, inter alia, identified because of the EIVDLcomponent in the system.

The following invoices relating to this allegation were identified:

Invoice no. Invoice date CoC signed byArmscor’s

representative

Financepayment

approval date

Invoice amount(excl. VAT)

635 14 Nov 1997 19 Nov 1997 No date R311 844,00767 13 Feb 1998 11 Feb 1998 17 Feb 1998 R153 630,00

1011 23 Sept 1998 11 Feb 1998 14 Oct 1998 R163 125,00Total R628 599,00

The following CoCs relating to this allegation were identified:

Invoice no. Date CoC signed by Armscor’srepresentative

Date CoC signed by thesupplier’s representative

635 19 Nov 1997 11 Nov 1997767 11 Feb 1998 10 Feb 1998

1011 11 Feb 1998 10 Feb 1998


25

An internal memorandum from an employee of the supplier stated, inter alia, asfollows:

2. Writer will generate a report indicating where we stand today in termsof progress on the different aspects of the project. For example, afterR1 335 739 was spent on EIVDL development, a summary will begiven what still needs to be done in order to complete this work.Remember that we are still very far from a reliable and complete(e.g. RF link) working system.

In a sworn affidavit, dated 14 June 2000, an employee of the supplier confirmedthat when he started in July 1997 to fix the EIVDL and FU/AU Node Computersoftware, he was aware of the fact that the subsystems engineer had taken overthe EIVDL/FCS Project at the beginning of 1997. He also stated that he was awareof the fact that the integration of the complete FCS subsystems was planned forduring 1997. According to his statement, it was impossible to proceed with theintegration as the basic blocks, e.g. EIVDL, did not work. He stated that he did fixthe EIVDL and Node Computer software on the FCS integration tasks, while thesupplier was supposed to integrate the various FCS subsystems during the period1997/98.

In the minutes of the systems team meeting held on 10 June 1998 it is recordedthat the work on the AU to AU communications was completed and that they werenow working satisfactorily.

In a document with the heading “HIGH LEVEL STATEMENT OF WORK ANDESTIMATED COST FOR THE FCS AND AU NETWORK FIXES AND UPGRADES(after deployment during the period of 27 August and 9 September 1998)” thefollowing were, inter alia, recorded:

EIVDL/NODE

33. Correct the AU1 Node Computer check sum error display.34. Correct the AU node computer status display to make it more user

friendly. At the moment it is more an engineering development typeof display.

35. Upgrade the AU to AU test software to make it more field usable.36. Investigate and upgrade the testability of the data comms network

(EIVDL and Node Computers). Also: Give out correct health status toFROC.

37. Perform re-layout of EIVDL cards to cater for testability (e.g. LEDdisplay) and permanent configuration for all the ‘butchered’modifications.

38. Modify EIVDL software to cater for testability (in conjunction with thehardware modifications).


26

39. Build eight new EIVDL cards (two spare).40. Repair spare EIVDL drawer and card.41. Build two spare modems.42. Investigate and correct problem of downloading software into

EIVDL’s solid state disk (use laplink?).

In the memorandum issued by Armscor internal audit on the Special Investigation,dated 23 May 2000, it is stated that internal audit would only comment after receiptof the approved Work Breakdown Structure (WBS).

The report issued by the Project Review Board, dated 20 September 2000, statesthe following:

Findings:• Original WPPs missing. No new WPPs were generated. Only draft

WPPs as per proposal available.• EIVDL component was identified as a high risk input for the task

(996-05-101).• The supplier claims that work to rectify input to this task was done at

own cost.

Comments:• Deliverable and acceptance condition were stated to be a

‘demonstration’ at several related subtasks.• Review Committee could only confirm unequivocally that a

concluding demonstration for FCS Phase 1 took place.• Demonstrations were required in draft WPPs 996-05-

101/102/201/202/300 in proposal, but execution of thesedemonstrations was not verified by the Review Board.

• The draft WPP (996-05-101) identified the EIVDL component as ahigh risk input for this task.

• The fact that these final WPPs could not be produced by theProgramme Manager or the Contractor and only an unconfirmeddraft copy was made available by the complainant is unacceptableand created a major problem for the Review Board.

Conclusion:• The Review Board could not find substantiating evidence that the

EIVDL was fixed under this task. Review Board only received formalproof of the execution of a ‘demonstration (that) concludes FCSPhase 1’ between 27 August and 9 September 1998. Work definedin proposal had in all probability been done.


27

10.6.3 Conclusion

Armscor could not supply me with an approved WPP regarding allegation 60. Theonly WPP available was a copy of a WPP supplied to me by the informant.

It is not clear on what basis the supplier’s invoices were compiled or on what basisthe CoCs were completed, as no formally approved WPP could be provided by thesupplier or Armscor.

Based on the available information and documentation it could not be determinedwhether activities not related to the FCS were billed under this project and/orwhether activities relating to the FCS were billed under another project.

As the integration of the FCS system was dependent on the EIVDL subsystemperforming according to specifications, it is not clear how the CoC could have beensigned in February 1998 with the list of FCS and AU Network issues and upgradesidentified after the deployment during the period 27 August 1998 to 9 September1998.


Invoice 635 was only received by Armscor Finance Department in December 1997although the invoice date is 14 November 1997.

Please note that invoice 1011 was only paid on or after 14 October 1998.


10.7.1 Task: Item no. 274 Technical firing preparation – preparation activity #3. This itemprovides for the analysis of the efficiency of the FFT algorithms used in the FU. Areport will be drafted, listing deficiencies and recommended actions.Deliverable: Analysis report to be approved by the APM.Milestone cost: R124 194,00Allegation: The purpose of this task was to do a detailed software analysis of thePDRT project and it was done by a subcontractor. The subcontractor was busy(February 1999) trying to get the PDRT to work with RIPTO funds. The project is afailure as one can see from the 16 September 1998 systems team meetingminutes: We move into a ‘perform or perish’ phase. The task was invoiced on 25February 1999 despite the fact that the work had not yet been completed, as wasindicated in the minutes of the 49th Air Defence management meeting of 8 March1999.


28


On 18 November 1998 the supplier informed Armscor, inter alia, of the Definition ofTasks items numbered from 248 to 274 as well as the SOW which was attached asan appendix.

According to the Definition of Tasks, the delivery date of item 274 was 29September 1999 and the cost amounted to R124 194,00.

The SOW for item 274: Technical firing preparation – Preparation activity #3 stated:

Scope of Work: This item provides for the analysis of theefficiency of the FFT algorithms used in the FU. Areport will be drafted, listing deficiencies andrecommended actions.

Assumptions: NoneSpecific Exclusions: Implementation of recommendations.Deliverables: Analysis report.Acceptance Criteria: Approval of the report by the Armscor programme

manager.

On 15 February 1999 the supplier invoiced Armscor, inter alia, with invoice 1133 foritem 274 to the amount of R124 194,00.

The CoC for item 274 was signed by the supplier’s project manager on 11 February1999, the supplier’s technical manager on 11 February 1999, and the APM on 16February 1999. The certificate stated the following: We hereby certify that the taskdetailed below has been completed and complies to the requirements specified inthe contract between ARMSCOR and the supplier.

The minutes of the supplier’s 49th management meeting held on 8 March 1999(altered from 1998) reflect, inter alia, the following:

a. PDRT (To be wrapped up no later than the first week in March)

i. Project report – draft expected to be completed towards themiddle of this week. Appendix required from a sub-contractor.

ii. Review report internally first.


29

The minutes of the supplier’s 51st management meeting held on 12 April 1999reflect, inter alia, the following:

a. PDRT

i. Draft report received from a sub-contractorii. Met with sub-contractor – report not what was expected.iii. Review completed part of report this week.

On 11 May 1999 the following information was stated, inter alia, in a grievancememorandum addressed to the supplier:

3. Why has Item No. 274 in Appendix A been described as ‘This itemprovides for the analysis of the efficiency of the FFT algorithms usedin the Firing Unit’? I will answer the question as I know the answer:All parties are aware of the fact that project funds are not allowed tobe used anymore to fund the PDRT technology programme. This iswhy it has been disguised in the SOW description in the way it wasdone. This disguising was confirmed by the following:

The Armscor Programme Manager was quite impressed withme with the way the SOW was stated.

For record purposes, this money is used to analyse the PDRTsoftware in order to optimise its processing performance. With all themoney spent so far on PDRT, it is still not in operation. The severewrongdoings in the PDRT project were pointed out to you in previouswritings. The wrongdoings have caused the failure of this project.

A signed affidavit of a technical employee of the supplier states, inter alia, asfollows:

POINT 65:It was with amazement that I have taken notice of this task description.There is no FFT algorithms in the software of the FU. Refer to the TestDescription Document which outlines the full functionality of the FiringUnit’s software. What is further intriguing is that it is listed under TechnicalFiring Preparation. I know that the FFT algorithms are used in the newPDRT software which was developed by a sub-contractor. The PDRT wasnot part of the missile firing tests during February/March 2000.


30

On 23 March 2004 the supplier’s systems engineer responded to Armscor in aletter stating:

Request for FFT Analysis Documentation

The recent request of the Armscor audit committee in relation to Item no274 refers.

I am fairly sure that the item in question is the PDRT study relating toanalysis of the radar algorithm performance. This document I do have inmy softcopy records (in draft), and I believe that a revision 2 to correcttypos was the latest (my copy). I trust that this is the document sought bythe committee, as it appears to me to be the most relevant.

In the memorandum issued by Armscor internal audit on the Special Investigation,dated 23 May 2000, the comments of Armscor’s Technology and ManagementAnalysis division were documented as follows:

The project was funded from SAAF Technology Demonstrator Funds(TDF) which fell under the jurisdiction of the Research and DevelopmentBoard (DRDB).

All projects funded by SAAF TDF were authorised and approved by theArmament Technology Acquisition Secretariat which is a permanentsubcommittee of the DRDB.

On 15 January 1997, ATAS approved a PD (PD no CO 1878) for theproject covering the financial years from 1997 to 2000. The PD wasfurthermore already been approved by the SAAF as they initiated theproject.

PDs, by nature, are furthermore high-level documents that set out thefinancial constraints and broad aims and objectives of a proposedcontract and is it not possible to link specific milestones directly to PD no.CO 1878.

The following observations were, however, made regarding the context ofthe particular milestones and the associated allegations in relation to theaims and objectives stated in the PD: -

♦ The PD clearly state that the project is planned to augment thecurrent capabilities by developing technologies required to defendagainst the future threat to air bases.


31

♦ It may therefore reasonably be construed that all activities related tothe development and demonstration (or testing) of new technologies,or the upgrading of existing equipment, or even the purchasing andevaluation of bought-out items would be in line with the PD as longas such activities were directed at the objective of improving thecurrent air defence capability.

♦ Items no. 272 & 274 of the order are therefore considered to be validmilestone activities.

♦ The spirit of the project (as with many technology developmentprojects) was to retain and develop human expertise as much as (ifnot more than) it was to achieve better performance of systems.

♦ Seen in this light, activities performed under the project to developsuch human expertise could once more be considered to be in linewith the objectives of the PD.

♦ Expert scrutiny of the affected milestones will however be required toevaluate their respective contributions to this objective.

The report on the allegations issued by the Project Review Board, dated 20September 2000, states, inter alia, as follows:

Further aspects of concern to the Review Board are:

• The payment of incomplete milestones, especially at the end ofMarch, with the stated intention by the supplier of completion veryearly in the new year. An example of this is allegation no 65‘Technical Firing Preparation’ Item 274 of KT444971, which wasapproved for payment on 16 February 1999, whilst it was onlycompleted in June 1999.

The report issued by the Project Review Board, dated 20 September 2000, states,inter alia, as follows with regard to allegation 65:

Finding:• The report as required by WPP was provided and the content was

found to be acceptable. The report was not signed.

Comments:• APM to provide evidence of the date when the PDRT work was

terminated (termination conditions to be supplied as well).• Only letter from the supplier dated 13 September 2000, stating that

PDRT was not terminated, provided.

Conclusion:• Evidence inconclusive.


32

The first issue PDRT SOFTWARE PROCESSING ANALYSIS document, datedJune 1999, inter alia, states:

1 INTRODUCTION

This document reflects the investigation into the efficiency of theprimary software processes contained in the PDRT software signalprocessor. The task intention was to ascertain the efficiency of theexisting processes, and to determine whether the processingdeficiencies alone could account for the lack of adequateperformance of the PDRT.

This document contains the essential background information for thisstudy, and is therefore to be seen as a direct input into the reportscontained in the ‘PDRT Upgrade Project Management Plan’(document 1427T0082-750001). The original intention was toincorporate the outputs of this document as appendices of the PDRTUpgrade Project Management Plan, but due to the extensive anddetailed nature of this work it has been decided to issue thisdocument separately. The document intention is therefore not toprovide many of the sections normally found in such a report, butrather to incorporate the document in four appendices, as was theoriginal intent – but in this selfstanding report. The documenteffectively forms part of the PDRT Design Data Technical File,document number 1427T0082-150001.

10.7.3 Conclusion

The deliverable provided to the investigation team conformed to the requireddeliverable as per the SOW for Item No. 274. However, it is not clear why the finaldeliverable was not available in the DCC.

The task was invoiced in February 1999 while it was not yet completed by 12 April1999.

It is not clear why the CoC, which certified that the task was completed, was signedprior to the work being completed.

10.8 Allegation 72

10.8.1 Milestone cost: R24 345,60Allegation: This point centres around the issue that the supplier double-invoicedfor the Help Screens of the FCS during the financial year 1996/1997.


33

Subsequent to discussions with the informant it became apparent that theallegation he originally intended was incorrectly interpreted. The following is theamended allegation based on the discussions:

This point centres around the issue that the supplier double-invoiced thetime spent by an employee on the Help Screens of the FCS and a codedevelopment project during the financial year 1996/1997.


The Armscor internal audit memorandum dated 23 May 2000 did not address thisissue.

In a statement dated 8 September 2000, an employee of the supplier states asfollows:

1. Towards the end of 1996 I was called in from another division to helpwith code development.

2. Due to the fact that only one CPP and one H file existed for the codeat that point in time, I found it extremely difficult and frustrated towork on this task. An Object Orientation Program is normally brokendown in separate physical files to implement the logical division(classes) of the application.

3. I have subsequently asked to be given other work.4. I have helped the subsystems engineer to implement the Help

Screens for the FCS, before I moved back to my previous division.

The report on the allegations issued by the Project Review Board, dated 20September 2000, states as follows:

Findings: allegation 5 Aug 2000:Already addressed under allegation 19 and 20.

Comment: allegation 5 Aug 2000:Only additional information was provided by complainant under thisitem.

Conclusion: allegation 5 Aug 2000:Refer to 19 and 20.

Findings: allegation 19/20:• Update was not specifically required in terms of the WPP i.e.

‘update if necessary'.• Unsigned copies of SDD exist.


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• It is not clear whether the allegation refers to a document reviewof the SDD or to progress reviews.

Comment: allegation 19/20:• Allegation refers to non-availability of documents in DCC at

specific points in time. Uncontrolled documents might haveexisted.

• No document review necessary if an update did not occur.• An additional person was tasked to assist with software

development support.

Conclusion: allegation 19/20:• Work outputs not defined unambiguously.• It seems that progress reviews were addressed at SE team

meetings.• No conclusive findings can be made as it is not clear whether an

update to the SDD was required.

10.8.3 Conclusion

The timesheets of the specific employee of the supplier for the period should bemade available and followed through to the actual invoices in order to validate theclaims of the informant.

This issue needs further investigation.


The reason why the Armscor Internal Audit memorandum of 23 May 2000 did notaddress allegation 72 is because this allegation was only received by Armscor on 5August 2000.

11. OTHER ISSUES

Project Review Board

The Project Review Board consisted of seven members. Of the members, six weretechnical experts and one an internal auditor. All the members were Armscoremployees except one technical expert. No evidence was available that indicatedthat any of the review board members had had direct involvement with the project.

The Armscor internal audit department and the Project Review Board were givenlimited time frames within which to finalise the investigations.


35

The Project Review Board did not obtain and evaluate all the supportingdocumentation and evidence during its investigation. As a result, the office’sinvestigation team had to obtain additional documentation and evaluate relevantevidence, which resulted in a delay in the finalising of the investigation.

The Project Review Board did not keep proper minutes of the meetings where theallegations were discussed. As a result, the office’s investigation team could notdetermine what procedures were performed, which documentation and evidencewere obtained and evaluated, and what evidence was used by the Project ReviewBoard to substantiate its conclusions.

The Project Review Board did not keep a complete set of supporting documents tosubstantiate its report. As a result, some of the supporting documents had to beobtained from the supplier/informant.

12. OVERALL CONCLUSIONS AND RECOMMENDATIONS

Based on the above findings, it is concluded that:

• The Armscor internal control system was not adequate to eliminate the issuesidentified in the allegations.

• The facts obtained by the office’s investigation team do not always support thefindings of the Project Review Board.

It is therefore recommended that the findings of this report together with the twointernal reports be evaluated by the Armscor Board and Management, and that theapproach followed in addressing the allegations as well as the findings of theArmscor internal audit report and the Project Review Board be re-assessed toensure compliance with section 51 of the Public Finance Management Act (Act No.1 of 1999).

13. APPRECIATION

The assistance rendered during the investigation by the staff members of Armscoris appreciated.

AUDITOR-GENERAL29 March 2005

Democracy & The Arms DealInterim Review by IDASA

1

Democracy and the Arms Deal

An Interim Review by IDASA

Prepared by PIMSThe Political Information & Monitoring Service at IDASA

15 May 2001


2


3

Democracy and the Arms Deal

An Interim Review by IDASA1

Section One: Introduction and Statement of Purpose

1. The controversy surrounding the Strategic Defence Procurement Package

(“the arms deal”, in common parlance) has increased with time. As such it

provides a searching examination of a range of democratic institutions,

political actors and other stakeholders.

1.1 When the parliamentary Standing Committee on Public Accounts issued

its draft 14th Report in October last year, Idasa issued a media statement

in which we offered the view that the case would be a “litmus test” of

democratic accountability in South Africa. We stand by that view and now

wish to promote a public debate about what the key lessons to learn for

the future are.

1.2 The first purpose of this document is therefore to review (in section 2) the

case so far – on an interim basis. It will further try to identify the key

Constitutional and institutional issues that have arisen and which require

attention for the future.

1.3 In recent weeks, much of the public and media coverage of the arms deal

has been dominated by questions of process. Process in a matter such as

this is vital – or, at least, getting the process right is vital. However, we

detect that at the moment the dispute about process – disputes about the

role of SCOPA and its 15th Report, and about public hearings by the

tripartite joint investigating body (comprising the Auditor-General, the

1 This report was prepared and written by staff members of PIMS, Idasa’s Political Information& Monitoring Service in Cape Town.


4

Public Protector and the National Directorate of Public Prosecutions) –

has obscured many important questions of substance.

1.4 In the second part of this review (section 3), therefore, we offer an “issue

matrix”, which we hope will be useful to all those stakeholders who are

committed to ensuring that the process does not lose sight of the

important issues of substance. We do not pretend that it is comprehensive

or without imperfection. If there are factual errors, we take responsibility

for them, though they are made in good faith, in an honest endeavour to

help clarify what for most people is a complicated and convoluted saga.

We hope that this report will evolve with time, as more facts become

established. As such, our aim is that it will assist the public to be able to

“see the wood from the trees” and thereby make their own evaluation of

the case. The “matrix” builds on the website we put together earlier this

year, which sets out the basic chronology and provides links to all the

main publ ic documents regard ing the arms deal :

www.pims.org.za/armsdeal/.

1.5 This second part of the review has been compiled with the assistance of

counsel instructed by us, whose task it was to sift through the publicly

available evidence and extract outstanding issues and questions. Counsel

was not privy to the confidential documents that the joint investigating

body and some members of SCOPA have had access to. Others, with a

greater depth of knowledge of the case, can contribute to the public’s right

to know, by adding information so as to complete the picture.

1.6 Section 4 considers the joint investigation, and poses a number of

important questions in relation to the proposed public hearings.

1.7 What is our agenda in this matter?


5

ß It is a triple one. We want to support, and promote a strong Standing

Committee on Public Accounts, which we believe is a very important

institutional mechanism of democratic accountability. We want to help

sustain and protect the sound working methodology that has characterised

SCOPA’s work during its post-1994 evolution.

ß Thereby, we want to promote and support a strong people's parliament

that can play a meaningful role in the realisation of the Constitutional

aspiration of executive accountability – an important pillar in a sustainable

democracy

ß We believe the public has a right to a comprehensive and credible fact-

finding investigation by the joint investigation team (JIT). Finally, therefore,

we hope that this document will be of value in helping the media organs of

civil society and the public to assess the merit of the investigation’s

findings and conclusions as and when it reports.


6

Section Two: Democratic Accountability – the Lessons so Far

2.0 The Background2

2.1 Between 1995 and 1996 the Ministry of Defence conducted a Strategic

Defence Review of the capacity and requirements of the South African

National Defence Force (“SANDF”). The purpose of the Review was,

inter alia, to identify key areas in which the SANDF required large

capital expenditure.

2.2 In December 1999 the Executive entered into five major arms

transactions involving:

ß Submarines;

ß Corvettes;

ß Light utility helicopters;

ß Lead-in fighter trainers;

ß Advanced light fighter aircraft.

(The purchase of four maritime helicopters was deferred).

2.3 As part of his ordinary function and duty under the Constitution, the

Auditor-General investigated certain aspects of the arms transactions

and produced, in September 2000, a Report: Special Review of the

Selection Processes of Strategic Defence Packages for the Acquisition

of Armaments at the Department of Defence (“the Auditor-General’s

Report”). That Report formed the subject of a further investigation by

Parliament, through its Standing Committee on Public Accounts

(“SCOPA”). In October 2000 SCOPA produced its own Report on the

arms transactions.


7

2.4 The two reports identified areas of concern and recommended that

further investigations be conducted. There is no suggestion in those

reports of corruption. They merely highlight important areas in which

questions arise and suggest that these questions receive further

consideration.

2.5 Much of the public debate on the arms transactions has focussed on

allegations of possible corruption. IDASA considers that the Executive

should be held to account not only for corruption, but also for any other

concern regarding the management of this transaction. Any proper

investigation of the arms transactions should thus investigate very fully,

possible instances of corruption or fraud, but should also traverse

instances of mal-administration or incompetence by any person

involved in the transactions. As emphasised later in this review, the

expenditure on the arms transactions represent the equivalent of many

years of poverty relief to South African citizens and it is only proper that

incompetence or neglect on the part of the Executive should receive

careful and critical scrutiny.

Parliament and the Arms Deal

2.6 One of the myths of the arms deal saga is the oft-quoted notion that

“parliament approved the arms deal when it approved the force design

contained in the Defence Review”3. This mantra has been used

repeatedly by those wishing to defend the deal. Parliament’s “approval”

has been used to add credibility and legitimacy to the deal. It is not

necessarily as clear cut as this. The Defence Review did not motivate

for an increase in defence spending. On the contrary, the Review

stated that the Department of Defence (DOD) expected its budget to

2 For full chronology and Connected Documents see: www.pims.org.za/armsdeal.html3 For a classic example of this, in his letter to SCOPA dated 19 January 2001, the Leader ofGovernment Business (and deputy president) Jacob Zuma stated that “In addition, thisexpenditure was considered by the parliamentary defence committee and approved byparliament”.


8

remain constant over several years at R9.7 billion in 1998 rand value.

Consequently, when Parliament approved the Defence Review, it did

not approve an increase in defence spending. Parliament was never

asked to approve the current arms package.

2.7 When Parliament approved the force design contained in the Defence

Review, it did not approve a procurement package. It approved a

“vision” which would change over time and be subject to parliamentary

oversight, and which the DOD accepted was not affordable because of

budgetary constraints.

DEMOCRACTIC ISSUE ONE:

What exactly did parliament approve? What seems to be at issue here is

the relationship between parliament and the Executive (in this case the

DOD). Has the DOD operated within its parliamentary mandate in

constructing the Strategic Arms Procurement Package? Was the

Cabinet’s decision to approve the package consistent with national

policy approved by Parliament? Should the Executive have come back

to parliament for a more precise approval of the package?

SCOPA and the Arms Deal

2.8 SCOPA’s October 2000 (14th) report into the arms transactions

considered concerns about the procedural regularity of those

transactions. It did not consider the merits of the decisions to

purchase arms as a matter of principle. Accordingly, this document

does not do so. Nonetheless it is worthwhile to note that the capital

expenditure of those transactions involves approximately R29.9 billion,

excluding finance charges, adverse foreign exchange movements, and

escalation clauses. The total cost of the transactions is now reportedly


9

well in excess of R50 billion (the issue of the cost of the procurement

package – as distinct from its price – is considered in detail below as

one of the main outstanding issues). By comparison, for example, the

annual health and welfare budget of the Eastern Cape Province (an

area of South Africa that is in desperate need of poverty alleviation) is

approximately R8.5 billion. The expenditure of public funds on arms

thus represents in excess of six years of that health and welfare

budget. The fact that that money could have been used to achieve an

enormous amount in the form of poverty relief makes it essential that

SCOPA’s investigation into the transaction should be promoted and

encouraged.

2.9 Prior to the current case, SCOPA enjoyed a reputation as being one

the best run, most efficient committees in parliament. The post-1994

SCOPA took oversight of public expenditure seriously – for the first

time in South Africa’s history. MPs from all parties rose to the

challenge, establishing a system of working groups that, assisted by

the technical support of the parliamentary office of the Auditor-General,

enabled the committee to cover the large ground of its responsibility.

2.10 Sadly, SCOPA has been “torn asunder” – to use the phrase of one

ANC MP in late January – by the arms deal controversy. Much of the

heat of the controversy derives from the question of whether or not it

was the express intention of SCOPA that the Special Investigating Unit

(SIU) be included in the multi-agency, multi-disciplinary investigation

recommended by SCOPA in its October 2000 14th report.

2.11 The vexed and vexing issue of the exact interpretation of the report has

never been satisfactorily resolved by SCOPA. As a result it remains a

“fault-line” (to use a DA member of SCOPA’s phrase) within the

committee. This “fault-line” has had a very significant political impact on

the operation of SCOPA since January. Members of SCOPA have

performed linguistic, legal and factual gymnastics in an attempt to

either prove or disprove that it was not the express wish of SCOPA that


10

the SIU be part of the multi-disciplinary investigation that SCOPA was

recommending. Rightly or wrongly the Executive was reluctant to

involve the SIU in the investigation and the pre-existing controversy

around the role and abilities of the SIU’s head, Judge Heath, fanned

the flames of the arms deal controversy at the start of the year. When

SCOPA reconvened in January, it was this aspect of the saga that

provided the sharpest examination of its cross-party stability. There

were valiant attempts by the chairperson of SCOPA, Gavin Woods,

and by ANC members of the committee Bruce Kannemeyer and

Andrew Feinstein (then the chair of the ANC study group on SCOPA),

to hold the committee together by finding a formula that would enable

both sides to offer different interpretations of the 14th Report without

either offending or questioning the other’s integrity.

2.12 For a number of meetings, this fragile peace held. But changes of

personnel on both sides of the committee did not help. The DA brought

in a higher profile front bench, but one that lacked either the working

knowledge of the arms deal or SCOPA’s working practice more

generally. And Andrew Feinstein was removed as chair of the ANC’s

study group. Woods held his position as chair, but with a Sword of

Damocles hanging over his head: in December 2000 he had written to

he President expressing the view that SCOPA wanted him to grant a

proclamation to the SIU. On 27 December, Speaker of the National

Assembly, Frene Ginwala announced on the basis of the legal opinion

of parliamentary law advisor Anton Meyer that that was not a proper

interpretation of the 14th Report and that in effect, therefore, Woods

had acted ultra vires in writing to the President in the terms that he did.

2.13 Woods has maintained his position with fluctuating degrees of

robustness, finally publishing his account of events which he believes

corroborates his interpretation. Irrespective of what SCOPA had in

mind or intended at the time, their 14th Report is ambiguous: there is

more than one interpretation that can be reasonably argued for. After

several uncomfortable weeks of prevarication, the ANC finally pursued


11

clarity on the issue with a majority resolution at the SCOPA meeting of

28th February, that stated that as “the only correct interpretation”,

“…interpretation and understanding of the 14th Report of SCOPA, as

adopted by the National Assembly on 3 November 2000, nowhere

provides for the definite inclusion of the special investigative unit

headed by Judge Heath”.

2.14 Subsequently, Advocate Meyer was asked by Woods to advise on

whether or not the majority resolution did resolve the matter clearly,

and he was compelled to conclude that it did not. Given the obvious

difficulty that everyone is having in proving one or other interpretation,

it begs the question of how both Advocate Meyer and the Speaker

were able to offer such an emphatic interpretative view of SCOPA and

its 14th Report in so far as it related to the inclusion of the SIU at the

turn of the year.

2.15 This was important at the time, because Minster of Justice Maduna

relied on the Speaker’s interpretation heavily in framing his own

recommendation to the President on the question of a proclamation for

the SIU. But the question of the inclusion or non-inclusion of the SIU is

water under the bridge. What matters now is whether the three other

agencies are able to put together an independent, thorough and

credible investigation that will win the public’s trust (see sections 3 and

4 herein).

2.16 Nonetheless, the dispute about the SIU did bring up a number of

issues relating to accountability, which deserve more attention for the

future.

2.17 First of all, the very concept of accountability was the subject of

confusion. Initial media reports, encouraged or provoked by PAC MP

Patricia De Lille’s understanding of accountability, suggested that

Parliament had “instructed” the Executive to grant the SIU a

proclamation. As the Speaker rightly pointed out on 27 December, this


12

would be of “dubious legal and constitutional validity”. While Parliament

may “instruct” the Executive by the passing of legislation, its oversight

responsibilities impose a duty on the Executive to account for its action

or non-action, and that in that sense, “account” means “explain”.

DEMOCRATIC ISSUE TWO:

The Constitution requires that the Executive be accountable to

Parliament, but what exactly does accountability mean in practice? To

what extent should the Executive take heed of a recommendation from

the Legislative arm of government? What does parliamentary oversight

entail?4

2.18 Second, as a result of a furious piece of correspondence from Deputy

President Zuma, the constitutional relationship between the Executive

and Legislative arms of government was thrown into very sharp relief.

Despite the discomfort its remarkably adversarial tone and content

caused in SCOPA and in parliament generally, including within ANC

ranks, SCOPA has been unable to produce a response to the various

assertions made in the letter.

2.19 The Speaker did respond, however, at the time and ended her letter

thus: “We are all still developing our understanding and trying to give

effect to the constitutional relationship between the Executive and the

Legislature…much still needs to be done, and we need to continuously

review and improve the communication and relationship between the

Executive and Legislature”. Moreover, she told SCOPA that the way in

which the committee responded in the coming weeks and months

would be very important for the future of parliamentary oversight.

4 A joint parliamentary sub-committee continues, slowly, to do its work in response to thecommissioned report from Professor Hugh Corder on the subject of Parliamentary Oversight.Its recommendations are eagerly awaited and deserve careful and creative attention.


13

2.20 For this reason, we believe it is essential that SCOPA provides a

substantive response to Deputy President Zuma in their next report on

the arms deal. If they avoid the issue and fail to re-assert SCOPA’s

authority, it will set a very unfortunate precedent for the future. We do

not agree with the DA’s approach to the issue, however, when they

assert that it is wrong for the Deputy President to pose questions to

SCOPA (as he did in both his original letter and, on 31 January 2001,

in his response to Madam Speaker’s letter). The relationship between

the Executive and parliament is a delicate and complex one. Although

parliament has the theoretical authority is rarely matched in reality

anywhere. Hence, it is an authority that needs to be buttressed and not

battered. But, like any relationship, it also involves an element of

dialogue, something that the DA’s approach appears to exclude. There

is nothing intrinsically wrong, in our view, with the Executive posing

questions to parliament, provided it is fully understand that there is no

compunction on parliament to respond, whereas the other way around,

there is. The Executive must explain itself to parliament (account to),

not the other way around. Deputy President Zuma’s letter may,

because of both its tone and some of its content, gone too far.

2.21 In “Westminster”-type parliamentary democracies this relationship is

complicated by the ‘fusing’ effect of the majority party, which straddles

the Executive-Legislative divide. Members of parliament are required,

therefore, to exercise oversight over ministers of their own party,

subject to a party whip and to the special pressures of caucus politics.

Modern politics is characterised the world over by strong parties, and

South Africa’s is no exception. It would be naive to think that Ministers

of the ruling party should not communicate with party members serving

on parliamentary committees and to jointly strategise in relation to

political issues. The DA has criticised the ANC for permitting its

Ministers (Manuel and Erwin) to communicate with its members of

SCOPA; the accusations extend to saying that the ANC’s current draft

proposal for a second report on the arms deal has been drafted by the


14

ministers rather than the members of SCOPA and that the ministers

met behind closed doors with the ANC study group before appearing in

front of SCOPA at the end of February.

2.22 It would be surprising if this had not happened. That is the nature of

party politics. But the fundamental system flaw that lies behind it gives

rise to some important constitutional questions. Should a ruling party

be able to use its majority to protect its political issue when performing

an oversight function? For a party to exercise discipline and loyalty

when pushing through policy or law is one thing – giving effect to its

electoral mandate one could say – but is there a distinction to be made

in the case of oversight?

DEMOCRATIC ISSUE THREE:

How can the institutions of democratic and constitutional accountability

be insulated from party politics? And should they?

2.23 Is there, for example, a need to insulate SCOPA from party politics?

The Constitution creates the position of the Auditor-General whose

responsibility it is to ensure that public money is spent honestly and

efficiently. The Auditor-General is accountable to Parliament. The

mechanism for accounting is through SCOPA, which has a special

place in the rules of parliament to provide for this purpose. If SCOPA is

simply neutered into defending the party political issues of the majority

party, then the effect is to defeat the Constitutional intention. This

argument deserves further discussion and thought.

2.24 Thirdly, therefore, further thought is also needed on the subject of the

relationship between parliament and the chapter 9 institutions more

generally. Madam Speaker’s exchange with SCOPA included

discussion on this point, and an earlier legal opinion dated 9 January

2000 usefully sets out the constitutional and statutory position.


15

DEMOCRATIC ISSUE FOUR:

Has the ANC undermined the Constitution by its current approach to

SCOPA? What is the proper relationship between parliament, its

committees, and the chapter 9 institutions? What reforms are needed to

enhance and protect the relationship in line with the Constitution’s

purpose?

SCOPA and the Future

2.25 What now for SCOPA? Can it retrieve itself? Can trust be relocated

and its previous sound working practice resumed? Inevitably, the arms

deal investigation will overshadow its life for the time being, which is

why the question of the reporting relationship (identified as Democratic

Issue Four above) is so important. Having set out a brilliantly creative

role for itself, as facilitator of the sort of multi-disciplinary investigation

that the international anti-corruption literature insists is necessary if

modern corruption is to be combated given its complexity, does it have

any future role? What if it is unhappy with the JIT’s final report?

2.26 Our main concern is that the majority of the members of SCOPA are

now solely focussed on party political interests. The DA is seeking to

damage the ANC and the ANC, in turn, is doggedly defending its

position, through a strategy of filibustering that has been implemented

with a studied elegance by Vincent Smith (who is now the

joint/alternate head of the ANC study group on SCOPA). As questions

of process have eclipsed questions of substance – as we noted in the

introduction – the concern has grown that very few of the combatants

are familiar with the core issues that gave rise to the 14th Report.

2.27 Only a very small number of the “old” (pre-January 2001 changes)

SCOPA had the opportunity to study the confidential and secret

documents relating to the deal. As a consequence, following some

legal consideration of the matter, the documents were made available


16

again under secure environment controlled by the Speaker’s office. A

record of visits by members of SCOPA was kept for security purposes

which, following a request for access to the record (see Appendix H),

were recently made available to us (Appendix I). They make interesting

reading. One of the new MPs (to SCOPA) spent nearly sixteen hours

studying the documents, but the majority of new MPs spent two hours

or less. Four of the five new permanent members of SCOPA (excluding

therefore the new ‘alternate’ members) took the trouble to examine the

documents to some extent. Only Andries Nel did not. There are a very

large number of very detailed documents, setting out the contracts and

minutes of relevant meetings, including the cabinet and cabinet sub-

committees. So it is somewhat surprising, to say the least, that Vincent

Smith, given his new responsibilities as joint/alternate head of the ANC

study group, should only have spent 25 minutes looking at the

documents. Although Mr. Smith was a member of SCOPA in October

2000, he was not a part of the small ANC working group assigned to

work on the 14th Report on the arms deal.

Lessons for Democratic Accountability: Conclusions (work in progress)

2.28 Clearly one lesson that emerges is that institutions of democratic

governance are only as strong as the weight of the most serious

political challenge that they face. Operating efficiently and in a co-

operative manner during the routine examination of “ordinary” public

expenditure is one thing. Doing the same under the intense pressure of

a political crisis is quite another.

2.29 Capacity for democracy is a valuable and apparently quite elusive

commodity in this context. There are many challenges that need to be

surmounted. But the very fact of the debate, the constitutional and

other tussles are evidence of a vibrant democracy coming to terms with

the reality of political life. So while it is inescapably true that the

institutions of democratic governance are fragile, they are not so fragile


17

that they will die. They are alive and kicking, helped by the important

attention that the media and organisations of civil society are paying

them.

2.30 Although the relationship between government and the media seems to

be constantly on the brink of some sort of watershed period, the role of

the media in the arms deal deserves commendation. It has tested the

durability and stamina – and some have been found wanting – but a

small number of determined investigative journalists have added to

their reputation as a result of this case and in so doing have made their

own positive contribution to democratic accountability.


18

Section Three: Matters of Substance: A Draft “Issue Matrix”

3.1 The purpose of this part of the review is to define the major issues of

concern raised by the Auditor-General and SCOPA in their Reports. In

their reports the Auditor-General and SCOPA identified a number of

issues of concern to them.

.2 This document deals with them under the following six headings:

i. The full cost implications of the transactions.

ii. The off-sets.

iii. The prime contracts.

iv. The sub-contracts.

v. Declarations of conflicts of interest.

vi. Irregularities in the tendering processes.

C THE FULL COST IMPLICATIONS

1 In August 1999 the Ministers’ Committee was provided with the report

of the Affordability Team. The Affordability Team had been appointed

by the Department of Finance to consider and report upon the cost

implications of the proposed transactions and in particular what

negative consequences entering into the transactions might have for

the South African economy. A copy of the report is annexed as “A”.

As appears from that report:


19

1.1 The Ministers’ Committee was told (paragraph 2.2) that the

transactions would result in payment obligations well into the

future, the bulk of payments taking place between the years

2001 and 2013;

1.2 Three important risks were emphasised. They were possible

adverse foreign exchange movements (paragraph 3.5.5), the

non-materialisation of national and defence industrial

participation benefits (paragraph 3.5.2), and the impact of

interest obligations (paragraphs 2.4 and 3.3.2);

1.3 It was stressed that the transactions held adverse financial

implications for the country under the best case scenario

(paragraph 4.2.1), and in relation to two of the risks the

report stated:

“… The materialisation of either one of the two risks

analysed - larger than expected interest rate shock in

relation to the announcement, or the failure of the vendors

to meet a significant proportion of their NIP commitments -

is likely to lead to the macro-economic impact of the

program being significantly negative in comparison with the

baseline scenario.” (Paragraph 4.2.3)

1.4 The report concluded with two warnings:

“The sums involved are extremely large; they involve fixed

contractual commitments extending over long periods with

high breakage costs; they are heavily import-based; and

their costs are off-set by a set of associated activities (the

NIPs) which cannot be guaranteed.” (Paragraph 5.1.1)

and

“These characteristics create a set of important and unique

risks for Government … ultimately the decision about


20

expenditure levels really constitutes a decision about

Government’s appetite for risk.” (Paragraph 5.1.2)

2 In short, the Ministers’ Committee was pertinently warned about the

negative impact that the transactions would have on the economy.

And the risks identified by the Report are real:

2.1 With regard to the NIPs and DIPs (that is the off-sets), these

concerns are dealt with more fully in Section D below;

2.2 With regard to the full expense implications, although the

nominal initial capital commitment was R29.992 billion, taking

into account likely adverse exchange rate movements, the

impact of escalation clauses in the contracts, and interest

obligations, the ultimate out-flow of currency from South

Africa was likely to be well in excess of R50 billion.

3 In December 1999 the Executive announced that it had decided to

enter into the arms agreements

4 Thereafter a media briefing was issued on the transactions, although it

is not clear by whom this briefing was issued. A copy is annexed as

“B”. This media briefing reflects that:

4.1 The cost of the transactions was reflected as R29.992 billion,

that is, the nominal capital price of the purchases. There

was no suggestion in the document that the real cost of the

transactions was well in excess of R29.992 billion.

4.2 It was not stated that the transactions were subject to any

risks.

4.3 The “affordability” of the transactions were touted on the basis

that:

“Over the medium term, benefits of NIP and DIP fully off-

set economic and fiscal costs of the procurement.”


21

and

“Government will be able to cover expenditures required

without altering its existing deficit target.”

4.4 Although the briefing document stated that:

“Implementing NIP and DIP as a critical area for attention, it

gave no idea of the tenuous nature of those supposed

benefits.”

5 Seen in its proper context, the media briefing represented a relatively

significant misdescription of the true position. As stated above, the

Affordability Team’s report gave a generally negative opinion on the

implications, which the transactions would have on the economy. The

media briefing, on the other hand, suggested that the expenditure was

fully justified by reference to the benefit of the off-sets.

6 The following questions therefore arise:

6.1 Who prepared the media briefing?

6.2 Which Ministers (if any) approved it”

6.3 If no Ministers approved it, who did?

6.4 What information, apart from the contained in the media

briefing, was given to Parliament prior to the arms

transactions being approved?

6.5 What investigation has been done into avoiding the

contracts?

D OFF-SETS

7 The expression “off-sets” is used to refer to benefits which are

intended to accrue to South Africa as a consequence of it committing

itself to the arms transactions. Thus the main contractors to whom


22

tenders were awarded were required to indicate, in their tenders,

which economic benefits they would commit themselves to providing

to South Africa.

7.1 Certain of the intended benefits would accrue to local military

contractors merely by virtue of those contractors being sub-

contractors to the successful tenderers in the arms

transactions. The military benefits are referred to as

“Defence Industrial Participation” (DIP).

7.2 Tenderers were also required to commit themselves to non-

military trade and investment in South Africa. Such non-

military benefits are referred to as “National Industrial

Participation” (“NIP”).

8 It was initially announced that off-sets to the extent of R110 billion

would accrue to the South African economy in return for the award of

the contracts. This was later reduced to R104 billion.

9 As appears from the media briefing, annexure “B”, these off-sets

formed a major (if not the major) basis for persuading Parliament and

the South African public that the transactions were desirable. It was

stated specifically that “over the medium term, benefits of NIP and DIP

fully off-set economic and fiscal costs of the procurement.”

10 There are four major concerns which arise with regard to NIPs and

DIPs, however:

10.1 The first relates to their enforceability. While it is so that the

contractors were required to commit themselves in writing to

the NIPs, it is doubtful whether these commitments could ever

be enforced in any Court.

10.2 In its public hearings SCOPA raised the question of the

enforceability of these commitments and was told that penalty

provisions in the contracts should ensure that the successful


23

tenderers complied with their obligations to provide the

promised NIPs (in other words, the successful tenderers

would incur penalties if they failed to provide the suggested

NIPs). SCOPA however pointed out that the penalties were

small by comparison to the costs of the transactions. In most

instances the penalties were 10% of the value of the tender.

It is additionally possible that many tenderers may have

inflated their tender prices so as to cater for the risk of their

having to pay the 10% penalties. If so, any defaulting

tenderer could escape its obligations to provide the NIPs

merely by paying the 10% penalty stipulated.

10.3 In relation to DIPs it is not clear how many beneficiary

companies are genuinely South African companies.

SIEMENS, for example, is a preferred sub-contractor in

relation to certain of the electronic systems. Benefits

accruing to any local SIEMENS company may well leave

South Africa in the form of dividends payable to overseas

shareholders.

10.4 Finally, it has been suggested that certain of the tenderers,

when required to commit themselves to providing off-set

benefits to South Africa, merely obtained the names and

identities of companies who were in any event considering

investing in South Africa and thereafter (after entering into

appropriate agreements with those investing companies)

claiming those benefits as the promised benefits under their

tenders. If this is correct, then any benefits which may

accrue to South Africa are not causally attributable to the

arms transactions.

11 These difficulties were neatly summarised in SCOPA’s Report: if

indeed any tenderer was confident of providing the promised NIPs,

then there should have been no difficulty in requiring successful


24

tenderers to commit themselves to penalty clauses well in excess of

10%. On the other hand, if the investment opportunities contemplated

by the promised NIPs are genuinely attractive and viable, then one

must query why it was necessary to enter into arms transactions to

promote such investment. Or, put differently, if it is possible, by

spending R29.992 billion, to achieve economic benefits of R104 billion,

why does every developing country in the world not spend its entire

budget on arms? The answer seems to lie in the fact that off-sets are

an internationally discredited manner of promoting arms transactions.

12 The following questions therefore arise:

12.1 What investigation was done by those responsible, prior to

entering into the transactions, into the integrity of off-set

benefits?

12.2 If no investigations were conducted, why not?

12.3 Why, given the warnings in the Affordability Team’s report as

to the problematic nature of off-sets, did the media briefing

(annexure “B”) not make the same disclaimer?

E PRIME CONTRACTS

13 In December 1999 the Executive entered into five main contracts5:

13.1 The sub-marine contract was awarded GSC;

13.2 The helicopter contract was awarded to AGUSTA;

13.3 The lead-in fighter trainer (“LIFT”) contract was awarded to

BRITISH AEROSPACE: these were Hawk aircraft;

5 There is no consistency in the names used to refer to the different contracts, so thesedetails may require amendment accordingly.


25

13.4 The Corvette contract was awarded to the GERMAN

FRIGATE CONSORTIUM-THOMSON;

13.5 The advanced light fighter aircraft (“ALFA”) contract was

awarded to BRITISH AEROSPACE: these were Gripen

aircraft.

14 The process of decision-making and selection of tenderers is best

described by reference to the flow-chart, annexure “C” hereto. As

appears from that document:

14.1 The evaluations of tenders was first considered by four

committees, the first assessing the tender in terms of its

technical merits, the second considering its financial details;

the third considering its DIP benefits, and the fourth its NIP

benefits. Each tender was awarded a mark out of 300.

14.2 These results were forwarded to the Strategic Offers

Committee, which operated as a co-ordinating committee.

14.3 The results of the Strategic Offers Committee were forwarded

to the Armament Acquisition Steering Board, which in turn

submitted its recommendations to the Armaments Acquisition

Council (“AAC”).

14.4 The AAC’s recommendation was forwarded to the Ministers’

Committee, which in turn reported to the Cabinet. In relation

to at least one contract serious concerns as to the procedure

followed were identified by SCOPA in its report. This was

the LIFT contract, in respect of Hawk jets, and awarded to

BRITISH AEROSPACE:

14.4.1 The evaluation system (described in above) was

established and accepted in April 1998. The

tenderers were presumably told about the


26

system and prepared their tenders in

accordance with it.

14.4.2 After the tenders had been received and

evaluated by the four evaluation committees

and their results forwarded to the Strategic

Offers Committee, the process of evaluation

was changed. In June 1998 the AAC, having

been advised that a company other than the

ultimately successful tenderer had achieved the

highest marks in the evaluation system,

recommended that the contract be awarded to

the second-placed tenderer, BRITISH

AEROSPACE. This result was apparently

justified on the basis that BRITISH

AEROSPACE had performed better in respect

of three of the evaluation criteria (the NIP, DIP

and technical evaluations).

14.5 It is not apparent on what basis the fourth criterion (cost) was

ignored. As put by SCOPA in its report, why, at that late

stage, was the basis of evaluation changed from a costed to a

non-costed basis?

15 The following questions accordingly arise:

15.1 In relation to the LIFT contract:

15.1.1 for what reason was the evaluation basis

changed from a costed to a non-costed basis at

that late stage?

15.1.2 who made that decision?

15.1.3 for what reason was that decision made?


27

15.1.4 were the other tenderers told of that change in

basis?

15.1.5 if not, why not?

15.2 Which individuals served on the various committees identified

above?

15.3 Were any of those individuals consulted in relation to the

change of basis?

15.4 Did any change in basis occur in relation to any other

contract?

15.5 If so, what are the full details of those change in basis?

15.6 What are the cost implications for South Africa as a result of

those changes in basis?

F THE SUB-CONTRACTS

16 None of the successful tenderers would manufacture and supply every

component of the contracts themselves. They would in turn employ

sub-contractors to manufacture and supply various parts of the

weapons contemplated by the agreements. The sub-contractors

which the main contractors employ thus are potentially major

beneficiaries (indirectly) of the award of the contracts.

17 At various stages questions have been raised in relation to suggested

irregularities in the selection of sub-contractors. (Most notably, this

debate featured in the discussion as to the possible involvement of the

Heath Special Investigating Unit in the investigation of the arms

transactions. These alleged irregularities have also featured

prominently in media reports lately.)

18 At least the following allegations have featured in media reports:


28

18.1 One of the sub-contractors which has been mentioned is

ADS. A copy of a diagram reflecting the relevant

shareholdings in ADS is annexed as “D”.

18.2 It thus appears that ADS, although supposedly a local

company, is mostly owned, indirectly, by THOMSON, a

partner with the GERMAN FRIGATE CONSORTIUM in

relation to the supply of Corvettes.

18.3 Allegations have been made with regard to the role which

ADS played in another contract, the helicopter contract. This

featured in a report of the MAIL & GUARDIAN of 6-12 April

2001 (copy annexed as “E”).

18.4 Apart from ADS, it has been suggested that Mr SHAIK had

improperly influenced the award of contract (see annexure

“E”).

19 For completeness, a list of sub-contractors nominated by main

contractors, and their financial interests, is annexed as “F”. The

following questions arise:

19.1 What was Mr SHAIK’s role in the award of each of the five

main contracts?

19.2 What was the role of ADS in relation to each of the five main

contracts?

19.3 What was the role of FBS in relation to the award of each of

the five main contracts?

19.4 Can either ADS or FBS itself manufacture and supply those

parts or components in relation to which they are sub-

contractors? If not, why were they awarded sub-contracts?

19.5 In relation to each of the sub-contractors on annexure “F”:


29

19.5.1 who are the major shareholders?

19.5.2 who are the main directors?

19.5.3 did any shareholder or director influence the

award of any main contract?

19.6 Is there any substance to the allegation in annexure “E”?

19.7 Similar allegations were made in the SUNDAY TIMES of 8

April 2001 (annexure "G" hereto). Is there any substance to

those allegations?

F CONFLICTS OF INTEREST

20 During the hearings conducted by SCOPA it was admitted by, inter

alia, Mr SHAIK that persons involved in decisions with regard to the

award of contracts for the arms transactions had not in every instance

been required to sign declarations of conflicts of interest.

21 Mr SHAIK stated that he himself had had a conflict of interest and had

recused himself from decision-making processes where that conflict

arose.

22 The following questions arise:

22.1 Why were appropriate procedures in relation to conflicts of

interest not followed?

22.2 Which persons now admit to having had conflicts of interest?

22.3 Which persons had conflicts of interest?

22.4 Were any conflicts of interest material?

22.5 Did Mr SHAIK recuse himself on the instances identified by

himself?


30

G TENDERING PROCEDURES

23 In the Auditor-General’s report and in SCOPA’s report various

departures from ARMSCOR’s standard tendering procedures are

identified.

24 Both bodies have recommended a more detailed investigation into

these irregularities.

25 The following questions thus arise:

25.1 In precisely what respects were ARMSCOR’s standard

tendering procedures departed from?

25.2 Why in relation to each instance did such departure occur?

25.3 Which individual was responsible for ensuring compliance

with the tender procedures?

25.4 Why did such persons not ensure compliance?

25.5 How material is each departure?

25.6 What prejudice has occurred as a result of each departure?

25.7 Is any departure relevant to any conflict of interest or

suggested irregularity in the selection of main contractors or

sub-contractors?

25.8 If so, what are the full details of such departure and

relevance?


31

Section Four: The Joint Investigation

4.1 IDASA does not consider it possible for a proper investigation of the

transactions to be conducted without at least those questions identified

above being thoroughly investigated. As stated at the outset, IDASA itself

does not have access to a large body of documentation and information of

a confidential nature that was made available to the Auditor-General and

to SCOPA.

4.2 The most pressing current issue of concern surrounds the proposed public

hearings. It is hard to understand what purpose they will serve. Below, we

set out some of the more obvious difficulties that arise. The JIT has failed

to communicate clearly why and for what purpose the hearings are

intended that would justify the risks and apparent disadvantages of such

hearings. Accordingly, in order to shed light on the matter, we have

formally asked the Public Protector (under whose statutory aegis the

hearings are to be conducted) for written reasons for the decision pursuant

to our rights under the Promotion of Administrative Justice Act (see

Appendix J).

4.3 Concerns re: public hearings

i. The Public Protector Act 2 of 1994 affords the Public Protector certain

powers to conduct an investigation. The Act further allows that the

format and procedure of the hearings may be decided by the Public

Protector himself. The Public Protector may exclude any person from

the public hearings. In the event that public interest groups wish to

intervene in the public hearings process, it is important that the public

is aware of the procedure which is to be followed by the Public

Protector.

ii. We are particularly concerned about witnesses possibly incriminating

themselves during the public hearings. The two most pertinent

questions which arise are:


32

iii. May a person who is being examined refuse to answer questions on

the basis that the answers may incriminate them?

iv. What rights do parties have should they be incriminated by the

evidence of others?

v. The case of Ferreira v Levin 1996 (1) SA 984 (CC) makes it possible

for a witness to refuse to answer a question should they fear

incrimination in a subsequent criminal trial. Although the case itself

has various dissenting judgements, we believe that public hearings

cannot be held without reference to Ferreira v Levin and the issues it

raises.

vi. Another area of concern would be that the public hearings may well

cause certain facts to be publicised prior to proper investigation. This

could have the effect of preparing someone against whom there is

incriminating evidence of the case against them. The result will be that

the investigation may be prejudiced in material respects.

vii. The Public Protector Act allows witnesses the right to representation.

Public hearings will therefore be cumbersome, allowing witnesses to

retain the services of counsel. Discovery of legal documents will also

be necessary, which could not only delay the public hearings, but

ultimately delay the investigation into the arms deal. Procedural delays

are inherent in any court case and there is no reason for this not to be

the case when conducting the public hearings. It is in the best interests

of the country as a whole that the investigation continues without delay.

viii. The subject of the public hearings is highly sensitive and there may be

instances where witnesses would not only seek protection from the

state but would also not wish to disclose the source of information. In

such a case it is hard to see exactly what purpose would be served by

public hearings.


33

ix. The costs incurred in the process of conducting of public hearings

would prove prohibitively expensive, not only to the State - but to all

those involved. This could well prove to be a problem especially where

an investigation into the arms acquisition process will be conducted

anyway.

x. The fact that public hearings might precede a report from the

investigating bodies charged with the actual investigation might have

the effect of prejudicing the investigation itself. There is a possibility

that attention might be diverted from the actual investigation and the

substantive matters connected thereto.

15 May 2001

The Arms Deal - a Litany of a Rampant Corruption of Power Richard Young

2004-06-07

We are now just ten years and three elections into the latest phase of the history of our country. It is indeed time to take stock - to do an audit - of the claims being trumpeted out by the ruling elite.

Many of their current claims go around the progress in constitutional and democratic development since 1994.

While we are so far doing better than the right mess north of the Limpopo, I would say that most of the democratic development in this country since that sorrowful event of 1948 (which was quite a long time before I was born) happened between 1989 when Ronald Reagan brought The Wall crashing down and 1994 when Frederick de Klerk finally crossed The Rubicon. Since 1994 it's been mainly downhill, despite the honeymoon Madiba years between 1994 and 1999, and pretty much all downhill since then.

Why do I say this?

My connection to the political world has been enlightened mainly by one set of extraordinary circumstances; major in the national context and critical in my own - this being the Department of Defence's Strategic Defence Acquisitions, the so-called Arms Deal. This has extinguished forever my former political naivete.

While I make no bones about the fact that I have a personal and vested interest in this matter, there is no conflict of interest.

I have therefore made it my business to find out every possible thing about the Arms Deal acquisition process and its subsequent joint investigation.

On a cold clinical assessment of the facts and circumstances, the only conclusion one can come to is that much is most unwell in the Rainbow Nation.

The logic of the deal

Despite always having been a strong supporter of the South African National Defence Force, the illogicality of the Arms Deal just cannot be overlooked. The enormous size of the single acquisition, the DoD's ill-preparedness to manage the simultaneous acquisitions, the SANDF's questionable ability to absorb the state-of-the-art equipment thrust upon it, the choice of the most expensive options in most cases, the initiation of the acquisition of new Gripen JAS-39 fighter aircraft in precisely the same year as the previous generation of Cheetah Cs had been taken into service by the SA Air Force, all point to a Government agenda quite divorced from its now stated objective of re-equipping the SA Navy and SAAF.

On 21 July 1999, at the height of the bidding process, as well as on other occasions, the DoD's Chief of Acquisitions stated publically and before senior officers and managers of the DoD, Armscor and the SA Defence Industry (including me), that:

"we the Government, do not care about the defence equipment itself; we are only interested in the counter-trade", "we do not care whether or not the corvettes have engines" and "if the planes can fire a missile, it'll be the cherry on the top". Enough said.

The processes of the deal

Firstly, we saw the usurping of Armscor's statutory acquisition role by the Department of Defence under the rule of Joe Modise and his personal runner, Chippy Shaikh. Shaikh was to become the Chief of Acquisitions after being appointed to the DoD in 1995 at the age of 35, with just 4 years of professional engineering experience and four years of lecturing at a technical college. In his interview with the Scorpions in October 2001 he claimed to have "20 years of engineering experience". In his position of Chief of Acquisitions, Shaikh had a clutch of air force generals and colonels, as well as navy admirals and captains, reporting to him; each having almost an order of magnitude more relevant military and defence materiel acquisition experience. This was political intervention in its crudest form.

Next, we saw the well-proven and statutorily stipulated processes, obliged to be followed by the Armscor and the DoD, as well as laid down in Section 217 of the Constitution, simply being discarded on the altars of expediency and self-interest.

The Secretary of Defence, Lt Gen Pierre Steyn, resigned soon after the outset of the acquisition process when he personally experienced what was happening. He was not replaced with a permanent appointee until three days before the contracts were signed. The new Secretary of Defence signed R30 billion worth of contracts on his third day in the post.

Then the highly experienced managing director of Armscor, Erich Esterhuize, did the same thing and resigned, only to be replaced by the ruling elite's own man, Llew Swan.

All these factors gave free reign to Modise and Chippy Shaikh to manipulate the laid down processes. This led to choices of equipment suppliers well aligned with family and friends of the ruling elite (including themselves) and sadly, to equipment ill-suited to the SANDF's operational requirements and the country's budget; whatever the Chiefs of Service are trotted out to say with regular monotony.

The cover up

But, democratically, all the above pales into comparative insignificance when it comes to the cover up.

Initially the job of reviewing the regularity of an acquisition of the size of the Arms Deal falls to the Office of the Auditor-General (OAG). In the early days of the Arms Deal, the Auditor-General was the inscrutable Henry Kluever. However, in the anxiety of the Government to institute "affirmative" action, he soon got replaced with one Shauket Allie Fakie CA(SA), who was then Chief Executive Officer of the OAG, which was then in a miserable state of chaos.

Nevertheless, the OAG's capability for auditing the DoD was in the excellent hands of Etienne Smith CA(SA) under the direction of Executive Manager, the highly experienced Wally van Heerden.

The OAG proceeded with their regulatory audit of the Arms Deal under these highly capable persons and, despite the almost unbelievable fact that Chippy Shaikh remained on the Arms Deal Audit Steering Committee, they produced a credible, albeit reticently-worded, Special Review in September 2000. At this stage, neither Fakie nor PricewaterhouseCoopers (PWC) were involved in the investigation, although Fakie signed the Special Review.

The Special Review was the seed that Parliament's Standing Committee on Public Accounts (SCOPA), then led by the indefatigable Dr Gavin Woods and Andrew Feinstein, needed to initiate a full forensic audit of the Arms Deal. SCOPA produced its own 14th Report in October 2000 setting out a raft of points and issues pointing to gross irregularities, fraud and other criminal conduct that they required to be investigated. SCOPA also envisaged that a primary investigative role would be taken by the highly experienced, successful and mandated Special Investigation Unit (SIU), but only if the SIU could get a Presidential Proclamation.

What was the result?

The Government came out blazing on all fronts; the Leader of Government Business in Parliament, Deputy President Dr J.G. Zuma, wrote a highly aggressive and inappropriate letter to Woods in the latter's position as chairman of SCOPA, a position he eventually resigned after continued harassment by the ruling elite. The ruling party's Chief Whip, Tony Yengeni, came down so heavily on Andrew Feinstein that the latter not only resigned from SCOPA, but from Parliament as well and also left the country.

The four Cabinet Ministers who had been responsible for the Arms Deal, Alec Erwin, Jeff Radebe, Trevor Manuel and Mosioua Lekota were rolled out at a press conference in January 2001 where they literally ridiculed both SCOPA and the OAG and the latter's Special Review.

These rulers also claimed then, as they have done time and time again since, including during testimony under oath and to SCOPA, that "the Government had nothing to do with the sub-contracts". They are wrong.

Very soon after that, the President himself came out on national television in an hour long special broadcast, blazing away against all and sundry involved in the Arms Deal investigation.

However, most of his venom was reserved for the head of the SIU, the hapless Judge Willem Heath.

The poor judge was accused of many things, including drawing up the famous Organigrams which, he said waving them angrily and theatrically at the pre-positioned SABC TV cameras, indicated the SIU's accusations of impropriety against both himself and the ex-President, the beloved Nelson Mandela.

What the President had failed to ascertain, despite all manner of communications intercept by the ruling elite's intelligence resources, was the true origin of these simplistic relationship diagrams. The person who drew up these four diagrams was me, with the input of an intelligence consultant (who was not a journalist). I still have the pencil originals in my own handwriting locked securely in a fire-proof safe, as well as all the subsequent digital versions safely backed up on many CD-ROMs and digital tapes.

None down and four to go

But the sad litany of misrepresentation only started there. The President then had the temerity to announce to the whole country that a formal legal opinion by the Attorney-General of the Western Cape, Adv Frank Kahn SC and the SIU's own senior legal advisor, Adv Jan Lubbe SC, was that no prima facie evidence of unlawful conducted existed concerning the Arms Deal and, based on this, that the SIU should not get his presidential proclamation to investigate.

The truth was exactly the opposite; the precise words of the two senior counsel in their letter of 18 January 2001 were as follows :

"there are sufficient grounds in terms of the Special Investigating Units and Special Tribunals Act No 74 of 1996, for a special investigating unit to conduct an investigation, and, in our opinion, such an investigation is warranted".

One down and three to go

The rot was well set. But the Joint Investigation by the Auditor-General, the Public Protector and the National Director of Public Prosecutions still had to be seen to run its course. Just how were the problems to be made to go away?

Well, it wasn't too difficult. One of Fakie's first steps was to sideline Wally van Heerden and Etienne Smith from the investigation, citing incompatibility with their previous responsibilities of annual regulatory audits of the DoD. van Heerden had been especially critical of the public hearings being planned by Public Protector, Selby Baqwa SC.

Then, thin on the ground without these two, plus without the experience and depth of the SIU's investigative capacity, Fakie called in his own private investigators in the form of two directors of PWC Forensic Services, Adv Lionel van Tonder and recently retired head of the Office of Economic Offences (OSEO), Adv Jan Swanepoel. Soon they were joined at PWC by Adv Charles de Chermont, until then the AG's lead investigator into the Arms Deal.

It is interesting that PWC Inc., or their predecessors in title Coopers & Lybrand, or their then potential equity partners, Gobodo Inc., were auditors of many Arms Deal supplier companies who stood to be prejudiced should any of the contracts be delayed or set aside. For example, PWC were auditors of Denel, BAe Systems's largest local supplier ATE, the Coega Development Corporation, as well as Modise's own armaments company Marvotech, while Gobodo were auditors of Armscor itself. PWC also had excruciatingly close links as international defence business advisors to BAe Systems, Saab and Rolls Royce, as well as to prime contractor for the Corvette

combat suite, Thomson-CSF (now Thales), all of these being major Arms Deal beneficiaries.

It is even more interesting that one of Thales senior directors and shareholders is or was also a PWC partner as well as the chairman of PWC's Aerospace and Defence Group and of PWC Corporate Finance in the UK. Another member of the Advisory Board of PWC is a former Business Development Director of BAe Systems.

Nonetheless some good forensic investigative work was done by these outside investigators, especially by Advocates de Chermont and Swanepoel. Fakie then appointed van Tonder as the OAG's Investigation Project Leader. van Tonder also became chief author of the Joint Investigation Report, along with Advocate Christoffel Fourie of the Office of the Public Protector. However, who really authored or edited the final version is a subject of great intrigue. There has been speculation that a non-legal or non-accounting type of person, with a mother tongue of English rather than Afrikaans, could have had a great deal of influence in reducing a thousand-odd pages of three agency reports into a single 380-page Joint Report in those interesting few days at Task Team Operations Centre in Brooklyn, Pretoria between 14 October and 14 November 2001.

The result was that both crucial facts and findings were simply left out of the Auditor-General's draft reports, or, more ominously, were edited out of the final Joint Report, clearly after direct invention by the Department of Defence and by Office of the President. The hired investigating advocates simply kept quiet about their findings being excised from the final Joint Report. One has to question whether they were just following the orders of their paymaster Fakie, who himself had to follow orders of his masters in the Cabinet and the Presidency itself.

Fakie managed to explain this to Parliament by deciding to interpret the Auditor-General Act and Special Defence Account Act as obliging him to provide his draft forensic audit report to his auditee before its finalisation and publication. I have some of the chapters of these draft reports and can prove to anyone that the differences are stark and material, despite Fakie and Baqwa assuring assembled parliamentarians and SCOPA members that the only differences were ones of style and readability, or as they cutely explained, for "user-friendliness" - indeed.

Fakie also espoused the following questionable wisdom to Parliament on 5 December 2000: "It is not pragmatic and practical to hold Government responsible if the officials do something wrong especially if there are policies and procedures in place". I'm not so sure the Supreme Court would agree.

The other consultant that he used to aid him was a senior counsel who gave a professional written legal opinion to SCOPA that there were no material differences or omissions between the AG's draft report and the final joint version. This is plainly false and should receive the most serious censure of the professional legal fraternity.

In November and December 2001, Fakie and his two fellow stooges repeatedly crowed in Parliament both about the lack of culpability of the Government in the Arms Deal and the efficacy and integrity of its forensic investigation. It took nearly three years for him to finally admit the following :

"Certain Government principles were flouted, proper signed minutes were not available, (there were) failures by members to recuse themselves and conflicts of interest.

"Certain policy and procurement procedures had so many holes, or were not followed, making it impossible to hold someone accountable," he said.

Yet the resolute chartered accountant said that he stood by his belief that he had produced a "good" report which was the "best we could have done under the circumstances".

Just what can these circumstances have been?

The AG's part, at least, of the forensic investigation reeks of a cover-up of a criminal conspiracy by the DoD, Armscor and certain of its preferred prime contractors to defraud bidders in the tendering process. At the very least there are multiple instances of incontrovertible documentary evidence of investigative negligence and/or incompetence of such breathtaking significance that it is impossible to imagine why this has been left out of the JIT's Joint Report, even out of the draft reports.

I am prepared and believe well qualified to make the direct accusation - Shauket Allie Fakie CA(SA) is a shameless liar. He and/or the investigators reporting directly to him are also guilty of gross negligence and/or incompetence in their conduct and reporting of their investigation.

Fakie should be impeached from his position as Auditor-General as well as dealt with by the professional accounting fraternity.

Two down and two to go

A most bizarre sequence of events occurred in October and November 2000. The provincial director of public prosecutions issued a summons against the senior ombudsman of the Republic after a lady friend of the latter laid a charge of common assault against him following an incident late one night in a Durban hotel during the 13th International Ombudsman Conference (where the accused man was both official host and voted vice chairman of the international body).

Legal developments in this regard would of course be especially compromising considering that the subject of the summons was a married man and the father of three young children. But strangely, ten days after reporting the matter to a medical doctor and making a formal complaint at the Durban Central Police Station on 7 November 2000, the complainant withdrew her complaint. This might indeed explain why the State had no alternative but to withdraw its summons, but there is certainly no satisfactory explanation why the Public Protector and a Senior Counsel of the Realm was in a hotel room late at night with a woman other than his wife.

As the only non-Government witness at the Public Hearings during the last week of August 2001, I personally bore the brunt of what Guy Oliver of eTV News described as a "bludgeoning by questioning" and the use of the DoD's counsel of "tactics as

obvious as a tank on the front lawn" in what was supposed to be an inquisitorial rather than adversarial process.

Unconstrained by the tribunal's chairperson, I was subjected to the most adversarial of serial cross-examination; this after having been advised by the Public Protector's previous Arms Deal lead investigator that I would be their "star witness". When my senior counsel tried to examine the DoD's first rebuttal witness, ex Chief of the Navy Vice Admiral Robert Simpson-Anderson, he was severely constrained.

Afterwoods, all Baqwa could do was publicly call me a "coward" for failing to cross-examine the second of the DoD's rebuttal witnesses, Rear Admiral (Junior Grade) J.E.G. Kamerman. What unadulterated nonsense - my legal team were simply not provided a reasonable opportunity for doing so. In any case, these two rebuttal witnesses had only been announced during the final session of my own testimony on the Wednesday afternoon and Kamerman only completed his evidence at lunchtime of the Friday before returning to his post in Germany the next day.

Further stemming from my testimony, I was threatened with legal action by the DoD for "jeopardising state security", by ADS for conduct unknown and, the richest of all, by Chippy Shaikh, probably for exposing his contravention of his farcical recusal regarding his conflict of interest. So far nothing has happened, that is apart from a series of ominous letters and telephone calls from Armscor's Security Division, a further investigation by Fakie's hired PWC guns into where I got some of the documents (despite me having not only told them, but also having given them copies) and even more ominously, certain current investigations by the National Prosecuting Authority (NPA) into the same matter.

But, quite what the Public Hearings achieved, apart from being a forum for a procession of compliant Government witnesses and intimidating me both on and off the witness stand, I do not know.

Three down and one to go

According to the National Director of Public Prosecutions, Adv Bulelani Ngcuka, in both his short three page draft Arms Deal investigation report, as well as in his section in the final Joint Report, there was evidence of a range of misconduct of a criminal nature.

However, thus far after over three years, the prosecution score card is as follows :

Successful

• none

Partly Successful

• accused bribee Tony Yengeni, recipient of huge discounts on no less than three wa Benzs from accused briber Michael Woerfel, head of Daimler-Chrysler Aerospace (SA), was offered a plea bargain with the National Prosecution Authority (NPA), pleading guilty to the minor charge of fraud, but

not the more serious charge of corruption; he got a short jail sentence and is still out on appeal.

Unsuccessful

• accused briber Alain Thétard, Thomson-CSF (Southern Africa) chief executive and ADS director, the alleged facilitator in the bribe of Deputy President Zuma, despite having had a warrant for his arrest issued by the Scorpions, only for him to flee to the safe haven of France with seemingly very little follow-up by the South African authorities;

• accused briber Michael Woerfel had his charges dropped because the main witness, Yengeni, was offered the plea bargain and therefore did not have to give evidence against the briber;

• Ian Elvis Pierce, shareholder and director of Futuristic Business Solutions and accountant to Chippy Shaikh, was found not guilty of giving false evidence and failing to provide documents about FBS's financial affairs to the Scorpions, this after a real hash-up of a prosecution by the NPA.

Delayed

• Schabir Shaikh, who after much fanfare in Parliament by Ngcuka, was arrested on 17 November 2001, for being illegally in possession of Arms Deal documents (including secret Cabinet minutes), only to have his trial postponed for the fifth or sixth time until January 2005;

• self-same Schabir Shaikh, who after more fanfare at Ngcuka's and Maduna's famous "Zuma Press Conference" on 23 August 2003, was again arrested two days later as being the alleged facilitator in the bribe of Deputy President Zuma by Alain Thétard, only to have his bribery, theft and money laundering case postponed again and again until 3 October 2004.

Charges Never Instituted

• against the recipients of discounts of at least 31 other Mercedes Benz, Chrysler, Colt and Honda motor vehicles from Daimler-Chrysler Aerospace, including the chairman of Armscor (Ron Haywood), the chief executive officer of Armscor (Llew Swan), chief of the SANDF (Siphiwe Nyanda - 2 vehicles), chief of the SA Air Force (Ralf Beukes - 2 vehicles);

• against Department of Trade and Industries Arms Deal counter-trade director, Vanan Pillay as recipient of a 29% (about R58 000) discount on a Mercedes Benz MB C 250 TD motor vehicle from Daimler-Chrysler Aerospace, despite Pillay being found guilty of the offence at an internal departmental tribunal;

• against member of Parliament's Public Enterprises Committee Mandla Msomi as recipient of about 20% (about R75 000) discount on a Mercedes Benz MB E 320 motor vehicle and a Colt Rodeo motor vehicle from Daimler-Chrysler Aerospace, despite Msomi appearing before the Parliamentary Ethics Committee on the charges (the outcome is unknown);

• against the DoD's Rear Admiral (Junior Grade) Jonathan Kamerman for failing to truthfully testify under oath concerning the true circumstances concerning the selection status of the corvette's information management system (IMS), its reporting to the Project Control Board, as well as its crucial deselection decision;

• against Armscor's Frits Nortjé for failing to truthfully testify under oath concerning the true circumstances concerning the deselection of the information management system;

• against Shamin (Chippy) Shaikh, who audaciously and publicly admitting giving the said secret documents to his brother Schabir;

• against Shamin (Chippy) Shaikh for failing to truthfully testify concerning the date that the cash gift was given to DoD's Rear Admiral (Junior Grade) Jonathan Kamerman, which was a week before the corvette contract was signed and not afterwards as he claimed;

• against self-same Chippy Shaikh, who actively and materially contravened his own declared conflict of interest and effectively steered a R2,6 billion contract, which was about R699 million above the SA Navy's budget ceiling and outside of the stipulated tender procedures, to a company which not only bribed or attempted to bribe the deputy president of the Realm, but also has his brother Schabir as a shareholder;

• against ex Chief of the Navy Vice Admiral Robert Simpson-Anderson for failing to truthfully testify under oath concerning the true circumstances concerning Chippy Shaikh's recusal, as well as the selection status of the corvettes' IMS;

• against Dr J.G. Zuma, Deputy President of the Realm and alleged occult shareholder of ADS, who solicited or attempted to solicit a R500 000 per year bribe from ADS's main shareholder and joint prime contractor in the Corvette contract, Thomson-CSF of France.

One of the most firm and significant findings of the whole Arms Deal Joint Report was that the DoD's Chief of Acquisitions, Chippy Shaikh, had a material and declared conflict of interest in the acquisition process, but acted in direct contravention of his supposed recusal. Yet the report contained no recommendation of any sanction in this regard. Bizarrely, the DoD allowed Chippy to resign gracefully in May 2002 after nicely tidying up his desk at the DoD's Defence Acquisition and Projects Division. Nice work if one can get it.

More strange is that the Joint Report makes no mention of the fact that, despite Chippy reporting his conflict of interest to, inter alia, Joe Modise, Alec Erwin, head of the SANDF General Siphiwe Nyanda and to Thabo Mbeki himself, as well as being instructed to formally recuse himself regarding any programme involving Thomson or ADS, Chippy was allowed to remain in all of his diverse positions of influence. These positions included attending and briefing the Ministers' Committee on the very subjects where his conflicts of interest were not only relevant, but also acting as secretary of the meeting and taking the minutes thereof. Copies of these self-same minutes were later found by the Scorpions under Schabir Shaikh's wife's underwear in a cupboard in his Durban penthouse.

During the investigation and under oath Chippy continued with his monotonous refrain that his conflict of interest regarding ADS and its owner Thomson-CSF was only apparent and not material and in any case only began with brother Schabir's acquisition of shares in ADS in late 1999. Yet he failed to testify that he had met with two senior directors of Thomson in July 1998 to discuss the corvette combat suites and that he would "facilitate matters for Thomson if Thomson's position with partners and friends was convenient to Chippy Shaikh. He would otherwise make things difficult". At this meeting Chippy confirmed to these Thomson directors that provincial Minister Zuma would be in the next national Cabinet.

Is it merely co-incidental that Thomson soon gave an effective 20% of its shares in ADS to Nkobi Holdings where Chippy's two brothers Schabir and Yunis were already at the trough and Zuma was a probable occult shareholder through one of Nkobi's juristic shareholders. All the while the ruling African National Congress was a prima facie shareholder through another of Nkobi's juristic shareholding vehicles, Floryn Investments.

Ever wondered where the ANC gets its funds to garner a two-thirds election majority?

In a recent case in the Johannesburg High Court, counsel for the defendant, state-owned Transnet, admitted that the particular tender process had been "irregular, fraudulent and dishonest" and confessed that the plaintiff's tender bid had been unsuccessful because Transnet's "rulers laboured under conflicts of interest.....actuated by considerations arising out of their connections with the ruling African National Congress".

There are a host of similar instances ranging from deals in oil, diamonds, state-owned forests, cellular telecommunications and property development.

Ever wondered why the ANC refuses to reveal the sources of its party funding? Wonder no longer. But now back to Chippy, Thomson and ADS.

So Chippy had made things convenient for family, what about friends? Well, Thomson soon sorted this out by giving a further 20% of ADS's shares to FBS,.two of whose shareholders co-incidentally were long-time friend Yusuf Mohamed and long-time friend and personal accountant Ian Pierce.

But the boss's interests were, of course, also not to be forgotten. Two of FBS's shareholders were Joe Modise's brother-in-lay Lt Gen Lambert Moloi and his son-in-law Tshepo Molai.

Interestingly, 65% of FBS's shares were held by Pierce - the accountant. Just why would this be?

But which ever way, this interest of the head of defence materiel acquisition looks to me more like a head-on train collision than a mere conflict. I wonder why this never came out in the JIT's Joint Report or an NPA charge sheet?

Or is this in reality the Government's economic empowerment at work?

Yet the Government and its three stooges continue to spew out their familiar line that the Government's position is faultless and only that certain of its officials were at fault, obviously in their private capacities - far out of reach of private litigation. Such deniability is not even plausible, there is not the slightest element of truth about it.

Getting back to Ngcuka for just a moment, it must now be clear that the whole Mac and Mo Show debacle in Bloemfontein during the last quarter of 2003 was just a diversionary tactic to take the heat off Fakie and Zuma, especially with elections looming half a year hence.

But in the meantime, the NPA's chief investigator into the Arms Deal, Deputy Director Adv Gerda Ferreira completed her Investigation Report into Zuma, citing prima facie evidence and recommending prosecution for bribery and corruption, only to have this overturned by Ngcuka and his line manager, Minister of Justice Dr P.M. Maduna.

The National Director of Public Prosecutions nevertheless found it necessary to extend his greatest appreciation to Dr Maduna for "once more demonstration of political leadership".

Ferreira's response was to resign from the NPA's Directorate of Special Operations just a month later to join Nedcor. After prosecuting Yengeni, even the prospect of prosecuting Schabir Shaikh after three years of investigation just couldn't have been enticing enough under the circumstances. Who can blame her?

Four down and none to go.

Cop Out

The chairman of Thales International (now Thales International) is Jean-Paul Perrier, who is also Executive Vice-President, Marketing and Sales of the entire Thomson-CSF Group. The NDPP had this unflattering statement to make on Thomson and its directors :

"We will be referring the evidence we have against Alain Thétard, Perrier and international companies like Thomson to the French authorities for them to take appropriate action."

Further attacks from the rulers

Even after the JIT's Joint Report being rejected as a "whitewash" by whistleblower-in-chief, Patricia de Lille" and as "poor and superficial (with) virtually no thorough forensic investigation in evidence" by SCOPA chairman Gavin Woods, the President again came out himself to verbally attack the detractors and label them as "racist" and "counter-revolutionaries".

He later used the digital soapbox of the ANC Today website to label investigating journalists and others sceptics of the Arms Deal investigation as "fishers of corrupt men" - as if there might be anything wrong with this.

The defensiveness is startling.

Where does this all leave us?

The Government has most successfully and in front of our very eyes poured some megatons of figurative concrete over the suppurating sarcophagus of its own Chernobyl. The elections are over and the majority is intact - that is all important (apart from the bank accounts in the Channel and Cayman Islands and Malaga as well as some trust accounts in the UK and USA).

But, like the gamma rays and alpha particles of Chernobyl, the half-life of the partially buried facts and truths is long and they want out.

But unlike Chernobyl, I intend to help get the facts and the truth out where they belong; that is into the courts and into the public conscienceness.

The ruling elite know this and behind the scenes are using their mighty resources accordingly. During just these last few weeks a deputy director of the National Prosecuting Authority has been interviewing persons closely connected with the initial Arms Deal investigations about the circumstances how crucially incriminating documents got into the semi-public domain. The common denominator in all the questioning is how I came into possession thereof and was thereby able to use relevant portions of the evidence to incriminate Chippy Shaikh regarding the lies of his recusal, as well as exposing the supporting lies of a host of senior naval officers and Armscor managers during Baqwa's Public Hearings, all of which should have led to immediate perjury charges.

So I phoned the lady investigator in question a while back to ask her two things: firstly, whether I was the subject of the investigation and secondly, whether I could help her in her investigations. Her hardly credible reply to the first question was that I was not. So I asked her that seeing my name came up repeatedly in these interviews and that, outside the Government and its three stooges, I probably know more about the Arms Deal than anyone anywhere, why she had not approached me. Her reply was that she was cautious of me because of my alleged propensity to go to the press. The ludicrousness of this reply needs no further elucidation other than to say that two of these very same people from whom she was attempting to elicit such sensitive information happened to be two investigative journalists of two publications most successful in the country in exposing the Arms Deal shenanigans, the Weekly Mail & Guardian and the Sunday Times. The other person was a source of very many of these and other press exposés of the Arms Deal.

These ill-thought out responses clearly demonstrate for me that the Government has not only made it its priority to quash the Arms Deal investigations whatever this takes, but also that it still has an agenda of intimidating and possibly even charging the primary whistleblowers in this sordid affair.

Why would this be?

If one considers the Government's, even the President's, oft stated public views on combatting corruption, but at the same time their desperate and almost overt efforts to firstly initiate the Arms Deal and then secondly, to stifle its forensic investigation,

the only logical conclusion is that this corruption extends far and wide among the ruling elite.

Little seems to stand in the way of the economic enrichment of a small group, the usual suspects - who are well-connected with the ruling elite - whether this be the common law or the statutory Prevention of Corruption Act or the Whistleblower's Act or Promotion of Access to Information Act.

Certainly much is unwell in this beautiful and beloved land. Unchecked, circumstances and events to our north will be a sad, but comparatively tiny "picnic".

Without Prejudice

Without PrejudiceYAM05.wpd Page 1 of 86

Aide MemoireDate : 2001-08-27

Notes : All references in this Aide Memoire to “Annexures” are for reference purposes only and are notprovided as annexures to this Aide Memoire. A Table of Contents is provided at the end of thisdocument.

I, Richard Michael Moberly Young, hereby state that :

Personal Background

1. I am the Managing Director of CCII Systems (Pty) Ltd, also known as and referred to as C²I² Systems,C²I² or C2I2.

2. CCII Systems (Pty) has its principal place of business being at Unit 3 Rosmead Place, 67 RosmeadAvenue, Kenilworth.

3. I am a professional electronics engineer, registered with the Engineering Council of South Africa(ECSA).

4. Academically, I have a Master of Science in Engineering degree from the University of Cape Town(1992) and a Doctorate of Philosophy in Engineering from the University of the Witwatersrand (1996).In both cases my field of specialist research was the application of computer networks in real-time,mission-critical, distributed systems. The title of my master’s degree dissertation was Real-TimeDistributed System Architecture using Local Area Networks and that of my doctoral thesis was Real-Time Protocol Strategies for Mission-Critical Distributed Systems. I believe that this qualifies me inbeing able to express a professional opinion on the technical aspects of the matter I wish to address inthis testimony.

5. Where in my evidence I refer to any classified document, I do not attend to submit it as an exhibit atall or to refer to its content beyond what is actually quoted in my evidence. However, I do have someof the documents in question in my possession and would be willing to make them available on suchbasis as the Public Protector might direct with the consent of the Minister of Defence.

Without Prejudice


Introduction

6. C²I² Systems has been accredited since August 1996 by Armscor as a supplier of specialised softwareand computer systems for naval, airborne and mobile applications. Such accreditation by Armscor isonly achieved after comprehensive review by Armscor of the company’s technical, financial, quality,configuration management and security management processes and systems.

7. C²I² Systems has been accredited with Armscor since 1996 and re-accredited since 12th September2000 to handle SANDF projects with a security classification of up to and including Secret.

8. I personally have and have had since 1992, a security clearance of Top Secret. Before that, since 1976,I have had a security clearance of Secret. Therefore both the company and I are cleared to handle theproject documentation relating to the Corvette acquisition under Project Sitron and other relatedSA Navy projects.

History - My Own Involvement

9. In 1983, South Africa started developing combat suites for naval vessels. A combat suite is a set ofsystems that enables a naval vessel to engage in naval combat.

10. In 1985, I starting working for a company called Trivetts-UEC (Pty) Ltd, then owned by the Tongaat-Hulett Group and was personally involved in developing a combat suite for our submarines. Thiscompany later became UEC Projects (Pty) Ltd, which later became Altech Defence Systems (Pty) Ltd,then 100% owned by the South African electronics group Altech Ltd. I left UEC Projects (Pty) Ltd inearly 1992 in order to continue my academic studies.

Without Prejudice


The Role of ADS and Thomson-CSF

11. At this stage I believe that it is appropriate to deal briefly with corporate transactions as this is relevantto at least two issues; namely the conflict of interest on the part of Mr Shamin (Chippy) Shaikh andthe justification in dealing with ADS and Thomson-CSF on the ostensible basis that it was a localcompany.

12. On 22nd January 1998, the Cape Times, in a report entitled Altech’s buyer presents a mystery of motiveas well as identity, dated 22nd January 1998, announced that the Altech Group was to sell off 50% ofAltech Defence Systems (Pty) Ltd to Thomson-CSF of France(Annexure Axx).

13. On 12th March 1998, the Altech Group announced publically that it was to sell off 50% of AltechDefence Systems (Pty) Ltd to Thomson-CSF of France. Here I make reference to the Business Reportarticle entitled Altech to sell half its defence business, dated 13th March 1998. They also announce,presumably in a press statement and reported in the Business Report, that they “planned to take on ablack economic empowerment partner within the next few months to complete thedeal.”(Annexure Axx).

14. On 28th April 1998, 50% of the shares in Altech Defence Systems (Pty) Ltd were transferred toThomson-CSF of France.

15. On 19th February 1999, the remaining 50% of the shares in Altech Defence Systems (Pty) Ltd weretransferred to Thomson-CSF of France.

16. On 22nd February 1999, the Altech Group announced publically that it had sold off the remaining 50%of Altech Defence Systems (Pty) Ltd to Thomson-CSF of France. Here I make reference to theBusiness Report article entitled Altech sells defence arm to French group, dated 23rd February1999(Annexure Axx).

17. Pierre Moynot, the CEO of ADS, also announced, presumably in a press statement and reported in theBusiness Report of 23rd February 1999, that “the group remained committed to placing a block ofshares in the hands of a black economic empowerment partner.”.

18. Subsequently, the Thomson-CSF shares in ADS were transferred to Thomson-CSF International, acompany incorporated in France.

19. On the 27th November 1999, Thomson-CSF International transferred 80% of the shares of AltechDefence Systems (Pty) Ltd to Thomson-CSF Holding (Southern Africa) (Pty) Ltd and changed thecompany name to African Defence Systems (Pty) Ltd (ADS)(Annexure Axx).

20. Thomson-CSF Holding (Southern Africa) (Pty) Ltd was on incorporated on 14th May 1996, with 85%of the initial shareholding owned by Thomson-CSF of France, 10% owned by Nkobi Investments (Pty)Ltd, a South African company and 5% by Gestilac S.A., a company registered inSwitzerland(Annexure Axx).

21. One of the shareholders of Gestilac S.A. is one Jean-Yves Ollivier, a French national, who I understandto be an intermediary of Thomson-CSF in connection with various international business deals.

22. Gestilac S.A. was subsequently dissolved or de-registered as a company in Switzerland on 12th October2000(Annexure Axx).

23. Nkobi Investments (Pty) Ltd is a wholly-owned subsidiary of Nkobi Holdings (Pty) Ltd.

Without Prejudice


24. Nkobi Holdings (Pty) Ltd has as one of its major shareholders and directors a Mr Schabir Shaikh, alsoknown as Schabir Shaik, brother of Mr Shamin (Chippy) Shaikh, Chief of Acquisitions of theDepartment of Defence.

25. Mr Schabir Shaikh became a director of Thomson-CSF Holding (Southern Africa) (Pty) Ltd onincorporation on 14th May 1996(Annexure Axx).

26. Mr Schabir Shaikh is also a director of ADS(Annexure Axx).

Without Prejudice


History - Combat Suite Development in South Africa

27. Previously, the SA Navy (SAN) had realised that, for strategic reasons, the country needed to developsophisticated, indigenous Combat Suites for both surface and sub-surface combat vessels.

28. Once the previously-mentioned submarine combat suite project altered course in 1989, the SA Navyand Armscor started technology studies and system design on the frigate programme, also in 1989.

29. When this previous frigate acquisition programme commenced , i.e. Project Falcon with the CombatSuite part thereof being termed Project Frizzle, the aim there was also to move to a system architecturebased on a databus, i.e. a computer data network, with the system architecture being based on a properlocal area network, as opposed to a simple databus as was the case of the submarine combat suite.

30. I was involved in these technology studies and system design efforts while working at what was thenUEC Projects (Pty) Ltd between 1989 and 1991. In fact, I was responsible for the network technologystudies and technology demonstrator development, with these projects being successfully completedby the middle of 1991.

31. To circumvent the problems commonly encountered on modern warships where the ship’s systemsemploy high degrees of automation using electronics, as well as many high-power radiatingtransmitters and sensitive electronic sensors, the SAN specified the use of fibre optic cabling for theCombat Suite data network.

Without Prejudice


History - The Patrol Corvette Combat Suite

32. After Project Falcon was cancelled in 1991, Project Sitron was initiated in 1993, this being theprogramme for the acquisition of Patrol Corvettes for the SAN (SAN PC).

33. For Project Sitron, the SAN, advised by Armscor, wanted and specified a :

“Combat Suite designed around the principles of distributed processing within independent functionalmodules physically integrated around a modern multirole redundant databus infrastructure linkingthe various system elements.” Here I make reference to the Programme Plan for Project Sitron:Combat Suite - Classification Confidential dated 25th January 1995, hereinafter referred to as theProgramme Plan(Annexure Axx).

“The Corvette Combat Suite shall be a modern, LAN-based Naval Combat System with a distributedprocessing architecture”. Here I make reference to the SA Navy’s Patrol Corvette Combat SuiteRequirements Specification - Classification Confidential Issue 2 dated 5th March 1999, hereinafterreferred to as the URS(Annexure Axx).

34. A LAN (“L A N”) is a local area network which is term for a serial computer data network havingspecific attributes, particularly broadcast and network order. A bus or databus is a LAN with a specifictopology, i.e. a spatial layout. A bus is a simple topology where all nodes connect directly to a singledata access medium.

35. Being a mission-critical, distributed, real-time system, the Combat Suite requires a sophisticated LANwith high performance, extensive capabilities and high reliability.

36. The SAN specifically wanted to move away from point-to-point architectures as these had been foundto be extremely limiting by the SAN, as well as by other navies.

37. A point-to-point data link is where one communicating node connects exclusively to another node. Apoint-to-point system architecture consists of many cross-connected point-to-point links.

38. As I'll explain later, the DoD has now in its selection of the Detexis Diacerto data "bus" effectivelygone back to a point-to-point system; although it is actually a hybrid of a point-to-point interconnectionsystem and a simplistic backbone network. Such a hybrid network cannot be construed as local areanetwork. The point-to-point part of the network also employs copper media, so it diverges from theSAN’s own specified requirements.

39. This hybrid architecture can be viewed as a set of point-to-point links connected to two telephoneexchanges (or switches), one situated forward in the Corvette and the other aft. These two telephoneexchanges are connected by a trunk connection system, i.e. the backbone.

40. As a combat vessel such as a Corvette, as well as its Combat Suite, are complex integrated systemswith long planned lifespans, typically 30 years or more, the LAN infrastructure is generally designedto have extensive spare capacity for the lifespan of the vessel or at least until its half-life refurbishment.

41. In this regard, the Deputy Project Officer: Project Sitron (DPOPS), Capt Guy Jamieson, reported inhis “Briefing by SAN” recorded in the minutes of the Technical Committee Meeting No. 16 held on6th July 2000 as follows :

“DPOPS made an urgent request that during the development of the Combat Suite, cognisance betaken of the fact that the Patrol Corvette would probably serve the SAN for between 30 to 40 years.

Without Prejudice


During this time, there existed a good possibility that it would "go to war" and that lives wouldtherefore depend on it."

42. Chapter 4 of the White Paper on The South African Defence Related Industries, available on thegovernment website, addresses the Strategically Essential Capabilities and Technologies for theSANDF, with emphasis on the retention of local capabilities, as follows :

“STRATEGICALLY ESSENTIAL DEFENCE TECHNOLOGIES AND CAPABILITIES

32. Taking into account the list of requirements as reflected in the Defence Review and currentenvironmental realities and resource limitations, choices have had to be made and as a result fivetechnologies and capabilities are identified. They are common to the mode of warfare of bothadvanced and underdeveloped countries and are also common across the four Arms of Serviceof the SANDF. The following are considered strategically essential:

32.1 Logistic support, repair and maintenance of equipment and systems.

32.2 Systems integration.

32.3 Command, Control and Communication systems.

32.4 Sensors, signal processing and data processing.

32.5 Combat systems software and support.

32.6 Simulation systems and war gaming.”

43. Part of the Combat Suite requirements of the SAN was based on the Defence Review and resultingWhite Paper on Defence-Related Industries. What we eventually developed was in line with therequirements of the SANDF and SAN. Our Information Management System (IMS) developmentspecifically embodied five of the six strategic capabilities specified, these being maintenance ofequipment and systems, systems integration, Command, Control and Communication, Sensors, signalprocessing and data processing and combat systems software and support.

44. On this basis alone, I therefore find it inconceivable that the locally-developed IMS could be deselectedin favour of a foreign product.

45. I established C²I² Systems in February 1992 and in early September of that year I was approachedpersonally by Messrs Anton Jordaan and Pierre Meiring of Armscor’s Command and Control Division,on behalf of the SAN, to find out whether I could assist in developing a new naval Combat Suite forthe new frigates or Corvettes under Project Diodon.

46. Some months later we started getting contracts to develop the IMS as well as contribute to the designof the overall Combat Suite. Over the next eight years we got approximately R20 million for thispurpose from the SAN via Armscor. This would equate to approximately R30 million at current values.

47. The very initial contracts in 1993 were under Project Diodon. Between 1993 and 1995 we receivedcontracts under Project Sitron and between 1995 and 1999 we received contracts under ProjectSUVECS.

48. When Project Sitron was deferred between 1995 and 1997 while the Defence Review was undertaken,the DoD changed the name of the Combat Suite portion thereof to Project SUVECS, this being anacronym for Surface Vessel Combat Suite.

Without Prejudice


49. Although Project Sitron was deferred until completion of the Defence Review and the resultingSANDF Force Design, the SAN considered a local surface Combat Suite capability as of strategicimportance. Therefore Project SUVECS was funded to an extent of some hundreds of millions ofRands during the period 1995 to 2000.

50. In fact, due to this deferment, the Defence Command Council (DCC) approved the consolidation andtransfer of funds allocated to Project Sitron, as well as additional funds, to a technology fund underProject SUVECS for the continuation of the Combat Suite development. Here I refer to the ProjectMemorandum dated 18th August 1995 from Mr Pierre Meiring, the Acting Senior Manager of theCommand and Control Division of Armscor to the entire project team, entitled Project Sitron: CombatSuite Funding Situation.

51. Project SUVECS was run as a formal acquisition programme. It had all the formalities of a cardinalacquisition programme, including an approved Staff Target, i.e. the Naval Staff Requirement and anAcquisition Plan, both mandatory baseline documents for any SANDF cardinal acquisition programmeas prescribed in RSA-MIL-STD-003. One of these requirements is an Acquisition Plan. In this casethe Acquisition Plan was called the Programme Plan: Sitron Combat Suite.

52. In addition, Project SUVECS also had an extensive set of mandatory project standards andspecifications, a formal risk management regime, a Test and Evaluation Master Plan including therequirement for formal baseline and design reviews, an Integrated Logistic Support Plan, etc. Manyof these baseline documents were Level 5 or Vessel-level documents, i.e. pertaining to the Corvetteas a whole and not just to the Combat Suite at Level 4.

53. Project SUVECS also had regular technical and project progress meetings at sub-system, Combat Suiteand Vessel levels, involving the SAN, the DoD, Armscor and all the contracted companies.

54. None or few of these formalities would normally be applicable to a technology retention programmewhich was the way Project SUVECS was, in my view, incorrectly described by during the SCOPAhearings of 11th October 2000. It was developed under the guise of a technology retention programmein order to continue to receive funding.

55. The Programme Plan was approved by the Programme Manager for the Combat Suite, then Mr PierreMeiring of Armscor, the Programme Manager for the Corvette, then Mr Byrall Smith of Armscor andthen-Capt Johnny Kamerman, then Project Officer representing the SA Navy, but seconded to theDirectorate: Acquisition and Projects Division (DAPD) of the Department of Defence. Capt Kamermanhas since been promoted to Rear Admiral (JG) and to Project Director. Thus the Programme Plan wasfully approved on 17th April 1996 (date of last signature) and authorised for use on Project Sitron, i.e.the Corvette Combat Suite acquisition programme.

56. The Programme Plan specified the IMS for use within the Corvette Combat Suite by means of a tableon Page 14 entitled Combat Suite Element List and Acronym Table provided under the section entitledProject Definition and the paragraph entitled System Composition, as well as on Page 52 in a diagramentitled Project Sitron : Combat Suite Functional Organigram.

57. What was required in terms of the early Project Sitron and Project SUVECS development was aCombat Suite architecture based on an Information Management System or IMS, a term which in thiscontext is a proper noun which was coined by myself. Overall, the IMS was conceptualised by myself,but significant contributions were made at the system level by Mr Pierre Meiring of Armscor andLt Cdr Jacques Pienaar of the SA Navy, with the more detailed levels being done by members of mycompany, C²I² Systems.

Without Prejudice


58. In addition to the technical development of the Combat Suite elements and overall architecture, animportant objective of Project SUVECS was to develop a requirements specification for the CombatSuite. This was done as a team effort between the SA Navy, Armscor and industry members of theDesign Advisory Committee (DAC).

59. Apart from the SA Navy and Armscor, this DAC consisted of about half a dozen members of the SouthAfrican naval electronics industry, selected for their specific areas of expertise. I was on this team withmy area of responsibility being the Integration Segment, which included the Combat Suite datanetworks and related matters.

60. The result in the specification, called Combat Suite Functional Specification for Project ‘S’ was alsoapproved by the SA Navy and Armscor and was a baseline requirements document under formalconfiguration control as prescribed in the Programme Plan.

61. The Functional Specification and the accompanying Combat Suite System Design Document forProject ‘S’ (SDD) also specified and prescribed the IMS for use within the Corvette Combat Suite.

62. Thus we, the South African defence industry, were developing an indigenous Combat Suite for ProjectSitron under what became an interim acquisition project called Project SUVECS.

63. I believe that this factual inaccuracy had the effect of causing SCOPA and the other investigators tobelieve that the IMS was merely part of ADS’s scope of supply and that therefore ADS were at libertyto do whatever they wanted within their own sub-system.

Without Prejudice


Development on “Risk”

64. Due to the deferment of Project Sitron, funding of the Combat Suite by the SA Navy was neversufficient for fullscale development. In addition, funding and contracting was approved only on a year-by-year basis. Contracts were meant to be completed by March of each financial year with the follow-on contract commencing some months later. Invariably, there were moratoriums placed by the DoDon contract placement with this often occurring much later in the year, even the next year. This madeit extremely difficult for all companies involved in the development of the Combat Suite to proceedat a steady and sufficient pace in to order meet the required timescales being conveyed to them by theProject Officer or his representative at each and every Technical Committee meeting.

65. At numerous formal project meetings, as well as other occasions, The Project Officer (then-CaptKamerman) and the Programme Manager (firstly Mr Pierre Meiring then Mr Frits Nortjé) explainedvery clearly to the participating companies that the only way that a South African-developed CombatSuite could be justified to be included within the Corvette was by good progress being made in respectof the development of the Combat Suite. They acknowledged that the only way that this could beaccomplished was by the participating companies investing their own funds in their parts of the project.It was said on a number of occasions by both then-Capt Kamerman and Frits Nortjé that the sub-systemproject managers attending the various meetings, normally the Technical Committee (TC) meetings“needed to take back this clear message to their management”. I personally attended all these meetingsand I heard this said many times in one form or another.

66. At TC Meeting No. 10, held on 30th July 1997, POPS, then-Capt Kamerman, briefed the meeting asfollows :

“The impact of possible “package deals” was expected to be confined to those sub-systems beingacquired from foreign suppliers.”

67. At TC Meeting No. 11, held on 18th September 1997, PEPS:CS, Cdr Ian Egan-Fowler, briefed themeeting as follows :

“The MOD’s policy was recently reaffirmed by them. The terms, depending on timescales, for localacquisition definitely favour local industry over foreign acquisition of Combat Suite elements.”

68. At TC Meeting No. 13, held on 9th July 1998, POPS, then-Capt Kamerman, briefed the meeting asfollows :

“The Combat Suite, as specified in the present baseline, has been included in all the offers receivedalong with the financing of its acquisition.”

“POPS warned the meeting not to listen to rumours of alternative Combat Suites being considered asnone have been offered for evaluation. The local (RSA) Combat Suite is an integral part of themandatory local content (DIP) component of the “package deal”.”

69. POPS continues :

“The SANDF’s request for a loan from the Treasury was turned down. This had resulted in the currentmoratorium we find ourselves in. Suvecs will be “funded” by delaying contractual payments until the1999 financial year. There is, however, a small pool of money to assist those contractors who cannotsurvive another year of zero cashflow.” (ADS’s inverted commas).

Without Prejudice


70. The Armscor Programme Manager for the Combat Suite (APMS:CS), then Mr Frits Nortjé of Armscor,who has now been promoted to Armscor Programme Manager for the Corvette (APMS), contributedto the briefing as follows :

“APMS:CS supported this statement by stating that the State cannot support local industry completelyfor the next two financial years.”

71. I believe that it was clear to those at the meeting that what was meant by this statement was thatcontractors who wanted to ensure retention of their equipment in the technical baseline were expectedto fund their projects during the period of contract moratoriums.

72. The minutes of TC Meeting No. 13 (classified as Confidential) state :

“He (Mr Nortjé) went on to say that the State may not, and will not, insist on any contractor workingon risk during this period”.

What was actually said on occasions such as these was that the State could not guarantee that acontractor who took such risks would eventually receive a contract because they could not guaranteethat the Corvette programme would eventually materialise. However, it was said that if and when theCorvette acquisition was finally approved, then those contractors who had taken the risk in developingtheir elements would be guaranteed their parts of the contract.

73. At Design Review 2.1, which started on 9th March 1998, POPS, then-Capt Kamerman, stated thefollowing as recorded in the Minutes of the Combat Suite Design Review 2.1 for Project S dated on28th March 1998 :

“The successes to date of Suvecs were noted as having exceeded all bounds of expectation given thetrickle funding to which it had been constrained.”

74. Furthermore, the situation for most of the contractors was such that they could not easily suspenddevelopment during periods when formal contracts were absent. The contracts were on a yearly basisand invariably these contracts were placed very late in the calendar year and had to be completed bythe end of Armscor’s financial year, i.e. March.

75. Development teams had been set up at significant expense to the contracting companies and could notbe allocated, de-allocated and then re-allocated according to the contracting situation. Thus contractorshad to, and were expected to, take these “risks” (risks in inverted commas) in order to make a sufficientamount of technical progress towards an acceptable level of completion of their elements.

76. In fact, before Frits Nortjé was Programme Manager, Pierre Meiring, now Senior Manager ofArmscor’s Command and Control Division, was Programme Manager of the Corvette Combat Suite.On 6th February 1995, he issued a Project Memorandum to all participating companies, includingourselves, where he stated :

“contractors should understand that this matter is one of urgency and the sooner (interimdevelopment) contracts are placed the sooner your participation (in) the programme will be assured”(my bold emphasis).

77. Now we as C²I² Systems had fulfilled all of the conditions set by the SA Navy and Armscor to secureour participation. We had timeously responded to all Requests for Quotation and completed, to theentire satisfaction of the programme, all of the contractual and technical requirements. We enduredextremely harsh cashflow and financial conditions, at the same time contributing extensively our ownfunds to meeting not only the interim programme requirements, but also ensuring that the IMS was

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very well advanced in terms of development compared to the rest of the Combat Suite elements by thetime the Corvette acquisition was finally approved. It is normal practice in systems development forthe interconnectivity elements to take the lead in terms of timescales; i.e. this is done so that systemintegration risks are reduced as far as possible by means of prior development in these areas.

78. As to our own position regarding risk-based development, I wish to record my statement in this regardmade in my letter to Mr Pierre Meiring, the Programme Manager for the Corvette Combat Suite, dated15th March 1995 and copied to Capt J.E.G. Kamerman, POPS, SAN NHQ and Lt Cdr J.J. Pienaar,PEPS:CS :

“While we realise that there is some risk in proceeding with development before contracts are formallyplaced, this risk should only be if the programme is cancelled or delayed and in no other way.

We have received a number of faxed memoranda from Armscor urging us to maintain maximumprogress with the projects and we can assure you that we are following these requests to our fullestability. In the same spirit, we expect the fullest return on our investment in both our IMS and RadarConsole endeavours.” (bold emphasis in the original letter).

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History - Acquisition of the Corvette Combat Suite

79. Once the acquisition of Corvettes under Project Sitron was approved in principle by the government,the DoD, through Armscor, on 23rd September 1997 formally issued a Request for Information (RFI)to the countries interested in bidding for the Corvettes. The RFI included a sub-document entitledSA Navy Patrol Corvette Combat Suite Element Costing and Description, Issue No. 2 (classified asRestricted), dated 30th September, 1997 (classified as Restricted). Responses to this RFI were requiredby 31st October 1997.

80. Once the short-list of four potential suppliers for the Corvettes under Project Sitron was approved bythe government by 8th December 1997, the DoD, through Armscor, formally issued on 13th February1998 a Request for Offer (RFO) (classified as Confidential) to the short-listed countries bidding forthe Corvettes. The RFO included the Element Costing and Description which was approved for useon Project Sitron by then-Capt Kamerman on behalf of the Chief of the SA Navy on 28th January,1998(Annexure Axx).

81. Although I was not on the official distribution list the document Element Costing and Description wasfaxed to me personally by the Project Officer, then-Capt Kamerman, on 26th March 1998. In fact, hisoffice's fax number appears on it. The fax was also sent with a Project Sitron cover page and somehandwritten notes from the Project Officer. Capt Kamerman did this because he wanted to re-assureme that our company's IMS was part of the SAN's official requirements and tender baseline and thatADS could under no circumstances exclude us from the programme. The reason he wanted to give mesuch re-assurance was that I had expressed concern to him that ADS was attempting to change theCombat Suite architecture, without regard to formal baseline management and thereby exclude the IMSfrom the baseline.

82. This document makes it clear that certain companies were nominated as suppliers for the variousspecified sub-systems of the Corvette Combat Suite. In this regard, I refer to Paragraph 3 on Page 3of the document, which reads as follows :

"It is intended that the Vessels will be acquired under a single prime contract from a VesselContractor, the ship platforms being built overseas and integrated with their Combat Suites in thefacilities of the SA Naval Dockyard, Simon's Town, with the deliverables being complete vessels postSea Acceptance Trials, plus logistic support. The Vessel Contractor will be a teaming arrangementbetween the ship platform supplier and the nominated RSA Combat Suite supplier, with sub-contractsplaced on nominated companies for the various sub-systems." (my bold emphasis).

83. I also wish to draw attention to the Combat Suite element description in Paragraph 9 on Page 6 of thedocument, which reads as follows :

"Description. The Patrol Corvette Combat Suite is a modern, LAN-based naval combat system witha distributed processing architecture, making extensive use of commercial off-the-shelf (COTS)technology. Processing is Intel based with Multibus II interfacing, the language used being mainlyADA with C++ in certain applications. The Combat Suite consists mainly of sub-systems developedor under development by South African industry, in addition to some items of equipment from theSA Navy Inventory; and three major sub-systems to be acquired from foreign suppliers. The CombatSuite will be fully integrated in a shore Integration Test Bed (ITB) in Simon's Town prior to onboardinstallation."

84. The Element Costing and Description provides a diagram entitled SA Navy Patrol Corvette CombatSuite Element Product Breakdown Structure. This clearly identifies the Information ManagementSystem as a required element under the Integration Segment, i.e. a Level 3 sub-system.

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85. The Element Costing and Description also provides a table entitled SA Navy Patrol Corvette:Nominated Combat Suite which identifies the Information Management System, with its acronym IMS,as an element under the Integration Segment and C²I² Systems as being the “Element Supplier”. Itdescribes the IMS as follows :

“Dual redundant fibre optic (FDDI) local area network (LAN) databus and LAN management for thedistribution of all non-video data information. Includes FDDI Network Interface Cards (NIC) tointerface non-IFU sub-systems.”

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ADS’s Alteration of the Baseline

86. The Element Costing and Description describes the Combat Management System (CMS) as consistingof the Action Information System (AIS) and Weapon Control System (WCS) with ADS as being the“Element Supplier”.

87. I believe that herein lies the origin of ADS’s and Thomson-CSF’s irregular departure from the CombatSuite technical baseline. The AIS and WCS had been derived from the SA Navy Strike Craft’s AIS andTarget Designation Assembly (TDA) sub-systems, originally developed under Project Caliban andfurther developed under Project SUVECS. When Thomson-CSF started their acquisition of ADS, theywanted their own Combat Management System, called Tavitac, to replace the indigenous AIS andWCS that had been baselined for Project Sitron. In order to facilitate this without major changes to theTavitac CMS, ADS and Thomson-CSF also had to alter the whole Combat System architecture whichhad been based on the IMS.

88. At the end of the TC Meeting No. 13, held on 9th July 1998, the ADS Combat Suite management teamgave an overhead presentation of an “Alternative CMS Design”. Although ADS recorded thepresentation as being presented “after the meeting had been formally closed”, this was minuted withinthe minutes of TC Meeting No. 13. What ADS was presenting were effectively the implications on theCombat Suite baseline in consequence of their preference of Tavitac’s CMS over the indigenous AISand WCS. They presented a number of different architectures, including a number that excluded theIMS entirely (Reference CS3) and some that reduced it substantially (Reference CS5). All the newoptions were based on so-called risks to the Combat Suite, but, in fact, they were proposals forreducing ADS’s risk and cost for their CMS at the expense of the already baselined and formallyreviewed and accepted Combat Suite design and architecture. ADS also went about this in an entirelyunannounced fashion; it having been a rule at all Combat Suite meetings that no new matters could beaddressed at any meeting without full prior notification in writing of the parties affected.

89. Nevertheless, the JPT, represented by DoD, SAN and Armscor allowed ADS to proceed with theirpresentation. In fact, I remember it being stated by then-Capt Kamerman that ADS’s seniormanagement had briefed the JPT on this same matter prior to the TC meeting. However, theyconcluded the matter for the day by instructing ADS to “quantify the impact of the proposed changesto the integration effort and to consolidate the response from the various Level 3 contractors.”. To myknowledge, this has never been done, at least not to the meeting participants as was instructed. I mustemphasise that C2I2 Systems was consistently recognised as a Level 3 contractor.

90. The Navy and Armscor requested that members of the Technical Committee and especially the DesignAdvisory Committee respond to the proposal made by the ADS. I did so by means of a number ofletters to the Project Officer, also copied to the rest of the Project Team. Three of these letters wereentitled :

• Corvette Combat Suite Architecture Baseline Changes - Observations on Lifecycle Risks dated9th April 1999.

• Corvette Combat Suite - Observations to Proposed Changes dated 31st May 1999.

• Corvette Combat Suite - Warning on Proposed New Network Solution dated 3rd August 1999.

91. To further the matter of alternative Combat Suite designs, the DoD convened two further meetingsover the periods of 4th and 5th August as well as 20th and 21st August 1998 [dates are right move para].The deliberations of these two sessions are minuted in one set of minutes entitled “Minutes of the AdHoc CS Concept Design Review held at ADS Mount Edgecombe on 4 & 5 August and 20 & 21 August1998" (classified as Restricted). Cdr Ian Egan-Fowler signed the minutes as secretary and then-Capt

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Kamerman signed them as chairman, both signatures being dated 10th September 1998. I attended allof these meetings.

92. POPS, then-Capt Kamerman, states the following in his opening remarks :

“There is an existing baseline and must be adhered to as far as possible.”

“The NSR (Naval Staff Requirement) describes the CS as a bus based, open architecture system forfuture growth potential.”

93. What resulted from the adoption of the Tavitac-based system is a closed architecture and a CombatSuite Data network which employs proprietary protocols and implementation and not commercial off-the-shelf (COTS) elements. This essentially means that the SAN is compelled to retain Thomson-CSFas their exclusive source of supply for this system. This is inconsistent with the statement made byCdr Ian Egan-Fowler, the Combat Suite Project Engineer who, during the SUVECS Workgroup onComputing Segment Technology held at ADS on 4th November 1998, stated the following in relationto proposals of new architecture proposed by ADS :

“SAN’s main concern is the life cycle cost, not the acquisitions costs.”

“SAN needs to remain with what they know and currently cannot support any new ideas which cannotbe identified as a lower risk.”.

94. Under Item 6 General, Sub-Item 15. k., it is minuted :

“The conceptual model presented by DLB (i.e. Doug Law-Brown, ADS’s Corvette Combat SuiteProgramme Manager) (CS7 mod1) was acceptable as a conceptually feasible option. - Action JK (i.e.Johnny Kamerman)”.

95. This option CS7(Mod1) was specifically chosen because it accommodated both ADS’s Tavitac andC²I² Systems’s IMS.

96. This option was again discussed at the TC Meeting No. 14 (minutes classified as Confidential), heldon 5th November 1998, where PEPS:CS (i.e. Cdr Ian Egan-Fowler) stated the following underItem 9.1.1 “Alternative CMS Design” :

“PEPS:CS provided the meeting with feedback on the report generated by SINC on the impact of theproposed new Combat Suite architecture, i.e. CS7 (Mod. 1). CS7 (Mod. 1) is the SANs preferredarchitecture with the following riders :

a) The design to be optimised using a common fibre cable plant. SINC:A (i.e. Lewis Mathieson ofArmscor) has been tasked to investigate the feasability of this so that the bridge between the CMSand the deterministic bus can be removed.”

97. Although the above is minuted under Item 9.1.1, the meeting actually commenced with this item withCdr Egan-Fowler reading from a pre-prepared document. The minutes do not reflect the seriousnessand gravity of the Navy’s pronouncements on this matter. Having been at the meeting, I notedCdr Egan-Fowler commencing as follows :

“The Navy has seriously considered the alternative Combat Suite system design and has decided asfollows :

The specified architecture shall be CS7 (Mod 1) with the following riders :

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There shall be a common fibre cable plant.

The ARTTS software interface layer of the Tavitac CMS shall be modified to use the IMS’s APISsoftware interface layer.”

[Slide - CS7 Mod 1 diagram]

98. Cdr Egan-Fowler continues :

“It was re-iterated that ADS must provide a written description of CS7 (Mod. 1) as an urgent task. Thedescription must highlight the changes from the Combat Suite DR2 “baseline”“ (ADS’s invertedcommas for “baseline”).

99. To my knowledge, this was never been done. On the contrary, the option ultimately adopted after thedeselection of the IMS was an architecture incompatible with the IMS, closer to that designated as CS3in ADS’s prior presentation.

100. In the circumstances, I find it strange that the documents provided by the DoD in defence of the de-selection of the IMS from the Combat Suite baseline, at around the time of the SCOPA meeting of11th October 2000, was a diagram that designates the Corvette Combat Suite architecture as cs7(mod1),a copy of which is attached hereto as Figure 1.

101. The IMS was specified in the Programme Plan and the Functional Specification as a Level 3 sub-system of the Combat Suite. This is a most important observation at this point because later in theStanding Committee on Public Accounts (SCOPA) hearings of 11th October, 2000 as well as inaccompanying DoD documentation, the IMS is described by then-Capt Kamerman as a Level 2 sub-sub-system and a component of the Combat Management System. This is not in accordance with thedocumented project baseline for both Projects SUVECS and Sitron, namely the Programme Plan andthe Functional Specification. I may add that both of these documents were signed by then-Capt Kamerman.

102. I also point out that the diagram cs7(mod1) correctly identifies the IMS as the interconnectivityelement of the Combat Suite and not just the Combat Management System. Therefore the IMS is aLevel 3 product sub-system and not a Level 2 component of the Combat Suite. This contradicts thediagram provided by the DoD to SCOPA entitled The Acquisitions Systems Hierarchy, which wronglyreflects the IMS as a Level 2 component. Equally wrong is the statement in the document whichaccompanied the hierarchy diagram, where the following was asserted :

“The Information Management System (IMS) is a Level 2 Component of the CMS” (their boldemphasis).

[Slide - Acquisitions Systems Hierarchy diagram]

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The User Requirement Specification

103. Up until the end of the RFO stage of the Project Sitron tender process, i.e. when the preferred biddersfor the Corvettes were approved by Cabinet on 18th November 1998, the Combat Suite had beenspecified by the Functional Specification, which had been authored, although not developed, by ADSand was under their own configuration control, including having an ADS document number. The SANavy realised that it would be difficult, if not irregular in terms of RSA-MIL-STD-0003 AcquisitionBaseline Standards, to motivate having one of ADS’s documents as a fundamental baselinerequirements document for a cardinal acquisition programme.

104. Therefore, for the contract negotiation phase of Project Sitron, i.e. until contracts were signed on4th December 1999, the SAN set out their specific requirements in a document entitled South AfricanNavy Patrol Corvette Combat Suite Requirements Specification (URS) (classified as Confidential).This specification was signed by the Project Officer - Project Sitron (POPS) on behalf of the Chief ofthe SA Navy and designated as “approved for use on the programme.”(Annexure Axx).

105. Initially the SAN issued the first formal version as Issue 1 on 10th December 1998. They re-issued thesame document as Issue 2 on 5th March 1999 with some, mostly minor, changes.

106. In terms of RSA-MIL-STD-0003 Acquisition Baseline Standards, the URS is a mandatory baselinedocument for SANDF cardinal acquisition programmes. The URS specifies all the SA Navy’s,functional and engineering requirements. Page 2, Paragraph a (ii), of the URS states that :

"The Combat Suite component of the Vessel is the command, control, communications, navigation,sensor and effector systems specified in accordance with this specification and selected by theSA Navy (SAN). These comprise of systems developed and produced by RSA industry, Governmentfurnished equipment supplied from the SAN inventory, and three systems to be acquired from overseas,viz: the primary search radar, anti-ship missile and hull-mounted sonar." (my bold emphasis).

107. The URS also specifies that :

“The Corvette Combat Suite shall be a modern, LAN-based Naval Combat System with a distributedprocessing architecture making use of Commercial Off-the-Shelf Technology (COTS).”

108. The URS specifies in some detail the requirements for a SAFENET-based, quad-redundant InformationManagement System (IMS). Pages 119 to 120, Paragraph 7.1.1, contain the following description ofthe Information Management System (IMS).

“The Information Management System (IMS) shall interface all the Combat Suite (CS) segments viaa Local Area Network derived MIL-STD-2204A, Survivable Adaptable Fibre Optic Embedded Network(SAFENET). The IMS shall be based on the Alternate Path Fibre Distributed Data Interface (APFDDI)topology as defined in the SAFENET standard. Refer to figure (strikeout) below 7.1.3.

The IMS shall provide reliable data communications between sub-system with enough spare capacityfor CS expansion. This communication medium shall be transparent to the sub-systems and alsoprovide synchronised clocks for the use in time-stamping of data. The IMS shall also assist in themaintenance of the Combat Suite. The Information Management System shall provide the followingcapabilities: a. Signal data transfer, b. Clock synchronisation, c. Bulk data transfer, d. NetworkMonitoring.”.

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109. In terms of Signal Data Transfer capability, the IMS was specified to shall have the followingcharacteristics :

“ a. Maximum latency of critical data transfer = 5 msb. Maximum message size = 4 000 bytes”

110. In terms of Clock Synchronisation capability, the IMS was specified to shall have the followingcharacteristics :

“ a. Synchronisation between any two internal IMS clocks < 250 �sb. Maximum uncertainty between timestamps shall be better than 500 �s”

111. By comparison, ADS’s document the Combat Suite - System Timing Document for the SAN PatrolCorvette Program (classified as Restricted) dated 15th August 2000, specifies minimum packet transfertime for the Detexis CSDB as 6,5 milliseconds for a 165 byte message(Reference).

112. This is very significant for the following reasons :/

1. It does not meet the specified requirement of the URS.

2.Although this performance may suffice initially, there is little or no performance margin forupgradeability.

3.As C²I² Systems, we expended a very extensive effort in achieving the specification.

113. The Detexis CSDB also does not provide for Combat Suite synchronisation and message timestampingas specified in the URS. Again, :

1. It does not provide the capability specified in the URS. Detexis does not provide synchronisationor timestamping at all.

2.Although this capability deficiency can possibly be worked around initially, upgradeability will beseverely curtailed.

3.As C²I² Systems, we expended a very extensive effort in achieving the specification.

114. In fact, the lack of this synchronisation and message timestamping has led to the employment of anextremely questionable method for the distribution of time-critical messages in the present CombatSuite design. Here the source of platform motion data has to provide a correction factor to the sampleddata by modifying the data according to estimates of sampling time delay, rather than by timestampingthe data with a synchronised timestamp. Effectively this means “polluting” the data at the source ratherthan filtering the data at the destination. This was a definite “no-no” in the previous system design, asis so in most distributed systems design practice.

115. The URS identifies in Figure 1-1, entitled Document Hierarchy on Page 15, that the Program Plan (orProgramme Plan) is one of the applicable “existing Combat Suite level documents”.

116. The URS further states on Page 15 that :

“This document .... describes the segments and elements of the required Combat Suite.” (my boldemphasis).

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117. The URS states on Page 19 that :

“The scope of the required Patrol Corvette Combat Suite shall consist of the systems and sub-systemsdescribed in this document.”

118. The URS provides a note on Page 18 concerning the diagram on Page 22 that :

“Figure 2-3 ....illustrates the requirement that the FDDI databus shall be the main communicationmedium for combat system data, including high speed deterministic data where required.” (my boldemphasis).

119. The URS provides a diagram (Page 20) that provides a :

“Combat Suite Segment and Element Product Breakdown Structure Required”.

This specifies the Information Management System as being part of the Integration Segment anddesignates, in the key provided within the same diagram, that the IMS is to be provided by a “LocalIndustry Supplier”.

120. Appendix I of the URS is a “List of Candidate Suppliers” with C²I² Systems being specified as the oneand only supplier for the Information Management System.

121. Appendix J of the URS is an “Element Costing”. Although, I have not had sight of this appendix, Iwould imagine that it contains costing of the elements as derived from the contractors’ inputs at thePrice and Schedule Audit in May 1998. Any costing for the IMS included in this document would haveemanated from C²I² Systems.

122. Thus the IMS that we designed, developed and tested conformed 100% with the descriptions providedin the Element Costing and Description, the Functional Specification and the URS.

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Product versus Potential

123. During Capt Kamerman’s evidence during the SCOPA hearings held on 11th October 2000, he referredto the DoD’s assertion reported in the Auditor-General’s special review that the :

“Although the SA Navy preferred the technical potential offered by the local company, this wasoutweighed by prohibitive risk-driven cost implications as determined by the prime contractor”.

124. It was further said by Capt Kamerman and the Chief of Acquisition, Mr Shamin Shaikh, thatC²I² Systems had the "potential" in respect of the IMS. I contend that the use and explanation of theiruse of the term "potential" is uninformed and out of context. We already had the IMS system; althoughit still needed to be fine-tuned and certain hardware portions of it manufactured, we nevertheless hada product and not merely a potential.

125. Capt Kamerman was asked whether he regarded the quoted statement as accurate. In response heincorrectly attempted to convey that the potential merely lay in the bus as a future technology and notin the IMS product which we had already developed.

126. In fact, I repeat the JPT’s final conclusion made in their report of June 1999 :

“Both Thomson and GFC recognise that the IMS is a superior product.” (my bold emphasis).

127. By early 1999, the IMS was almost fully developed; we had started formal tests in March 1999 and byOctober 1999 all the critical and major functions of the IMS had been fully developed and testedaccording to the specified baseline. Here I refer to our Software Test Report Review for the InformationManagement System Multibus II Integration Milestone 3, dated 26th October 1999.

128. Regarding the IMS, we had at that time fully met, in all respects, the expectations of Armscor andSAN.

129. As I have stated, C²I² Systems's system complied 100% with the SAN's specified requirements. Thesehad been formally baselined and reviewed at a formal programme design review called IMS DR2 in1997 and accepted by Armscor, SAN and ADS. A year or so later, the IMS was accepted at the nexthigher level design review for the Combat Suite as a whole, called CS DR2.

130. The IMS had not yet been industrialised, of course, as this would and could only happen under full-scale production, which due to the very nature of the IMS and for obvious reasons, could only occurunder an acquisition contract.

131. I therefore find it significant that in the documents provided by the DoD in defence of the de-selectionof the IMS from the Combat Suite baseline, at around the time of the SCOPA meeting of 11th October2000, state the following :

“The C²I² Systems IMS is a technology demonstrator, not a product.”

This is simply not true (although the IMS is not something one can walk into a networking store andpurchase ex-stock, but then neither are any other components or elements of the Corvette CombatSuite).

132. I find it even more significant that in the explanatory documents provided by the DoD in SCOPA thefollowing is stated :

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“C²I² Systems has explicitly acknowledged that further development is necessary to develop it to aproduct (See letter from C²I² Systems dated 29 July 1999).”

A similar statement was made by the Mr Shamin Shaikh in his evidence before SCOPA. This entirelymisrepresents the statements in my letter. My letter states that Option 1, the preferred option, is “torevert to CS7 Mod 1". There are no extra costs involved. This option was entirely in accordance withthe SAN requirements according to which we had developed the IMS over a number of years.

Option 2 of my proposal for a risk sharing approach and which calls for requiring an amount ofR15 million, is explicitly in regard of :

“completion of the IMS 100% according to the present IMS specification, but modified by agreementof both ADS and C²I² Systems to reflect the current reality of the Combat Suite.”

133. This “reality”, as I was attempting to politely describe the situation at the time, was brought about byaspects of the systems design introduced by ADS themselves and included belated baseline changessuch as :

• changing from the use of the Multibus II standard to ADS’s new requirement of using the VMEand/or Industrial PC standards

• ADS’s requirement for provision of the TCP/IP protocol, but specifically operating under our APISprotocol.

134. Such “realities” would have required us to purchase some millions of Rands of new hardware on whichto redo the development and testing which we already completed under Project SUVECS.

135. However, even if these were valid new requirements being introduced by the DoD and/or ADS, thesecertainly in no way invalidated any of the work or achievements made on the IMS.

136. It is important to note that it has been asserted during the SCOPA hearings of 11th October 2000 by theChief of Acquisitions, Mr Shamin Shaikh that the IMS was a “unique technology” and “ that in factit is a technology and not a product”.

137. This statement misrepresents the true facts. The IMS consists almost entirely of an integrated set ofcommercial off-the shelf products, the most important of these being according to the FDDI standard.The IMS also conforms to US Navy standards, as specified by the SA Navy, the most important ofthese being the SAFENET standard (MIL-STD-2204A), which also in turn specifies FDDI. The onlyaspect of the IMS that is in any way unique is the APIS (Application Interface Services) applicationprogramming interface (API). APIs are almost invariably specific for particular real-time systems. TheIMS’s APIS API is an extremely small part of the overall IMS system and was in any case specifiedby the SA Navy and Armscor. In addition, the IMS offered an alternative to the APIS API, this beingthe TCP/IP standard which is a universal standard on which the entire Internet is based. In the IMSproject documentation, this option is referred to as the dual protocol stack.

138. This alternative dual protocol stack had always been proposed by me in order to provide greaterflexibility in terms of interfacing options to the IMS. However, the SAN and Armscor had alwaysrejected this as they wanted strict adherence to the programme standards. When ADS decided to dropthe AIS and WCS in favour of Thomson’s Tavitac CMS, they requested that we provide this TCP/IPoption. We responded positively to this by providing a quotation to include TCP/IP and the dualprotocol stack. We even provided them with software and hardware which allowed them to get someof their systems communicating over TCP/IP and our IMS FDDI hardware in a matter of a few dayswithout any assistance from us.

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139. Thus the IMS was developed according to US Navy and SA Navy standards, using COTS technologyand components, including the SAN’s specified Multibus II processor standards. In fact, only the useof this Multibus II standard and the use of APIS make the IMS any different from similar “IMS”-typesystems used for many years (since the early 1980s) on US Navy, Royal Navy and German Navy ships,as well as many other mission-critical military applications.

140. Examples of such early installations onboard US Navy include the USS Norton Sound in 1983, the USSValley Forge in 1984 and the USS Mobile Bay in 1987. All these vessels are naval surface combatantssuch as destroyers, frigates or corvettes.

141. The custom-designed layer of communication protocol software, which we called APIS (an acronymfor Application Interface Services), although unique, was specified to us by the SAN and Armscor.APIS is actually merely an implementation of an Application Programming Interface (API) which alldata communication systems have to have in some form or another. SAN and Armscor instructed usto conceptualise an API which facilitated a robust, consistent, simple and transparent interface betweenthe Combat Suite sub-systems and the IMS and each other. This is precisely what we did, using astandard communication software concept known as Message-Oriented Middleware.

142. Any assertion that the IMS was a novel, immature and high-risk technology is simply wrong.

143. In fact, the IMS was to all intents and purposes a modern, fully developed and tested system, designed100% in accordance with the SAN’s specifications.

144. The DoD’s argument that the IMS has “not (been) operationally tested or fielded in any warship todate” is a post hoc fallacy; the true position is that the IMS was developed for the SA Navy’sCorvettes. The IMS could not be tested onboard a warship until the Corvette warship had been built.

145. The fact that the IMS has not been tested onboard a warship before does not mean that it representsa risk to the SA Navy as it would in any case be subject to an already baselined comprehensivequalification process documented under a SA Navy-approved Test and Evaluation Master Plan, bothat the sub-system (IMS) and system (Combat Suite) levels.

146. I had already made the proposal that a Strike Craft be used as a more realistic test platform, specificallyfor the interaction of sensors and weapons via the IMS. However, the SA Navy considered thisunnecessary.

147. A very high proportion of this formal testing had already been successfully completed by the timeassertions of risk concerning the IMS were made by ADS in mid-1999.

148. This testing of the IMS to which I refer above was performed during the period March 1999 to October1999. It was performed in a formal way and witnessed and accepted by Armscor’s Quality Assurance,as well as SA Navy and Armscor representatives of the Corvette Joint Project Team and ADS.

149. The requirements of the Combat Suite in accordance with URS, a baseline the validity of which wasacknowledged by the Project Officer in his testimony before SCOPA on 11th October 2000, are relevantas the SAN has actually now substantially diverged from these.

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Sub-System Selections

150. As far as the Request for Final Offer is concerned, I wish to emphasize that it is stipulated inParagraph 1.2 that :

"It is envisaged that the Combat Suite contractor will be a South African industry consortium whereinAltech Defence Systems (ADS) plays a leading role, co-responsible for the overall design, integrationand supply of the Combat Suite element."

151. Subsequently ADS was nominated as the preferred supplier for the entire Combat Suite, i.e. tointegrate the whole Combat Suite. ADS, in effect, became the main contractor for the Combat Suite.They were nominated as such in the same document, namely the document entitled Element Costingand Description(Annexure Axx), as was C²I² Systems nominated to provide the IMS.

152. In this regard, I refer to the appendix to this document, which shows ADS to be nominated for thecombat system integration. In terms of the document, ADS's responsibility included contracting withthe sub-contractors. In my view, the fact that ADS had to integrate the system, but could also be a sub-contractor competing with other sub-contractors, constituted a clear conflict of interest.

153. Also in the appendix to this document, a “foreign supplier” is nominated to provide the STAR Radarwith C²I² Systems being co-nominated to provide the Radar Consoles with the foreign supplier. Wewere nominated in that we had entered into a “package” deal arrangement, for consoles for both theSTAR Radar and Optronic Radar Tracker, with the SA Navy, Armscor and Reutech Radar Systems.We had also performed some technical work at “risk” on the STAR Radar Console.

154. On 27th March 1998, I wrote to the Managing Director of Altech Defence Systems, for the attentionof Mr Pierre Moynot, confirming the situation, as it then was, as follows :

"You will be aware that we are developing the Information Management System (IMS) and TrackerRadar Console (TRC) for the Combat Suite. We have also been designated as developing the SearchRadar Console (SRC), with ADS supplying the console hardware, i.e. VMC, in respect of both the TRCand SRC. In addition we are the designated system house for the Platform Management System (PMS)which incorporates a number of sub-systems for the monitoring and control of ship platformmachinery. These include sub-systems developed by ourselves, i. e. the Platform Management Console(PMC), Helicopter Control Sub-System (HCS) and Stability Management Sub-System (SMS), as wellas sub-systems developed by other companies, including the Advanced Damage Control Sub-System(ADACOS) developed by ADS (Diep River)."

155. My letter continues :

"We have noted the SA Navy's and Armscor's officially expressed preference of having the CorvetteCombat Suite supplied by a Combat Suite Contractor which "will be a South African industryconsortium where Altech Defence Systems (ADS) play a leading role, co-responsible for the overalldesign, integration and supply of the Combat Suite element".

156. I accordingly stated that :

"We are approaching yourselves with a view to participating in this teaming arrangement".(Annexure Axx).

157. The STAR Radar contract was eventually allocated to Thomson-CSF with the consoles being providedby ADS.

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158. In early August 1998 in response to my letter to ADS on the recommendation of the Project Officer,then-Capt Kamerman, discussions between C²I² Systems and ADS took place, in an attempt toconclude a Memorandum of Understanding (MOU) regarding co-operation on the Corvette CombatSuite.

159. This MOU was drafted by ADS and transmitted to me as an email attachment on 28th August 1998 byMr Duncan Hiles, then Managing Director of ADS. I responded to this letter almost immediately bymeans my letter of 3rd September, 1998. I need to point out that in the draft, in the first paragraph ofthe preamble on Page 2 of the document, the following is stated :

"ADS has been nominated by the SA Navy as the supplier of the Command Management Sub-Systemand the Navigation Sub-System. Within the Integration Segment, C²I² Systems has been nominated asthe supplier of the Information Management Sub-System (IMS). These nominations are recorded inAnnexure I." (my bold emphasis).

160. This clearly shows that ADS also acknowledged C²I² Systems as the nominated supplier of the IMS.

161. I could not accept ADS's wording of the MOU inter alia because Paragraph 3 would have given ADScarte blanche to change the specifications of the system and because of ADS's demand for exclusivityi.e. ADS’s demand that C²I² Systems not supply the IMS to any party other than to ADS for the SANPatrol Corvettes.

162. I was not at that stage prepared to grant exclusivity in accordance with ADS’s demand as I was notcertain that ADS would retain their status as the nominated supplier of the Combat Suite Integrator.ADS’s preferred status was based on the fact that it was a local company. By this stage I was awarethat Thomson-CSF of France had purchased 50% of ADS from the Altech Group and I was concernedthat ADS would lose its preferred status. I wanted to be free to offer our IMS to other potential CombatSuite Main Contractors.

163. I am of the opinion that the phased purchase of the ADS shares allowed the exclusivity of ADS’snomination as supplier of the Combat Suite to endure during the negotiation process. I contend thatthis exclusivity would have been negated and no longer justifiable had there not been this phasedprocess.

164. I also knew that the only reason that ADS, ourselves and the other companies could justifiably benominated a priori as suppliers of Combat Suite was the fact that we were all South Africancompanies who had participated and invested in the local development of the indigenous Combat Suitefor many years.

165. In fact, other foreign companies such as BAeSEMA of the UK, CelsiusTech of Sweden and STN Atlasof Germany, three of the traditional European suppliers of naval combat systems to Blohm+Voss, werealso monitoring this developing situation with Thomson-CSF and ADS and had indicated that theywere interested in competing with ADS should it lose its exclusivity as a result of its takeover by aforeign owner. In turn, these companies had approached us informally in order to determine whetherwe would supply our IMS to them should they successfully bid on the supply of the Combat Suite.

166. In this regard, in April 1997, Mr Lewis Mathieson of Armscor, now the Combat Suite ProgrammeManager, but then the Armscor Manager responsible for the IMS, instructed us to provide variousdocuments describing the IMS to BAeSEMA. The obvious reason for this was that BAeSEMA hadexpressed an interest to the DoD, the SA Navy and to Armscor in tendering for the Combat Suiteand/or Combat Management Segment. In fact, I know that various very senior managers and directorsof BAeSEMA and British Aerospace (BAe) met with senior members of the DoD, the SA Navy andArmscor in this regard.

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167. From British Aerospace, these persons included Alex Dorian, Managing Director, Alan Nicholson-Florence, Marketing Director and Chris Courtaux, Business Development Director. It is known thatthey met, inter alia, with Rear Admiral Howell and Pierre Meiring of Armscor and I think quite anumber of others. It is interesting to note that Alex Dorian’s services with British Aerospace wereterminated a few months after this and that he has since been the Vice President of Naval Systems forThomson-CSF, based in Paris.

168. I was also told by a director of British Aerospace that they had meetings with Schabir Shaikh of NkobiHoldings with regard to provision of the Corvette Combat Suites, as well as them, i.e. BAe, expressingan interest in an equity stake in Altech Defence Systems.

169. As we were a South African company that had been nominated to supply the IMS and because thedevelopment of the IMS was already nearly complete, there was thus no way that I was prepared toaccept exclusivity of supply to ADS, who could easily lose their own exclusivity if they were to bepurchased by a foreign company, thereby excluding ourselves.

170. Accordingly, I responded to ADS’s draft MOU such that the MOU would become effective once ADSwas appointed as the Main Contractor for the Combat Suite.

171. ADS refused to accept this and therefore C²I² Systems and ADS never signed this MOU.

172. On 23rd August 1998 ADS and on 28th August 1998, C²I² Systems did, however, sign an Exchange ofProprietary Information and Non-disclosure Agreement, in terms of which ADS was not entitled todisclose any of our technical information or our price(Annexure Axx).

173. Regarding the interest of other combat system suppliers, we were formally approached by BAeSEMAin early November 1998 with a Letter of Intent (LOI) regarding the supply of elements of the CombatSuite should they be successful in persuading the German Frigate Consortium to consider them as apotential supplier. This draft of the LOI called for complete exclusivity of supply to BAeSEMA. Dueto the nature of the prevailing situation regarding the nominations for the elements of the CombatSuite, we refused to offer such exclusivity to BAeSEMA.

174. The situation concerning BAeSEMA and ASM was clearly conveyed to the SA Navy and the DoD bymeans of briefings and letters and telephonic conversations to and with, inter alia, Rear AdmiralHowell, then-Capt Kamerman and Cdr Ian Egan-Fowler.

175. During one such telephonic conversation with Capt Kamerman , he made the ominous remark, quotingGroup Captain “Bomber” Harris of the Royal Air Force, “he who sows the wind will reap thewhirlwind”.

176. As it transpired, BAeSEMA, through Advanced Systems Management (ASM), received a Request forQuotation (RFQ)(Annexure Axx) for the Command and Control System, a segment of the CombatSuite, from the GFC on 22nd December 1998. Although they put in some effort in preparing a quotationduring the next three weeks or so, they decided on 14th January 1999 to withdraw from the bid toBlohm+Voss after having “reviewed the competitive position”(Annexure Axx).

177. I have subsequently been informed by very senior members of management of BAe Defence SystemsGroup, including a managing director of one of the companies in this group, that the reason for theirwithdrawal from their bid was that there was intervention from very high levels of the South AfricanGovernment who advised them to withdraw or that British Aerospace would jeopardise their chancesof winning the Lead-In Fighter Trainer (LIFT) and Advanced Light Fighter Aircraft (ALFA) contractswith BAe’s Hawk and Gripen fighter aircraft for the SAAF.

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Requests for Quotation and Price Audits

178. On 11th November 1998, we were requested by ADS to provide them with a formal quotation for theIMS. In Annex 1 Scope of Supply, the RFQ specifically notes the following :

“The subsystem [IMS] is as established at the level 4 DR2 [Combat Suite Design Review 2] underProject Suvecs and as modified by the selection of the CS7 (Mod 1) architecture at the last TechnicalCommittee meeting (TC 14).”

179. At this stage, we had to supply full technical details and pricing information to ADS. So effectivelywe were giving them the heart and soul of our system, but we did it under the Non-DisclosureAgreement.

180. On 15th December 1998, we were requested by ADS to provide them with another formal quotationfor the IMS to “accommodate an alternative configuration proposal”.

181. Details of this alternative configuration proposal were not provided. However the RFQ instructs us to“Exclude/Remove the Bridge (BIFU)” and “assume a single dual redundant FDDI LAN” and to“provide a connection oriented service, ie as per UDP/IP and TCP/IP” (i.e. the dual protocol stack).Thus it appeared to us that ADS was reverting to the original requirements as specified by theFunctional Specification and more recently by the URS.

182. Regarding the various prices that we offered for the IMS, these were always in line with the priceswhich we provided the JPT at the yearly audits, including such audits in April 1997 and May 1998, aswell as at the IMS pricing review held in March 1999. I use the term “in line” because the technicalbaselines and scope of supply for the various requests for quotation given to us, invariably changedfrom instance to instance.

183. During the SCOPA hearings of 11th October 2000, then-Capt Kamerman was questioned on the matterof price audits for the Combat Suite. Inter alia, he states :

“I think you may be referring to the budgetary estimate audits that were carried out on the TechnologyRetention Programme.”

“They were not in any way audits.”

“When those budgetary estimate activities were carried out they were done significantly preceding anytender process for these Corvettes. In fact, it was approximately a year before we had.”.

184. Capt Kamerman’s responses to the simple question of price audits undertaken by the Corvette ProjectOfficer, i.e. himself, were incorrect. The true facts of the matter are that comprehensive Price and RiskAudits for the Corvette Combat Suite were undertaken in 1997 and 1998. These Price and Risk Audits,even during the currency of Project SUVECS, were specifically in the context of the CorvetteAcquisition programme, not the Technology Retention Programme. I contend that price and risk auditsof such a nature were and are irrelevant for a Technology Retention Programme - by definition.Nevertheless, the last audit carried out under the description Corvette Combat Suite Price and RiskAudit was in May 1998. The Corvette Request for Offer (RFO) was issued on 13th February 1998 withOffers required by 11th to 15th May 1998. Thus for Capt Kamerman to state that these audits were“approximately a year before we had”, i.e. initiated the tender process for the corvettes, is simply notcorrect.

185. Furthermore, in March 1999, I was summoned to Pretoria by the Joint Project Team (JPT), consistingof members of the SAN seconded to the DoD and members of Armscor. At the meeting held at

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Armscor, they were flanked by members of the German Frigate Consortium (GFC), Thomson-CSF andADS. The manner in which I had to present and confirm the prices which we had supplied to ADS wasto all intents and purposes another price and risk audit.

186. I thus reject the Project Officer’s denials of the existence of these pricings in his evidence beforeSCOPA on 11th October 2000.

Without Prejudice


System Management Sub-System (SMS)

187. At this point, I need to mention that on 13th April 1999 we were also requested to submit a competitiveoffer for another two sub-systems to the Joint Project Team through Blohm+Voss, a member of theGerman Frigate Consortium. This was in respect of the System Management System (SMS) andNavigation Distribution System (NDS) for the Corvette Combat Suite. We were eventually awardedthe contract for the NDS. However, for the SMS, although our quote was less than that of ADS ( evenafter unjustifiable upward adjustments to our price) ADS won the contract.

188. On 13th April 1999 the JPT acting with the German Frigate Consortium (GFC) as interlocutor, formallyrequested a “competitive/comparative quote” from both C²I² Systems ADS in respect of each of theSMS and the Navigation Distribution Sub-System (NDSS) for the Combat Suite of Project Sitron. Itwas specified that these quotations be submitted by 15th April 1999. Annexed to each of the Requestsfor Quotation was a Statement of Work relevant to the particular sub-system(Annexure Bxx).

189. I draw attention to the fact that C²I² Systems was given two days in which to respond to these tworequests for quotation. Given the fact that we had not previously worked on either of these sub-systemsand were competing against the previously nominated contractor (ADS) who had prepared twoprevious quotations in March and early April 1999, I aver that the time afforded to the C²I² Systemswas manifestly and grossly unreasonable.

190. At the time of the request for quotation, the situation was complicated by the fact that both thetechnical director of C²I² Systems Gerhard Krüger and I were overseas and unable to gain an overallperspective of these Combat Suite elements. Nevertheless, C²I² Systems managed to submit acompetitive quote, Quotation No. CCII/PROP/054, Issue 1.0 dated 15th April 1999, within theprescribed period. The quote was faxed to the GFC on 15th April 1999(Annexure Bxx).

191. Subsequently the SA Navy, by means of their letter dated 6th May 1999 had indicated that an acceptableprice for the total Combat Suite had not been achieved by the negotiating process and that it hadaccordingly requested a Best and Final Offer (BAFO) for the Corvette Combat Suite, including theSMS and NDSS.

192. On 12th May 1999, ADS issued a Request for Best and Final Offer to C²I² Systems for the NDSS,thereby indicating that the JPT had a preference for the NDSS to being provided by C²I² Systems, butnot for the SMS.

193. In preparing a BAFO for the NDSS, unlike in the case of the initial quotation, we were able to gain anoverall perspective of the project and realised that we could offer four alternative and more affordableoptions. These options were dependant on whether the SMS and NDSS were contracted separately ortogether and whether ADS’s Versatile Modular Console (VMC) or C²I² Systems’s own console wasused for the SMS. On the 20th May 1999, C²I² Systems submitted a second offer, Quotation No.CCII/PROP/054, Issue 2.0 dated 20 May 1999(Annexure Bxx).

194. In the case of the NDSS, ADS had in the meanwhile increased the scope of work of the order byincluding the necessity of providing a Navigation Sensor Sub-System Simulator (NSS Simulator). Asthere was no description or specification for this item, C²I² Systems had to make a nominal provisionof R500 000 therefore and accordingly increase the price in the BAFO by this amount.

195. Although I am aware that the second offer in respect of the SMS was not submitted within theprescribed period, the GFC had nevertheless requested in their request for quotation that the validityperiod for C²I² Systems’ quotation (for NDSS only or SMS and NDSS) to be until 13th December 1999.It is also relevant to mention here that the NDSS contract was only awarded to C²I² Systems by ADSone year later in June 2000 after extensive contractual negotiations with ADS and that this long delay

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certainly indicates that the JPT and the German Frigate Consortium had the requisite time in which toconsider our second offer.

196. In a telefax dated 29th June 1999 addressed by the Chief Executive Offer of Armscor, Llewellyn Swanto the GFC it was recorded that at a recent meeting of the Project Control Board regarding the selectionof the major products and their suppliers for the corvette programme, those suppliers whose namesappeared on the attached list were selected. The telefax requested that the GFC inform all suppliers ofthe PCB’s decision. The second page of the telefax lists the suppliers in respect of the Combat Suitewith ADS / Thomson being selected as the supplier of the SMS. I did not have sight of this documentat the time.

197. On 2nd August 1999, as C²I² Systems had not yet received any formal notification as to whether or notit had been selected to supply the SMS, I addressed a letter to Klaus-J. Muller of the German FrigateConsortium, requesting to be formally advised as to the selection of the SMS and that “should ourquotation not have been successful, please advise us fully as the reasons therefore”(Annexure Bxx).

198. I received no response to the aforementioned letter and therefore on 23rd August 1999 I addressed asecond letter to Klaus-J. Muller of the GFC where I reminded them that at the meeting held at Armscoron 21st July 1999 the GFC had advised the attendees that it had instructed ADS to inform companiesinvolved in the Corvette Combat Suite of the outcome of the Project Control Board’s decisions andthat ADS had undertaken to do so “within one week’ of that time and that such formal notification hadstill not been forthcoming(Annexure Bxx).

199. On 1st September 1999 I received a response in the form of a telefax from the Corvette Consortium ofSouth Africa (CCSA), which consisted of GFC, Thomson and ADS, stating that “your offer of 15th

April 1999 was taken for (sic) the decision of the client for the selection of the SMS” and thatC²I² Systems’s tender had been unsuccessful. The telefax was signed by both Klaus-J Muller of theGFC and Pierre Moynot of ADS(Annexure Bxx).

200. On 13th September 1999 Herold, Gie and Broadhead (HGB), acting on the instructions of C²I² Systems,addressed a letter of demand to both Klaus-J. Muller and Pierre Moynot of the Corvette Consortiumof South Africa requesting written reasons explaining why C²I² Systems’s tender was notaccepted(Annexure Bxx).

201. I would like to draw attention to Paragraph 2 of HGB’s letter dated 13th September 1999 which states :

“2. Our client notes that its tender was not accepted by the Department of Defence. Our clientrequires that your client furnishes our client in writing with full reasons why our client’s tenderwas not accepted, to reach our offices not later than 20th September 1999, including but notlimited to:

2.1 the identity of the other tenderers;2.2 the prices tendered by the other tenderers; 2.3 which tender was accepted;2.4 whether the winning tender was accepted by reason of price alone or if not, what factors were

taken into account;2.5 what aspects of the winning tender were preferred above our client’s tender.”

202. After further requests addressed by HGB to Klaus-J. Muller and Pierre Moynot of the CorvetteConsortium of South Africa on 1st December 1999(Annexure Bxx) and 4th January2000(Annexure Bxx), HGB eventually received a response from Pierre Moynot of ADS in the formof a telefax on the 14th January 2000(Annexure Bxx).

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203. It is necessary and relevant to quote the entire contents of the telefax :

“Selection of System Management Sub-System (SMS)

Further to your various requests as to how the choice of the supplier for the SMS had been made andon which criteria, I would like to give you hereby the result of our investigation:

1. The request for quotation had been issued by the Project Team (S.A.N. & Armscor) through thepreferred Platform Supplier, namely the GFC, who at that time was the only official interlocutorof the Project Team.

2.Your client quotation has been forwarded directly to the Project Team by the GFC together with theone that we had submitted.

The selection has taken place within the normal selection process conducted by the Project Team withthe approval by the P.C.B., resulting in the letter addressed by Armscor’s CEO to the GFC, dated Junethe 29th, 1999, which allocated this sub-system to our company.

The above can be easily checked by yourselves and/or your client.

Therefore we do not consider ourselves involved in any way in that selection process.”

204. As can be seen from the aforementioned letter, all that Pierre Moynot does is to explain the procedureof how the choice of the supplier for the SMS was made. He completely fails to address our validenquiry as to the selection criteria used for the SMS.

205. However, more importantly, Mr Moynot makes it quite clear that it was in fact the Department ofDefence and Armscor, represented by the Joint Project Team and Project Control Board, who wereentirely responsible and accountable for the tendering and selection process for the SMS.

206. Additionally, the telefax dated 14th January clearly demonstrates that ADS’s responsibility to integratethe Combat Suite and its role as a main contractor competing with other sub-contractors constituteda conflict of interest. This issue is dealt with herein below.

207. As both the GFC and ADS had failed to satisfactorily answer my queries and had stated that thedecision had been made by the Project Team with the Project Control Board’s approval, I subsequentlyaddressed a letter to RAdm (JG) O.J. van der Schÿf, the Director of Naval Acquisition of theDepartment of Defence on the 15th February 2000, requesting the following information :

“1. What were the competitors to the C²I² SMS?

2. Which company’s equipment was selected in the place of the SMS?

3. What was the price of the C2I2 SMS as offered to the DoD?

4. What was the price of the selected SMS?

5. On what grounds was this selection made?”(Annexure Bxx).

208. As I received no reply from the DoD, I subsequently addressed letters to the Department of Defenceand Armscor on this issue on the following dates :

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• 7th March 2000, addressed to both to S. Shaikh, the Chief of Acquisitions of the Department ofDefence and H.S. Thomo, the Chief Executive Officer of Armscor(Annexure Bxx).

• 10th July 2000, addressed to S. Shaikh , Chief of Acquisitions of the Department ofDefence(Annexure Bxx).

• 5th October 2000, addressed to S. Shaikh, Chief of Acquisitions of the Department of Defence(Annexure Bxx).

I did not receive a response to any of the abovementioned letters.

209. In April 2001 it came to my attention through a document that I obtained entitled “Report on theProcess followed for System Management System (SMS) and the Navigation Distribution Sub-System(NDSS) for the SAN of Project SITRON” that ADS was awarded the contract through a fundamentallyflawed process. The document is of particular relevance because it was prepared by Armscor and wasintended to provide a brief overview of the process that was followed for the acquisition of the SMSand NDSS for the SAN Patrol Corvette of Project Sitron(Annexure Bxx).

210. It is necessary to draw specific attention to the third and fifth paragraphs of this report which recordthe following :

“The Offers were presented to the Project Team on 16th April 1999, the defined closing date.Thereafter, a team of technical personnel, compromising of SAN and Armscor engineers did anevaluation on the Offers and made recommendations to the Programme Manager and Project Officer.Technically, all Offers complied to the User Requirement (my bold emphasis). The CCII Offer hadto be adjusted to include:

Handling fee for non-ADS components (3.2% of total)Integration fee (7% of total)Estimated extended warranty (1.85% of total).

For the SMS, the following prices were evaluated:

ADS CCIIR 29.647m R30.04m

211. I have determined that the total of these three adjustments is 12,05%, i.e. a simple addition of theindividual components and not a compounded addition. This is supported by the fact that the reportrefers to a total price adjustment factor of 0,8795; which is in effect 100% minus the sum of 3,2% plus7% plus 1,85% [100% - (3,2% + 7% + 1,85%)]. The prices in the Report are inclusive of VAT.

212. However, I contend that it was not justifiable and was competitively unfair to add on a handling feeof 3,2% for non-ADS components for the reason that ADS was, certainly at that stage of the contractbidding process, merely another competitor. It was the JPT who had requested the competitivequotation through the GFC. I contend that ADS had, or, more accurately, should have had, nothing todo with the selection process for these sub-systems. Thus if a handling fee was, in fact applicable, thenit should have been applied to both competing parties equally, or not at all.

213. Similarly, I contend that it was not justifiable and was competitively unfair to add on an integrationfee of 7% for non-ADS components for the same reason as above. Thus if an integration fee was, infact applicable, then it should have been applied to both competing parties, or not at all.

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214. I do accept that at, on initial evaluation, it was justifiable to add the 1,85% to the offered price of theC²I² Systems’s SMS in respect of extended warranty. Extended warranty had been explicitly excludedin the C²I² Systems offer as the two days given for quotation preparation was just too short fordetermination of the cost of providing such extended warranty under initial vessel operating conditionsthat were not clear or specified. However, if the adjustment is added to the price of the C²I² SystemsSMS, then it needs to be verified that ADS had included this extended warranty in their offer.

215. However, it needs to be said that when C²I² Systems provided an updated quotation for the SMS on20th May 1999, i.e. just five weeks later, such extended warranty was specifically included in theoffered price with no upward adjustment.

216. The fact that the offer by C²I² Systems was unjustifiably increased to include handling and integrationfees for non-ADS components illustrates that the competitive tender process was flawed and unfair asit permitted ADS to compete with C²I² Systems for the supply of sub-systems. It is my contention thatthis anomaly constituted a conflict of interest as well as an irregular tender process.

217. However, I believe that the shortcomings outlined above are minor by comparison with what I describefurther.

218. The report goes on to record that the evaluation team recommended the ADS option, inter alia, basedon their conclusion that :

“the all inclusive ADS price was marginally better than the CCII price (base price divided by0,8795).”

219. I draw attention to the fact that the quoted price for the SMS by C²I² Systems’ was R26,43 millionincluding value-added tax. Even if the above adjustments are made, and I dispute that they arejustifiable, the total figure does not add up to the amount of R30,04 million, but to a lesser amount ofR29,61 million.

220. Thus C²I² Systems’s price of R29,61 million was lower than ADS’s price of R29,65 million, even afterthe adjustments were added to C²I² Systems’s price.

221. I thus contend that C²I² Systems’s offered price for the SMS was misrepresented in an attempt to justifythe selection of the higher ADS offer.

222. The report states further that :

“ADS has received funding under Project SUVECS for the definition and development of the SMS andhas thus built up experience and a competent capability in this area.”

If this was relevant, then I contend C²I² Systems should not have been requested to quote for the SMSif they were in any case going to be unsuccessful on these grounds. C²I² Systems could not really beexpected to provide a better price that ADS having not been involved in the SMS before; neverthelessthey did so while still being technically compliant.

223. The report states that :

“The SMS is primarily a “system level” management tool and therefore should reside with thecompany which not only has the system expertise and knowledge, but also has the system integrationresponsibility.”

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If this was relevant, then C²I² Systems should not have been requested in the first place to quote forthe SMS if they were in any case going to be unsuccessful on these grounds.


“Given that ADS are the Combat Management System (CMS) suppliers, the system architecturerequires intimate knowledge and close co-operation between the SMS and CMS. This would be bestachieved if both were the responsibility of the same company.

The success of the SMS requires extensive knowledge of all aspects of the Combat Suite - commandand control and guns, trackers, missiles, interfaces, etc. ADS, being the designated Combat Suiteintegration entity, will be in a better position to ensure that all the user requirements are met, whereasCCII to date have focussed more on data communications systems only. It would require a steep(expensive and risky) learning curve for CCII to catch up to ADS in this area.”

225. If this was true or relevant, then C²I² Systems should not have been requested in the first place to quotefor the SMS if they were in any case going to be unsuccessful on these grounds. Furthermore, if ADS’sstatus as the nominated CMS suppliers meant that it was a “given” that ADS would ultimately receivethe CMS contract, then there is no reason why the same should not have been applied to C²I² Systemsin relation to the IMS. Alternatively, if the award of the CMS contract to ADS was not guaranteed atthat stage, then this consideration should not have been taken into account in awarding the SMScontract.

226. Furthermore, it is completely untrue that “CCII to date have focussed more on data communicationssystems only.” C²I² Systems had already been nominated to provide the Tracker Radar Console, theSearch Radar Console and collaboration regarding the Combat Team Trainer for the Corvette CombatSuite. C²I² Systems were also selected to provide the IPMS Simulator for the Corvette platform. Inaddition, it was well known to the JPT that C²I² Systems had been selected to provide the localcomponent of the Submarine Combat Management System software and also previously provided anumber of other sophisticated systems of equivalent technology and complexity to the SA Army andSA Navy. These include Control and Display Systems for various SA Army radar systems and aHelicopter Take-off and Landing System for the SA Navy.

C²I² Systems had in any case been nominated to provide the Network Management Component of theSMS.

227. Thus it is fallacious for the JPT to make this statement.

228. Considering the following statement made in the report :

“ADS proved to be a lower risk than CCII of getting the task completed as outlined in the abovepoints.”

I contend that this statement is incongruous for the following reasons :

• nothing whatsoever was proved. At best this is a false conclusion drawn from irrelevant andgroundless premises.

• the tense might give the impression that ADS has already completed the SMS, which is quite false.

229. I would like to point out that on Page 2 of the report it is recorded, in the case of the SMS, that :

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“A fundamental point to note in this whole exercise is that the first quote received from ADS on15th March 1999 was R64.73m and subsequent quote on 07th April was R37.62m. In going out oncompetitive tender, a normal business practice, the price was reduced to R29.65m. This equates toa saving to the State of at least R7.9 m for the SMS.”

230. I contend that, while it is admirable to negotiate the best value for money for the State, the abovestatement is irretrievably flawed. Not only was there a better price offered for a product which met thetechnical requirements (namely, the C²I² Systems’ offer), but it would appear from this statement thatC²I² Systems was merely used to force a lower price from a previously single source tenderer (namely,ADS).

231. I would also like to point out that on Page 2 of the report it is recorded, in the case of the NDSS that :

“Similarly for the NDSS. The first quotation received from ADS on 15th March 1999 was R45.94m andthe subsequent quote on 7th April 1999 was R25.03m. As a normal business practice, the eliciting ofa competitive quote reduced this price to R 15.99m, a saving of at least R 9.0m to the State.”

232. In relation to the award of the NDS to C²I² Systems, the report states that :

“CCII had already progressed a large way under project SUVECS in establishing the basic hardwareand techniques for such data distribution.”

This statement is again incorrect. At that stage C²I² Systems had done no work whatsoever on theNDSS under Project SUVECS or at all. C²I² Systems only received some minor funding under ProjectSUVECS during the following (i.e. 1999/2000) financial year.

233. The report further states that :

“The NDSS is not a trivial sub-system, but then again it is not as complex as the SMS or some of theother sub-systems comprising the Combat Suite.”

The NDSS is certainly not trivial; it is, in fact, what is categorised as a mission-critical sub-systemwithin the combat suite. This means that if it fails, the combat suite fails meaning that the whole shipfails functionally. The NDSS contract was nevertheless awarded to C²I² Systems without them havingbeing involved in the NDSS before, or without having to provide a performance guarantee for theNDSS, or even this being mentioned to them as a requirement.


“Data communications has never been a strong point of ADS whose real expertise lies in the domainof command and control systems.”

The statement that “Data communications has never been a strong point of ADS” is certainly true. Thatis why C²I² Systems were contracted by Armscor to develop the IMS for the corvette combat suite.


“The risk of CCII not being able to complete the task was deemed to be acceptable.”

I contend that it is inconsistent to conclude simultaneous that, in respect of the NDSS :

“The risk of CCII not being able to complete the task was deemed to be acceptable”

Without Prejudice


and in respect of the SMS :

“ADS proved to be a lower risk than CCII of getting the task completed as outlined in the abovepoints.”

236. While C²I² Systems were awarded the NDSS contract, I contend that this was both unavoidable in lightof the greatly lower price offered, but more importantly it was done in an attempt to placate us forlosing both the IMS and SMS contracts.

Without Prejudice


Integrated Platform Management System (IPMS) Simulator

237. At this point, I need to mention that on 23rd June 1999 we were requested to submit an offer for theIPMS Simulator (IPMSS) to Blohm+Voss, a member of the GFC. Although we were formally andfinally selected by the Project Control Board to supply the IPMS Simulator in terms of Armscor letterto the GFC dated 29th June 1999, Blohm+Voss then requested an extension of validity of our offer until30th June 2000 and then again until 30th March 2001. On 19th February 2001, Blohm+Voss suppliedus for the first time with the detailed Requirement Specification and requested us to supply a “last andfinal offer” by 2nd March 2001, which we did after an extension of three days. We were eventuallyinformed by them on 11th April 2001 that we were not being awarded the contract for the IPMSSimulator.

238. Pierre Moynot’s also refers to this matter in his letter to us dated 26th July 1999 :

“To my knowledge, they [C²I² Systems] have also been selected as preferred supplier for anothersubsystem part of the platform as subcontractor to GFC.”

239. During then-Capt Kamerman’s testimony in SCOPA hearings of 11th October 2000, he reported asfollows :

“They are also critically involved in the software development of the machinery control system.”

He was referring to the IPMS Simulator.

240. In the draft Project Sitron: Contractor Security Plan (classified as Confidential) dated 20th January2001, C²I² Systems are also referred to the contractor for the IPMS Simulator.

241. It is thus clear that C²I² Systems was de-selected in respect of the IPMS Simulator at a very late stage.Both Armscor and the GFC have been requested to provide reasons, but have so far refused to do so.

Without Prejudice


Request for Best and Final Offer (RFBAFO)

242. Returning now to the issue of the IMS, on 6th May 1999, a RFBAFO was issued by the DoD to “MessrsGerman Frigate Consortium and African Defence Systems (PTY) Ltd” (sic) in respect of the Corvette.In substance, however, in respect of the Combat Suite, it was issued to ADS who passed it on to thesub-contractors. ADS submitted it to C²I² Systems as per their letter dated 13th May 1999 where theyrequested that the Best and Final Offer be submitted by 14th May 1999, i.e. the very next day. As it wasa best and final offer with a host of industrial participation, warranty, optional 5th Corvette and otherrequirements, it was very difficult for us to provide a full and binding commercial offer within thetimescales specified.

243. Attached to the letter (as Appendix "A"), was a covering letter from the Corvette Joint Project Team,dated 6th May, 1999, addressed to GFC and ADS and signed by then-Capt Kamerman, the ProjectOfficer representing the DoD and Mr Frits Nortjé, the Programme Manager for the CorvetteProgramme, representing Armscor. Appendix "B" of the letter consists of the Combat Suite Baselinefor Vessel Best and Final Offer as well as Capt Kamerman's letter of 31st March 1999 to GFC headedProject Sitron Combat Suite Design to Cost Measures, with a spreadsheet referred to in it.

244. This spreadsheet, consisting of two A3 pages, refers to C²I² Systems as the contractor for theInformation Management System. Moresoever, this spreadsheet provides the price provided byC²I² Systems for the IMS. This is a clear indication, yet again, that C²I² Systems was not only thenominated supplier, but had now become the selected or preferred supplier or contractor of the IMSand thereby had a legitimate expectation of being awarded the contract(Annexure Axx).

Without Prejudice


Government Responsibility for Sub-Contracting

245. Regarding the formal selections of the Project Control Board, I find it difficult to accept that the SouthAfrican government repeatedly denies that it had anything to do with the sub-contracting for thesedefence acquisition contracts, specifically the Corvette. In fact, the ministerial sub-committee repeatedthis assertion during the SCOPA hearings of 26th February 2001.

246. The facts of the matter are that, in respect of the Corvettes, the RFO nominated the various sub-contractors for the Combat Suite, the RFBAFO selected these sub-contractors and finally an officialletter from the Chief Executive Officer of the government's contracting agency, i.e. Armscor, notifiedthe prime contractor of the selected equipment and the suppliers thereof. In this regard, they advisedthe GFC of not only their selection concerning the Combat Suite, but also the vessel platform.

247. In a letter dated 29th June 1999 to GFC by Mr L.R. Swan, the then Chief Executive Officer of Armscor,the Project Control Board's decisions regarding the selection of the suppliers for the Corvetteprogramme, are reflected, not only for the Combat Suite, but also for the ship's machinery. HereC²I² Systems is reflected as the supplier for the Integrated Platform Management System (IPMS)Simulator. The significance of this document is that it makes it clear that it was the Project ControlBoard, acting on behalf Armscor, representing the Department of Defence, that took the decisionregarding the selection of equipment suppliers(Annexure Axx).

248. One of the sub-contractors who are indicated in terms of this letter as preferred suppliers of equipmentis Maag Gear AG of Switzerland.

249. On the 23rd August 1999, Mr N. Hopp of Blohm+Voss writes to Mr J. van Dyk, Senior Manager ofDefence Industrial Participation of Armscor, as follows :

“Referring to your fax message dated 12.08.99 stating that Armscor is requesting GFC to change fromGear Manufacturer MAAG to RENK we like to inform ARMSCOR that MAAG has been choosen (sic)for technical reasons. We had been aware that the DIP of RENK was more attractive than the one ofMAAG.

After your request we convinced MAAG to improve their DIP and NIP as follows:.....

Please take this into account when deciding in your meeting.”

250. However, at the PCB of 24th August 1999, the following is minuted :

“Acting POPS informed the board that deliberations around the selection of either the Maag Gearboxor the Renk Gearbox were continuing and that Mr J. van Dyk (SM DIP) was investigating the issue.The dilemma being that, whereas the Maag Gearbox is the approved selected option, the inclusion ofthe Renk gearbox would provide much needed work for Gear-Ratio, a division of Reumech-OMC.C Acq stated that the key issue was compliance with the technical baseline and if both gearboxes meetthis baseline, preference will be determined by DIP related issues. He instructed the project team totake the lead in determining this requirement.”

251. On the 25th August 1999, Mr B. de Beer, Manager of DIP Agreements of Armscor (who reported toMr J. van Dyk), writes to Mr N. Hopp of Blohm+Voss as follows :

“We would like to notify GFC of the importance of Reumech Gear Ratio to ARMSCOR and the DoDin terms of indigenous/strategic support capability and capacity.”

Without Prejudice


252. On the 9th December 1999, Mr J. van Dyk of Armscor writes to Joesten Marketing (Pty) Ltd, i.e.Maag’s agent in South Africa, as follows :

“Your conclusion that Armscor reversed the original decision of the “Technical Task” team is not trueas the gearbox was originally a choice made by the GFC and not by Armscor. It is correct thatArmscor opened this issued for detailed assessments of the two gearbox proposals. The results of thetechnical, price and DIP evaluation were tabled to the Naval Project Control Board who ratified thefindings and recommendations of the respective evaluation teams.”

This explanation appears to be disingenuous especially since the other documents I have quoted showthat Armscor was indeed instrumental in causing the switch from Maag to Reumech Gear Ratio.

253. In passing and with reference to Mr B. de Beers’s letter of 25th August 1999 I point out thatArmscor/DoD apparently attached to “indigenous strategic support, capability and capacity” providea potent reason for C²I² Systems’s IMS to have been selected in preference to Thomson-CSF Detexis.

Without Prejudice


“Risk” Issues

254. In terms of the contract, the vessels are only to be delivered 30 months after the effective date ofcontract (EDC), EDC being in mid-April 2000. The first vessel therefore gets delivered to Simon'sTown in October 2002 at the earliest without a Combat Suite. Thereafter, there is a period of betweenone and two years when ADS tests the sub-systems in a "stone frigate”, i.e. the Integrated Test Bed(ITB) and only thereafter are they fitted into the ships and acceptance trials take place. In effect, oneis talking here of a five to six year period. There was therefore more than enough time to fullycomplete C²I² Systems's product, even with the changes specified by ADS.

255. I further reject the contention that the reason why C²I² Systems did not get the contract for the IMS wasthat its system was not proven and therefore constituted a risk.

256. In this regard, I should point out that C²I² Systems got the contract for the Navigation DistributionSystem (NDS). Although smaller in scope than the IMS, the NDS is nevertheless a mission-critical partof the Corvette Combat Suite. ADS was originally nominated to provide the NDS and had quoted forit, but because their quoted price was so high, the DoD rejected it and then went out on a closed,competitive tender between C²I² Systems and ADS. C²I² Systems beat ADS in two rounds of tendering.We got this contract although we had no product. In fact, by the time we were declared preferredsupplier for the NDSS, we had not even started any technology development on it. Apart from beatingADS in a competitive tender, even though this was loaded against us by a factor of 10,2%, we felt wewere given this contract to placate us after having had the IMS contract taken away from us. However,as far as I am concerned, the NDS contract is not only much smaller in value than the IMS contractwould have been, but also the IMS is a much more significant part of the Combat Suite in terms ofarchitecture, as well as because of its strategic, long-term importance to the SAN.

257. Furthermore, some of the other sub-contractors' systems were also not proven, e.g. the Optronic RadarTracker (ORT) of Reutech Radar Systems, as well as Kentron's Surface-to-Air Missile (SAM) werein their comparative infancy stages of development. As such they constituted a significant level of risk.As far as I know, the other sub-contractors did not have to supply a performance guarantee.

258. As early as mid 1998 Alex Duigan of ADS had attempted to introduce the idea of an integration riskby recording the following in the minutes of the SUVECS Workgroup on Computing SegmentTechnology held at ADS on 4th November 1998 :

“Risk areas identified by SAN post May ‘98 Road show tabled on 9 July 1998 were;...2.2.3 Integration risk with the complexity of a single bus.”

In fact, this statement was neither made during the workgroup, nor in the “SAN Roadshow”, nor wasit true. It was later formally retracted by Alex Duigan by letter on 4th January 1999.

259. In view of the unfounded allegations of risk pertaining to C²I² Systems’s IMS, made by ADS at everyopportunity available to them, I compiled a document entitled Refutation of Allegations of Riskconcerning the Combat Suite Information Management System. In this document, I deal with all thepoints of criticism of the IMS(Annexure Axx).

260. Regarding the matter of risk, the JPT drew up a spreadsheet entitled Project Sitron Definition Audit :May (strikeout) 1998 1999 where the “Risk Assessment” of the “Candidate Suppliers” is recorded. Thecosts and risks of the nominated sub-systems of these “candidate suppliers” is described in terms ofa sub-title of the spreadsheet being “Project Sitron Costing Estimate November 1998 (based on May 98Audit Adjusted for Escalation, ROE and Design Changes May - Nov 98)”. Here the Risk Assessmentof the “Information Management System, including, Network Interface Cards, Gateway Interface Unit”is recorded as “Low”.

Without Prejudice


261. I thus contest the subsequent assertions that the risk of the IMS was “high”. Such assertions during theSCOPA hearings by the Chief of Acquisitions and the Project Officer were incorrect.

262. I believe that technically there was no risk, or very little risk, certainly none than could not be expectedin the development of a new Combat Suite and none that could not be managed within theprogramme's formal risk management regime. I can also mention that C²I² Systems developed aTracking Radar Console (TRC) on behalf of Reutech Radar Systems for the Corvettes. This includesan IMS link between the TRC and the radar system itself. For over two years now, the TRC, with itsIMS link, have been working very aptly.

263. It was alleged by Mr Shaikh during the SCOPA hearings of 11th October 2000, as well as by theCabinet Sub-Committee on 12th January 2001, that C²I² Systems was requested to provide aperformance guarantee for the IMS and that we refused to do so. This is completely untrue. We werenever asked for such a guarantee, either verbally or in writing, either by ADS or Thomson-CSF or theGFC or by Armscor.

264. Furthermore, C²I² Systems formally and in writing by means of three letters to Pierre Moynot of ADSdated 7th June 1999(Annexure Axx), 15th July 1999(Annexure Axx) and 29th July 1999(Annexure Axx)and without being requested to do so, offered both a performance guarantee and a risk managementproposal, specifically tailored to the IMS in its role as the integration mechanism for the CorvetteCombat Suite.

265. In my letter dated 7th June 1999, I made the following offer to ADS :

“Regarding responsibility for performance, C²I² Systems are definitely prepared to "put our moneywhere our mouths are" regarding the IMS. In this respect, we are more that willing to discuss matterssuch as performance guarantees for the IMS, risk management, contractual terms and conditions, etc.These are matters which have been mentioned informally during the preparation of the numerousrounds of offer preparation, but have never been formally raised between our companies.

We believe that there are a number of ways that a satisfactory arrangement concerning responsibilityfor IMS performance could be achieved, i.e. where Thomson/ADS would not unduly have to take therisk for the IMS.

For example, C²I² Systems could be given a fixed period (typically 8 months) in which to achieve a pre-agreed target of pre-integration readiness, failing which the inclusion of the IMS in the Combat Suitecould be reviewed.”

266. These offers was not even acknowledged by ADS, the DoD or Armscor, let alone discussed ornegotiated with C²I² Systems.

267. Despite allegations of risk made by, inter alia, the Chief of Acquisitions, ADS and later by the CorvetteProject Officer, no proper risk assessment of the IMS (other than the favourable one mentioned above)was made by either GFC, Thomson, ADS or any other party. This is despite the fact that the IMS wassubject to a very formal and rigorously applied risk management regime during the multi-yeardevelopment phase of Project SUVECS and the first stage of Project Sitron (with reference to theminutes of regular Project Progress Meetings, Technical Committee Meetings as well as Task StatusLists).

268. However, Blohm+Voss and Thomson-CSF both made visits to us :

Without Prejudice


269. Klaus Katenkamp and Ranier Hohfeld, who were representatives of Blohm+Voss, a member of theGFC, visited C²I² Systems on 18th December 1998 prior to the Best and Final Offer stage to inspect andassess the IMS. They advised us that they were very satisfied with the IMS.

270. In about October 1999, ADS and Thomson-CSF also paid us visit to our offices where we describedand discussed the IMS. The feedback given to us from their Product Manager of Combat ManagementSystems, Emmanuel Mary, was as follows :

"As we discussed yesterday, I send you this message for confirming you my feelings about C2I2 busand about the discussion I had this week with Lewis Mathieson.

For C2I2, I could say - Richard and the people I met in Cape Town are quite brilliant and competent,

- the technical choices they made are good, and there's no theoretical reason which allow me to sayit can't work,

- But the company is small (that means that if a problem occurs, it can become a big problem veryfast), and what they want to do is very sophisticated, complicated and will take time to validate, tuneand make sure it works.

I have been very interested by the discussion that I had on the bus and on C2I2 with Lewis. I think weunderstand now much better what are the real constraints of the other one. For example, I think thatit's clear now for Lewis that our concern is not a technical one, but the fact that we just can't acceptto be fully dependent on a non already proven technology for the system integration on such a bigprogram. At the same time, it's clear for me that Armscor can't just forget what they invested in thistechnology (which can work)."

271. Although he says that “what they want to do is very sophisticated, complicated and will take time tovalidate, tune and make sure it works”, this had essentially already been completed. It is also incorrectto describe the IMS as “non already proven technology”. The essential characteristics of the technologywere already in use in the US Navy and the IMS developed by C²I² Systems had rigorously been provenin accordance with tests approved by the SAN, Armscor and ADS.

272. However, they only spent a short time with us (about two hours) and didn’t even want to see the IMSactually working in our laboratories.

Without Prejudice


“Risk”-Driven Price Factors

273. When the Corvette contract was awarded to the European South African Corvette Consortium(ESACC), it was placed as a single contract with the suppliers being placed in three categories :

1.Category A, being the German Frigate Consortium in respect of the supply of the ship platforms.

2.Category B, being the sub-systems of ADS and Thomson, as well as the integrated Combat Suiteonce sub-systems had been transferred from Category C after formal sub-system Factory AcceptanceTests (FATs), as accepted by ADS and the JPT.

3.Category C, the South African Industry sub-system suppliers as well as the foreign supplier of theSSM, the pre-FATs risk for whom was taken by the SAN.

274. The IMS of C²I² Systems was initially classified as Category C by SAN. However, when ADS changedthe whole Combat Suite architecture, ADS’s CMS became central to the whole Combat Suitearchitecture and where the IMS would form the connectivity part of the CMS, the JPT decided that theIMS should be re-categorised as Category B, which meant that ADS had to take responsibility for theIMS as well as the whole integrated Combat Suite. So in effect, JPT forced ADS to provide aperformance guarantee for our system.

275. By adding a risk premium of some R40 million to our price of R38 million, plus adding a mark-up ofR4 million and adding a risk management fee of R9 million, i.e. making a price of R89 million in all,ADS pushed our price up so high that we were not competitive any more. C²I² Systems was then notselected on account of price, as driven by “risk”.

Without Prejudice


Baseline Changes

276. Further to significantly increasing our price, ADS obtained a quote from Detexis, a subsidiary ofThomson-CSF, who also quoted for the “Combat Suite Data Bus” (hereinafter referred to as CSDB)to replace the IMS. The CSDB did not comply with the URS issued by SAN and in effect ADSreplaced our system, which was fully compliant with the tender baseline specifications, with thecompletely non-compliant system of a Thomson-CSF subsidiary.

277. In an attempt to rectify this situation, that is in respect of baseline “management”, the URS wascontractually superseded by the specification called the System Specification (classified asConfidential) or SSS, a document written by ADS.

278. Whereas the original issue of the SSS was almost identical to the URS, in the second issue of the SSSdated 2nd July 1999 all references to our IMS are present, but in strikeout text. In the third and finalissue dated 16th July 1999 all references to the IMS have been removed and replaced with referencesto the Detexis CSDB(Annexure Axx).

279. I believe that supersession of the URS with ADS’s SSS specification is highly irregular into terms ofthe SANDF’s formal acquisition practices for cardinal acquisition programmes. The URS itself statesthat it “takes precedence over all Contractor documentation which shall also be traceable to thisdocument”.

280. I have been told that the DoD has attempted, irregularly in my opinion, to formalise the differencebetween the SSS and the URS in a so-called Delta Document. However, I have not had sight of thisdocument.

Without Prejudice


Assessment of Relative Merits of C²I² Systems IMS and Detexis CSDB

281. In late May 1999 it became apparent to the JPT that I was not going to accept our IMS’s de-selectionwithout a formal complaint. To address the matter, the Project Officer tasked a study group to meeton the 3rd and 4th June 1999 at SAN’s Naval Engineering Bureau in Silvermine, Cape Town. The studygroup consisted of Lewis Mathieson, the Combat Suite Programme Manager of Armscor; Cdr IanEgan-Fowler, the SAN Project Engineer for the Corvette Combat Suite; other Navy officers such asthen-Cdr (now Capt) Nic Marais and Lt Cdr Andrew Cothill; as well as Dr Wolfgang Vogel, anindependent expert from Blohm+Voss who is an acknowledged ship combat system specialist. Detexisalso brought in two officials, Jean-Marc Ferre, Export Sales Manager and Laurent Royer, BusinessManager, to describe the Detexis Diacerto bus. The study team produced the document entitled Reporton the Diacerto Bus proposed for the SAN for Project Sitron (classified as Restricted).

282. The report cites 15 reasons why the C²I² Systems system should be retained and only six negatives,most of which are not true. I shall deal with these six negatives in due course, but I shall point out inany event that the ultimate recommendation of the evaluation was in favour of the IMS in preferenceto the Detexis Diacerto CSDB.

283. The report provides the following conclusions concerning the Detexis Diacerto CSDB:

“1. Extensive use is made of copper (twisted pairs) for the connection of subsystems to SIFUs andSIFUs to switches. This greatly enhances the expected EMI/EMC problems which Thomson hasalready said they will not be accepting any responsibility for.

2. The LAN and implementation of the architecture is very simple and static. There is no automaticreconfiguration and after two faults, the LAN can be considered to be "down".

3. While the proposed products (100 Mbit/s ethernet) are based on existing products (10 Mbit/sethernet), there is still a degree of development which has to take place. The Diacerto boxes donot exist for 100 Mbit/s ethernet and have to be developed and qualified.

4. The system comprises many components of proprietary software. The fact that it is deterministicethernet means that it is not "COTS" and the SAN will have to rely heavily on the supplier forfuture support, despite allegations to the contrary by the supplier.

5. This 100 Mbitls ethernet system has never been done on a warship before.

6. The details of the design have not been thought through, e.g. error budgets and there is still a lotof design work that has to be completed. The design is in fact only a concept at this stage.

7. While a fibre optic backbone has been included in the system, this has been included purely topacify the SAN and does not serve any real purpose other than to overcome the limitations ofdistances with copper. The backbone is not redundant.

8. The growth of the system is limited, if not non-existent. Because it is essentially a point-to-pointsystem, major rework is required for each sub-system should another sub-system have to beadded.

9. The increased number of cables present, as well as the complexity of the switches will maketrouble-shooting and maintenance difficult.

10. There is no forward error correction on the bus, therefore the guarantee of data delivery willsuffer.

Without Prejudice


11. The system will degrade with time. Ethernet requires that the system is impedance balanced -asand when the wires/connectors are degraded or repaired, these discontinuities cause impedanceimbalances and the system performance suffers accordingly.

12. There is no asynchronous mode. It is strange that this was one of the major stumbling blocks forthe CMS requiring its own LAN, yet there is no problem when this LAN has the same problemsof the IMS.

13. System synchronisation is going to be a problem. Ethernet, being a CSMA/CD system isinherently non-deterministic and difficult to synchronise. The proprietary software claims tomake it deterministic, but the CS project team still feels that there will be problems withsystem/sub-system synchronisation. While the current architecture may comply to the April 7tharchitecture, the April 7th architecture was based on an open, deterministic FDDI architecture.

14. The addition of the Diacerto boxes and switches adds more hardware to the system => decreasedreliability and availability and increased maintenance and spares.

15. Strategically the core technical understanding and support of this system will lie in the hands ofthe supplier. The proposal is that technology will be transferred to ADS. However, ADS do nothave any people who are datacomms experts nor should this provide any re-assurance to the SANin terms of reduction of life-cycle costs or ease of upgrade.

16. It is the CS project team's expert opinion that for a mid-life upgrade of the vessels, the entire LANwill have to be replaced with the associated consequences on the CS. ”

284. The report offers the following conclusions on the “positive” side of the Diacerto databus :

“1. 100 Mbit/s ethernet technology is mature. Actually at the time, 10 Mbit/s was mature, but asPoint 2 hereunder indicates, the 100 Mbit/s (which was being proposed to SAN) alludes to somechanges even though not conceptual.

2. The transition from the current base of 10 Mbit/s ethernet to 100 Mbit/s ethernet will not requireany conceptual changes.

3. Network latency is low and guaranteed (it is in essence a hardwired solution). This is incorrect.The network latency (i.e. the delay from transmission to reception) is not low and cannot beguaranteed end-to-end, i.e. through both switches.

4. It is a simple network. My opinion is that it is a simplistic network, that overall is much morecomplex to implement, test, qualify and maintain.

5. The selling price is lower. Only if one thinks that R49 million is lower than R43 million (the IMSprice prior to the unjustifiable premium for risk). Furthermore SAN’s primary concern, as haspreviously been stated, was on lifecycle cost and not acquisition cost. The report itself states thatthe lifecycle cost of the Detexis system was in all likelihood to be very high (e.g. Points 14and 16).

6. It will satisfy the user requirements. It does not and cannot meet the requirements specified bythe URS. As I have shown earlier, the Detexis latency of 6,5 milliseconds for a 165 byte messagefalls far short of the URS’s requirement of 5 milliseconds for a 4 000 byte message.

285. The report lists the problems foreseen with the current IMS based architecture as follows :

Without Prejudice


“1. The IMS is still under primary development, but there is also some development required for theDiacerto bus. IMS was not, even at that stage, under primary development; it was well into thetest and evaluation phase with all critical and major characteristics already formally proven.

2. The IMS is also not off-the shelf, although it also uses COTS building blocks. It is not possibleto buy any combat system network “off-the-shelf” so this is a spurious argument. The IMS fullymet the requirements in the Element Costing and Description of making extensive use of COTStechnology, certainly more so than the Detexis system. In other words, this supposed criticism ofthe IMS should more have properly been levelled at the Detexis system.

3. The integration relationship between the IMS supplier and the System integrator is going to causeproblems for the project later on. This is neither a valid technical or logical argument. C²I²Systems is doing the NDS sub-system which provides mission-critical data to the Combat Suite;this didn’t seem then, nor does it seem now, to constitute a “relationship problem”. In any caseit was ADS who precipitated any breakdown in relationship by changing the baseline to suitthemselves and their parent company, Thomson-CSF.

4. The cost of the IMS is high. Again, only if one thinks that R43 million is higher than R49 million.

5. The IMS does not currently provide for TCP/IP. This is not true. Not only did we propose offeringTCP/IP as an option, but we provided a working TCP/IP protocol, running on our hardware toADS in late 1998. As I explained earlier, this TCP/IP offer was referred to the dual protocolstack. ADS actually requested in one of their RFOs for us to quote for TCP/IP running underAPIS. However, the JPT directed us to “remove provision for the dual protocol stack” in theRFBAFO (May 1999). In the circumstances, I find this point of criticism inexplicable.

6. The IMS has also not been put on a warship. This is true, but largely irrelevant as FDDI and allIMS protocols are the basis of SAFENET which is in widespread naval use around the worldincluding by the US Navy, Royal Navy, German Navy and the Swedish Navy. Furthermore,SAN/Armscor had over a number of years commissioned the development of the IMS and spenta considerable amount of money on it (as had C²I² Systems itself) with the specific intention thatthe IMS should in due course be put on SAN warships. This is therefore hardly a valid point ofcriticism so late in the day.

286. The report concludes by stating the following :

“From a technical point of view, the CS project team proposes that the current architecture based onthe IMS be retained for the following reasons :” (my bold emphasis).

287. The report goes on to list 15 reasons as follows :

“1. The IMS is completing milestone III and is in an advanced stage of development/testing.

2. The IMS supports an open architecture.

3. With a fibre infrastructure in place it is easy to upgrade to other protocols such as A TM or fibrechannel.

4. It will be easier to manage and troubleshoot with the IMS resulting in easier maintenance.

5. The IMS is quad redundant and has automatic re-configuration.

6. The IMS provides guaranteed data delivery.

Without Prejudice


7. The IMS sub-system interfaces have already been developed.

8. The EMC/EMI problems become non-existent for the LAN infrastructure.

9 . The detailed system design has been done (DACs).

10. Growth of the system can easily take place.

11. Life-cycle costs will be reduced because of the easy growth, and higher reliability of the fibreinfrastructure.

12. The IMS performance will not degrade as a rapidly as a function of time (it is not reliant onimpedance balances).

13. The IMS provides a better strategic advantage to the SAN as all algorithms are locally developedand controlled.

14. The IMS has more features and flexibility.

15. Both Thomson and GFC recognise that the IMS is a superior product.”

288. However, in the Report on the Process Followed for Information Management System (IMS) for theSAN of Project Sitron, issued to Mr H.S. Thomo, Chief Executive Officer of Armscor and signed byMr Frits Nortjé, the Corvette Programme Manager, it states the following :

“During a worksession over the period 03 - 04 June 1999 with the Detexis engineers, the Combat Suiteengineers did a technical evaluation of the proposed CSDB and verified that it will indeed meet theSAN’s requirements for a databus, albeit with some limitations.”

Firstly, the Detexis representatives were not engineers, they were, in fact, sales and business managers.Their job is to sell their product, not to evaluate it against a competing product.

289. Secondly, it is impossible for the Detexis system to “meet the SAN’s requirements for a databus”,because it is not a databus. In fact, in the report, the evaluation team had stated that “it is essentiallya point-to-point system”.

The Diacerto Bus, even by definition of terms, can in no way conform to the SAN’s statedrequirements for a databus or LAN, as specified in the NSR or URS.

290. I contend that the Diacerto Bus is a proprietary technology (as per the JPT’s Report) and does notsupport an open system architecture and therefore violates the Naval Staff Requirement (NSR).

291. In his report Mr Nortjé continues :

“Based on these recommendations and the reduced price, the SITRON project team accepted theDetexis offer and included it in the technical baseline currently on the table.” (my bold emphasis).

292. I contend that Mr Nortjé’s report misrepresents the facts, findings and final recommendation of theevaluation team. In fact, his report in effect overturns a recommendation of the team of technicalexperts, consisting SAN and Blohm+Voss engineers, especially convened to evaluate the matter. Icontend that this highly irregular.

Without Prejudice


293. Also highly irregular in my opinion is the fact that the Sitron Project Team made a decision directlyat odds with the recommendation of the evaluation team. Accumulatively, the sixteen points ofcriticism of the Detexis System make it inconceivable to me that the Detexis system could have beenchosen. Indeed, there are a number of points of criticism which would each individually be sufficientreason to reject the Detexis system.

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Disclosure of C²I² Systems’s IMS Price

294. I have been told that during this review by the evaluation team, C²I² Systems's offer for the IMS, i.e.price and technical specifications, was openly discussed by Detexis. That they had this knowledge isin breach of C²I² Systems's Non-Disclosure Agreement with ADS.

295. Furthermore, when I was told by the JPT that the IMS was in the process of being replaced by ADS,they advised me to formally approach ADS with a view to resolving this matter to the mutualsatisfaction of all stakeholders. To this end, I flew up to Johannesburg 20th July 1999 to try and resolvethe matter with ADS. I met the Chief Executive Officer, Pierre Moynot, who, inter alia, told me thatThomson/Detexis could also supply the system for R38 million.

296. In response, I said that this indicated that our price had been given to Detexis, our competitor. His replywas to the effect that they had decided that our system had risk and that they therefore had decided thatif they had to replace our system they would look for a Thomson-CSF group company that could offersomething similar. They then spoke to Detexis who responded that if C²I² Systems could do it for R38million, then they could also do it for the same price. He told me this face-to-face, but subsequentlydenied it when I wrote to him. He then alleged that ADS merely compared prices internally. In thisregard, I refer to copies of my letter of 29th July 1999 to the Chief Executive Officer of ADS,Mr Moynot's reply of 29th July 1999 and my reply of 30th July 2000(Annexures Axx, Axx, and Axx).

297. I am sure that people like Capt Marais and possibly Cdr Egan-Fowler can confirm that Detexis knewour price.

298. I consider it important to ascertain the source of this disclosure of our confidential price informationto Detexis.

299. I do not know whether Detexis submitted a proposal and whether it was submitted before the closingdate of the Request for Best and Final Offer, i.e. 14th May 1999. However, if they did so, it would beirregular because the RFBAFO issued by the JPT only specifies C²I² Systems as a supplier of the IMSwith there being no mention of any other supplier.

300. If Detexis was allowed to make a proposal after the 14th May 1999, then C2I2 Systems should have beeninformed that it was now competing with Detexis for the network sub-system and it should also havebeen given the opportunity to put in a further offer. However, I must emphasise that Detexis could notproperly been invited to make an offer without formal changes to the baseline changes which, as faras I am aware, never happened.

301. In my view the acquisition procedure relating to Detexis was highly irregular. Certainly it also had aneffect on defence industrial participation and long-term strategic support of the Combat Suite, that isbecause a locally developed and conformant system was replaced by the non-conformant product ofa foreign-owned company, which ADS was at that time.

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Conflicts of Interest : Corvette Combat Suite (Project Sitron)

302. I am also concerned about the conflict of interest situation, information of which was disclosed interalia at the SCOPA hearings of 11th October 2000 and 26th February 2001 as well as in the press. Inessence, Mr Shamin Shaikh, who is the Chief of Acquisitions in the Department of Defence, is thebrother of Mr Schabir Shaikh, who is a Director of Thomson-CSF Holding (Southern Africa) (Pty) Ltd,as well as Nkobi Investments (Pty) Ltd and Nkobi Holdings (Pty) Ltd.

303. Although it is alleged, inter alia by the ex-Chief of the SA Navy during the Public Protector’s hearingsinto the Arms Deal, that Mr Shamin Shaikh recused himself from programme meetings where hisconflict of interest was relevant, I believe this not to be true.

304. For one thing, I was told by Mr Kevin Hanafey, Senior Manager of Armscor's Maritime Division, thaton certain occasions Mr Shaikh merely handed over the chairmanship of the meeting to someone elseand then remained present and took part in the discussions and decision-making. He describedMr Shaikh’s supposed “recusal” as a farce, or words to that effect.

305. In fact, if one refers to the minutes of the Project Control Board (PCB) meeting of 24th August 1999(classified as Confidential), one may immediately conclude that Mr Shaikh not only chaired themeeting in his capacity of Chief of Acquisitions representing the Secretariat of Defence, but that hesigned the minutes as chairman. There is no record of him leaving the room or recusing himself andthere is no mention of handing over chairmanship of the meeting to the Chief of the Navy or anyoneelse for that matter. There is merely a brief reference, at the end of the discussion on Project Sitron,to a prior recordal of Mr Shaikh’s “possible conflict of interest”. I shall return to this hereunder.

306. These minutes prove furthermore that Mr Shaikh participated in the discussions on the CorvetteCombat Suite :

“a. The project team categorised the C²I² Bus as a Category B risk, ie the Prime Contractor retainsfull responsibility for the delivery and performance of a fully integrated vessel, which includessub-systems which have a critical effect on the overall vessel delivery. Further, acting POPSinformed the board that if the C²I² Data BUS option was selected over the ADS DETEXUS (sic)Data BUS the project team would have to find the extra funds required to bring both options toa par wrt risk coverage. This would result in lifting the ceiling price of the Corvettes.”

307. Specifically with regard to the matter of the IMS, Mr Shaikh is recorded as saying the following :

“b. C Acq informed the board that the CEO of Armscor had presented this matter to the AAC andthat the Minister supported the issue of the main contractor carrying the overall risk and theresponsibilities for the sub-contractors. If the principle of the main contractor carrying the riskis changed, then the added difference in costs will have to be borne by the DoD. The principleof the main contractor carrying the risk must be adhered to. The AAC decided that the ceilingcost of the equipment must not be raised.”

308. My contention that Mr Shaikh did not recuse himself from matters involving the ADS and the CorvetteCombat Suite, is supported by the following reference to a memorandum from the ProgrammeManager: Patrol Corvettes, Mr Frits Nortjé, to Sipho Thomo, CEO of Armscor, marked 11th February2000 :

“Furthermore, the matter has also been referred to and discussed at the Project Control Board (PCB)where the final decision not to use the CCII databus was exercised, with Mr S. Shaikh indicating thathe had cabinet support in this regard.”.

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309. Regarding Mr Shaikh’s reporting of his conflict of interest, I refer to Paragraph 15 of the minutes ofPCB meeting :

“Ratification by the Board. The following proposals by the project team, detail of which are (sic)contained at Appendix F (sic), were ratified by the board (Note: Refer to C Acq’s possible conflict ofinterest as indicated in par 13 of the minutes of th PCB held 28 April 1999.):”

The proposals under consideration have nothing to do with the IMS matter.

310. However, when questioned during the SCOPA hearings of 11th October 2000 on the issue of conflictof interest, the DoD’s written response refers to Mr Shaikh’s recording of his conflict of interest :

“at the first PCB meeting held on 4th December 1998".

311. The DoD’s written response to the SCOPA hearings of 11th October 2000 also refers to a so-calleddecision at the PCB meeting of the 24th August 1999, to the following effect :

“The CS Supplier, incl the Databus was accepted”.

312. The DoD’s written response to the SCOPA hearings of 11th October 2000 also states the following :

“The project team presented a recommendation to the Project Control Board on 24 August 1999 forthe Detexis IMS as proposed by the Main Contractor and supported by the Project Team. The ProjectControl Board, Chaired by the Chief of the Navy, in terms of Chief of Acquisition’s recusal duringCorvette combat suite decisions, ratified this recommendation, which was supported by the CEO ofArmscor (See Note below).

313. The minutes of the PCB meeting of 24th August 1999 do not reflect that the aforegoing decisions weremade at the meeting nor that the meeting was chaired by the Chief of th Navy, nor that Mr Shaikhrecused himself.

314. I have also heard that Mr Shaikh’s first formal recording of his conflict of interest was to the Chief ofthe SANDF in late September 1999.

315. To me, there seem to be numerous inconsistencies with both the dates and the manner in whichMr Shaikh’s supposed recording of his conflict of interest.

316. Also when questioned during the SCOPA hearings of 11th October 2000 on the issue of conflict ofinterest, Mr Shaikh responded that he only had one conflict of interest and that was concerning ADS.However, I also contend that he has a further conflict of interest regarding Thomson-CSF, similarlyby virtue of his brother’s shareholding and directorship of Thomson-CSF Holding (Southern Africa)(Pty) Ltd and therefore indirectly with Thomson-CSF.

317. Additionally, the GFC state in their response to the Request for Final Offer for the Corvette, dated11th May 1998, that :

“It is proposed that the companies

• Blohm+Voss GmbH (B+V) as lead shipyard• Howaldtswerke - Deutsche Werft AG (HDW) as partner shipyard• Altech Defence Systems (Pty) Ltd. as nominated RSA combat suite contractor• Thyssen Rheinstahl Technik, GmbH as trade house

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will form the South African Patrol Corvette Consortium (SAPCC) in order to act as vessel contractorand to accomplish the below mentioned activities.”

318. As it transpired, both ADS and Thomson-CSF joined the German Frigate Consortium in the EuropeanSouth African Corvette Consortium (ESACC) which is the prime contractor for the Corvetteacquisition.

319. I believe that the GFC and Thomson/ADS have joint and several responsibilities with regard toperformance of the Corvette contract.

320. I thus contend that, by virtue of ADS and Thomson-CSF’s contractual relationship with the GFC, thatMr Shaikh’s conflict of interest extends to the entire Corvette programme from the date of 11th May1998, if not, then from the 18th November 1998, i.e. when the GFC was declared preferred supplier forthe Corvette.

321. I also wish to refer to VAdm Simpson-Anderson’s testimony at these hearings on 14th June 2001. Inthis regard, I refer to his letter dated 17th October 2000 addressed to the Secretary of Defence,Mr January Masilela, dealing with Mr Shaikh’s conflict of interest, the contents of which he affirmedunder oath.

322. In his testimony VAdm Simpson-Anderson alleged that Mr Shaikh recused himself on every occasionwhen there was a discussion on the Combat Suite and that this was minuted. I submit that the minutesof the PCB Meeting of the 24th August 1999 show that this is not so.

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Conflict of Interest : Submarine Combat Suite (Project Wills)

323. Project Wills is the Submarine acquisition programme.

324. Regarding, Mr Shaikh’s supposed recusal from all matters involving ADS and Thomson-CSF, the DoDdocuments to SCOPA record the following :

“First PCB minutes Par 5. CAcq informs of conflict of interest....recused from CS decisions of bothWills and Sitron”.

325. ADS had developed a number of combat suites for the SA Navy’s Daphne-class submarines and werevery interested in providing a combat suite for the Type-209 submarines once the Upholderssubmarines offered by the United Kingdom fell out of contention.

326. Moreover, once Thomson-CSF took over ADS, they were very keen to supply a combat suite from aThomson-CSF subsidiary called Underwater Defense Systems (UDS), with some sub-systems beingsupplied by ADS.

327. However, the SA Navy were not at all keen to get another ADS submarine combat suite and thereforethe supply terms of Project Wills were structured such that the submarine would be supplied as acomplete working system inclusive of combat suite, the choice of which would be that of the vesselcontractor.

328. ADS and Thomson did all that they could to overturn this condition of the supply terms and it wouldappear that Mr Shaikh supported them in this endeavour despite his conflict of interest.

329. In this regard, I refer to a meeting of the South African Submarine Industrial Cluster (SASUBCLUB)held on 26th June 1998, where it was reported that :

“The chairman informed the meeting that Atlantis Consulting (Pty) Ltd had been requested to attenda meeting with ADS on 30/6/98, being facilitated by Adm Howell and Mr S. Shaik (sic). As this meetingwould have a direct bearing on the SASUBCLUB, the meeting was requested to give AtlantisConsulting (Pty) Ltd a mandate to negotiate depending on the direction of the meeting.

It was agreed that should the SASUBCLUB be approached to include ADS, that ADS should beconsidered on the same grounds as any other applicant. These conditions include that no foundermember loses workshare to ADS, ADS would become an associate member and that ADS agree to aquid pro quo with the SASUBCLUB wrt to workshare should a French offer be accepted as primecontractor for the Submarines.”

330. On the 2nd July 1998, the secretary of the SASUBCLUB reported back to its members concerning themeeting of 30th June 1998 by means of a fax wherein he stated :

“SASUBCLUB Membership

ADS: As tabled at our last meeting , and with the mandate given to attend the meeting called byAdm. Howell with ADS, we report back the following :

Date : 30 June 98

Venue : Secretariat of Defence, Pretoria

Attendees : Dir. Acquisition Mr. S Shaik Chairman

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SA Navy Adm. HowellArmscor Mr K Hannefey (sic)SASUBCLUB Mr G Blackbeard, Mr B. BlackbeardADS Mr P. Moynot, Mr D. Hiles

Meeting resolution : ADS is to join the SASUBCLUB within the confines of their stated role. TheSASUBCLUB will negotiate to ensue (sic) an equitable workshare dependant (sic) on the SA Navy’sselection of submarine and combat suite. No workshare will be lost to SASUBCLUB Founder membersby inclusion of ADS.”

331. On the 19th August 1998 another SASUBCLUB meeting was held, on this occasion with Messrs PierreMoynot and Duncan Hiles of ADS. Mr Hiles reported the following to the meeting as reflected by theminutes :

”Mr Hiles traced the relevant ADS history back to the Daphne Submarine upgrade projects,confirming that one Combat Suite had already been delivered and that ADS was awaiting a contractto install a Combat Suite onboard the SAS EMILY HOBHOUSE. He explained that the delay was dueto the current moratorium on contracts exercised by Armscor and the SAN.

Mr Hiles also stated that ADS had not expected the acquisition of new submarines to materialise andhad only concentrated their efforts on supporting and modifying the Upholder submarines, should theyhave been purchased.

Mr Hiles informed the meeting that ADS had been caught “flatfooted” by the initiative taken byAtlantis and the SASUBCLUB and that they only became aware of the Cluster when it was advertisedin the press in May 1998.

With respect to the selection of Combat Suite, Mr Hiles stated that the Chief of the Navy had confirmedto ADS that their Combat Suite would be fitted on board the new submarines. He re-iterated that thiswas also stated at the special meeting called between Atlantis and ADS on 30 June 98, chaired byMr Shaik.

Mr Hiles presented the Project Nickles Combat Suite as developed by ADS and then presented theProject Wills Combat Suite that ADS/Thomson now propose for the new submarine.

In closing, Mr Hiles indicated that ADS saw synergy with the SASUBCLUB but also saw certainconflict areas which should be addressed.”

332. I contend that Mr Shaikh actively campaigned on ADS’s behalf in order to make up the ground thatthey’d lost by not expecting the acquisition of a new submarine.

333. However, this was not the only intervention by Mr Shaikh regarding the submarine combat suite. Iknow that he called Messrs Peter Krollman and Ernst-Otto Max of STN Atlas Electronik into hisoffices following the industry briefing on either 23rd November 1998 or 21st July 1999. I happened tosee them straight after this and they were very, very shaken. They told me that Mr Shaikh had put a lotof pressure on them regarding the Submarine Combat Suite.

334. I have also been told that Mr Shaikh had various meetings with Mr Clements Steinkamp of HDW, theGerman submarine shipyard regarding the Submarine Combat Suite.

335. Although HDW chose the STN Atlas submarine combat suite and included this in their offer wherebythey were declared preferred supplier for the submarine, they were subsequently forced by the DoDto also make an offer for the ADS/Thomson/UDS submarine combat suite.

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336. However, although HDW complied with the DoD’s demand of providing a offer including anADS/Thomson/UDS combat suite, they stood firm regarding their preference of the STN Atlas combatsuite, which was eventually finally selected.

337. Nevertheless, this did not stop the DoD trying to get STN Atlas to use ADS for defence industrialparticipation. At one stage, I believe that the DoD suggested that ADS manage all the local submarinecombat suite DIP for a management fee of some R10 million. I was told that Mr Shaikh made thisproposal at a meeting of the Project Control Board, but that was rejected. Later, it was decided thatADS should at least provide the torpedo fire control system for the submarine.

338. In this regard, Messrs Alfred Schulte and Ralf Gampe of STN Atlas especially flew out from Germanyto meet with Mr Pierre Moynot of ADS at their head office in Midrand. When they got there theyfound Mr Moynot not even available, although he later turned up. I believe that he told Messrs Schulteand Gampe that they “were not interested in crumbs”.

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Conflict of Interest : FBS

339. Furthermore it appears as if Thomson-CSF, deliberately bought out Altech to gain control of ADS atthe crucial time when the process regarding the award of the contracts was underway. In fact, it wouldappear that this was planned from 1997 and possibly as early as 1994 with the knowledge and/or directinvolvement of Schabir Shaikh. I believe that previous directors of Nkobi Holdings during that periodmay be able to provide some insight into this matter.

340. It should also be mentioned that Thomson-CSF, which thereafter purchased 100% of the shares inADS, thereafter sold or gave 20% of the shareholding to Futuristic Business Solutions (Pty) Ltd(hereinafter referred to as FBS), a company that has, or at least had then, little or no capacity orexperience in the field of defence electronics or logistics.

341. Regarding FBS, the four directors and shareholders of the company are Lt Gen (Retd) Lambert Moloi,Tshepo Molai, Yusuf Mahomed and Ian Pierce.

342. Lt Gen (Retd) Lambert Moloi is the former Chief of Staff of Umkhonto we Sizwe (MK) and formerMinister of Defence Joe Modise’s brother-in-law. Joe Modise is the former commander in chief ofMK. Tshepo Molai is Moloi’s son-in-law.

343. I believe it is interesting that when Yusuf Mahomed completed the statutory forms for the foundingof FBS, he supplied his postal address as P.O. Box 1002, Parkmore, 2002, which was also the postaladdress of Ian Pierce and Associates, an accounting company. He supplied an address of No. 1Highbury, 3rd Avenue, Killarney as his residential address.

344. Mr Shamin (Chippy) Shaikh also owns a company called SI International (Pty) Ltd. When hecompleted the statutory forms for the founding of this company, he supplied his postal address also asP.O. Box 1002, Parkmore, 2002, again the postal address of Ian Pierce and Associates. He suppliedan address of No. 10 Highbury, 3rd Avenue, Killarney as his residential address.

345. It appears from the above that there were very close links between Mr Shaikh, Mr Mahomed and MrPierce and therefore possibly between FBS and Mr Shamin Shaikh.

346. I would therefore contend that it is not beyond the bounds of possibility that there could be linksbetween Mr Shaikh and FBS.

347. Some of FBS's contracts relating to the Strategic Defence Packages are in the field of logistics and theyapparently teamed up, or are teaming up, with Logtek (Pty) Ltd to form Applied Logistics Engineering(ALE). Logtek has apparently taken over Conlog (Pty) Ltd, which has apparently been taken over bya French company called Schneider Electric. Schneider Electric, among other things, builds electricmotors for diesel-electric submarines, including those for the SAN's Daphne-class submarines.

348. Schneider Electric is also the, or one of the, preferred suppliers of electric motors for diesel-electricsubmarines built by the Kokums shipyard in Sweden, which is in turn owned of HDW of Germany,the shipyard building the submarines for the SA Navy.

349. Regarding the German Frigate Consortium, the company Thyssen Rheinstahl Technik GmbH is amember thereof. Thyssen apparently entered into a contract with FBS to “lobby and market Thyssen,its products and services to the relevant decisions makers”.

350. The contract requires that :

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“FBS takes upon itself to use its established network to lobby and market THYSSEN, its products andservices to key decision makers within the Government of South Africa or any of its departments orancillary bodies including but not limited to the Department of Defence, Armscor, Arms of Service ofthe South African National Defence Force, the Joint Standing Committee on Defence, The Departmentof Trade and Industry, Parliament and/or the Defence Industry as a whole with the aim of havingTHYSSEN viewed in a positive light during the adjudication of tenders for the programme.”

And that :

“FBS undertakes to use their best endeavours to secure for THYSSEN the desired contracts on the bestterms possible”.

351. Thyssen is, or was, a member of the German Strategic Alliance, as was Daimler-Chrysler Aerospace.

352. I contend that while it is legal to lobby on behalf of another company, that in the context of theStrategic Defence Packages, it would be higher irregular for parties linked to highly placed decisionmakers to do so, or at least be allowed to do so, “during the adjudication of tenders for theprogramme.”

353. Nevertheless, it is clear that FBS now owns 20% of ADS and it would appear to me to be obvious thatthis was the idea once Thomson-CSF had purchased the first 50% of ADS from Altech. In fact, PierreMoynot says in a letter dated 19th June 2000 that :”

“as a result of negotiations with them for the previous five months, Thomson-CSF International sold20% to FBS on June 22nd 1999".

354. Now all of Thyssen, GFC, Thomson-CSF and ADS are members of the European South AfricanCorvette Consortium (ESACC). As Chippy Shaikh had acknowledged hin conflict of interest withADS and Thomson-CSF, then by logical extension, this conflict of interest extended to the entireCorvette, at least from February 1999.

355. It appears that a similar exercise, in terms of which control in a South African company is taken overby a foreign company, who then sells or gives a percentage of its shares to a black-owned company,may have happened with Reumech OMC. In this regard, Reumech OMC was recently bought byVickers PLC of the United Kingdom to form Vickers OMC (Pty) Ltd.

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Predation of Other Segments by Thomson-CSF

356. The other 12 or so nominated sub-contractors got their contracts in the Corvette Combat Suite, exceptthat Grintek Electronics, who was originally nominated to supply the South African-built Ship'sCommunication System (SCS), with the switching technology being provided by Plessey South Africa,was directed by the DoD to replace this with another system, the FOCON-32 internal ship’scommunication system, from a Thomson-CSF Group company called Thomson-Signaal.

357. As said earlier, the Combat Suite also originally included two sub-systems called the ActionInformation System (AIS) and the Weapon Control System (WCS), the latter being derived from theTarget Designation Assembly (TDA). Both the AIS and the TDA were developed by ADS for theSAN's strike craft, with both being working systems. However, when Thomson-CSF bought ADS, thelatter suddenly contended that the AIS and WCS sub-systems would not meet the requirements of theCorvette and that both sub-systems would have to be replaced by a Thomson-CSF CombatManagement System (CMS); this is despite the fact that many millions of Rands of South Africantaxpayers' money had been spent by ADS on the development of AIS, WCS and TDA sub-systems.

358. As far as know, the only deficiency in the AIS/WCS combination was precipitated by the SA Navy’ssubsequent decision not to use the strike craft’s ELM2208 search radar for the Corvettes. This radarwas in fact becoming obsolete and in any case only had two-dimensional search capability which islimiting considering the threat of modern anti-ship missiles. The SAN therefore decided to acquiremodern three-dimensional surveillance and tracking radar. The AIS and WCS had only been designedto handle two-dimensional radar data, specifically with regard to Threat Evaluation and WeaponAssignment (TEWA). However, I believe that it was quite feasible for ADS to acquire the TEWAcapability from Thomson (or a number of other possible sources) and integrate it into their AIS andWCS. I cannot believe that it became necessary to replace the AIS and WCS with R335 million worthof Thomson-CSF’s Tavitac Combat Management System.

359. I believe that the SAN allowed ADS to change the Corvette Combat Suite baseline in order to allowThomson-CSF to supply their CMS.

360. Another aspect which I believe to be significant and to which I wish to refer, relates to the followingthree sub-systems of the Corvette Combat Suite, namely :

1. The Surveillance and Target Acquisition Radar (STAR).

2. The Surface-to-Surface Missile (SSM).

3. The Hull-Mount Sonar (HMS).

361. Three foreign systems were initially baselined, i.e. they were preferred by the SA Navy in terms ofcapability and affordability, namely :

1. The TRS-3D/16 STAR from DASA of Germany.

2. The RBS-15 Mk3 SSM from Saab of Sweden.

3. The ASO 93 HMS from STN Atlas of Germany.

362. However, at the end of the selection process they were all replaced by French companies, namely :

1. The MRR STAR of Thomson-CSF of France.

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2. The Exocet MM40 SSM of Aerospatiale-Matra of France.

3. The Marconi 4130C1 HMS of Thomson-CSF of France.

363. I believe that it is significant to note that Aerospatiale-Matra is part of the European AeronauticDefence and Space Company (EADS). However, 46,5% of Aerospatiale-Matra is owned by DassaultIndustries of France, while Thomson-CSF now owns 100% of Dassault Electroniques, which untilquite recently was part of Dassault Industries, which in turn owns 6% of Thomson-CSF.

364. It would seem clear that the whole process, under the cover of the declaration of the GFC as preferredsupplier of the Corvette negated the requirement for a formal tender process for the Corvette CombatSuite, ensured that French companies and specifically, Thomson-CSF, received the lion's share of theCorvette Combat Suite supply contract.

365. The price of the Exocet SSM contract at R200 million appears to me to be very low. Possibly this onlyincluded only the initial supply of the Deck Launching System and Fire Control System onboard thevessels, as well as integration and qualification. Possibly the missiles themselves are not included inthis price. Original scope of supply at R1,47 billion for the Combat Suite included 32 missile roundsas well.

366. If this is the case, it implies that there will be extensive future costs in supporting the Corvette CombatSuite, over and above the acquisition cost.

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Date of De-Selection Decision

367. I have already referred to the DoD’s evidence to SCOPA that the decision to select the Detexis CSDBin preference to the IMS was made at the PCB Meeting of 24th August 1999. I pointed out in my earlierevidence that this was not supported by the minutes of that meeting.

368. I now refer to the letter dated 23rd August 1999 from Mr Pierre Moynot of ADS to my attorneys HGB.Here Mr Moynot states the following :

“Our client then decided to choose the second option rather than the one by your client.”

“Anyway, as said earlier, the choice has been made by the State and I see no way I could re-instateyour client in the project unless the State decides otherwise and agrees to pay the extra 40 millionsRand.”

369. It appears from Mr Moynot’s letter that the PCB did not, in fact, make a decision concerning the IMSon the said day. It is not clear who the participants were in that decision.

370. It seems therefore, that the PCB itself did not actually make a decision concerning the deselection ofthe IMS at the meeting of 24th August 1999 and nor did they ratify anybody else’s decision. Theminutes suggest that the matter was to be a matter of further discussion, inter alia, with me.

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Armscor and SAN approaches to C²I² Systems

371. The minutes of the PCB meeting of the 24th August 1999 record that :

“c. Mr Swan and R Adm Howell will meet with Mr Richard Young to discuss the matter with him(Mr Swan and R Adm Howell for action).”

372. The DoD’s written response to the SCOPA hearings of 11th October 2000 also states the following :

“It was additionally decided at the PCB on 24 August that the CEO of Armscor, Mr L. Swan and RearAdmiral Howell of the SA Navy should meet with Mr R. Young of C²I² to explain the situation to himas he was threatening legal action. This meeting took place in September 1999 in Simon’s Town, andthe discussions of the meeting was reported to the next PCB on 6 October 1999. It was indicated thatMr Young was not in a position to carry the cost associated with such a risk premium and would notpursue any legal action at that stage.”

373. It is true that such a meeting took place, either on 27th August 1999 or 3rd September 1999.

374. The meeting was at the request of Armscor and was set up by Mr K.P. Hanafey, the DivisionalManager of Armscor’s Maritime Division on behalf of Mr Swan. Although I requested an agenda forthis meeting in advance, I was not provided with one. For this reason I took my then PersonalAssistant, Ms Bernice Meyburgh, to the meeting to assist me with taking minutes and to also be awareof the discussions to take place. As it transpired, the interaction with Mr Swan and Rear AdmiralHowell was more of a discussion with it taking place in an ante room of Admiralty House, withouteven a table to assist Ms Meyburgh with taking notes, etc.

375. It soon transpired that the real reason for Mr Swan calling this meeting was to request me not toproceed with legal action against Armscor and the DoD as this would not only disrupt the SA Navy’sCorvette Programme, but could also potentially derail the whole Defence Acquisition Programme, thatis according to Mr Swan and RAdm Howell.

376. As I considered it to be reasonable to negotiate with the Department of Defence and ADS to reinstateC²I² Systems in the Project without incurring the necessity and expense involved in litigation, I agreednot to proceed on the express condition that Armscor, the Department of Defence and SA Navy wouldpersuade ADS and Thomson CSF to reconsider their position and include the IMS for the SA NavyCorvette Programme or otherwise make good the losses which C²I² Systems would suffer. Mr Swanagreed to take this matter further in this light.

377. I have already referred to the evidence of Mr Shamin Shaikh, given to SCOPA in an accompanyingdocument, that C²I² Systems had been asked for and refused to provide a performance guarantee. It wasalleged there that the request for such a guarantee had been made at this meeting with Mr Swan andRAdm Howell.

378. However, I deny that Mr Swan or RAdm Howell asked me to provide a risk premium or performanceguarantee for the Combat Suite. The essence of their desire to meet with me was to ask me not to takelegal action. After I had acceded to this, the business of the meeting was essentially complete, howeverwe continued to make “small talk” for another 20 minutes or so. During this time Mr Swan did bringup the matter of the prime contractor providing a performance guarantee for the entire vessel. He saidthat if he were the CEO of ADS or Thomson, then he would ask me for a performance guarantee forthe entire R6 billion Corvette contract, which would imply us providing a performance guarantee of5% of this amount or R300 million. I responded that there was no businessman in his right mind wouldoffer a performance guarantee, in our case a bank guarantee, for R300 million on a supply contact

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worth R43 million (including VAT). He agreed with me on this, emphasising that he was just makingthese observations in his personal capacity, not as CEO of Armscor.

379. I responded by saying that despite the fact that we could not and would not offer a performanceguarantee of R300 million, I had already written three letters to the CEO of ADS, copied to him andto VAdm Simpson-Anderson , RAdm Howell and others to the effect that I was prepared to providea performance guarantee for the IMS.

380. One of the documents submitted at the same time to SCOPA was a letter on the matter of performanceguarantees from Mr Swan to Mr Chippy Shaikh dated 4th October 2000. I consider it necessary to readthe entire contents of the letter :

“Mr Llwellyn (sic) Swanex CEO Armscor

Armscor BuildingPretoria

0001

4th October 2000

Mr Chippy ShaikhDepartment of Defence(Acquisition Division)Private Bag X910Pretoria0001

RE DISCUSSIONS WITH MR RICHARD YOUNG

I would like to inform you that during 1999, I, together with Adm. Howell (of the SA Navy) haddiscussions with Mr Richard Young in Cape Town concerning the Management Information System(sic) for the corvette program.

The essence of these discussions revolved around the ability of the “contractor” (C2 12) (sic) - toprovide the performance guarantees necessary to satisfy Armscor that C212 could and would performthe tasks as required by Armscor and the DoD.

What prevailed from the discussions was the fact that C212 was not in the position to provide thenecessary guarantees. Armscor/DoD required from C212 that guarantee to the full value of the“Combat Suite” because that was the value of the effect that the MIS (sic) would have on the contract.

While Armscor/SAN recognised the contribution of C212 to the Combat Suite of the Corvette programof the development phase, it was not in a position to accept the risks attached to the C212 solutionunconditionally.

Yours faithfully

(signature)

L R SWAN”

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381. I find the following aspects of this letter strange :

• Mr Swan spells his own Christian name incorrectly.

• Mr Swan provides his designation as “ex CEO Armscor”

• Mr Swan provides his address as the “Armscor Building, Pretoria”

382. However, more importantly, the content of the letter refers to the “essence of the meeting” being todiscuss the performance guarantees. This is incorrect. The essence of the meeting was for Armscor torequest us not proceed with legal action. This is not even mentioned in Mr Swan’s letter. This can becontrasted with the chronology submitted by the DoD to SCOPA which correctly describes the essenceof the meeting as follows :

“CEO Armscor reports (to the) Project Control Board that C²I² will not pursue legal action”.

383. That the letter is written over 13 months after the meeting in question and by someone long out of theemploy of Armscor, would seem to indicate that its content was not so important at the time of, orimmediately after, the meeting in question.

384. On 8th May 2001 I contacted Mr Swan by telephone about our meeting and “his” letter. He confirmedwhat I have stated above about the meeting, however could not remember the letter and asked that itbe faxed to him. We did this under a covering letter in which we asked the following:

1. Is the letter genuine?

2. Is it your signature?

3. If the letter is genuine was it prepared and signed by you or was it prepared by the Departmentof Defence (or some other party and if so whom?) and were you requested to sign it?

4. If the letter was prepared by some other party and you were requested to sign it, under whatcircumstances was it signed?

385. On 16th May 2001, my assistant Marlene Abreu, contacted Mr Swan to ask him if he had received thefax. He confirmed that he had and said that :

“this matter is getting out of hand”.

386. On the 29th May 2000, Mr Swan wrote to us on this matter saying that :

“Would you please desist from contacting me, as you are well aware that I am no longer an employeeof Armscor or in any way associated with the Department of Defence or Armscor. ”

387. In light of the aforegoing I seriously question whether Mr Swan actually compiled this letter.

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Attempts to Resolve the IMS De-Selection with DoD and Armscor

388. As I deemed that the decision to deselect C²I² Systems as the nominated and selected supplier of theIMS to be both wrongful and unlawful, I immediately investigated all avenues of internal remedybefore considering external remedy. This is addressed more completely in this section.

389. The Programme Plan for Project Sitron outlines the approach to be followed when executing theProject(Annexure Cxx) .

390. It is stipulated in Clause 6.2.1 of the Programme Plan that any person involved in the project had the :

“RIGHT OF APPEAL

It is a basic principle of the management of this project that any person involved in the project has theabsolute right to appeal against any decision or action within the management of the project to thehighest possible authority. This appeal should be addressed to progressively higher authority withinthe limits of the policies of the SADF and Armscor beginning with the Program Managementstructures as defined within this Program Plan.”

391. In this regard, I therefore initially approached the Management of the Corvette Programme. TheManagement Team of the Corvette Programme consist of members of the SA Navy seconded to theDoD and of Armscor. They are known as the JPT.

392. After having brought the IMS de-selection matter to the attention of Mr L.R Swan, CEO of Armscor,I believe he realised that there was a problem on this issue. He eventually instructed his SeniorManager of Armscor’s Maritime Division, Mr K Hanafey to intervene with the objective ofsatisfactorily resolving this matter between the relevant parties, specifically ADS, Thomson-CSF andC²I² Systems, but also the JPT and the DoD.

393. To this end Mr Hanafey convened a meeting between these parties which was held at Armscor, Pretoriaon 17th June 1999. Mr Hanafey suggested that each party give a short presentation, after which wecould see whether we could find common ground for a satisfactory solution to the problem. We alsoprepared and agreed on an agenda in advance.

394. My partner, Gerhard Krüger and I flew up to Gauteng from Cape Town especially for this meeting,which lasted about 30 minutes.

395. The meeting started on a very poor note with then-Capt Kamerman and Mr F. Nortjé arriving late andhighly irritated, complaining that we were wasting their time and that “they were online to Germany”regarding the Corvette contract negotiations at that time.

396. I did not receive the minutes or "Confirmatory Notes"(Annexure Axx) of the meeting until4th September 2000 and then only after several attempts from my side, the last being a letter dated30th August 2000 to the Director of Naval Acquisition of the DoD and the Manager, MaritimeDivision, Armscor(Annexure Axx). It should be noted that although the meeting took place on17th June 1999, these Confirmatory Notes were only signed by Mr Hanafey on 15th February 2000.

397. During the meeting I raised the question as to whether the IMS of C²I² Systems had been selected, and,if not, why not.

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398. The minutes record that :

”JK [Capt Kamerman], FN [Frits Nortjé] and LM [Lewis Mathieson] did not provide answers to thequestions for fear of jeopardising the tender process.”

399. There was no constructive response whatsoever from SAN and ADS.

400. With respect, the only sensible contribution to the meeting was the following from RAdm Howell whostated the following :

“ANH stated that this was similar, in certain aspects, to the submarine in that a system was decidedupon and the only fair way is to assess it technically and commercially and inform people of thedecision.”

401. I wholeheartedly agreed with that view. However, the DoD did not practice what it preached. Despitethe Project Team having performed such a review of the IMS only two weeks previously, theevaluation team’s recommendation was disregarded.

402. Regarding a fair commercial assessment of the IMS, I believe that there was nothing fair about theadding of R40 million to our price based on unfounded assertions of “risk” without a risk audit evenbeing undertaken.

403. I believe that there is also nothing fair to the taxpayer of this country about taking a foreign company’sinferior product at R49 million when a superior indigenous product was offered at R38 million (excl.VAT).

404. Regarding a fair commercial assessment of the SMS, which I did mention briefly in my presentationto the meeting, I believe that there was nothing fair about adjusting the price of our SMS upward by10% in favour of ADS’s product and then still choosing the latter even when our price was lower,despite the unjustified adjustment.

405. Regarding “informing people of the decision” and Mr Hanafey’s final conclusion of the meeting that”all parties would be informed of the decisions in due time”, I believe that there is nothing fair abouthaving to wait nearly for 15 months for the confirmatory notes of the meeting and nearly 16 monthsto be formally informed that the IMS had not been selected for the corvette Combat Suite.

406. After a meeting called by Mr Shamin Shaikh on the 21st July 1999, to which I refer elsewhere in myevidence, I was approached by him outside the meeting venue. He started off by asking me why I wasdisturbing the Corvette acquisition project by complaining about the deselection of the IMS. AlthoughI wanted to reply, he stopped me from doing so and gestured for Mr Kevin Hanafey of Armscor to joinus. Once he had done so, we retired into a corner of the room where we discussed the matter for sometwenty minutes or so. Mr Shaikh was very aggressive with me, saying that if I had a problem, I shouldhave spoken to him about it. I replied that, in terms of the Programme Plan, I was addressing thismatter at increasing higher levels of authority and had not reached him yet. Anyway, I took up his offerand arranged to see him at a later date.

407. Accordingly, I flew up to Pretoria on 28th July 1999 to see Mr Shaikh at his offices. Also present wereRAdm(JG) Ockie van der Schÿf and RAdm(JG) Keg Verster, neither of whom said anything duringthe entire meeting, except when Mr Shaikh left the room for about 20 minutes to attend to some otherbusiness when we exchanged some pleasantries. It was initially a very acrimonious meeting. Mr Shaikhfirstly asked me to explain my problem to him which I did. His immediate response was to accuse meof many things, including of being “arrogant” and of being an "agent of the apartheid regime"(because of me having worked as an engineer for 7 years for UEC Projects).

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408. He said to me that if I was challenging this decision, then in effect I was challenging the Cabinet andthe President, because it was they who had taken this decision. While I know that Mr Shaikh briefedMINCOM on this matter, I was told that it had appeared that he only presented one side of the matterto them, i.e. not our side concerning nomination, selection, etc. and actually how far technically wewere with the IMS. I was told that the Minister of Defence, Mr Lekota, was subsequently very angryabout this.

409. During this meeting, I showed Mr Shaikh a copy of the Element Costing and Description, of whichhe was obviously completely unaware. He read it intently for about 15 minutes during the meeting, butdid not initially offer any comment or conclusion on its contents.

410. During this meeting, Mr Shaikh asked me how big my company was in terms of annual turnover.When I told him, he told me that his department had a R50 million per year legal budget and I was“welcome to take them on”, or words to that effect.

411. At the end of the meeting, Mr Shaikh instructed RAdm Verster to ascertain the total of all our currentcontracts with Armscor. I took this as a threat that if we should challenge the validity of deselectionthe IMS, then things could be made very difficult for us on other projects.

412. The meeting lasted for about an hour without there being any resolution.

413. Approximately an hour after I had left his office, I received a call on my cellphone from Mr Shaikh’ssecretary. She asked me whether I was still in the area, which I was as I was working in the AMDoffices in the same building until I could catch my flight later that day. She requested on Mr Shaikh’sbehalf that I rejoin the meeting which was being reconvened just after lunch, i.e. about an hour later.

414. Also present at this time was Mr Moynot and a colleague, Danie or Dawie van der Walt from ADS,as well as the two admirals. We then dealt with my assertion that C²I² Systems had been nominatedas the IMS supplier. Towards the end of the meeting, Mr Shaikh said to Mr Moynot that if what I saidwas the truth, he would happily pay the extra R42 million to include the IMS in the Corvette CombatSuite. Mr Shaikh suggested that Mr Moynot and I find a mutually acceptable solution to the problem.

415. Regarding this interaction with Mr Shaikh, when he testified at the SCOPA hearings of11th October 2000 that he had nothing to do with the sub-contractors after the acquisition process hadcommenced until the contracts were signed, it was not true. Not only did Mr Shaikh have contact withme as I have described above, but it was he who initiated it, not the other way round.

416. Regarding C²I² Systems's de-selection, we wrote letters to the DoD who referred us to the GFC whoreferred us to ADS.

417. After many unsuccessful attempts to resolve the matter with DoD and ADS, I consulted with myattorneys HGB during July 1999 to ascertain my legal position concerning external remedy.

418. On 23rd July 1999, HGB sent a letter advising ADS, that C²I² Systems was in the process of beingdeselected as the nominated and selected sub-contractor for the IMS for the South African NavyCorvette Programme(Annexure Cxx) .

419. On 26th July 1999, Mr Pierre Moynot of ADS replied in a letter to HGB that it was the State who hadmade the decision(Annexure Cxx) :

“In general I must stress that I have been quite surprised by all the noise made by your client aroundthe selection process was entirely between (sic) the hands of the project team (composed of

Without Prejudice


representatives of Armscor and the S.A. Navy) under the supervision of the Director of Acquisitionfrom the Secretariat of Defence.”

420. On 13th August 1999, HGB addressed a letter to ADS advising that C²I² Systems’s rights were beinginfringed and placed it on terms to confirm that C²I² Systems would be reinstated in theProject(Annexure Cxx).

421. On 23rd August 1999, ADS replied in a letter to HGB that it was the State who had made thedecision(Annexure Cxx).

“I would like to take the opportunity of your a.m. fax to clarify hopefully once and for all the matterin object.

As I have already explained to your client in my office as well as in the office of the Director ofAcquisition/Secretariat of Defence, when requested by the Sitron project team to quote for the IMSsystem we have presented two options, one of them being your client proposal.

The prices of these two options were (sic) taken into account the potential risks attached to each ofthem. In the case of the proposal by your client risks attached were far greater than for the secondoption for a number of reasons and hence the extra cost attached was more important than for thesecond one. A difference in price of about 40 million Rand was the result of the comparison. Our clientthen decided to choose the second option rather than one by your client. Consequently, should yourclient decide to pursue on this matter I suggest he addresses himself to the State rather than to me.”

422. Mr Moynot concludes his letter as follows :

“Anyway as said earlier, the choice has been made by the State and I see no way I could re-instateyour client in the project unless the State decides otherwise and agrees to pay the extra 40 millionsRand.”

423. Subsequently, during the period September 1999 to January 2000, I was contacted a few times byMr Moynot to discuss the possibility of a joint collaboration with ADS and Thomson-CSF.

424. During January 2000, Mr Moynot requested that I come to ADS in Durban to discuss such apossibility. Telephonically, he would not give me any idea as to its details in advance.

425. During this meeting, Mr Moynot proposed the possible deployment of the IMS network within variousstrike-craft upgrades being considered by Thomson-CSF with ADS’s involvement. This offer wasconditional that the IMS had been qualified at sea within the SA Navy’s Warrior Strike UpgradeProgramme.

426. Since the IMS had been developed specifically for the Corvette, it did not form part of the StrikeUpgrade Programme and thus could not be qualified at sea within this Programme. Mr Moynot couldeasily have ascertained this without my having to travel to Durban. I therefore contend that he wastedmy time and money on this matter. I refer to the correspondence between myself and Mr Moynot dated19th September 1999 and 18th October 1999(Annexure Cxx).

427. Nevertheless I did advise Mr Moynot that we had always recommended to the SA Navy that qualifyingthe IMS for the Corvette Programme, but on a strike craft, was an excellent and not extraordinarilycostly way of doing so. Mr Moynot agreed and undertook to bring up this matter with the Chief of theNavy, Vice Admiral Robert Simpson-Anderson as well as the Chief of Acquisition, Mr Shaikh. Ireminded Mr Moynot of this proposal in an email to Pierre Moynot dated 18th October 1999. I havenever heard anything since further on this matter.

Without Prejudice


428. On the 1st November 1999, at the meeting facilitated by AMD, ADS agreed to hold discussions withC²I² Systems with the objective of reinstating the IMS in the SA Navy Corvette Patrol Programme.This meeting was attended by Let Gen (Retd) Lambert Moloi, Chairman of the ADS Board ofDirectors. Mr Moynot advised AMD that he could not attend. I reiterated my agreement not to take anyaction that would impede Cabinet authorisation of the Strategic Defence Packages in exchange forADS’s cooperation in negotiating a mutually acceptable resolution to the dispute. It was further agreedthat another meeting between all the relevant parties would be held on 8th December 1999.

429. On 3rd December 1999 the South African Government signed Supply Agreements totallingR30,3 billion (at that time) to modernise its defence equipment.

430. On 8th December 1999, C²I² Systems attended a meeting facilitated by AMD with Armscor. ADSdeclined to attend due to the “unavailability of members”. I submit, in retrospect, that as the SouthAfrican Government had authorised the Defence Acquisition Programme, ADS’s position was secureand it was no longer imperative to negotiate with C²I² Systems.

431. In January 2000, I reported the matter to the Secretary of Defence Mr J.B. Masilela and attended ameeting with him and Special Advisor to the Minister of Defence, Ms Sue Rabkin on the 26th January2000. They advised me that the Ministry of Defence was initiating a complete investigation into theArms Deal and this would include the circumstances surrounding the de-selection of the IMS.

432. During the period February 2000 to August 2000, I telephonically contacted Ms Rabkin on a numberof occasions to find out what the outcome of Department’s investigation were. She advised me thatthe Minister of Defence had indeed initiated this investigation, but that I must be patient as ‘thesethings took time’.Additionally, on a number of occasions, Ms Rabkin assured me that I was proceedingin exactly the right way concerning this matter.

433. On the 1st February 2000, I was telephonically advised by Mr Swan’s successor, Mr Sipho Thomo, thatMr Moynot had recently advised him that “all was in order” concerning our dispute and that ADS hadmade a “lucrative offer” to us and were waiting for a response from us.

434. This was definitely not the case.

435. As I was convinced that the deselection of the IMS had been through irregular procedures, as well asbecoming aware of conflicts of interest involving the Chief of Acquisition, I first decided to co-operatewith the Special Investigating Unit (SIU) who had approached me in this regard.

436. During mid-June 2000, I stated gaining the impression that the SIU would not get the requiredproclamation. The SIU recommended that this matter be brought to the attention of theAuditor-General.

437. On 29th June 2000, I attended a meeting with members of the Auditor-General and the SIU in Pretoriawhere I advised the Auditor-General of the matter of the deselection of C²I² Systems’s IMS.

438. Although I was confident that the AG understood my complaint, I subsequently had a telephonicconversation with Mr Wally van Heerden, Deputy Auditor-General. He advised me that the AG’soffice had come to an interim conclusion that my complaint fell into the area of subcontracting and thatthe AG had a mandate only to investigate matter involving prime contractors.

439. As I considered ADS and Thomson-CSF to be effectively at the prime contractor level I did not acceptthe position the AG had taken on this matter.

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440. Therefore on 11th July 2000, I formally requested that the AG conduct a forensic audit into thecircumstances of the deselection of C²I² Systems as the nominated and selected sub-contractor for theIMS for the SA Navy’s Corvettes(Annexure Cxx).

441. On 25th July 2000, we received a letter from the AG formally advising us that my request for a forensicaudit did not fall within the ambit of the regularity mandate of the AG’s office. The AG elected to referthe matter to the Public Protector and to the Independent Directorate for Serious EconomicOffences(Annexure Cxx).

442. In August 2000, I was advised by means of a letter from the Public Protector that they wereinvestigating the matter and would inform me of the outcome in due course.

443. We had two meetings with Mr Shaikh in early September 2000. I am advised that these discussionsmay perhaps be regarded as without prejudice settlement discussions and I shall accordingly not saymore about them. What I can say however, is that in one of the meetings Mr Shaikh informed me thatthe decision to deselect the IMS had been that of the Chief of the Navy.

444. On 25th October 2000, I attended a meeting with Adv. Dave Scrooby and Adv. Gary Pienaar of thePublic Protector regarding the investigation into the Strategic Defence Packages. Here I briefed themfully on my complaint regarding the IMS’s de-selection.

445. On 3rd November 2000, I received an email from Mr Swan advising that due to the fact that the matterhad been reported to the Auditor-General and that Mr Shaikh consequently had to appear beforeSCOPA on 11th October 2000, the matter had “gone too far to reach an off-the-record” solution andnow had to “run its course”(Annexure Cxx).

446. On 9th November 2000, Ms Rabkin requested that I submit an affidavit to the Minister of Defence, theHonourable M. Lekota, concerning the approaches made to me in Pretoria by Mr Shaikh duringSeptember 2000 which I did.

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De-Selection: A Decision of the State

447. After C²I² Systems's de-selection, we wrote letters to the DoD who referred us to the GFC who referredus to ADS. On 23rd August 1999 ADS eventually replied in a letter to my lawyers, HGB that it was theState who had made the decision.

448. The assertions made by ADS in their various letters to me that it was the State that made the decisionsregarding the selection of equipment for the Corvette, seem to be corroborated by the letter ofMr L.R. Swan, the then Chief Executive Officer of Armscor, dated 29th June 1999 to the GermanFrigate Consortium, which reads as follows :

"Project Control Board Decision regarding the Project Sitron technical baseline:

1. At a meeting held recently regarding the selection of major products and their suppliers for theCorvette programme, the following were selected - see attached list.

2. Kindly inform all suppliers concerned, of the above decision ".

449. Furthermore, no one representing the State has ever told me that that was not the position.

450. I only received formal notification from the DoD of the reasons why C²I² Systems’s IMS was de-selected on 6th October 2000.

451. Mr Shaikh personally informed me in September 2000 that the IMS had not been selected because ofthe decision by the Chief of the Navy. He repeated this assertion before SCOPA. I accordingly sent aletter dated 18th October 2000 to the Chief of the Navy, inquiring about the reasons for hisdecision(Annexure Axx). I got no reply.

452. As VAdm Robert Simpson-Anderson had retired at the end of October 2000 I wrote to his successor,VAdm Johan Retief, however he would not supply reasons(Annexure Axx).

453. I also got a letter from RAdm Howell who referred me to Armscor(Annexure Axx).

454. It is also certainly logical that the State must have made the decision, in view of the fact that thedecision to rather select the Detexis system was a complete deviation from what was originallyenvisaged and from the URS. In fact, Mr Shaikh personally told me that this decision was taken orratified by the Cabinet.

455. Finally I received the letter from the Director of Naval Acquisition, RAdm Ockie van der Schÿf on the6th October 2000 in response to my question raised at our meeting on the 17th June 1999, i.e. 16 monthslater. In this letter, RAdm van der Schÿf makes the following important points as follows :

“Therefore due to financial constraints of the project, the Combat Suite selection process essentiallybecame a “design to cost exercise.” (my bold emphasis).

“Furthermore, the combat systems had to be offered against the approved SA Navy Combat SuiteUser Requirement Specification, which is a functional specification” (my bold emphasis).

“It is therefore re-iterated that the Combat Suite databus selection for the Patrol Corvette, namely thatfrom the supplier Detexis, was considered by the DOD to be both technically acceptable, as well asbeing the most viable option amongst the offered alternatives within the approved project cost ceilingand an acceptable contract risk profile.” (my bold emphasis).

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456. RAdm van der Schÿf is wrong when he claims that the URS is a functional specification. It is acomplete all-encompassing specification, including all functional and engineering requirements, aswell as Customer-Furnished Equipment (CFE) and Customer-Specified Equipment (CSE), whichhappened to include the IMS. It is also wrong to assert that the Detexis system was found to be“technically acceptable”. The report of the evaluation team indicates just the opposite.

457. RAdm van der Schÿf also states in his letter of 6th October 2000, the following :

“Thus, CCII was only a candidate supplier during the RFO and BAFO rounds of combat suitetendering, with no supplier being implicitly or explicitly nominated or excluded.”.

458. I would contend that, with reference to both the URS and the Element Costing and Description, thisstatement is clearly incorrect.

459. I did reply to this letter in my letter of 9th November 2000 where I enquired whether he was referringto the URS and requested that I be supplied with the document number and specific issue of thedocument to which he was referring.

460. I have still not received a response to this letter.

461. However, about two weeks later, I received a phone call from Mr Shaikh who apologised for notresponding to me sooner, but that he had just received the letter that day. This may be so, but, apartfrom sending the original by mail, I personally faxed this letter to both RAdm van der Schÿf’s fax andto Mr Shaikh’s fax, with my fax machine printing out a confirmation report that transmission had beensuccessful in both cases. Nevertheless, Mr Shaikh said that he took my request seriously and that hewould instruct RAdm van der Schÿf to respond to me immediately. Suffice to say, I have still notreceived a response nearly a year later.

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True Objectives of the Strategic Defence Packages

462. After the authorisation in principle of the SDPs and the announcement of the preferred maincontractors, Mr Shaikh a supplier’s meeting of 23rd November 1998. At this meeting Mr Shaikh saidthat they, that is he and the government, did not care if the ships (i.e. Corvettes) arrived at Simon'sTown (I presume he meant towed) without engines. In fact he said that if the Corvettes could actuallyput to sea and fight, that this would be the "cherry on the top" (his words in italics). He also said thatif the price of the Combat Suite was too high, that they might reduce the number of Corvettes fromfour to three.

463. Mr Shaikh called another meeting of suppliers on 8th February 2000, During this meeting, apresentation was given by Mr Dewald Jooste of Armscor on the subject of technology transfer inrespect of Defence Industrial Participation (TDIP). On completion of the presentation, I raised aquestion as to the objectives of TDIP as this had not been addressed and was important in respect ofthe TDIP being negotiated between ourselves as local recipients of technology under TDIP from ouroverseas partners within the submarine acquisition programme. As Mr Jooste could not or, would not,answer my question, Mr Shaikh took over and effectively told me that "there were absolutely nodefence strategic reasons for TDIP", the only reason for TDIP being to support countertrade. Apartfrom being aggressive in the extreme when answering my quite legitimate question, I foundMr Shaikh's answer very disturbing. In fact, at the end of the meeting, the Programme Manager of thesubmarine project, Mr Rob Vermuelen, effectively negated Mr Shaikh, his superior, by saying that theprime reason for TDIP in the submarine programme was to facilitate long-term supportability andupgradeability, which were strategic requirements of the SAN.

464. Consequently, I find it interesting that Mr Shaikh tried during the SCOPA hearings of 11th October2000 to justify the defence equipment acquisitions as being primarily being a result of actual defencerequirements. The Minister of Trade and Industry, Mr Alec Erwin, again made this assertion duringthis press conference of 12th January 2001 as well as the SCOPA hearings of 26th February 2001.

465. This certainly does not correspond with the Department of Defence’s Chief of Acquisition’s previouspronouncements in this regard.

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Cost “Ceilings”

466. Now, concerning RAdm van der Schÿf’s assertions about cost ceilings for the Corvette and/or itsCombat Suite, I find this quite significant considering the DoD’s response as to why the extraR40 million risk apportionment added by ADS was sufficient to cause the deselection of our IMS.

467. This assertion about a cost ceiling was also made by Mr Dawie Griesel on 13th June 2001 earlier duringthese hearings. He made the following particular statements :

“there was also an interaction with the technical teams due to the fact to the, during the negotiationprocess the costs had to be negotiated to get under a predetermined ceiling”

And :

“that was then necessary to interact with the technical teams in their technical negotiations with therespective bidders to ensure that the ceiling which was given was not superseded.”

468. In this regard, VAdm Simpson-Anderson gave the following testimony on 14th June 2001 earlier duringthese hearings :

“The Naval Board had previously decided not to compromise unnecessarily on the numbers and thequality of the platforms, since they had to last 30 years, possibly even longer. Compromises thereforehad to be made in the area of the combat suite. That is that part of the ship that can be upgraded andadded to as and when necessary. And since the project had a funding ceiling, the combat suite wouldbe designed to cost dependent on the balance after the platform cost had been deducted from theceiling. So with whatever was left we had to go and then find a combat suite.”

469. After the announcements of the SDPs and preferred suppliers on 18th November 1998, I attended ameeting, called by Mr Shamin Shaikh and Mr L.R. Swan, with the preferred system and sub-systemsuppliers on 23rd November 1998.

470. Statements along these lines had been made by Mr Shaikh and Mr Swan at a the supplier’s meetingthat I had attended on 23rd November 1998. I took notes of this meeting as follows :

Mr Shaikh

“(All the packages have) fixed ceiling prices - not one rand more (will be allocated to them)”

“If anything, price may come down”

Mr Swan

“Armscor/SA Navy have a specific amount of money (for the packages). We have to come in at that”

“(The ceiling price of the) Corvette Combat Suite is R1,4 billion”

“Local companies are naive in negotiating contracts with overseas companies. Armscor can assistlocal companies in negotiations.”

Without Prejudice


RAdm Howell

“The simultaneous Corvette and Submarine acquisition programmes offer a fantastic opportunityfor maximising commonality in terms of supportability, maintainability, upgradeability and (local)design capability (in at least critical areas)”

“The Lynx helicopter is a critical part of the Corvette weapon system”

471. I would like to examine the true facts of the matter.

472. On the 18th November 1998, the Cabinet approved in principle the Strategic Defence Packages andannounced the selected preferred suppliers as follows :

QuantityApproved

Equipment Acronym Cost

28 Advanced Light Fighter Aircraft ALFA R10 875,00

24 Lead-In Fighter Trainer LIFT R4 728,13

40 Light Utility Helicopter LUH R2 168,75

3 Coastal Submarine R5 212,50

4 Patrol Corvette SAN PC R6 001,25

4 Maritime Patrol Helicopter MPH R787,50

Total (Rands Billions) R29 773,13

Table 1 : SDP Approved Cost Ceilings

(28 x ALFA @ R10 875,00 million plus 24 x LIFT @ R4 728,13 million = R15 603,13)

The Corvette had a nominated Combat Suite with a nominal cost of R1 470,00 million, but at April1998 prices (R5,05 = US$1,00). By November 1998 this had escalated to R1 800,00 million(R6,25 = US$1,00).

The total approved cost of the package was R29 773,13 million or R29,773 billion, @ 1998 prices,apart from the Corvette Combat Suite which was “in predicted April 1998 Rands”.

This total included all costs, including statutory, importation, transportation and programmemanagement costs, but not financing costs.

For the ceiling cost of the Corvette Combat Suite, the following was applicable :

“The ceiling costs includes the entire scope of supply of the Combat Suite Element in terms of themanagement, products and services described herein, including all RSA taxes and duties”.

473. I find it interesting to note that the GFC offered a choice of two Corvette platforms, i.e. the MEKO 200at US$949,5 million and the MEKO A200 at US960,2 million (both prices inclusive of Combat Suite),difference between these two options being US$10,7 or R66,9 million (at R6,25 = US$1,00). The

Without Prejudice


Government chose the more expensive A200 version, even though the IP values for both options wereidentical.

474. The MEKO A200 is more expensive because it includes a waterjet propulsion system. However, thishad never been done on a frigate or corvette before, or at least Blohm+Voss had not done so, so itconstituted a not insignificant risk. However, this dis not stop the DoD or SAN from choosing thisoption.

475. I have been told that this option was chosen by the SAN because they considered it strategicallyadvantageous in the long term; but this was also the reason for fitting a high-performance, modern fibreoptic local area network into the vessel.

476. The price for the 590B corvette offered by Bazan of Spain was US$832,2, nearly US$130 million lessthan the MEKO A200, while Bazan’s Industrial Participation (IP) offer was more than US$400 millionmore than the GFC’s IP offer.

477. On 24th November 1999, the Cabinet approved contracting for the Strategic Defence Packages withthe original selected preferred suppliers as follows :

QuantityContracted

Equipment Acronym Cost

28 Advanced Light Fighter Aircraft ALFA R15 916,00

24 Lead-In Fighter Trainer LIFT

30 Light Utility Helicopter LUH R1 965,00

3 Coastal Submarine R5 531,00

4 Patrol Corvette SAN PC R6 873,00

0 Maritime Patrol Helicopter MPH


Table 2 : SDP Contract Prices

Without Prejudice


Quantity Equipment Acronym CostApproved

CostContracted

Delta

28 Advanced Light FighterAircraft

ALFA R10 875,00 R15 916,00 R312,87

24 Lead-In Fighter Trainer LIFT R4 728,13

30 Light Utility Helicopter LUH R2 168,75 R1 965,00 (R203,75)

3 Coastal Submarine R5 212,50 R5 531,00 R318,50

4 Patrol Corvette SAN PC R6 001,25 R6 873,00 R871,75

0 Maritime Patrol Helicopter MPH R787,50 (R787,50)

Total (Rands Billions) R29 773,13 R30 285,00 R511,87

Table 3 : SDP Cost Ceiling to Contract Price Deltas

Without Prejudice


QuantityApproved

QuantityContracted

Equipment Acronym Delta

Approval to Contract Delta R511,87

40 30 Light Utility Helicopter LUH R203,75

4 0 Maritime Patrol Helicopter MPH R787,50


Table 4 : SDP Cost Ceiling to Contract Price True Increase in Real Terms

Without Prejudice


Equipment Cost Total

Local : ADS R412 757 500

Local : RSA Industry R917 640 140

Sub-Total : Local R1 330 397 640

Foreign : Thomson-CSF R522 109 591

Foreign : Other Companies R415 197 262

Sub-Total : Foreign R937 306 853

Sub-Total : ex. VAT R2 267 704 493

VAT 14% R317 478 629

Sub-Total : incl. VAT R2 585 183 122

NDS ? R13 816 879

Total R2 599 000 001

Table 5 : Corvette Combat Suite Price Breakdown

Equipment Cost Total

April 1998 Cost Ceiling R1 470 000 000

RoE and CPI Escalation R330 728 124

Escalated Cost Ceiling R1 800 728 124

Contract Price R2 599 000 001

Delta : Approved Ceiling to Contract Price R798 271 877

Table 6 : Corvette Combat Suite Price Increase Breakdown

[Slide - Corvette Combat Suite Price Breakdown]

The Corvette’s nominated Combat Suite nominal cost could justifiably be escalated to R1,798 billion,at November 1998 prices (R6,25 = US$1,00).

The total cost of the package was R30,285 billion (still @ 1998 prices).

This total included all costs, including statutory (VAT and customs duties), freight, export guaranteesand programme management costs as well as ECA premiums and the financing of the preferredcashflow.

478. Hence the cost increase in numeric terms from November 1998 to November 1999 was R511,87million. However, because the Maritime Patrol Helicopters (MPHs) had been excluded and the number

Without Prejudice


of Light Utility Helicopters (LUHs) reduced from 40 to 30, the real cost increase is R1 503 million orR1,503 billion.

479. There had been a number of programmatic changes such as extension of the repayment period as wellas loan financing which would lead to some increases in financing costs. However, it is clear from theanalysis of the figures that such financing costs amount only a fraction of the extra R1,5 billion, whileit is clear from the Corvette costing that the price of the Corvette increased by R872 million.

480. It is quite obvious that the price of the Corvettes increased by R872 million, in the main due to aR798 million increased cost of the Corvette Combat Suite.

481. The first conclusion is that there was no cost ceiling applied to the Corvettes.

482. The second conclusion is that the Corvette Combat Suite cost increased in real terms by R798 million.

483. In addition, the scope of supply of the Corvette Combat Suite had decreased from the baselineestablished by the Element Costing and Description. This is borne out by the Project Officer’s (then-Capt Kamerman and Programme Manager’s (Frits Nortjé) letter to the GFC and ADS dated 6th May1999 :

“10. Since the initiation of discussions in December 1998, the process between us thus far has beencharacterised mainly by reductions to the cost of the Vessel achieved by reductions of the scopeof supply (quantity) or performance (quality) from that originally offered. The SA Navy isprepared to accept these reductions, and the considerable reduction in value that they represent,in the spirit of achieving an viable, affordable solution within the budgetary constraints of theproject. They are reflected in Annexures A and B.

11. Despite these efforts, however, the current overall price for the total vessel system to the Project(i.e. inclusive of taxes, duties, etc payable by the DOD and our own Project Management costs),still exceeds the overall Cabinet approved budget ceiling.”

484. I contend that the reason offered by the DoD proves that the “justification” offered by the DoD fordeselecting the IMS on the basis of remaining under a cost ceiling was unjustified.

485. I believe the following extract from the same letter places into perspective the dilemma into which theJPT had allowed themselves to be trapped :

“You are reminded of the affordability imperative placed by the government on this acquisition relativeto other equipment in the package and the likely consequences of a failure to achieve an affordableCorvette solution in the immediate short term to the probability or schedule of the Corvetteacquisition.”.

What the Project Officer and Programme Manager were reminding the GFC, Thomson-CSF and ADS,was that the Corvette programme would be cancelled or postponed unless there was rapid contractclosure.

486. Apart from this being a very weak negotiating position against a supplier effectively in a non-competitive position, I contend that this hardly supports the Government’s latest pronouncements onthe importance of the Corvette specifically, or the defences packages in general.

487. I believe that one of the reasons for the massive increase in price from the baseline described by theElement Costing and Description, to the final contract price, is the cost of Thomson-CSF’s TavitacCMS at R335 million. As this was essentially an “off-the-shelf” system, despite the need for the

Without Prejudice


requirement for customisation for the SA Navy. I believe this price to be very high. I would beinteresting to compare this contract price to the original price estimates for the AIS and WCS, but Iwould estimate the combined price for these two elements to be no more than R150 million.

488. A second reason for this increase in price is the cost of Thomson-CSF and ADS’s provision forR423 million for system integration, whereas the JPT had previously estimated about R150 millionfor this effort.

489. I contend that the DoD effectively sacrificed the four maritime patrol helicopters in order to facilitatethe increase in the price of the Corvette Combat Suite.

490. It is well known that the combat capability of a modern surface combatant such as a frigate or corvetteis severely diminished without an onboard maritime patrol helicopter. In my opinion, a navy would behard-pressed to find a commanding officer who would take a frigate into combat without a helicopter.This means that the DoD will almost surely be acquiring these maritime helicopters in the near tomedium term future. I would now estimate in 2001 Rands that four MPHs will cost aboutR1,45 billion.

491. As a taxpayer and citizen, I certainly do not begrudge the SA Navy “their”helicopters. I just want toemphasise the implications of what I consider to be poor acquisitions practices.

492. The DoD also sacrificed ten of the Light Utility Helicopters in order to facilitate the other priceincreases of the packages.

493. It is well known that one of the most pressing needs of the SANDF is the replacement of its combatair transport capability. In fact the original force design called for 60 light utility helicopters, while therevised force design called for 40. However, this was finally decreased to 30.

494. During the SCOPA hearings on 11th October 2000, certain SCOPA members had misgivings about theincrease in the price of the packages, not only due to escalation, but in real terms. Mr Lalu Chibaquestioned Mr Shaikh on the reasons behind the increase of R1,2 billion in real costs.

495. Firstly, Mr Shaikh tried to convince SCOPA that the reasons behind the increases were due toprogramme management costs. This was plainly not the case.

496. Although Mr Chiba tried his best to extract the truth about the real reasons for the cost increase, thisissue was not satisfactorily addressed, especially concerning the cost increase of the Corvette and, inparticular, concerning the Corvette Combat Suite.

Without Prejudice


Summary of Complaints

497. IMS

We were originally nominated in 1997 in terms of the tender baseline, as a South African supplier, forthe IMS. Later, in 1999, we were selected in terms of the Request for Best and Final Offer. When wethought that the IMS was being deselected, we formally approached the JPT, acting on behalf of theState (meeting of 17th June 1999); they told us that “we would be advised in due course”. Later, at thesuppliers’ meeting in 21st July 1999, DoD told us to contact GFC; at the same meeting GFC instructedADS to advise us, they responded that they would do so within “one week”. This did not happen, butafter our enquiry by lawyer’s letter, ADS advised us on 23rd August 1999 that we had not been finallyselected and that it was a decision of the State. Nothing was heard from the DoD or ADS again, despitenumerous letters to CAcq, until the Director of Naval Acquisition (DNA) advised us by letter on6th October 2000 that we had been deselected due to cost ceilings on the Corvette programme. On11th October DoD advised SCOPA during hearings that we were not finally selected due to refusingto provided a performance guarantee and that they had made the final decision on 24th August 1999.It is incongruous for the State to have made the decision on the 24th August 1999 while ADS advisedus on the previous day that we had been deselected by the State. I have proved that there was no suchcost ceiling applied to the Corvette Combat Suite; onthe contrary, the cost of the Corvette CombatSuite increased in real terms by some R798 million and the Corvette as a whole by R872 million andthe Strategic Defence Packages by R1,5 billion. I have also proved that not only were we never askedfor a performance guarantee, by that we offered to provide one without being request to do so, as wellas formally made a practical risk abatement proposal. Neither of these were

Without Prejudice


Conclusions

498. In conclusion, I wish to state the following :

499. Regarding the System Management System (SMS), the price offered by C²I² Systems wasmisrepresented to justify awarding this contract to ADS, when clearly C²I² Systems’s price was lowerthan that of ADS; with the JPT recording that both offered products were technically compliant.

500. Regarding the IPMS Simulator, C²I² Systems was clearly and unambiguously selected by the PCB tosupply this element and this was communicated to the GFC by Armscor on behalf of the DoD.However, the GFC have with or without Armscor’s permission deselected C²I² Systems’s IPMSSimulator for reasons they refuse to explain. It would appear that C²I² Systems is being penalised forcrying foul on other parts of the Corvette contract.

501. With respect to the Information Management System (IMS), C²I² Systems was involved in thedevelopment of the IMS for the SAN for 7 years and was nominated in terms of the formal tenderdocuments (i.e. Request for Information and Request for Offer) as the supplier of this sub-system forthe Corvettes Combat Suite. Later, this nomination evolved into selection in terms of the Request forBest and Final Offer. Thus a legitimate expectation that C²I² Systems would be selected as the supplierwas created by our previous involvement in the project as well as the tender documentation of Armscorand DoD and events relating to the process of acquiring the Corvettes.

502. It was specified by Armscor and SAN that the South African industry should be the suppliers of thesub-systems of the Combat Suite and that a South African company should be the Combat Suitecontractor, responsible for the integration of the Combat Suite sub-systems.

503. The end result, however, was that C²I² Systems was manoeuvred out of the contract, by the French-controlled company ADS, which also became the Combat Suite main contractor.

504. There were no lawful reasons for not awarding the IMS contract to C²I² Systems.

505. A clear conflict of interest arose namely :

• The fact that ADS, the nominated and eventually selected main contractor, could compete with otherbidders for the sub-system contracts.

• The fact that ADS obtained C²I² Systems's price and technical specifications and directly orindirectly, disclosed these to what later became C²I² Systems’s competitor (Detexis).

• The fact that Detexis and ADS are both in the Thomson-CSF group and form part of the primecontractor, i.e. the European South African Corvette Consortium (ESACC).

• The fact that Mr Shamin (Chippy) Shaikh played a role in the process regarding the selection of thecontractors for the Combat Suite, is improper considering that his brother Schabir Shaikh has a directinterest, as director and shareholder in both ADS and Thomson-CSF (Southern Africa).

506. In the bigger picture, Thomson-CSF, through an irregular acquisition process, obtained a major shareof the Corvette supply contract, contrary to what was envisaged by Armscor and the SA Navy.

507. Whoever made the decision in deselecting the IMS and selecting the Detexis, disregarded the reportof the evaluation team. This report expressed a clear preference for C²I² Systems’s IMS and indicatedthat the Detexis CSDB was technically unacceptable.

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Table of Contents

Personal Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

History - My Own Involvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

The Role of ADS and Thomson-CSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

History - Combat Suite Development in South Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

History - The Patrol Corvette Combat Suite . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Development on “Risk” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

History - Acquisition of the Corvette Combat Suite . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

ADS’s Alteration of the Baseline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

The User Requirement Specification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Product versus Potential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Sub-System Selections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Requests for Quotation and Price Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

System Management Sub-System (SMS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Integrated Platform Management System (IPMS) Simulator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Request for Best and Final Offer (RFBAFO) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Government Responsibility for Sub-Contracting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

“Risk” Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

“Risk”-Driven Price Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Baseline Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Assessment of Relative Merits of C²I² Systems IMS and Detexis CSDB . . . . . . . . . . . . . . . . . . . . . . . . . 46

Disclosure of C²I² Systems’s IMS Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Conflicts of Interest : Corvette Combat Suite (Project Sitron) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Conflict of Interest : Submarine Combat Suite (Project Wills) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Conflict of Interest : FBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Without Prejudice


Predation of Other Segments by Thomson-CSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Date of De-Selection Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

Armscor and SAN approaches to C²I² Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Attempts to Resolve the IMS De-Selection with DoD and Armscor . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

De-Selection: A Decision of the State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

True Objectives of the Strategic Defence Packages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

Cost “Ceilings” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

Summary of Complaints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85