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Strategic Defence Procurement ]
Summary of Background Information on the
Strategic Defence Procurement Package
12 January 2001
Issued on behalf of the Government of South
Africa by the Ministers of Defence, Finance, Public Enterprises and Trade and Industry
Between February 1996 and 1998 our country carried out a
comprehensive Defence Review including a White Paper on Defence. The Review involved the
Government, Parliament, NGOs and the general public.
The purpose of the Review was to determine, in a
participative manner the nature structure and purpose of the South African National
Defence Force. This in turn established the nature of the equipment needed to develop that
capacity.
The Review was also necessitated, in part, by the
constitutional requirement to ensure the existence of an effective national defence force.
On its completion, the Defence Review was tabled and
approved in Parliament and was supported by all parties.
Accordingly the nature and quantity of the defence
equipment the Government had to decide on procuring was determined both by the Defence
Review and issues of affordability.
It is therefore quite clear that Government is acting
within a firm mandate and it will carry that out. The Government remains convinced of the
correctness and integrity of the Strategic Defence Procurement and will implement all
contractual obligations.
This includes the package itself, the manner in which the
tenders were handled and decisions arrived at, the industrial and defence participation
and the cost of the package as a whole.
Furthermore, it is Government’s firm and considered
view that no concrete facts have been presented to suggest that there has been any
corruption in the processes administered by Government structures responsible for the
Strategic Procurement.
As is readily apparent from any study of this massive and
complex exercise the evaluation procedures and the decision making process did not allow
for any single individual to determine what should be acquired and at what cost. Such
situations were carefully avoided in order to prevent the possibility for corrupt practice
within the primary contracting process.
The critical decision making structures included the
Cabinet and a Cabinet sub-committee of the Ministers of Finance, Trade and Industry,
Defence and Public Enterprises, chaired by the then Deputy President, Mbeki. Accordingly,
the Government rejects with contempt any insinuation of corrupt practice on its part.
The Government is of the view that both the
Auditor-General’s Review and the Standing Committee on Public Accounts (SCOPA) Report
show that there was not enough time to properly go into this massive procurement process.
Regrettably, SCOPA neither called the Ministers to appear
before it on its own nor did it respond to the offer made by the Ministers to address this
committee.
Accordingly, the conclusions reached by both the
Auditor-General and SCOPA do reflect some lack of understanding of the acquisition process
as a whole. It is also our view that SCOPA would have benefited from a comprehensive
presentation of the whole process as this would have avoided misperceptions that have now
fuelled unwarranted speculation and assertions in the public domain. It is our view that
they should obtain this briefing as a matter of urgency.
The Government has always been ready to explain these
matters to any interested institutions.
Where we were asked, as Judge Heath did, the President
personally explained these matters to Judge Heath and offered to assist him to access such
information as he sought.
As acknowledged by both the Auditor General and SCOPA the
relevant Departments cooperated with all parties and subsequently have made all
documentation available for scrutiny by the offices of Judge Heath, the National
Directorate for Public Prosecution, the Auditor General and the Public Protector. This
documentation is obviously governed by confidentiality conditions imposed by legislation,
security and commercial contract. Government has assisted to the full extent.
We have therefore decided to communicate to the country as
a whole the information that will help clarify the issues that are now the subject of much
public speculation. We are quite prepared to do the same to both the Auditor-General and
SCOPA in considerable detail. This will be done on the first available occasion. Much time
and unnecessary speculation would have been avoided if we had been afforded this chance at
the outset.
One of the principal issues raised in this controversy
concerns the choice of the trainer aircraft, the British Hawk, in the light of the fact
that the Italian Aeromacchi trainer was cheaper.
Once the correct decision was taken to buy the advanced
Gripen fighter aircraft, the decision about a trainer had to take this into account.
Specific features of the Gripen also pointed to the need to provide less of a gap in
equipment and performance between the fighter trainer and the advanced fighter. These
factors and the various options were placed before the Committee of Ministers and it was
them who made the final recommendation to Cabinet.
The simple fact is that it is not feasible, for our
purposes, to graduate from an Aeromacchi trainer, no matter how good it was or its price,
to the Gripen. For a number of reasons the Hawk to Gripen graduation was chosen. No one
person could have influenced this and it was in line with correct decision making
processes at a policy level. Four Ministers and their departments expressed their various
views on this matter.
The Auditor-General has also raised questions about the
adequacy of the performance guarantees.
Firstly, these guarantees are in line with the National
Industrial Participation Program adopted by Cabinet in 1997 and best international
practice; and if the matter is studied more carefully the deterrent losses that will be
suffered by the prime contractors if the total obligations are not met are considerable.
Another matter raised is that of subcontractors. It should
be pointed out that the Procurement does not deal with subcontractors. This has to be the
contractual obligation of the prime contractor as it is they who must deliver reliable
equipment and undertake the performance and delivery obligations. This is standard
practice in major contracts. To insist that Government must be held to account for minor
subcontracts is to misunderstand procurement. The prime contractors are major
international corporations and we are confident that they would ensure the quality of the
subcontractors and this is their responsibility.
The Auditor General makes reference to a particular company
that complained. A cursory examination of this case would have shown it carried no weight
and that the prime contractor was correct in their decision.
A company that does not give a performance guarantee to the
main contractor in a mission critical part of the corvettes is unlikely to succeed.
It is totally unwarranted to suggest that if anything
untoward happens in the sub-contracting, then the contract between the government and the
prime contractor is either flawed or corruptly entered into.
An erroneous view has been propagated that the cost of the
defence package has escalated from R30 billion to R43 billion.
The cost price which was calculated in 1999 Rand is R30,3
bn. In keeping with the standard Government accounting practice, it is the actual payments
to suppliers that represent expenditure of the State. Interest costs are part of deficit
financing and not the cost of equipment. This matter was dealt with at some length in the
February Budget Review. The annual payments therefore take into account interest payments
and other costs, which are normal in any financing mechanism, including a private mortgage
payment. To infer from this, that the costs have suddenly escalated is to stretch
credulity.
The Government is very willing to provide as much detail as
possible on these and all other matters raised by the Auditor-General and SCOPA.
It takes serious issue with the ill-informed conclusions
drawn from the Auditor General’s Review and the SCOPA Report. These fail to
understand the most elementary features of the defence acquisition process. It is our view
that the Review and the Report were too cursory to do justice to this matter and have
called into question the integrity of government without justification.
We also find it strange that so many people in our country
have been driven into a virtual frenzy by mere allegations of wrong doing, without a
single shred of evidence of actual wrong doing being produced.
The Government will go ahead to implement the defence
acquisition to meet its constitutional obligations to the country and to the National
Defence Force.
The Government remains committed to cooperate in any
legitimate investigation into any elements of the defence acquisition process, but will
not allow itself to be diverted to participate in what amounts to mere fishing
expeditions.
For its part Government remains convinced that nothing that
was done in the context of the Strategic Procurement suggests in any way that corruption
occurred. We await convincing evidence to prove this otherwise.
Whilst Government is ready to cooperate with any
investigation, we believe that it is out duty to challenge any insinuations that question
the integrity of government’s decision making processes in this regard. We will also
not respond to campaigns by those who may have lost out in the bidding process or those
who are in principle opposed to the decision to undertake the Strategic Procurement.
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Last modified: 16 November 2004 14:13:48.
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