In the recently declassified report, the committee had offered two options for the government to undertake in the existing contract – namely to keep or terminate – following its investigations. — Photo by Facebook/Wong Kah Woh
By Kenneth Tee
Wednesday, August 17, 2022 6:07 PM MYT
KUALA LUMPUR, 17th August – The Governance, Procurement and Finance (JKSTUPKK) Committee of Inquiry report on the Royal Malaysian Navy Littoral Combat Ship (LCS) project had finally recommended the Malaysian government to honor existing contractual obligations instead of terminating them.
In the recently declassified report, the committee had offered two options for the government to undertake in the existing contract – namely to keep or terminate – following its investigations.
In line with the option to retain the contract, the committee had also noted the need for the government to reconsider whether to continue construction of the six LCS or reduce their number.
“The Board of Inquiry believes that Option 1, which retains the contract, is worth considering by the Government.
“However, the Inquiry Committee proposes that the Ministry of Defense immediately table all findings of the investigation, the financial implications for the government and the direction of the project to Cabinet so that Cabinet can deliberate and decide on the best course of action for the six LCS,” he said.
Under the first option, the committee said the government must ensure strict control over progress payments made to Boustead Dockyard (BNS) so that they are used exclusively to fund the construction of the LCS.
“This is to avoid any kind of payments being made to other parties not related to the LCS project,” he added.
The committee also said liquidated damages (LD) should be enforced against BNS in accordance with the obligation under the contract and disregard any LD exceptions made against the company.
He also said the government should seriously consider any requests from BNS to increase construction costs for the completion of the six LCS.
“A cost-benefit study should be conducted as the estimated cost of the project is expected to exceed its ceiling cost of RM9.128 billion,” he added.
In addition, the SNB is also required to further improve its governance in financial management, equipment procurement and service to vendors to ensure that quotes obtained are value for money.
As for option 2, the committee noted that if the government had to honor several clauses of the contract, if it opted for the termination of the contract.
The committee also highlighted the financial implications of the said option, noting that BNS’s financial position is in a very weakened state as it has debts totaling RM956.89 million to nine financial institutions and RM801.11 million to providers.
He also noted that the remaining unpaid financial allocations of RM3.188 billion out of the RM5.94 billion that has been paid for the LCS project would be insufficient for the completion of six vessels.
If the government insists on bringing in new contractors, the committee said other issues could arise, including longer renegotiations, increased costs and even concerns about whether new contractors would be able to guarantee this. would be beneficial to the government.