Shauket Fakie, the auditor-general, is concerned that the countertrade aspect of South Africa's controversial R30-billion arms deal may be undermined by inadequate guarantees.

He also wants a special forensic audit into the subcontracts that fell out of the original terms of reference of his probe, and has been the subject of repeated corruption claims.

In a special report tabled in parliament on Wednesday, Fakie said his audit into the prime contracts of the arms deal had revealed several material deviations from generally accepted practices.

"The explanation provided by the department of defence for this material deviation does not appear to be satisfactory," he said.

'A different bidder, at a significantly higher cost, was eventually chosen' One of Fakie's key findings relates to the overall independence of role players.

"I am of the opinion that the aspects of independence, fairness and impartiality could have been addressed more significantly."

Although the roleplayers were subjected to a security clearance, the potential conflict of interest that could have existed was not adequately addressed by this process, Fakie said.

"This aspect could have been addressed more significantly by way of obtaining declarations prior to the strategic offers process," he said.

Last year, the South African government signed contracts totalling R30,3-billion to modernise its defence equipment, which included the purchase of corvettes, submarines, light-utility helicopters, lead-in fighter trainers and advanced light fighter aircraft.

The Heath unit is also investigating the arms deal The decision to purchase maritime helicopters was deferred to a later date.

The offsets in industrial participation commitments has been estimated at about R104-billion, with the creation of more than 65 000 jobs.

However, Fakie said he believed the performance guarantees regarding national industrial participation (Nip) commitments might be inadequate.

The guarantees were on average about 10 percent of the contract price.

This might be inadequate to ensure delivery of the Nip commitments, and could undermine the counter-trade element of the arms deal.

Fakie said there were problems with the technical evaluation of the bids for the lead-in fighter trainers.

The fact that a non-costed option was used to determine the successful bidder was a material deviation from the originally adopted value system.

"This ultimately had the effect that a different bidder, at a significantly higher cost, was eventually chosen on the overall evaluation."

Fakie found that the department of defence had ignored its own policy on international offers.

A first-order value system was not established and a ministry of defence working group was not appointed.

"Failure to do this had resulted in the military strategic advantage not being determined by military appreciation."

Fakie also listed several deviations from the procedures laid down for arms acquisition.

These included that the advanced light fighter aircraft (Alfa) project did not have a prior approval staff target and staff requirement. These were only obtained for the advanced fighter traniner, which was later changed to Alfa.

Referring to the corvettes, Fakie said a local company that was performing certain technological work on behalf  of the SANDF - funded from a previous technology retention project - was not selected for one of the subsystems, namely the integrated management system (IMS).

Although the SA Navy preferred the technical protection offered by the local company, this was outweighed by the prohibitive risk-driven cost implications as determined by the prime contractor.

The prime contractor, who had to accept unlimited risk for delivery, added a risk premium of about R40-million to the local product, which resulted in the acceptance of the French product.

Fakie said that a complaint had been lodged with his office on the matter, and as the basis of determining the risk premiums did not fall within the scope of his audit, a forensic audit of the matter should be considered.

Many allegations regarding possible irregularities in the awarding of subcontracts existed, of which the corvette IMS was one example.

Fakie recommended that a forensic audit or special investigation into these areas be initiated.

His report will be discussed by parliament's watchdog committee on public accounts next month, during its hearings into the SANDF.

The R30-billion arms deal is also the subject of investigation by the Heath anti-corruption unit and the investigating directorate for serious economic offences. - Sapa

With acknowledgement to Sapa and Independent Online.