A letter by a prime contractor in SA's R43bn arms deal has called into question government's claim that it played no part in awarding the subcontracts in the deal.

African Defence Systems (ADS) CEO Pierre Moynot claimed in a letter in August 1999 to a losing bidder, SA-owned C²I² Systems, that the "state" had chosen a subcontractor for the corvette programme.

French-owned Detexis was chosen for the subcontract, which related to an information management system for the corvette combat suite.

The letter to C²I² Systems' attorneys said: "I see no way (in which) I could reinstate your company in the project unless the state decides otherwise."

Government ministers Alec Erwin, Trevor Manuel, Mosiuoa Lekota and Jeff Radebe said in January government could not be held responsible for the awarding of subcontracts.

Detexis is owned by another French company, Thomson-CSF. Thomson also owns SA-based ADS. One of its directors is reportedly Shabir Shaik, the brother of defence department acquisitions chief Chippy Shaik.

Although he did not name the company, Auditor-General Shauket Fakie raised concern about the choice of Detexis in a review of the defence package to Parliament's public accounts committee last year. He proposed a forensic audit or "special investigation" into the awarding of subcontracts.

C²I² Systems MD Richard Young said yesterday the company would institute legal action against government in a bid to reverse the choice of Detexis.

He said officials of the SA Navy, Armscor and the defence department formed part of a technical team that found C²I² System's product "superior".

Fakie said the SA Navy preferred C²I² Systems, but this was "outweighed by prohibitive risk-driven cost implications as determined by the prime contractor (ADS-Thomson)".

ADS-Thomson, which had to accept unlimited risk for delivery, added a risk premium of about R40m to the local product. That resulted in the acceptance of the French product, Fakie said.

Moynot said the risks attached to C²I² Systems were far greater.

"Our client then decided to choose the second option rather than the one by your client," he told C²I² Systems' attorneys in the letter. He said that if C²I² Systems wanted to pursue the matter, it should do so with the state.

With acknowledgement to Farouk Chothia and Business Day.