Government is likely to decide next month whether or not to penalise the German consortium supplying SA with submarines following its failure to meet contractual obligations on investments in nondefence projects last year.

The chief director of the industrial participation secretariat at the trade and industry department, Sipho Zikode, said yesterday that government was in talks with the consortium.

"We will probably know by mid-March where we stand," he said.

Ferrostaal, the lead member of the submarine consortium, had to meet an investment target of à610m and a sales target of à110m by July last year.

Government has declined to disclose the extent of the shortfall.

Government action will be closely watched as it is regarded by some as being lenient with suppliers that have lagged behind in their contractual obligations in terms of the arms deal.

The consortium had until the end of last month to say how it planned to remedy the situation.

At the time of inking the controversial arms deal, government promised that suppliers that did not meet their offset obligations would face heavy penalties.

Government, however, has the option of granting the errant supplier a period of grace in which to catch up to its targets.

The merits of offset programmes — widely seen as sweeteners to win support for arms deals — have been questioned by the World Bank, the World Trade Organisation and other bodies.

With acknowledgements to Carli Lourens and the Business Day.