Publication: Sunday Independent Issued: Date: 2006-07-09 Reporter: Helmoed Heitman Reporter:

Nothing Suspicious About the Patrol Corvette Deal

 

Publication 

Sunday Independent
Date

2006-07-09

Reporter

Helmoed Heitman

Web Link

www.sundayindependent.co.za

 

The news of an investigation in Germany that may - or may not - reveal evidence of bribery in connection with the patrol corvette acquisition has triggered a new wave of comment. Sadly, much of that comment is ill-informed.*1 The question of corruption or not must be left to the investigation, but some old fables *2 need to be set right.

Most important among them is the story that the Germans had failed to make it onto the navy's shortlist, and were then "suddenly" restored to it and went on to win. This goes back to 1995, when Thabo Mbeki, then the deputy president, apparently assured the Germans that they were still in the running, despite Armscor having announced a revised shortlist that excluded the German offer.

Thus the Independent Democrats website says that, according to the De Lille Dossier, "initially this German bid was not shortlisted in 1995. The re-entrance onto the shortlist followed a visit by Mbeki to Germany. Suddenly the British and Spanish were ousted from the shortlist and the Germans were included. What caused this change of events?"

The short answer is that nothing did, because there was no such "change of events". The reality is that there were two quite distinct ship acquisition projects. The first was launched in 1993, and was for a class of four corvettes.

The decision to acquire corvettes, rather than the frigates the navy actually needed, was based on an assessment that the government was unlikely to fund the larger and more expensive frigates. That project, as I recall, resulted in an initial shortlist of five ship designs:

The Danish Svendborg Thetis ocean patrol vessel, which did not really meet the requirement (single shaft, and so forth) and in part because the shipyard could not serve as prime contractor (the Danish navy was its own prime contractor).

The French DCN Souverainete light frigate, a scaled-down version of DCN's La Fayette frigate design, which was dropped partly because it was perceived to be more a concept than an actual design, and because it was too expensive.

The German Blohm & Voss Meko-100L corvette, which was dropped because it was simply too small to be effective in the waters off the Cape and to have the endurance to allow even limited regional operations independent of a support ship.

The British Yarrow F-2000 light frigate, which had unacceptable stability margins and reserves but was otherwise interesting.

The Spanish Bazan Type 590B light frigate.

The latter two were taken into a revised "short shortlist", by which time Yarrow had taken the opportunity of a request for "best and final offers" to upgrade its proposal to the larger F-3000.

The final evaluation resulted in the selection of the 2 800-ton Bazan Type 590B light frigate, apparently partly on its own merits and partly on the basis of a more attractive offset package.*3

Those four ships were being offered for R1 billion, without the combat system, which was to be developed and installed in South Africa.

The total cost at that time was estimated at R1,7 billion, held that low because almost all of the sensors and weapons were to be taken over from strike craft being phased out of service. It did not, for instance, include the surface-to-air missile system.

The project team's recommendation in May 1995 was that the government enter detail and contract negotiations with the Spanish yard, Bazan (now Navantia).*4

At this point, however, the entire project ran into trouble *5 that finally led to it being deferred. That centred on arguments in parliament's joint standing committee on defence that the project was still based on the strategic and operational concepts and requirements of the "old order", so that it could not be supported. Others in civil society and elsewhere questioned whether the country actually needed such ships at all.

Still newly in office, and still formulating its policies and strategies, the government chose to defer the project, deferring any major equipment acquisitions until after a new Defence White Paper had been completed and a full defence review had been conducted.

The white paper on defence was completed in 1996, and the Defence Review was conducted in 1997/98. The force design phase of the review concluded that the navy did have a valid requirement for at least four large surface combatants, and the project was re-opened in September 1997 as part of the "Strategic Defence Packages".

This time, however, the navy was able to look to acquiring something rather closer to its actual requirements, a ship with the size to offer:

The endurance and range to conduct effective patrols along the outer edges of South Africa's exclusive economic zone and the waters of the Prince Edward Island group, and to be able to deploy in support of other African countries.

The sea-keeping to be able to operate effectively in the often very rough seas off South Africa, and to be able to operate a helicopter in bad weather.

That requirement demanded a ship of roughly "frigate" size, that is with a hull length of at least 110m. The "corvette" was now clearly something of the past, of the era when General Magnus Malan, the former defence minister, saw little need for a navy.

A full-blown "frigate", however, was still beyond the navy's likely budget.

That led to the notion of a "patrol corvette": a ship of frigate size that would provide the required endurance, range and sea-keeping, but with a weapon system equivalent to that of a top-of-the-range corvette, not a typical frigate.

This project again resulted in a shortlist of five ships:
All were frigate designs of around 3 000 tons.

The evaluation of these four ships showed the Meko A200 to offer the best "military/technical value" *6, with a score of 810,5 points out of a possible 1080. The older Meko 200 scored 790 points, Bazan's 590B 766,6 points, GEC's F3000 649,9 points and the DCN design 618,3 points.

Much is made of the fact that only Bazan's design met all of the "minimum technical performance criteria", which was true as far as it goes. The evaluation would seem to have been, however, that the advantages offered by the German designs more than offset those aspects where they fell short of the original specification. The A200, in particular, adopted an entirely new approach to enhancing survivability.

There have also been comments that only Bazan met all of the tender requirements, and that all the others should have been dropped from the outset. The fact is that Bazan also did not meet all of the requirements *7, and it would have been silly to restart the entire process from scratch, losing yet more time and allowing escalations to drive the cost even higher.

The cost of the platforms had in any event already escalated quite dramatically over the intervening period, as a result of normal escalations, inflation and a major decline in the value of the rand (from 3,56 to the dollar in 1995 to 5,9 in 1998). Thus, by the time these bids were submitted, the cost of the Bazan ships (platform only) had risen from the original R1 billion for four to R1,69 billion. The Meko A200, the type that was eventually selected, was the second cheapest at R2,13 billion for four.

The Bazan Defence Industrial Participation offer was, at least on paper, substantially better than GFC's, but GFC's National Industrial Participation offer (that is, for civilian industrial investment) was vastly higher than that of any other bidder. *8

The ministerial committee *8 was then briefed on the outcome of the evaluation at the end of August 1998, and the cabinet selected the GFC as the "preferred bidder" in November 1998, opting for the Meko A200 design.

Thus the "suddenly" of the De Lille dossier actually involved a period running from May 1995 to August 1998; hardly the usual understanding of "suddenly". Also, the ship offered by the German yards in 1997 was an entirely different ship to that offered in 1995.

It is also worth remembering that Joe Modise, the minister of defence, had spelled out the government's priorities in selecting from the shortlist drawn up by the military. Those priorities were: strategic alliances with the major European trading partners; alliances for the defence industry; industrial participation; and the actual cost of the equipment. Germany was clearly going to win unless the Spanish had come up with a truly remarkable offer. *9

That set of priorities was clear to all of the bidders that I spoke to during that period. If they did not take that into account, the fault is theirs.

The bottom line is that the German ship seems to have been selected because it was the best ship and because the German NIP offer matched South Africa's interests in developing "strategic alliances with our major European trading partners". If the Germans actually did pay any bribes, they were wasting their money. *10

With acknowledgements to Helmoed Heitman and Sunday Independent.


*1       Even more sadly, much of the comment in this article is not only ill-informed, it is purposeful propaganda containing spin and half-truths, viz :

Straight from the JIT Report of 14 November 2001 :

"(i) Further observations with regard to the selection process are that:

•       Bazan was the only bidder that complied with all the critical minimum criteria in respect of technical and DIP evaluation.

•       Bazan obtained the highest military value and DIP scores.

•       Bazan provided the highest percentage of DIP and NIP in relation to the contract price.

•       Bazan offered the lowest price of the four bidders.

GFC, however, was nominated the preferred bidder on the basis of their NIP offer. This is despite the fact that NIP is not ascertainable in terms of achievability."
"(a)    No approved NIP value system could be found during the forensic investigation. It could, therefore, not be established whether an approved NIP value system was in place for the purposes of evaluating the bids. What was found was an individual schedule titled .economic value system."

"There is no evidence from the minutes of SOFCOM that the memorandum directed to SOFCOM chairpersons had, at any stage, been submitted to the entire committee. In the absence of such evidence, it would appear that the chairpersons took a decision to condone the mentioned non-compliance without the approval of the committee. This decision had a far-reaching impact on the eventual selection of the preferred bidder for the Corvettes, which was GFC. Upon enquiry about this decision, Mr Shaik indicated that this decision was taken by them in their capacities as Chief of Acquisition of DoD and CEO of Armscor. His authority, according to him, vested in his management delegation from DoD."

"GFC was given a score of 5 instead of 1 on the total DIP offered in terms of paragraph 7.1.2 of the conformance and compliance summary schedule. The reason given for this is that GFC was given this standard credit because of an increased NIP commitment. It was the understanding of the investigation team that NIP and DIP were to be evaluated separately."

"(a) There  is  no  evidence  regarding  the  manner  of  awarding  the  NIP quality multipliers  of  1  to  25,  as  these  were  not  linked  to  any  documented benchmarks.

*2      Fables "Fishers of Corrupt Meam"

Straight from Thabo Mbeki's digital missive of 2003-05-30  :
"An aggrieved potential and unsuccessful sub-contractor has taken his grievance to our courts. For this reason, we will not comment on the matters he raises, which the fishers nevertheless use triumphantly and wilfully to justify their campaign. But this gentleman decided to raise, in the media, the matter of an earlier process to acquire corvettes for our Navy.

The gentleman concerned makes the false allegation that during the life of the Government of National Unity, formed in 1994, a contract for four corvettes to be built by Bazan of Spain "was cancelled after being awarded". This is not true. The preceding apartheid Cabinet had not approved this contract. The GNU Cabinet decided not to enter into this contract.

Bazan entered the later competition to supply the four corvettes, and lost to the GFC. This issue is of relevance and interest only because of the controversy that some have brought into the current defence procurement. It is an interesting coincidence that this controversy has focused so intensely on the corvettes.
In time the details of the truth will come out about how the controversy concerning the 2000 defence procurement emerged and persisted. The gentleman litigant, who has raised the matter of Bazan of Spain, may be proved to have been justified in raising this issue, even if he made false claims about a Bazan contract that never was.

This detailed truthful account would tell our country interesting things about such matters as defence procurement during the apartheid years, and the promotion of political careers and fortunes in contemporary South Africa. It would tell a story about the political uses of the racist stereotypes that are part of our daily menu of information and perception, and the formation of popular consciousness.
It would inform us about the impact or otherwise of the domestic and international apartheid networks on our democratic order, and the moral integrity of those who correctly claim that they fought for the victory of this order, and therefore seek to position themselves as its true representatives.
The sooner this fascinating story is told the better, so that we can improve our performance with regard to the achievement of the critical objective of building a truly people-centred society."
However, just compare this to my statement as published in Business Day "This was not long after a R2,4bn (1995 rands) tender for four patrol corvettes (read light frigates) was cancelled after, and to all intents and purposes, being awarded to Bazan of Spain, after a three-year acquisition process, which had been approved all the way up to and including the Armaments Acquisition Council."

Mbeki should be aware of the statement under oath of Rear Admiral S.J. (Kek) Verster, DoD's Director of Weapon Systems :
"I just want to point out in 1994 and 1995 there were very particular approvals given for the corvette, the navy corvette, and there is certain documentation which I do not want to now name, but we were on our way to ask for political authority in 1995 particularly. At that time the corvette had money approved on the budget."

*3      Indeed, Bazan was finally selected.


*4      It went a bit further than this. See RAdm Verster's evidence in *2 above.

There were even dozens of DoD, SA Navy and Armscor officials working on this project at Bazan's shipyard on the west coast of Spain when Mbeki and friends pulled the plug.


*5      This is at odds with what Mbeki says above, i.e. in particular :
"This detailed truthful account would tell our country interesting things about such matters as defence procurement during the apartheid years, and the promotion of political careers and fortunes in contemporary South Africa. It would tell a story about the political uses of the racist stereotypes that are part of our daily menu of information and perception, and the formation of popular consciousness."
Mbeki hints darkly about corruption, conspiracy and racism - which have little to do with strategic and operational concepts, corvettes vs frigates, etc.


*6      This is true but at odds with the JIT's finding that :
"Bazan obtained the highest military value and DIP scores."


*7      From the JIT Report it appears that :
"According to one evaluator, Bazan did not provide a business plan for a particular activity although they committed themselves in this respect."

This hardly seems to be a valid reason for final disqualification and as the JIT Report coyly puts it : "According to one evaluator.....".


*8      This is probably the crux of the biscuit. The GFC scored 100 normalised points and Bazan 48 points.

But MINCOM, chaired by Mbeki down-rated Bazan NIP and up-rated GFC's, this using an entirely qualitative methodology.

So they swung the NIP ball in GFC's favour which eventually tipped the scales towards GFC and voila, mission was accomplished.

Meanwhile, the big question is : "has the GFC accomplished R52,433 billion in NIP?".


*9      Far more like :

        Spain was clearly going to win unless the Germans had come up with a truly remarkable offer.

Which is what happened.


*10     Nonsense.

The Germans had very good reason to pay bribes :
The Germans certainly did not waste their money.

If the bribes were only DM30 million (R136 million), this amount was easily absorbed by the R872 million price increase between 17 November 1998 and 3 December 1999.

Even if the bribes were DM80 million, this amount was easily justified in going from zero to hero.

But the Germans were probably not the only one's to pay bribes in respect of the corvette contract.

The evidence would appear to indicate that the French paid an equivalent amount in absolute terms, i.e. also about R130 million, but slightly higher in relative terms at 5% on contract value rather than 3%.

But then this was also quite justifiable in that they were allowed to take the corvette combat suite price from just R1,8 billion to R2,599 billion - a deliver just half the goods.

Great deals if one can get them.