VOLUME 10 PAGES 572 - 703

PROCEEDINGS RESUME ON 27 AUGUST 2001

CHAIRMAN: Good morning ladies and gentlemen. Today we are going to proceed with the testimony of Dr Young as per arrangement and I wish to thank the parties and counsel for sticking to the arrangements which we made when we were last year. Everything seems to have gone according to plan. If there were any glitches, both in public and in private, they are not of any consequence at this point in time and as indicated, and for the sake of emphasis, I repeat that we are almost at the chain end of these proceedings, the public phase of this investigation, and therefore the intention is to proceed with the current evidence until we finish because as indicated again, it is intended that the report of this whole investigation be presented to Parliament during September sometime. By mentioning this we are appealing for co-operation from all concerned to be mindful of the fact that time is of the essence. I do not know, before we proceed with the matter today, whether there are matters that counsel wish to bring before the panel. Mr Fourie?

MR FOURIE: Yes Mr Chair, I have been informed by Mr Pitman representing Dr Young today that he has an issue that he just wants to raise.

CHAIRMAN: Before Mr Pitman does so, any other counsel that would like to raise any matter? Right Mr Pitman.

MR PITMAN ADDRESSES COMMISSION: Thank you Mr Chairman. We are here, as we were on 14 August as per your direction in terms of section 7(B) of the Public Protector Act. We have come here in good faith as we did on the last occasion expecting to be heard again today as we were on the last occasion. Now it had been agreed between us that we were to give testimony once we got clearance from the Minister of Defence in terms of section 118 of the Defence Act as well as section 11(A) of the Armscor Act. On Monday, as per the agreement, we provided a copy of our aide memoire to the state attorney and thereafter on Monday a copy of the Minister's consent was given to us. However the Minister's consent was, and is still, qualified. We are concerned with the qualification as it was set out in paragraph 1.2 of the letter. Moreover no authorisation was provided on Monday in terms of the Armscor Act. After repeated communication with the state attorney ... (intervenes)

CHAIRMAN: May I come in there Mr Pitman? I have an original of what is probably the latest consent. Do you have a copy of that?

MR PITMAN: That was handed to us this morning at 9:15.

CHAIRMAN: It addresses your concerns with regard for instance to the Armscor ... (intervenes)

MR PITMAN: It does but the only issue that I wish to raise to the panel is the discretion of paragraph 1.2. It is still a concern of ours. We had understood that the consent would be unqualified. It remains to be qualified. I would like to leave it at that and maybe once I have finished you could give us some assurance with regard to that.

CHAIRMAN: But maybe, without prejudging any articulation of your concerns, I would want to say, I have heard you saying you would like to leave it at that, but the way we looked at it was is Dr Young going to be hampered at all in these proceedings and that question, looking at that concern, seems to be answered in the negative. He is not going to be hampered and this pertains to whatever statements he made before this hearing, or before his testimony today, or after this testimony.

Now what I am getting at is would then that be a concern for this panel? I understand your concern but would we preoccupy ourselves with those concerns not because we do not care as it were but for purposes of this testimony he is covered and we are concerned obviously that he should be covered, he should not lay himself in any way open to any prosecution and as you know, I mean, we have given you even before this concern in writing from where we sit, an assurance that there will be no such prosecution in respect of any legislation with regard to this testimony.

MR PITMAN: Mr Chairman I think the point is really just to put this on the record.

CHAIRMAN: Okay, alright. Well your counsel is on the floor now Doctor but do you want to consult?

MR PITMAN: The next issue is more of a personal issue. It concerns the fact that our senior counsel and junior counsel are not able to be here today. We arranged for 27 August with them present obviously, however our senior counsel was not aware of a previous commitment that he had in the Cape Provincial Division and our junior as well. So we would appeal to you today if we could make a ruling that there will be no cross-examination today. It will be a question of, let us call it broadly evidence in chief from my client and thereafter once our counsel are here tomorrow there will be cross-examination from the other legal representatives. It is an appeal to you on a personal level that we had no way of avoiding it unfortunately. We addressed correspondence to your office on this issue requesting a postponement on that basis. You were not prepared to grant such a postponement, so we have been compelled to come up here as it were without our full legal team and maybe we could just deal with that before I deal with my last two queries.

CHAIRMAN: Yes maybe I can deal with it. I mean we rather take exception, not to you but to your counsel. He was present at the last hearing and as you know all that has happened was by agreement between the parties. He was one of the representatives of your client. Now how can counsel not be aware of a commitment in court and commit himself to a date? That is the kind of thing that sort of boggled our mind and it was not being unreasonable in saying we are carrying on the hearing today. It is because it is a matter we look very dimly at for senior counsel to commit himself in that kind of fashion and not be present when he is aware of the parameters within which we are operating and I would like you to communicate that feeling from us, but having said that we shall canvass of course the opinion of other counsel, how they feel, but I can tell you at this point in time that from where you sit the request is not unreasonable but certainly we do not appreciate how your counsel behaves towards this hearing.

MR PITMAN: Yes I do not think they meant any disrespect Mr Chairman. My counsel thought he might be available but he was not too sure and as soon as he found out and canvassed it with the other parties, the other counsel representing the other parties and most of them had no objection to a postponement. It was the fact that your office was unprepared to postpone and rightly so, the date had been agreed. But I will pass that on to senior counsel. The third point relates to the fact that my client was to provide a fair summary of his proposed testimony to the state attorney who would then in turn pass it on to the Minister of Defence for him to consider granting authorisation. If and once this authorisation had been given, it was certainly my understanding of the agreement and quite explicitly my instructions from my client, that the summary would then be passed on to your office so that you could distribute it to the other concerned parties. For a very practical reason we quite frankly anticipated that the consent, or authorisation, might well be qualified. Certain sections of my client's testimony might be objected to and for that basis we were then going to consider our position before we came back to you with regard to striking out or amending those sections. Now what actually happened was that the state attorney forwarded this summary directly to your office on, I believe, Sunday, or Monday morning in fact. So that is also just a point that my client wished me to raise, even though he had marked on each page "without prejudice and strictly confidential". He believes that his rights were violated by the state attorney and he wishes that it is recorded that his rights are reserved in this regard. One last point ... (intervenes)

CHAIRMAN: Yes, let us deal with them seriatim. Well in what matter, I mean it was once more an agreement, qualified in that respect that it would only be distributed to the parties who are affected, with regard to whom we are duty bound in terms of the law, as you know, to give if at all their interests would be affected in any way and that we put on record as you know, that that would be done. Now how did the state attorney violate that agreement? I mean you say you anticipated that the consent would be qualified and so on. I do not know, I mean we would seek clarification about how it was violated because everything that was done, was done in terms of that agreement and I would say even with regard to the state attorney. So how is the violation that is being ... (intervenes)

MR PITMAN: Well my understanding of that agreement, or my instruction from my client to that agreement, were specific. We would forward it to your office. I do not believe that these proceedings must come to a grinding halt right now, I am just raising it to put it on the record that his rights are reserved in that regard.

CHAIRMAN: No, no why I am asking that question is because any violation of any person's right is not a matter that we take lightly, you know and I would like to ... (intervenes)

MR PITMAN: That is why I raised it, that is why I raised it and put it on the record.

CHAIRMAN: You are saying that that is your client's view. Is that it?

MR PITMAN: And my understanding of it.

CHAIRMAN: Your understanding?

MR PITMAN: I was there when the agreement was reached.

CHAIRMAN: Well alright, okay.

MR PITMAN: Then the last point, and this quite frankly appears to be the most important point, is that apart from our testimony having been provided to all the parties who might be implicated, we on 6 August received a threat from attorneys Deneys Reitz, acting on behalf of African Defence Systems. This threat has been forwarded to your office, the letter, but maybe it might be pertinent just to read a few clauses out of this letter so that the other parties can understand what our concern is.

CHAIRMAN: Yes.

MR PITMAN: The second paragraph reads as follows:

"Our client has informed us that with regards to the SUVECS and SAN PC contracts you are required to obtain written authorisation of Armscor and our client respectively before any confidential information may be divulged. It appears from correspondence from the Public Protector that you have indicated to the Public Protector whether the testimony you will give on 14 August 2001 relates specifically to either SUVECS and SAN PC contracts or otherwise. Our client has instructed us to remind you that the written authorisation of Armscor and our client is required before any confidential information relating to either SUVECS or SAN PC contracts can be divulged to anyone. We again repeat that it is our client's understanding that you intend giving evidence without legal compulsion despite the fact that all the investigating agencies are aware of your allegations and you have not seen the need to deal with them in the public forum. Our client hereby reserves its rights should you fail to adhere to the terms of the agreements and in regard to your dissemination of untrue and defamatory statements of and concerning our clients."

The last paragraph reads as follows:

"We hereby request you to inform us by close of business on Wednesday 8 August 2001 if you intend testifying about either SUVECS or SAN PC contracts on 14 August 2001 and if so we are instructed to request that you provide our client with relevant requests for disclosure so that our client can seek authorisation from Armscor and the Minister of Defence to permit you to make such disclosures provided by the Armscor Act and regulations, namely clause 37, the K Standard of 00020, Armscor Security Manual for SUVECS and clause 3, 38.2 of the SAN PC contract for the Corvettes."

They forwarded, as I say, a copy of this letter to your offices. Now that was on 6 August. Numerous correspondence, I think at least six letters as well as the same amount of telephone calls, if not more, had gone on between my offices and those of Deneys Reitz and this morning again it was confirmed that they are not withdrawing their threat, they still consider us to be at risk to testify today. There are enormous financial considerations that our client has as our client has got contracts with African Defence Systems and Armscor that if he testifies that those contracts could be affected. Now immediately on receipt of this letter we proceeded to try and find this documentation, these agreements, referred to in this letter of 6 August. In fact we devoted almost three days looking for these agreements and these documents and to date we have not found them. As soon as it became clear that we could not find these agreements and documents as referred to, I drafted correspondence to Deneys Reitz requesting copies and in fact tendering to pay for the costs of those copies to be couriered to our offices in Cape Town so that we could properly advise our client and as of late on Friday Deneys Reitz refused to provide us and to date are refusing to provide us with those contracts or documents and this puts us in an invidious position of not being able to advise our client correctly. Our client must of course testify without risk and your job essentially is to protect him as a member of the public against any kind of risk or threat of any kind of risk and it is actually a bit disturbing to bring this up at this time with a room full of people waiting to commence, when this could have been resolved properly quite easily with a telephone call or a letter, but unfortunately that is the situation. For three weeks I have been trying to do just that and I have been unsuccessful. Now we need your guidance here as to how we proceed further because my client is quite frankly not prepared to testify if there is any kind of risk whatsoever.

CHAIRMAN: Yes I think your concerns are genuinely held. We have a copy of the letter which you properly sent to us and we are aware of the efforts which you have put out to try and resolve the matter, which is appreciated, but to the extent that the consent has now been amended to include the Armaments Development and Production Act, is this threat from where you sit still valid?

MR PITMAN: Well that is my contention. I wrote to Deneys Reitz with that exact point, saying that you know we now had the consent, they now had our testimony. Surely it is now up to them to withdraw their threats now that they know exactly what we are going to say. You see we are at a disadvantage, we do not know what these agreements or these documents say. They could have come obscure clauses in them.

CHAIRMAN: Well I am sure Mr Kriegler will address the matter when he has the opportunity to do so. Are you done Mr Pitman?

MR PITMAN: That is right, thank you.

CHAIRMAN: Thank you Mr Pitman. Maybe Mr Kriegler we can hear you on these matters.

MR KRIEGLER: Yes. Thank you Mr Protector. The position is firstly, as we see it, with respect, that it is not a matter for Dr Young which he is entitled to come to you for legal advice, to ask you to protect him in the event of some sort of legal risk emanating from his evidence. We do not believe that you have the power to immunise him from any legal consequences which might flow from the nature of the evidence that he gives. Take for example the matter of defamation. He is asking you to come to his assistance in giving him the indemnity, or the ...(intervenes)

CHAIRMAN: Your point is made in that regard. Can we proceed? We accept that with regard to defamation ...(intervenes)

MR KRIEGLER: Nor can we give him the immunity from that sort of risk. We feel that that is not only unreasonable but certainly not a matter which we would ever contemplate doing. Certainly we are being implicated directly by Dr Young, we see from his aide memoire, and certainly my client's attitude is that if he transgresses the bounds, that in due course it is found that the statements are defamatory and untrue, as it will contend in due course, then certainly he should be prepared to put his money where his mouth is. We are not going to give him immunity from any legal consequence from our point of view, whether it be to sue him for violating our civil rights, either arising under the contract or in the defamation, in that regard. So we do not believe that he is entitled to receive such indemnity from us. As regards the contracts I understand, or the documentation requested, I understand from my instructing attorney that our client has made a sincere attempt over the weekend to attempt to locate these documents. I believe he arrived this morning after we sat down here and he might well have some of the documents, or all of them, as requested, here this morning although it should be emphasised that we believe we had no obligation whatsoever to provide the documentation to my learned friend and his team. The nature of the documentation was such that they had it in their control. One example is a contract to which they are a party. One would have expected that he would have a copy of the contract. But I understand that these documents, we have come to their assistance, we do not believe we had any obligation. I understand the documents might well be here and that might short circuit the availability of the document issue but not the question of the indemnity.

CHAIRMAN: Yes I appreciate that and maybe you have in a sense pre-empted my enquiry with regard to Mr Pitman's submissions as to the request. You are quite right, there would be no obligation on your client but I thought the obligation would be more in the interests of your client in terms of protecting his right to say you see that clause that I am referring to, you are going to be in breach of that if you testify and rather than close the stable door after the horse has bolted in terms of him having breached that, rather prevent him from doing so. But well I hope indeed that your attorneys do have because it would circumvent, you know, a waste of time in that regard. But I take your point about not being under an obligation. As I say with regard to defamation nobody, no consent can be given to anybody to defame another or to defame another company and I am sure your client is aware and is advised about that. But with regard to contracts, well how those are impacted upon by for instance the Armscor legislation consent is a matter that you might want to give consideration.

MR PITMAN: Mr Chairman I think we must know, one cannot be coy about this, either the documents are here or they are not, not may well be here or may not well be here. Let us find out if they are here and we can have a short adjournment and have a look at them.

CHAIRMAN: Yes. Any further submissions Mr Kriegler?

MR KRIEGLER: It is certainly not a matter of being coy. I just do not know. I do not want to give my learned friend the impression that the documents are here if they are now. We will establish that in a moment if we are given the opportunity and give him the documents if they are here.

MR PITMAN: Mr Chairman there is no point in us adjourning if the documents are not here. Can maybe my colleague find out if the documents are here?

CHAIRMAN: Okay. Any other submissions by other counsel? Mr Kuper?

MR KUPER: If I may. My learned friend in opening said he was speaking in regard to his first three points for the record and in the interests of proceeding and we all will like Dr Young to proceed. In the interests of proceeding one should not spend too much time haggling about matters for the record, but I do, with your permission, wish to say something in answer for the record. It is not correct that Dr Young kept to his undertaking in first giving us the aide memoire timeously and because he did not, as is well known, the Minister was unable to give the permission Saturday morning at a meeting specially arranged for that purpose and we attempted to do the best that we could thereafter and a permission was granted with all speed and the permission which has apparently been said to be qualified is in fact perfectly adequate and precisely what Dr Young was entitled to expect. He asked that in so far as the aide memoire put to you, in so far as he was directed to make that known to you, he should have permission to do so under the Defence Act. He was given unqualified permission. The suggestion now that there was an expectation that parts of it would be objected to, cannot deal with the private reservations of Dr Young as to whether his statement would receive authority or not. It did receive authority and it received unqualified authority. What was made quite clear, and seems to be now the basis of some objection, is that if it should eventuate that Dr Young outside of this inquiry and not for the purposes of this inquiry, has breached any law whether relating to documents or to any other dissemination of information, then he like any other citizen may be called upon to answer for that breach, but so far as this inquiry is concerned in respect of which eventually he sought authority, he has been given unqualified authority. In so far as the other sections of the authority are concerned, the complaint seems to be that he did not get an authority for which he did not ask. It was only after making this application for authority and after receiving it that his legal advisers thought for the first time apparently that they should ask for further and additional authorities under different statutes, they did so and they have received the unqualified authority under those statutes. So really to suggest that the Minister was in any way slow or responded inadequately, is entirely unfair in the circumstances of the case. Then there seems to be a complaint that the state attorney passed to you, as quickly as she could in the light of the giving of the authority, the very aide memoire that was tendered to you for your purposes and for the purposes of persons who might thereafter be affected. The complaint seems to be that it is thought that under the agreement this was to be done by Dr Young. I do not understand that complaint because he must have intended the statement in its full form to be passed to you as soon as there was authority, otherwise he was just playing games. In fact as we understand the agreement the duty was on the state attorney to do so immediately the Minister gave the authority, or it was known he would give the authority, and that was precisely what was done. So the complaint seems to be about the quickness with which the state attorney complied with the terms of the agreements between you and other parties and that had been made. The further suggestions that relate to the question of my learned friend's client and the consents under my learned friend's client's contractual relationships are not a matter on which I have any ability to speak.

CHAIRMAN: I had hoped you might assist the panel but yes, you are under no obligation to do so. You indicated some documents Mr Kriegler?

MR KRIEGLER: Yes they have been given to me now Mr Chairman and I will pass them through to my learned friend.

CHAIRMAN: Yes. As that is being done, is there any other submissions by any counsel? Mr Mahon?

MR MAHON: No Mr Chairman.

CHAIRMAN: Thank you. Now I take it that you would like to have a quick perusal of those?

MR PITMAN: I think that would be the answer, thank you. Maybe 15 minutes adjournment.

CHAIRMAN: 15 minutes adjournment. Incidentally, just referring to Mr Kriegler's submission and without questioning your due diligence in looking for the documents, if these are part of the contract how would it be that they could not be found in your ...(intervenes)

MR PITMAN: Mr Chairman we suspect that they were described incorrectly in the correspondence from Deneys Reitz and that was our problem. They did not describe them ... In fact a short perusal of just the first page of one of the agreements seems to confirm that. They were not described correctly so we could not find them.

CHAIRMAN: Yes. We shall then take a 15 minute adjournment to enable the representative of Dr Young to look at the documents. Thank you.

PROCEEDINGS ADJOURN PROCEEDINGS RESUME

CHAIRMAN: Mr Pitman are you ready to proceed?

MR PITMAN: Yes. Thank you for the opportunity Mr Chairman. We have had a chance to look at the documents that were handed to us. There were three documents that were handed to us prior to the adjournment. The letter from Deneys Reitz of 6 August clearly refers to clause 37 of the K Standard 00020. The document handed to us this morning is ASTD 0020. It is a completely different document that was referred to in their threat. Now this document is 55 pages long and I have not had an opportunity to read every single page of it or even really to peruse it with any kind of confidence. The second document referred to in Deneys Reitz's letter is the Armscor Security Manual for SUVECS. Now the document that was handed to me this morning is the Industrial Security Manual 2000. There is no such mention of it being the Security Manual for SUVECS and in fact my client believes that there is no such document in existence. But the most disturbing of all the contracts or documents is the last document, which is, we refer to clause 38(2) of the SAN PC contract for the Corvettes. Now the document that has been handed to me is an agreement, a contract, between African Defence Systems and my client's company for the supply of the NDSS contract, which is the navigational system contracts and if one turns to clause 38, because if one assumes that they are describing it incorrectly, I could read clause 38.2 to this panel. The heading of clause 38 is Option to Purchase an Additional System.

"38.2 The option shall be exercised in writing and shall become effective on the date of signature of the parties of a contract amendment on condition that any suspensive conditions as may be applicable to this contract and the contract amendment having been complied but which date shall be no later than 24 months of the EDC of this contract."

Now there appears to be no threats of any kind of disclosure in clause 38.2 of the only agreement that we have with African Defence Systems relevant to these hearings.

CHAIRMAN: You mean there appears to be no limitation?

MR PITMAN: Well they appear to be referring to the wrong clause, if they are referring to any clause at all because this deals with purchasing an additional system and when you can exercise that option. It deals with no disclosure of any kind of confidential information.

CHAIRMAN: I see.

MR PITMAN: So we appear to be no better off than we were on 6 August as to how my client's rights should be protected, because we do not have these documents they referred to and the documents they have given us now, and the clauses they have referred us to now, have got nothing to do with our clients and we appear to be going around in circles.

CHAIRMAN: Well presuming ASTD 0020 is a document which you looked at during the three days that you were talking about, does it disclose any validity to the ... Or does it support the (indistinct)? I hear you saying it is 55 pages but I would want to imagine that you did go through it to some extent during that perusal.

MR PITMAN: Mr Chairman the first time I saw this document was 15 minutes ago.

CHAIRMAN: You mean it is not part of the contractual arrangements?

MR PITMAN: Not his is Armscor's general conditions of contract, the ASTD 0020, it is not an agreement between my client and anyone for that matter it is Armscor's general conditions of contract. Now we were looking for the K Standard 00020 and that took three days. We have got a large amount of documents to go through and also we got in contact with Armscor and asked them to assist us in trying to locate this document and they could not locate it for us.

CHAIRMAN: Is it referred to in the contract, Armscor's general conditions of contract?

MR PITMAN: Our contract with ADS?

CHAIRMAN: Yes.

MR PITMAN: I do not know. That document is probably 100 pages long. The first time I saw that document was 15 minutes ago as well. Mr Chairman this could easily have been avoided. As I said we tendered to pay the costs of obtaining these documents. We really did not wish for this to delay these proceedings but my client must be properly advised. He cannot have a financial sword hanging over him before he testifies before you today. Surely it would be a simple matter that the legal representatives for African Defence Systems must withdraw their threat because firstly we cannot find the threat in terms of the clauses they refer to, it deals with purchasing another system, an option, it has got nothing to do with our client and then this matter can proceed.

CHAIRMAN: Yes. What is your view with regard to the question that I asked before we adjourned with regard to the first two documents, the ASTD 0020 and the document you referred to as the Industrial Security Manual, because those are marked Armscor documents. I would want to imagine, I mean not having had sight of them, that they fall then within the purview of the consent. I am not asking you to commit yourself but just looking at them, I mean.

MR PITMAN: That would make sense, it would make sense.

CHAIRMAN: And with regard to the last issue, namely the clause 38.2 of SAN PC contract for the Corvettes, you are saying that clause is clearly wrong from you have read to us.

MR PITMAN: Yes and this contract, this document given to me this morning, is not the contract for the SAN PC programme at all. It deals with a segment of another contract my client has with African Defence Systems.

CHAIRMAN: Which is not the subject of his testimony this morning?

MR PITMAN: No.

CHAIRMAN: Yes, in which case I will say with regard to that it is not going to be part of his testimony. If it had nothing to do with this ...(intervenes)

MR PITMAN: If there is a SAN PC contract for the Corvettes we would like to see it and we would like to see clause 38.2 so that I can properly advise my client. At them moment that is the threat hanging over us. They have yet to give us that document and once we have got that document I can advise my client and say look this appears ... It might also not be a relevant clause, it is possible.

CHAIRMAN: Yes. Are you parties to these SAN PC contracts?

MR PITMAN: The SAN PC contract for the Corvettes?

CHAIRMAN: Yes.

MR PITMAN: No.

CHAIRMAN: You are not?

MR PITMAN: I do not think so.

CHAIRMAN: So it is not a matter we should concern ourselves with if you are not parties to it. It is not a matter that your client is likely to testify about if you are not party to it because it is not a subject which ...(intervenes)

MR PITMAN: We cannot ascertain whether we are a party to it, we have not been given a copy of it. We have been told we are a party to it, we have been told about a particular clause to this contract, but the only contract that is given to us is a completely different contract this morning relating to a completely different matter. Cannot the legal representative of ADS resolve this and say, provide us quite frankly with the SAN PC contract for the Corvettes.

CHAIRMAN: Yes but, yes I am not putting any onus on your client but I would just imagine, I may be wrong, that he is not a party to so many contracts with regard to Corvettes that he would not be ...(intervenes)

MR PITMAN: Mr Chairman what often happens with these enormous agreements that are entered into, they refer to other agreements and by referring to other agreements they incorporate them by reference.

CHAIRMAN: I see.

MR PITMAN: And that is a possibility.

CHAIRMAN: A possibility, I see. Mr Kriegler before you proceed I think what we ... I see in the letter under discussion of 6 August 2001 you tried, or your client tried, to be specific by referring to certain clauses and certain documents which according to Mr Pitman are not the documents that have been handed to them this morning. You are going to address that I know, but we were also going to ask for more specificity with regard to what exactly you are objecting to regarding the testimony of Dr Young. From the letter itself it seemed that specificity was that because you are referring to this clause 37 and clause 38.2 and so on and Armscor Security Manual for SUVECS, but without pre-empting any issue we were going to suggest for instance if your submissions were that for example economic interests of your client are going to be adversely affected by the testimony, there are tools for protecting the interests of your client, for instance you could have such evidence as would be prejudicial in that nature heard in camera. Now we have the advantage, as was the intention, of the document, the aide memoire, of Dr Young, so you would be able to say that portion is going to be so prejudicial and that therefore we would object to it being heard in public and therefore protect your client's interests. Now when I refer to specificity I am referring to that particular thing. Let us not just say you cannot testify with regard to these documents, because if you did not know what his testimony was going to be about, yes, of course you could just throw it as openly as this letter suggests but in this particular case I am sure you can pick up a particular paragraph and page and say that particular aspect, because not all his testimony is about that. Then we could deal with it. You could bring an application and say we are objecting about those particular sections of the evidence being heard in public and then we could probably just solve the issue and we as the panel are asking for that kind of assistance because we would not like to be running in circles about these issues. You are carrying out your duty in trying to protect your client's interests but I think we would request of you to be quite specific with regard to what particular part of the evidence and what interests you are protecting.

MR KRIEGLER: With respect Mr Chairman it sounds like a sensible way to approach the difficulty but lest there be any misunderstanding about it, there is no application before you or elsewhere in a court of law which is aimed at preventing Dr Young from making these statements before you which are covered by his aide memoire. There is no objective at all on behalf of my client to stop him from saying what he said in his aide memoire he intends saying. In fact we invite him to come and say that and it would appear that he does not want to come and say that. We cannot give him legal advice as to what aspects of his evidence may or may not breach the bounds of the law of defamation. As far as the contract is concerned, perhaps I should just put that into its proper perspective. The letter of 6 August was written at a time when we did not know what Dr Young intended to say. He had made a number of statements in the media over the past, we had a fair idea about what it was he intended to give evidence on. It was in that context in which my instructing attorney addressed the letter. It is not a threat, it is a statement to the effect that if you cover in your evidence certain aspects entailing the contracts referred to in the letter, be advised that you would be in breach of certain provisions of those agreements and in any event my client reserves his rights. It is not an attempt to stop him from speaking, in fact we are here and we want him to say what he wants to say. This we regard as an opportunity to set the record straight in public as well. We have not had an opportunity to do so and this we regard as the correct opportunity in which to do so. So we certainly do not wish to stop him.

CHAIRMAN: If I understand you properly Mr Kriegler, are you saying having now had sight of the aide memoire, this last paragraph of your letter of 6 August 2001 does not refer to that aide memoire?

MR KRUGER: I do not believe it does. I do not believe that anything contained in the aide memoire is covered by the provisions of the contract. It may be a different matter in terms of the Security Manual for SUVECS. I am not unfortunately prepared to address you on that matter at the moment in the sense that I simply have not studied those documents, I have not seen them either and as far as the confusion is concerned about the documents handed to my learned friend this morning and those referred to in the letter. Well that could be resolved by a simple discussion between my learned friend and I. I am sure that it is not a matter that needs to detain the attention of 20 or 30 professionals sitting in a public hearing. If there had been a real concern over a misunderstanding about the description of documents given to my learned friend this morning, I am perfectly happy to attempt to resolve that. There may be a very simple explanation for it. We do not have copies so I cannot even follow the argument my learned friend puts to you Mr Chairman, but we would suggest that that be a matter for my learned friend and I to resolve if at all possible. I do not know to what extent his evidence is or is not ... The aide memoire refers to evidence which is or is not covered by certain of the aspects referred to in the letter of 6 August but we certainly cannot, as contracting parties, give him an indemnity whereas we might be obliged vis a vis Armscor or the Department of Defence in terms of our own obligations under the contract to them, we cannot waive those confidentiality obligations which he may have vis a vis us, but that I do not anticipate is something which is covered in his aide memoire at all but I cannot go as far as making that as a submission to you.

CHAIRMAN: Well are you suggesting that you would like maybe to get together with your colleague?

MR KRIEGLER: That might be the most convenient way of doing it. It might be a matter to resolve straight away.

CHAIRMAN: And of course whilst you are dealing with that, I have already said it when Mr Pitman made his suggestions, that now that we have the consent in terms of the Armaments Development and Production Act maybe you might also, you know, with regard to the first two points that you make ...(intervenes)

MR KRIEGLER: It may render it academic, yes.

CHAIRMAN: Yes. You might also look at that. We shall once more have to take then a brief adjournment and hope that we can resolve this matter and I urge, gentlemen, that we try and get around it. We are aware that you protect your clients' interests but also there is a broader picture, please.

PROCEEDINGS ADJOURN PROCEEDINGS RESUME

CHAIRMAN: I trust that we are making progress gentlemen. Mr Pitman, Mr Kriegler?

MR KRIEGLER: I believe it is perhaps appropriate for me to apologise on the record, it is necessary for some misdescription in the letter which gave rise to the misunderstanding about the identity of the documents we referred to in the letter of 6 August. My learned friend and I are at least now ad idem as to what the documents were which were referred to in 6 August. I understand my learned friend wishes to address you on that. We believe it is of academic importance now but that is as far as the documents are concerned. We do believe incidentally that as far as the reference to the clauses in the agreements are concerned that those may very well be academic now but we are not in a position, nor do we intend, to give any legal advice to the other side as to whether or not it is infringed but what we would propose is to get on with the evidence where it is quite apparently not struck by any clause to that effect and should there be anything that is remotely affected, or potentially affected, by clauses to the effect referred to in the letter, well then if one perhaps takes a view on that over the adjournment this evening and consider one's position. That is how we would propose to deal with it further. It is obviously in your hands Mr Chairman, and my learned friend's decision, but we believe that one can get on with 99,9% of the aide memoire without in any way even potentially touching on matters which could be covered by those confidentiality clauses in the agreements we referred to.

CHAIRMAN: Yes thank you. Mr Pitman.

MR PITMAN: I will be as brief as I can Mr Chairman. I just want to say how unhappy I am, as well as my client for that matter, in the fact that we were given this demand, we took the demand seriously. Every single one of the documents referred to in the demand either do not exist or are described incorrectly. The first two were certainly described incorrectly and the third one has now become a completely different agreement that was described in this demand of 6 August. We are now being referred to a completely different agreement entered into on 1 June between African Defence Systems and my client to supply the NDS, the Navigational Distribution System and we have looked at the clause referred to and now this where stems our unhappiness, but my client is prepared to continue with his testimony now. There is just one aspect that was raised by Advocate Kuper and that relates to the fact that we gave our statement late to the state attorney on Friday afternoon, or evening as it were. We ended up getting the statement by e-mail to the state attorney two hours after close of business, being 19:00 that evening. I would just like to say that from my point of view and from my client's, certainly we did everything in our power to get the 70 page document finished timeously. My client apologised for it being late, he had some software problems in sending the document, and that apology was accepted and now to raise it at this late stage, my client just wanted me to state on the record we did everything in our possible power to get it to the state attorney and we were not aware of her meeting with the Minister of Defence the following morning but be that as it may.

CHAIRMAN: Thank you gentlemen. Mr van der Merwe?

RICHARD MICHAEL MOBERLY YOUNG: d.s.s.

EXAMINATION BY MR VAN DER MERWE: Dr Young is it correct that you have certain information which you want to convey to this panel for the purposes of this investigation? --- That is true.

Is it also correct that for this purpose you have prepared a certain document? --- That is correct.

Will you please proceed to read the contents of this document into the record?

CHAIRMAN: Doctor if you could try, I know this is amplified but if you could just ...(intervenes) --- Talk into the microphone?

Yes. ---

"I, Richard Michael Moberly Young, hereby state that:

I am the managing director of CCII Systems (Pty) Ltd, also know and referred to as C2I2 Systems, C2I2 or C212."

I will proceed with a little bit of personal background.

"C2I2 has its principal place of business at Unit 3, Rosmead Place, 67 Rosmead Avenue, Kenilworth in Cape town.

I am a professional electronics engineer registered with the Engineering Council of South Africa, ECSA.

Academically I have a Master of Science in Engineering degree from the University of Cape Town and a Doctorate of Philosophy in Engineering from the University of Witwatersrand. In both cases my field specialist research was the application of computer networks

in real-time, mission critical, distributed systems. The title of my master's degree dissertation was Real-Time Distributed System Architecture using Local Area Networks and that of my doctoral thesis was Real-Time Protocol Strategies for Mission-Critical Distributed Systems. I believe that this qualifies me in being able to express a professional opinion on some of the technical aspects of the matter I wish to address in this testimony.

Where in my evidence I refer to any classified documents, I do not intend to submit them as exhibits at all or refer to their content beyond what is actually quoted in my evidence. However I do have the documents, or at least some of the documents, in question in my possession and would be willing to make them available on such basis as the Public Protector might direct with the consent of the Minister of Defence."

By way of introduction of the more specific subject matter:

"C2I2 has been accredited since August 1996 by Armscor as a supplier of specialised software and computer systems for naval, airborne and mobile applications. Such accreditation by Armscor is only achieved after comprehensive review by Armscor of the company's technical, financial, quality, configuration management and security management processes and systems.

C2I2 has been accredited with Armscor since 1996 and re-accredited since 12 September 2000 to handle SANDF projects with a security classification of up to and including Secret.

I personally have, and have had since 1992, a security clearance of Top Secret. Before that, since 1976, I have had a security clearance of Secret. Therefore both the company and I are cleared to handle the project do documentation relating to the Corvette acquisition under Project Sitron and other relation S A Navy projects.

History 0 My Own Involvement

In 1983 South Africa started developing combat suites for naval vessels. A combat suite is a set of systems that enables a naval vessel to engage in naval combat.

In 1985 I started working for a company called Trivetts-UEC (Pty) Ltd, then owned by the Tongaat-Hulett Group and was personally involved in developing a combat suite for our submarines. This company later became UEC Projects (Pty) Ltd which later became Altech Defence Systems (Pty) Ltd, then 100% owned by the South African electronics group Altech Ltd. I left UEC Projects in early 1992 in order to continue my academic studies.

The Role of ADS and Thomson-CSF

At this stage I believe it is appropriate to deal briefly with corporate transactions as this is relevant to at least two issues, namely the conflict of interest issues and the justification in dealing with ADS on the ostensible basis that it was a local company.

On 22 January 1998 the Cape Times, in a report entitled Altech's buyer presents a mystery of motive as well as identity, dated 22 January 1998, announced that the Altech Group was to sell off 50% of Altech Defence Systems to Thomson-CSF of France.

On 12 March 1998 the Altech Group announced publically that it was to sell off 50% of Altech Defence Systems to Thomson-CSF of France. Here I make reference to the Business Report article entitled Altech to sell half its defence business, dated 13 March 1998. They also announced, presumably in a press statement and reported int he Business Report, that they "planned to take on a black economic empowerment partner within the next few months to complete the deal".

On 28 April 1998, 50% of the shares in Altech Defence Systems were transferred to Thomson-CSF of France.

On 19 February 1999 the remaining 50% of the shares in Altech Defence Systems (Pty) Ltd were transferred to Thomson-CSF of France." That makes up a complete 100%.

"On 22 February 199 The Altech Group announced publically that it had sold off the remaining 50% of Altech Defence Systems to Thomson-CSF of France. Here I make reference to the Business Report article entitled Altech sells defence arm to French group, dated 23 February 1999.

Pierre Moynot, the chief executive officer of ADS, also announced, presumably in a press statement and reported in the Business Report of 23 February 1999 that "the group remained committed to placing a block of shares in the hands of a black economic empowerment partner".

Subsequently Thomson-CSF shares in ADS were transferred to Thomson-CSF International, a company incorporated in France.

On 27 November 1999, Thomson-CSF International transferred 80% of the shares of Altech Defence Systems (Pty) Ltd to Thomson-CSF Holding (Southern Africa) (Pty) Ltd and changed the company name to African Defence Systems (Pty) Ltd (ADS).

Thomson-CSF Holdings (Southern Africa) (Pty) Ltd was incorporated on 14 May 1996 with 85% of the initial shareholding owned by Thomson-CSF of France, 10& owned by Nkobi Investments (Pty) Ltd, a South African company, and 5% by Gestilac SA, a company registered in Switzerland.

One of the shareholders of Gestilac SA is one Jean-Yves Olivier, a French national, who I understand to be an intermediary of Thomson-CSF in connection with various international business deals.

Gestilac SA was subsequent dissolved, or de-registered, as a company in Switzerland on 12 October 2000.

Nkobi Investments (Pty) Ltd is a wholly owned subsidiary of Nkobi Holdings (Pty) Ltd.

Nkobi Holdings (Pty) Ltd has as one if its major shareholders and directors a Mr Schabir Shaikh, also known as Schabir Shaik" (with a different spelling)" brother of Mr Shamin Shaikh, or Chippy Shaikh, chief of acquisitions of the Department of Defence.

Mr Schabir Shaikh became a director of Thomson-CSF Holding (Souther Africa) (Pty) Ltd on incorporation on 14 May 1996.

Mr Schabir Shaikh is also a director ADS."

Next section:

"History - Combat Suite Development in South Africa.

Previously the SA Navy, or SAN as I will refer to them in the future, had realised that for strategic reasons the country needed to develop sophisticated, indigenous Combat Suites for both surface and sub-surface combat vessels.

Once the previously mentioned submarine combat suite project altered course in 1989, the SA Navy and Armscor started technology studies and system design on the frigate programme also in 1989.

When this previous frigate acquisition programme commenced, i.e. Project Falcon, with the Combat Suite part thereof being termed Project Frizzle, the aim there was also to move to a system architecture based on a databus, i.e. a computer data network with the system architecture being based on a proper local area network as opposed to a simple databus as was the case of the submarine combat suite.

I was involved in these technology studies and system design efforts while working at what was then UEC Projects (Pty) Ltd between 1989 and 1991. In fact I was responsible for the network technology studies and technology demonstrator development with these projects being successfully completed by the middle of 1991.

A slight technical side:

"To circumvent the problems commonly encountered on modern warships where the ship's systems employ high degrees of automation using electronics as well as many high-power radiating transmitters and sensitive electronic sensors, the SAN specified the use of fibre optic cabling for the Combat Suite data network.

History - The Patrol Corvette Combat Suite

After Project Falcon was cancelled in 1991, Project Sitron was initiated in 1993, this being the programme for the acquisition of Patrol Corvettes for the SAN (SAN PC).

For Project Sitron, the SAN, advised by Armscor, wanted and specified a:

'Combat suite designed around the principles of distributed processing within independent functional modules physically integrated around a modern multirole redundant databus infrastructure linking the various system elements.'

Here I make reference to the Programme Plan for Project Sitron Combat Suite" (which is a classification of a confidential, a document) "dated 25 January 1995, hereinafter referred as the Programme Plan."

The user requirement specification quotes the description of the Combat Suite as follows:

"The Corvette Combat Suite shall be a modern, LAN based Naval Combat System with a distributed processing architecture." Here I make reference to the SA Navy's Patrol Corvette Combat Suite Requirements Specification" (also classified confidential) "issue 2 dated 5 March 1999" and I refer to this henceforth as the User Requirement Specification or URS.

"A LAN (L A N) is a local area network which is a term for a serial computer data network having specific attributes, particularly broadcast and network order." (This is what specifies a local area network as opposed to just a simple data communication methodology.) "A bus, or databus, is a LAN with a specific topology." (Topology means a specific spatial layout.) "A bus is a simple topology where all nodes connect directly to a single data access medium.

Being a mission-critical , distributed, real-time system, the Combat Suite requires a sophisticated LAN with high performance, extensive capabilities and high reliability.

The SAN specifically wanted to move away from point-to-point architectures as these had been found to be extremely limiting by the SAN as well as by other navies.

A point-to-point data link is where one communicating node connects exclusively to another node. A point-to-point system architecture consists of many cross-connected point-to-point links.

As I'll explain later the Department of Defence has now in its selection of the Detexic Diacerto databus effectively gone back to a point-to-point system, although it is actually a hybrid of a point-to-point interconnection system and a simplistic backbone network. Such a hybrid network cannot be construed to be a local area network by definition. The point-to-point part of the network also employs copper media, so it diverges from the SAN's own specified requirements.

This hybrid architecture can be viewed as a set of point-to-point links connected to two telephone exchange (or switches), one situated forward in the Corvette and the other aft. These two telephone exchanges are connected by a trunk connection system, i.e. the backbone.

As a combat vessel such as a Corvette, as well as its Combat Suite, are complex integrated systems with long planned lifespans, typically 30 years or more, the LAN infrastructure is generally designed to have extensive spare capacity for the lifespan of the vessel or at least until its half-life refurbishment.

In this regard the Deputy Project Officer for Project Sitron, Captain Guy Jamieson, reported in his briefing by SAN recorded in the minutes of the Technical Committee Meeting No. 16 held on 6 July 2000 as follows:

'DPOPS' (that is the acronym for his position) 'made an urgent request that during the development of the Combat Suite cognisance be taken of the fact that the Patrol Corvette would probably serve the SAN for between 30 to 40 years. During this time there existed a good possibility that it would 'go to war' and that lives would therefore depend on it.'

Chapter 4 of the White Paper on The South African Defence Related Industries, available on the government website, addresses the Strategically Essential Capabilities and Technologies for the SANDF, with emphasis on the retention of local capabilities as follows:

'Strategically Essential Defence Technologies and Capabilities.

Taking into account the list of requirements as reflected in the Defence Review and current environmental realities and resource limitations, choices have had to be made and as a result five' (they actually mean six) 'technologies and capabilities are identified. They are common to the mode of warfare of both advanced and underdeveloped countries and are also common across the four Arms of Service of the SANDF. The following are considered strategically essential:

1. Logistic support, repair and maintenance of equipment and systems.

2. Systems integration.

3. Command, Control and Communication systems.

4. Sensors, signal processing and data processing.

5. Combat systems software and support.

6. Simulation systems and war gaming.'

Part of the Combat Suite requirements of the SAN was based on the Defence Review and the resulting White Paper on defence Related Industries. What we eventually developed was in line with the requirements of the SANDF and SAN. Our Information Management System (IMS) development specifically embodied five of the six strategic capabilities specified, these being maintenance of equipment and systems, systems integration, Command, Control and Communication, Sensors, signal processing and data processing and combat systems software and support.

On this basis alone I therefore find it inconceivable that the locally developed IMS could be deselected in favour of a foreign product.

I established C2I2 Systems in February 1992 and in early September of that year I was approached personally by Messrs Anton Jordaan and Pierre Meiring of Armscor's Command Control Division on behalf of the SAN to find out whether I could assist in developing a new naval Combat Suite for the new frigates or Corvettes under Project Diodon.

Some months later we started getting contracts to develop the IMS as well as contribute to the design of the overall Combat Suite. Over the next eight years we got approximately R20 million for this purpose from the SAN via Armscor. This would equate to approximately R30 million at current values.

The very initial contracts in 1993 were under Project Diodon. Between 1993 and 1995 we received contracts under Project Sitron and between 1995 and 1999 we received contracts under Project SUVECS.

When Project Sitron was deferred between 1995 and 1997 while the Defence Review was undertaken, the Department changed the name of the Combat Suite portion thereof to Project SUVECS, this being an acronym for Surface Vessel Combat Suite.

Although Project Sitron was deferred until completion of the Defence Review and the resulting SANDF Force Design, the SAN considered a local Combat Suite capability as of strategic importance. Therefore Project SUVECS was funded to an extent of some hundreds of millions of Rands during the period 1995 to 2000.

In fact due to this deferment the Defence Command Council (DCC) approved the consolidation and transfer of funds allocation to Project Sitron, as well as additional funds, to a technology fund under Project SUVECS for the continuation of the Combat Suite development. Here I refer to the Project Memorandum dated 18 August 1995 from Mr Pierre Meiring, the acting senior manager of the Command and Control Division of Armscor to the entire project team, entitled Project Sitron: Combat Suite Funding Situation.

Project SUVECS was run as a formal acquisition" (and I emphasise acquisition) "programme. It had all the formalities of a cardinal acquisition programme, including an approved staff target, i.e. the Naval Staff Requirement, and an acquisition plan, both mandatory baseline documents for any SANDF cardinal acquisition programme as prescribed in RSA-Mil-Std-003. One of these requirements is an acquisition plan. In this case the acquisition plan was called the Programme Plan: Sitron Combat Suite.

In addition Project SUVECS also had an extensive set of mandatory project standards and specifications, a formal risk management regime, a test evaluation master plan including the requirement for formal baseline and design reviews, an integrated logistic support plan, etcetera. Many of these baseline documents were Level 5 of Vessel-level documents, i.e. pertaining to the Corvette as a whole and not just to the Combat Suite at Level 4.

Project SUVECS also had regular technical and project progress meetings at sub-system, Combat Suite and Vessel levels, involving the SAN, the Department of Defence, Armscor and all the contracted parties.

None or few of these formalities would normally be applicable to a technology retention programme which was the way Project SUVECS was, in my view, incorrectly described during the SCOPA hearings of 11 October 2000. The Corvette Combat Suite was developed under the guise of a technology retention programme in order to continue to receive funding.

The programme plan was approved by the Programme Manager for the Combat Suite, then Mr Pierre Meiring of Armscor, the Programme Manager for the Corvette, then Mr Byrall Smith of Armscor and then Captain Johnny Kamerman. then project officer representing the SA Navy but seconded to the Directorate: Acquisition and Projects Division (DAPD) of the Department of Defence. Captain Kamerman has since been promoted to Rear Admiral (JG) and to Project Director. Thus the programme plan was fully approved on 17 April 1996 (date of last signature) and authorised for use on Project Sitron, i.e. the Corvette Combat Suite Acquisition programme.

The programme plan specified the IMS for use within the Corvette Combat Suite by means of a table on page 14 entitled Combat Suite Element List and Acronym Table provided under the section entitled Project Definition and the paragraph entitled System Composition, as well as on page 52 a diagram entitled Project Sitron: Combat Suite Functional Organigram.

What was required in terms of the early Project Sitron and Project SUVECS development was a Combat Suite architecture based on an Information Management System, or IMS, a term which in this context is a proper noun which was coined by myself. Overall the IMS was conceptualised by myself, but significant contributions were made at the system level by Mr Pierre Meiring of Armscor and Lieutenant Commander Jacques Pienaar of the SA Navy, with the more detailed levels being done by members of my company, C2I2 Systems.

In addition to the technical development of the Combat Suite elements and overall architecture, an important objective or Project SUVECS was to develop a requirements specification for the Combat Suite. This was done as a team effort between the SA Navy, Armscor and industry members of the Design Advisory Committee (DAC).

Apart from the SA Navy and Armscor this DAC consisted of about half a dozen members of the South African naval electronics industry, selected for their specific areas of expertise. I was on this team with my area responsibility being the integration segment, which included the Combat Suite data networks and related matters.

The result of these efforts was the specification called the Combat Suite Functional Specification for Project S and was approved by the SA Navy and Armscor and was a baseline requirements document under formal configuration control as prescribed in the programme plan.

This functional specification and the accompanying Combat Suite System Design Document for Project S (SDD) also specified and prescribed the IMS for use within the Corvette Combat Suite.

Thus we, the South African defence industry, were developing an indigenous Combat Suite for Project Sitron under what had become an interim acquisition project called Project SUVECS.

I believe that this factual inaccuracy had the ..." (there is a word .. I am talking about what was said in the scope of meetings of 11 October 2000.) The description of IMS there "had the effect of causing SCOPA and the other investigators to believe that the IMS was merely part of ADS's scope of supply and that therefore ADS were at liberty to do whatever they wanted within their own sub-system."

The next section I have entitled :

"Development on 'Risk'.

Due to the deferment of Project Sitron funding of the Combat Suite by the SA Navy was never sufficient for fullscale development. In addition funding and contracting was approved only on a year by year basis. Contracts were meant to be completed by March of each financial year with the follow on contract commencing some months later. Invariably there were moratoriums placed by the Department of Defence on contract placement with this often occurring much later in the year, even the next year. This made it extremely difficult for all companies involved int he development of the Combat Suite to proceed at a steady and sufficient pace in order to meet the required time scales being conveyed to them by the project officer or his representative at each and every technical committee meeting.

At numerous formal project meetings, as well as other occasions, the project officer (then Captain Kamerman) and the programme manager (firstly Mr Pierre Meiring then Mr Frits Nortje) explained very clearly to the participating companies that the only way that a South African developed Combat Suite could be justified to be included within the Corvette was by good progress being made in respect of the development of the Combat Suite. They acknowledged that the only way that this could be accomplished was by the participating companies investing their own funds in their parts of the project. It was said on a number of occasions by both then Captain Kamerman and Frits Nortje that the sub-system project managers attending the various meetings, normally the technically committee" (or TC meetings in this case) "needed to take back this clear message to their management. I personally attended all these meetings and I hear this said many times in one form or another.

At TC meeting No. 10 held on 30 July 1997, the project officer Project Sitron (then Captain Kamerman) briefed the meeting as follows:

'The impact of possible package deals was expected to be confined to those sub-systems being acquired from foreign suppliers.'

At TC meeting No. 11 held on 18 September 1997, the project engineer for Project Sitron Combat Suite, Commander Ian Egan-Fowler, briefed the meeting as follows:

'The MOD's policy was recently reaffirmed by them. The terms, depending on timescales, for local acquisition definitely favour local industry over foreign acquisition of Combat Suite elements." (I emphasise elements.)

At TC meeting No. 13 held on 9 July 1998, the project officer, Captain Kamerman, briefed the meeting as follows:

'The Combat Suite, as specified in the present baseline, has been included in all the offers received along with the financing of its acquisition.'"

(When I talk about the present baseline I am talking about the functional specification in this case.)

The project officer continues:

"'He warned the meeting not to listen to rumours of alternative Combat Suites being considered as none have offered for evaluation. The local (RSA) Combat Suite is an integral part of the mandatory local" (that is Defence Industrial Participation) component of the package deal.'

The SANDF's request for a loan from the Treasury was turned down. This had resulted in the current moratorium we find ourselves in. SUVECS will be 'funded' by delaying contractual payments until the 1999 financial year. There is, however, a small pool of money to assist those contractors who cannot survive another year of zero cashflow.'

The Armscor programme manager for the Combat Suite, Mr Fits Nortje of Armscor, who has now been promoted to Armscor programme manager for the Corvette, contributed to the briefing as follows:

'APMS:CS supported this statement by stating that the state cannot support local industry completely for the next two financial years.'

I believe that it was clear to those at the meeting that what was meant by this statement was that contractors who wanted to ensure retention of their equipment in the technical baseline were expected to fund their projects during the period of contract moratoriums.

The Minister of TC Meeting No 13 states:

'He (Mr Nortje) went on to say that the state may not, and will not, insist on any contractor working on risk during this period.'

What was actually said on occasions such as these was that the state could not guarantee that a contractor who took such risks would eventually receive a contract because they could not guarantee that the Corvette Programme would eventually materialise. However it was said that if and when the Corvette acquisition was finally approved, then those contractors who had taken the risk in developing their elements would be guaranteed their parts of the contact.

At Design Review 2.1, which started on 9 March 1998, the project officer, then Captain Kamerman, stated the following as recorded in the Minutes of the Combat Suite Design Review 2.1 for Project S dated 28 march 1998:

'The successes to date of SUVECS were noted as having exceeded all bounds of expectation given the trickle funding to which it had been constrained.'

Furthermore the situation for most of the contractors was such that they could not easily suspend development during periods when formal contracts were absent. The contracts were on a yearly basis and invariably these contracts were placed very late in the calendar year and had to be completed by the end of Armscor's financial year, i.e. March.

Development teams had been set up at significant expense to the contracting companies and could not be allocated, de-allocated and reallocated, according to the contracting situation. Thus contractors had to and were expected to take these "risks", in order to make sufficient amount of technical progress towards an acceptable level of completion of their elements.

In fact before Frits Nortje was program manager, Mr Pierre Meiring now senior manager of Armscor's Command and Control Division, was program manager for the corvette combat suite. On 6 February 1995 he issues a project memorandum to all participating companies, including ourselves where he stated and I quote:

Contractors should understand that this matter is one of urgency and the sooner that is interim development contracts are placed, the sooner your participation in the program will be assured.

My emphasis on "will be assured". Now we at C²I² Systems have fulfilled all of the conditions set by the SA Navy and Armscor to secure our participation. We had timeously responded to all requests for quotations and completed to the entire satisfaction of the program, all of the contractual and technical requirements. We endured extremely harsh cash flow and financial conditions, at the same time contributing extensively our own funds, meeting not only the interim program requirements but also ensuring that the IMS was very well advanced in terms of development, compared to the rest of the combat suite elements by the time the corvette acquisition was finally approved. It is normal practice in Systems Development for the inter-connectivity elements to take the lead in terms of time scales. This is done so that system integration risks are reduced as far as possible by means of prior development in these areas. As to our own position regarding risk based development, I wish to record my statement in this regard made in my letter to Mr Pierre Meiring, the program manager of the corvette combat suite dated 15 March 1995 and copy to Captain Kamerman, project officer of Naval Headquarters and Lieutenant Commander J.J. Pienaar, the corvette combat suite project engineer.

While we realise that there is some risk in proceeding with development before contracts are formally placed, this risk should only be if the program is cancelled or delayed and in no other way.

My emphasis on "no other way".

We have received a number of faxed memoranda from Armscor urging us to maintain maximum progress with the projects and we can assure you that we are following these requests to our fullest ability. In the same spirit, we expect the fullest return on our investment in both our IMS and radar console endeavours.

I now go onto a section which I have entitled: History of the acquisition of the corvette combat suite. Once the acquisition of the corvettes under project Sitron was approved in principle by the government the Department of Defence, through Armscor, on 23 September 1997 formally issued a request for information or RFI to the countries interested in bidding for the corvettes. The RFI included a sub-document entitled SA Navy Patrol Corvette Combat Suite Element Costing and Description Issue number 2 plus classified as restricted, dated 30 September 1997. Responses to this RFI were required by 31 October 1997. Once the short list of four potential suppliers for corvettes under Project Sitron was approved by the government on 8 December 1997, the Department of Defence, through Armscor, formally issued on 13 February 1998, a request for offer or RFO classified as confidential, the short listed countries bidding for the corvettes. The RFO included the element costing and description as described above, which was approved for use on Project Sitron by then Captain Kamerman on behalf of the chief of the SA Navy on 28 January 1998. Although I was not on the official distribution list of the document entitled Element Costing and Description, it was faxed personally to me by the project officer, Captain Kamerman on 26 March 1998. In fact his office's fax number appears on it. The fax was also sent with a Project Sitron cover page and some handwritten notes from the project officer. Captain Kamerman did this because he wanted to reassure me that our company's IMS was a part of the SAN's official requirements and tender baseline and that ADS could under no circumstances, exclude us from the program. The reason he wanted to give me such reassurance was that I had expressed concern to him that ADS was attempting to chance the combat suite architecture, without regard to formal baseline management and thereby exclude the IMS from the baseline. This document makes it clear that certain companies were nominated, and I emphasise "nominated", as suppliers for the various specification sub-systems of the corvette combat suite. In this regard I refer to paragraph 3 on page 3 of the document, which reads as follows:

It is intended that the vessels will be acquired under a single prime contract for a vessel contractor, the ship platforms being built overseas and integrated with their combat suites in the facilities of the SA Naval Dockyard, Simon's Town with the deliverables being complete vessels post sea acceptance trials, plus logistic support. The vessel contractor will be a teaming arrangement between the ship platform supplier and the nominated, and I emphasise "nominated", RSA combat suite supplier, with sub-contracts placed on nominated companies for the various sub-systems.

I also wish to draw attention to the combat suit element description in paragraph 9 on page 6 of the document, which reads as follows:

Description. The patrol corvette combat suite is a modern, LAN based naval combat system with a distributed process architecture, making extensive use of commercial off-the-shelf or COTS technology. Processing is Intel based with Multibus II interfacings, the language used being mainly ADA with C++ in certain applications. The combat suite consists mainly of sub-systems developed or under development by the South African industry, in addition to some items of equipment from the SA Navy Inventory, and three major sub-systems to be acquired from foreign suppliers. The combat suite will be fully integrated in a shore integration test bed ITB in Simon's Town prior to on board installation.

The element costing and description provides a diagram entitled SA Navy Patrol Corvette Combat Suite Element Product Breakdown Structure. This clearly identifies the Information Management System as a required element under the Integration Segment, i.e., a level 3 sub-system. The element costing and description also provides a table entitled SA Navy Patrol Corvette: Nominated Combat Suite which identifies the information managements system, with its acronym IMS, as an element under the integration segment and C²I² Systems as being the "element supplier". It describes the IMS as follows:

Dual redundant fibre optic (FDDI) local area network (LAN) databus and LAN management for the distribution of all non-video data information. Includes FDDI network interface cards (NIC) to interface non-IFU sub-systems.

The next section is entitled ADS's Alteration of the Baseline. The element costing and description describes the combat management system or CMS as consisting of the action information system AIS and weapon control system WCS with ADS as being the "element supplier". I believe that herein lies the origin of ADS's and Thomson-CSF's irregular departure from the combat suite technical baseline. The AIS and WCS has been derived from the SA Navy Strike Craft's AIS and target designation assembly or TDA sub-systems, originally developed under the Project Caliban and further developed under Project SUVECS. When Thomson-CSF started their acquisition of ADS, they wanted their own combat management system called Tavitac, to replace the indigenous AIS and WCS that had been baselined for Project Sitron. In order to facilitate this without major changes to the Tavitac CMS, ADS and Thomson-CSF also had to alter the whole combat system architecture which had been based on the IMS.

At the end of the TC meeting number 13 held on 9 July 1998, the ADS combat suite management team gave an overhead presentation of an "Alternative CMS Design". Although ADS recorded the presentation as being presented "after the meeting had been formally closed" this was minuted within the minutes of the TC Meeting number 13. What ADS was presenting were effectively the implications on the combat suite baseline in consequence of their preference of Tavitac's Combat Management System over the indigenous Action Information System and Weapon Control System. They presented a number of different architectures, including a number that excluded the IMS entirely, one referred to as CS3, and some that reduced it substantially, for example one with the reference CS5. All the new options were based on so-called risks to the combat suite, but in fact, they were proposals for reducing ADS's risk and cost for their CMS at the expense of the already baselined and formally reviewed and accepted combat suite design and architecture. ADS also went about this in an entirely unannounced fashion; it having been a rule at all combat suite meetings that no new matters could be addressed at any meeting without full prior notification in writing of the parties affected. Nevertheless, the Joint Project Team or JTP, represented by Department of Defence, SAN and Armscor allowed ADS to proceed with their presentation. In fact, I remember it being stared by then-Captain Kamerman that ADS's senior management had briefed the JPT on the same matter prior to the TC meeting. However, they concluded the matter for the day by instructing ADS to "quantify the impact of the proposed changes to the integration effort and to consolidate the response from the various level 3 contractors." To my knowledge, this has never been done, at least not to the meeting participants as was instructed. I must emphasise that C²I² Systems was consistently recognised as a level 3 contractor.

The Navy and Armscor requested that members of the Technical Committee and especially the Design Advisory Committee respond to the proposal made by the ADS. I did so by means of a number of letters to the project officer, also copied to the rest of the project team. Three of these letters were entitled:

1. Corvette Combat Suite Architecture Baseline Changes - Observations on Life Cycle Risks dated 9 April 1999.

2. Corvette Combat Suite - Observations to Proposed Changes dated 31 May 1999.

3. Corvette Combat Suite - Warning on Proposed New Network Solution dated 3 August 1999.

However, to further the matter of alternative combat suite designs, the Department of Defence convened two further meetings over the periods of 4 and 5 August as well as 20 and 21 August 1998. The deliberations of these two sessions are minuted in one set of minutes entitled Minutes of the Ad Hoc CS, that is Combat Suite, Design Review held at ADS Mount Edgecombe on 4 and 5 August and 20 and 21 August 1998. (These matters are classified as restricted). Commander Ian Egan-Fowler signed the minutes as secretary and then-Captain Kamerman signed them as chairman, both signatures being dated 10 September 1998. I attended all of these meetings.

The project officer, that is Captain Kamerman, states the following in his opening remarks:

There is an existing baseline and must be adhered to as far as possible.

Secondly:

The NSR (that is the Naval Staff Requirement) describes the combat suite as a bus based, on architecture system for further growth potential.

What resulted from the adoption of the Tavitac-based system is a closed architecture and a combat suite data network which employs proprietary protocols and an implementation and not commercial off-the-shelf (COTS) elements. This essentially means that the SAN is compelled to retain Thomson-CSF and ADS as their exclusive source of supply for this system. This is inconsistent with the statement made by Commander Ian Egan-Fowler, the combat suit project engineer who, during the SUVECS work group on the computing segment technology held at ADS on 4 November 1998, stated the following in relation to the proposals of new architecture proposed by ADS:

1. SAN's main concern is the life cycle cost, not the acquisition costs.

2. SAN needs to remain with what they know and currently cannot support any new ideas which cannot be identified as a lower risk.

Under item 6 general, sub-item 15(k), this is also minuted:

The conceptual model presented by DLB, that is Doug Law Brown, ADS's corvette combat suite's program manager, that CS7 mod1 was acceptable as a formally feasible option, action JK - that is Johnny Kamerman.

I am referring to the minutes of the TC meeting here. This option, referred to as CS7 Mod1 was specifically chosen because it accommodated both ADS's Tavitac and C²I² Systems's IMS.

This option was again discussed at the TC meeting number 14, minutes classified as confidential, held on 5 November 1998 where the project engineer for the combat suites, Commander Ian Egan-Fowler, stated the following under item 9.1.1. alternative CMS Design:

PEPS:CS (that is the acronym for his position), provided the meeting with feedback on the report generated by SINC, that is ADS, on the impact of the proposed new combat suite architecture, i.e.,CS7 Mod1. CS7 Mod1 is the SANs preferred architecture with the following riders:

(a) The design to be optimised using a common fibre cable plant. SINC:A, that is an acronym for the Armscor program manager responsible, that is Lewis Mathieson of Armscor, has been tasked to investigate the feasibility of this so that the bridge, that is a technical term for a piece of equipment, between the combat management system and the deterministic bus can be removed.

That was to save costs.

Although the above is minuted under item 9.1.1, the meeting actually commenced with this item with Commander Egan-Fowler reading from a pre-prepared document. The minutes do not reflect the seriousness and gravity of the Navy's pronouncements on this matter. Having been at the meeting, I noted Commander Egan-Fowler commencing as follows:

The Navy has seriously considered the alternative combat suite system design and has decided as follows:

1. The specified architecture shall be CS7 Mod1 with the following riders:

There shall be a common fibre cable plant.

The ARTTS software interface layer of the Tavitac CMS shall be modified to use the IMS's APIS software interface layer.

Okay at this stage, just for clarification, I want to show one of my slides. I just want to show this diagram, partly it refers to CS7 Mod1. This is the architecture that was finally, after a lot of debate, was chosen formally by the Navy. It was also in the request for quotation that we subsequently got from ADS, we were asked specifically to quote on CS7 Mod 1. I also find it very interesting that this diagram was submitted to SCOPA in around about early October last year, as being the description of the combat suites. As I explain in a subsequent diagram, this technically also indicates the IMS, this is indicated in blue right around here, as the connectivity element for all the other sub-systems in the entire combat suite. Effectively this means, it proves that the IMS was also a level 3 sub-system or element in the combat suite. It was not part of ADS's combat management system as indicated in this block over here. IMS connects the elements of the combat management system as well as every single other sub-system within the combat suite.

Commander Egan-Fowler continues:

It was reiterated that ADS must provide a written description of CS7 Mod1 as an urgent task. The description must highlight the changes from the combat suite DR2 "baseline," provided by ADS.

To my knowledge, this was never been done. On the contrary, the option ultimately adopted after the deselection of the IMS was an architecture incompatible with the IMS, closer to that designated as CS3 in ADS's prior presentation.

In the circumstances, I find it strange that the documents provided by the DoD in defence of the deselection of the IMS from the combat suite baseline, at around the time of the SCOPA meeting of 11 October 2000, was a diagram that designates the Corvette combat suite architecture is CS7 Mod1, a copy of which is attached as figure 1, which I have just presented.

The IMS was specified in the program plan and the functional specification as a level 3 sub-system of the combat suite. This is a most important observation at this point because later in the Standing Committee on Public Accounts (SCOPA) hearings of 11 October 2000 as well as in the accompanying DoD documentation, the IMS is described by the then-Captain Kamerman as a level 2 sub-sub-system and a component of the Combat Management System. This is not in accordance with the documented project baseline for both projects SUVECS and Sitron, namely the Program Plan and the Functional specification. I may add that both of these documents were signed by then-Captain Kamerman.

I also point out that the diagram CS7 Mod1 correctly identifies the IMS as the inter-connectivity element of the combat suite and not just the Combat Management System. Therefore the IMS is a level 3 product sub-system, emphasis on product sub-system and not a level 2 component of the combat suite. This contradicts the diagram provided by the DoD to SCOPA entitled The Acquisitions Systems Hierarchy, which wrongly reflects the IMS as a level 2 component. Equally wrong is the statement in the document which accompanied the hierarchy diagram, where the following was asserted:

The Information Management System (IMS) is a level 2 component of the CMS (this is on level 2 component).

I think for clarification I just want to show this, this diagram here. These are the different levels, level from 1 to 8, from 1 going to materials and processes, components. Level 3 being a product sub-system, a product being like the combat suite, going right up to the SANDF's operational force to 8. This diagram incorrectly indicates the IMS from C²I² as just a component of a level 3 product system. Here they indicate that level 3 system, for example, the combat management system from ADS, so it gives the impression that C²I² Systems are just a component of ADS's combat management system. This was certainly incorrect in terms of all the baseline documents.

I now go onto a section entitled The User Requirement Specification.

Up until the end of the RFO stage of the project Sitron tender process, that is when the preferred bidders for the corvettes were approved by cabinet on 18 November 1998, the combat suite had been specified by the functional specification, which had been authored, although not developed, by ADS and was under their own configuration control, including having an ADS document number. The South African Navy realised that it would be difficult, if not irregular in terms of the RSA-MIL-standard entitled acquisition baseline standards, to motivate having one of the ADS's documents as a fundamental baseline requirements document for a cardinal acquisition program.

Therefore, for the negotiation phase of project Sitron, that is until contracts were signed on 4 December 19999, the SAN set out their specific requirements in a document entitled South African Navy Patrol Corvette Combat Suite Requirements Specification, classified as confidential and we will refer to this as URS from now on. This specification was signed by the project officer, project Sitron or POP S on behalf of the chief of the SA Navy and designated as "approved for use on the program".

Initially the SAN issued the first formal version as issue 1 on 10 December 1998. They re-issued the same document as issue 2 on 5 March 1999 with some, mostly minor, changes.

In terms of the RSA-MIL standard 0003 URS is a mandatory baseline document for SANDF cardinal acquisition programmes. The URS specifies all the SA Navy's functional and engineering requirements. Page 2, paragraph a(ii) of the URS states that:

"The combat suite component of the vessel is the command, control, communications, navigation, sensor and effector systems specified in accordance with this specification and selected by the SA Navy (SAN). These comprise of systems developed and produced by RSA industry, government furnished equipment supplied from the SAN inventory and three systems to be acquired from overseas, viz, the primary search radar, anti-ship missile and hull-mounted sonar. My emphasis on selected by the SA Navy and RSA industry.

The URS also specifies that:

The corvette combat suite shall be a modern, LAN-based Naval combat system with a distributed processing architecture making use of commercial off-the-shelf technology (COTS).

The URS specifies in some detail the requirements for a SAFENET-based quad-redundant information management systems (IMS). SAFENET is an acronym for Survivable, Adaptable Fibre embedded network as specified for the US Navy. Pages 119 to 120, paragraph 7.1.1 contained the following description of the Information Management Systems:

The Information Management System (IMS) shall interface all the combat suite (CS) segments via a local area network derived from MIL-standard 2204A, survivable adaptable fibre optic embedded network (SAFENET). The IMS shall be based on the alternate path fibre distributed data Interface (APDSSI) topology as defined in the SAFENET standard. Refer to figure 7.1.3.

The IMS shall provide reliable data communications between sub-system with enough spare capacity for CS expansion. This communication medium shall be transparent to the sub-systems and also provide synchronised clocks for the use in time-stamping of data. The IMS shall also assist in the maintenance of the combat suite. The Information Management System shall provide the following capabilities:

(a) Signal data transfer.

(b) Clock synchronisation.

(c) Bulk data transfer.

(d) Network monitoring.

In terms of signal data transfer capability, the IMS was specified to shall have the following characteristics:

(a) Maximum latency of critical data transfer of 5 milliseconds.

(b) Maximum message size of 4 000 bytes.

In terms of clock synchronisation capability, the IMS was specified to shall have the following characteristics:

(a) Synchronisation between any two internal IMS clocks shall be better than 250 microseconds.

(b) Maximum uncertainty between timestamps shall be better than 500 microseconds.

By comparison, ADS's document entitled Combat Suite - System Timing Document for the SAN Patrol Corvette Program, classified as restricted, dated 15 August 2000, specifies minimum packet transfer time or latencies for the Detexis Combat Suite Database as 6,5 milliseconds for a 165 byte messages.

This is very significant for the following reasons:

1. The Detexis Combat Suite Database does not meet the specified requirement of the URS.

2. Although this performance may suffice initially, there is little or no performance margin for upgradeability.

3. As C²I² Systems we had expended a very extensive effort in achieving the specification.

The Detexis Combat Suite Database also does not provide for combat suite synchronisation and message timestamping as a specified in the URS. Again:

1. It does not provide the capability specified in the URS. The Detexis does not provide synchronisation or timestamping at all.

2. Although this capability deficiency can possibly be worked around initially, upgradeability will be severely curtailed.

3. As C²I² Systems we expended a very extensive effort in achieving the specification.

In fact, the lack of this synchronisation and message timestamping has led to the employment of an extremely questionable method for the distribution of time-critical messages in the present combat suite design. Here the source of platform motion data has to provide a correction factor to the sampled data by modifying the data according to estimates of sampling time delay, rather than by timestamping the data with a synchronised timestamp. Effectively this means "polluting" the data at the source rather than filtering the data at the destination. This was a definite no-no in the previous system design, as is so in most distributed systems design practice.

The URS identifies in figure 1-1 entitled Document Hierarchy on page 15, that the Program Plan is one of the applicable existing combat suite level documents.

The URS figure states on page 15 that:

"This document described the segments and elements of the required combat suite.

The URS also states on page 19 that:

The scope of the required patrol corvette combat suite shall consist of the systems and sub-systems described in this document.

The URS provides a note on page 18 concerning the diagram on page 22 that:

Figure 2-3 illustrates the requirement that FDDI databus shall be the main communication medium for combat system data, including high speed deterministic data where required.

The URS provides a diagram on page 20 that provides the:

"Combat suite segment and element product breakdown structure required."

This specifies the information management system as being part of the integration segment and designates, in the key provided within the same diagram, that the IMS is to be provided by a "local industry supplier".

Appendix I of the URS is a "List of Candidate Suppliers" with C²I² Systems being specified as the one and only supplier for the information management system.

Appendix J of the URS is an "Element Costing". Although, I have not had sight of this appendix, I would imagine that it contains costing of the element as derived from the contractors' inputs at the Price and Schedule Audit in May 1998. Any costing for the IMS included in this document would have emanated from C²I² Systems.

Thus the IMS that we designed, developed and tested conformed 100% with the descriptions provided in the Element Costing and Description, the Functional Specification and the User Requirement Specification.

I now go onto a section which I have entitled Product versus Potential.

During Captain Kamerman's evidence during the SCOPA hearings held on 11 October 2000, he referred to the DoD's assertion reported in the Auditor-General's special review that:

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

It was further said by Captain Kamerman and the Chief of Acquisition, Mr Shamin Shaikh, that C²I² Systems had and I quote and emphasise, the "potential" in respect of the IMS. I contend that the use and explanation of their use of the term "potential" is uninformed and out of context. We already had the IMS system, although it still needed to be fine-tuned and certain hardware portions of it manufactured, we nevertheless had a product and not merely a potential.

Captain Kamerman was asked whether he regarded the quoted statement as accurate. In response he incorrectly attempted to convey that the potential merely lay in the bus as a future technology and not in the IMS product which we had already developed.

In fact, I repeat the JPT's final conclusion made in their report of June 1999:

"Both Thomson and GFC recognise that the IMS is a superior product." My emphasis on product.

By early 1999, the IMS was almost fully developed. We had started formal tests in March 1999 and by October 1999 all the critical and major functions of the IMS had been fully developed and tested according to the specified baseline. Here I refer to our Software Test Report Review for the Information Management System Multibus II Integration Milestone 3, dated 26 October 1999.

It is a bit of a mouthful but this report reported the formal test results that we had achieved on the actual equipment as witnessed by Armscor, the Navy and ADS.

Regarding the IMS, we had at that time fully met, in all respects, the expectations of the Armscor and the South African Navy.

As I have stated, C²I² Systems's system complied 100% with the SAN's specified requirements. These had been formally baselined and reviewed at a formal program design review called IMS DR2, design review 2, in 1997 and accepted by Armscor, SAN and ADS. A year or so later, the IMS was accepted at the next higher level design review of the combat suite as a whole, called CS DR2.

The IMS had not yet been industrialised, of course, as this would and could only happen under full-scale production, which due to the very nature of the IMS and for obvious reasons, could only occur under an acquisition contract.

I therefore find it significant that in the documents provided by the DoD in defence of the de-selection of the IMS from the combat suite baseline, at around the time of the SCOPA meeting of 11 October 2000, state the following:

The C²I² Systems IMS is a technology demonstrator, not a product.

This is simply not true (although the IMS is not something one can walk into a networking store and purchase ex-stock, but then neither are any other components or elements of the corvette combat suite.

I would also like to point out at this stage actually that the FDDI technology demonstrator had actually been completed formally and properly in 1991.

I find it even more significant that in the explanatory documents provided by the DoD to SCOPA the following is stated:

C²I² Systems has explicitly acknowledged that further development is necessary to develop it to a product. (See letter from C²I² Systems dated 9 July 1999).

A similar statement was made by the Mr Shamin Shaikh in his evidence before SCOPA. This entirely misrepresents the statements in my letter. My letter states that option 1, I emphasis, the preferred option is "to refer to CS7 MOD1". There are no extra costs involved in this option. This option was entirely in accordance with the SAN requirements according to which we had developed the IMS over a number of years.

Option 2 of my proposal for a risk sharing approach, was a proposal for risk sharing approach and calls for requiring an amount of R15 million, is explicitly in regard of:

"Completion of the IMS 100% according to the present IMS specification, but modified by agreement of both ADS and C²I² Systems to reflect the current reality of the combat suite."

The "reality" as I was attempting to politely describe the situation at the time, was brought about by aspects of the systems design introduced by ADS themselves and included belated baseline changes such as:

1. Changing from the use of the Multibus II standard as specified in the previous contractual baseline, to ADS's new requirement of using the VME and/or Industrial PC standards.

2. ADS's requirement for provision of the TCP/IP protocol, but specifically operation under our APIS protocol.

Such "realities" would have required us to purchase some millions of Rands of new hardware on which to redo the development and testing which we already completed under Project SUVECS.

However, even if these were valid new requirements being introduced by the DoD and/or ADS, these certainly in no way invalidated any of the work, or achievements made on the IMS.

It is important to note that it has been asserted during the SCOPA hearing of 11 October 2000 by the Chief of Acquisitions, Mr Shamin Shaikh that the IMS was a "unique technology" and that in fact it is a technology and not a product.

This statement misrepresents the true facts. The IMS consists almost entirely of an integrated set of commercial off-the-shelf products, the most important of these being according to the FDDI standard. The IMS also conforms to US Navy standards as specified by the SA Navy, the most important of these being the SAFENET standard MIL-standard 2204A which also in turn specifies FDDI. The only aspect of the IMS that is in any way unique is the APIS that is Application Interface Services application programming interfast or API. Please excuse the acronyms. APIs are almost invariably specific for particular real-time systems. The IMS's APIS API is an extremely small part of the overall IMS system and was in any case specified by the SA Navy and Armscor. In addition, the IMS offered an alternative to the APIS API, this being the TCP/IP standard which is a universal standard on which the entire Internet is based. In the IMS project documentation, this option is referred to as the dual protocol stack.

However I must point out that the use of the TCPIP protocol stack cannot guarantee deterministic real time performance.

This alternative dual protocol stack had always been proposed by me in order to provide greater flexibility in terms of interfacing options to the IMS. However the SAN and Armscor had always rejected this as they wanted strict adherence to the program standards. When ADS decided to drop the AIS and WCS in favour of Thomson's Tavitac Combat Management System, they requested that we provide this TCP/IP option. We responded positively to this by providing a quotation to include TCP/IP and the dual protocol stack. We even provided them with software and hardware which allowed them to get some of their systems communicating over TCP/IP and our IMS FDDI hardware in a matter of a few days without any assistance from us.

Thus the IMS was developed according to the US Navy and SA Navy standards, using COTS, that is commercial off-the-shelf technology and components, including the SAN's specified Multibus II processor standards. In fact, only the use of this Multibus II standard and the use of APIS make the IMS any different from similar IMS-type systems used for many years that is since the early 1980s, on US Navy, Royal Navy and German Navy ships, as well as many other mission-critical military applications.

Examples of such early installations on board US Navy vessels include the USS Norton Sound in 1983, the USS Valley Forge in 1984 and the USS Mobile Bay in 1987. All these vessels are naval surface combatants such as destroyers, frigates or corvettes.

The custom-designed layer of communication protocol software, which we called APIS (an acronym for Application Interface Services,) although unique, was specified to us by the SAN and Armscor. APIS is actually merely an implementation of an Application Programming Interface or API which all data communication systems have to have in some form or another. SAN and Armscor instructed us to conceptualise an API which facilitated a robust, consistent, simple and transparent interface between the combat suite sub-systems and the IMS and each other. This is precisely what we did, using a standard communication software concept know as Message-Oriented Middleware.

Any assertion that the IMS was a novel, immature and high-risk technology is simply wrong.

In fact, the IMS was to all intents and purposes a modern, fully developed and tested system, designed 100% in accordance with the SAN's specifications.

The DoD's argument that the IMS has "not been operationally tested or fielded in any warship to date" is a post hoc fallacy, the true position is that the IMS was developed for the SA Navy's Corvettes. The IMS could not be tested on board a warship until the corvette warship had been built.

The fact that the IMS has not been tested on board a warship before does not mean that it represents a risk to the SA Navy as it would in any case be subject to an already baselined comprehensive qualifications process documented under a SA Navy-approved Test and Evaluation Master Plan, both at the sub-system, that is the IMS and system, that is the Combat Suite levels.

I had already made the proposal that a strike craft be used as a more realistic test platform, specifically for the interaction of sensors and weapons via the IMS. However, the SA Navy considered this unnecessary.

A very high proportion of this formal testing had already been successfully completed by the time assertions of risk concerning the IMS were made by ADS in mid-1999.

This testing of the IMS to which I refer above was performed during the period March 1999 to October 1999. It was performed in a formal way and witnessed and accepted by Armscor's quality assurance as well as SA Navy and Armscor representatives of the corvette joint project team and ADS.

The requirements of the combat suit in accordance with User Requirement Specification, a baseline the validity of which was acknowledged by the project officer in his testimony before SCOPA on 11 October 2000, are relevant as the SAN has actually now substantially diverged from these.

CHAIRMAN: Maybe that would be an appropriate point adjourn for lunch but before we do so, this whole question about the IMS system not having been tested, and I am just thinking of the earlier statement that were made, that when you build ships of this nature, you have got to take into account the long term 30 to 40 years and I think the person that you referred to, I forget the name now, stated that during that period it could be conceivable that the ship could possibly go to war and that lives would be at risk because of that.

Isn't it a crucial criterion that is used in acquisition of arms in your knowledge and that therefore this consideration of the system not having been tested because it was developed for a South African corvette, which was still to be built, was a problem with regard to your byte or do you have any comment in that regard. --- Yes, if one is designing for the long term, you design certain capabilities and attributes into the technology or the system based on that technology and then you test them very, very comprehensively and you also build in extra performance margins which allows the system to develop over that 30 or 40 year period. It doesn't mean to say if there are any development risks upfront, that those development risks remain during the whole life of the program. You design and test them out upfront and then you know that that system works and it has been tested in such a way that, or in a scientific way, that you can always add something on. But just remember that if you choose the IMS system, or any other system that has been developed and the detective system was not completely off-the-shelf, then both systems equally have development risks. But what I am saying is, the IMS's development risk was already amortised. There were no residual risks for the life program. Does that answer your question?

Yes. We may pick up the matter at another time but thank you for your response. We shall take the lunch adjournment until 14:00.

PROCEEDINGS ADJOURN

PROCEEDINGS RESUME

CHAIRMAN: Dr Young you are still under your former oath.

MR : Sorry Mr Chairman I was approached at lunch time by a number of journalist for copies of the testimony. This testimony this "Aide Memoire has been prepared by my client specifically for the hearing and he need permission specifically to deal with Aide Memoire in its entirety he cannot alleviate from that. Some of the journalist are struggling to keep up with the acronyms and the flow of the testimony it would certainly benefit and make life a lot easier for them if copies of the Aide Memoire were handed to them is that possible to make such a ruling that they are handed copies of the Aid Memoire and they can follow the testimony as we are we have an advantage over them.

CHAIRMAN; Yes well this is public to the extent as you know that we have agreed that people can take notes here but there is just one problem about that the Aide Memoire is a complete document. How don't you know that they are not going to run ahead for instance today and talk about things that Dr young hasn't mentioned how do you handle that?

MR : We could for example give the first pages as we are and then at least then they can follow from there. We don't have many copies we have got a couple of copies it just would assist matters greatly.

CHAIRMAN: No I do understand and as I say it is public. Just one second. (Pause)

As long as you restrict it to what testimony has been given today just to prevent - yes you may proceed Dr Young.

RICHARD MICHAEL MOBERLY YOUNG: (s.u.o) Thank you. The section are entitled: Sub-System Selections"

150. As far as the Request for Final Offer is concerned, I wish to emphasize that it is stipulated in Paragraph 1.2 that:

"It is envisaged that the Combat Suite contractor will be a South African industry consortium wherein Altech Defence Systems (ADS) plays a leading role, co-responsible for the overall design, integration and supply of the Combat Suite element."

151. Subsequently ADS was nominated as the preferred supplier for the entire Combat Suite, i.e. to integrate the whole Combat Suite. ADS, in effect, became the main contractor for the Combat Suite. They were nominated as such in the same document, namely the document entitled Element Costing and Description, as was C²I² Systems nominated to provide the IMS.

152. In this regard, I refer to the appendix of this document, which shows ADS to be nominated for the combat system integration. In terms of the document, ADS's responsibility included contracting with the sub-contractors. In my view, the fact that ADS had to integrate the system, but could also be a sub-contractor competing with other the sub-contractors, constituted a conflict of interest.

153. Also in the appendix to this document, a "foreign supplier" is nominated to provide the STAR Radar with C²I² Systems being co-nominated to provide the Radar Consoles with the foreign supplier. We were nominated in that we had entered into a "package" deal arrangement, for consoles for both the STAR Radar and Optronic Radar Tracker, with the SA Navy, Armscor and Reutech Radar Systems. We had also performed some technical work at "risk" on the STAR Radar Console.

154. On 27th March 1998, I wrote to the Managing Director of Altech Defence Systems, for the attention of Mr Pierre Moynot, confirming the situation, as it then was, as follows:

"You will be aware that we are developing the Information Management System (IMS) and Tracker Radar Console (TRC) for the Combat Suite. We have also been designated as developing the Search Radar Console (SRC) with ADS supplying the console hardware, i.e. VMC, in respect of both the TRC and SRC. In addition we are the designated system house for the Platform Management System (PMS) which incorporates a number of sub-systems for the monitoring and control of ship platform machinery. These include sub-system developed by ourselves, i.e. the Platform Management Console (PMC), Helicopter Control Sub-System (HCS) and Stability Management Sub-System (SMS), as well as sub-systems developed by other companies, including the Advanced Damage Control Sub-System (ADACOS) developed by ADS (Diep River Branch)."

155. My letter continues:

"We have noted the SA Navy's and Armscor's officially expressed preference of having the Corvette Combat Suite supplied by a Combat Suite Contractor which "will be a South African industry consortium where Altech Defence Systems (ADS) play a leading role, co-responsible for the overall design, integration and supply of the Combat Suite element".

156. I accordingly stated that:

"We are approaching yourselves with a view to participating in this teaming arrangement".

157. The STAR Radar contract was eventually allocated to Thomson-CSF with the consoles being provided by ADS.

158. In early August 1998 in response to my letter to ADS on the recommendations of the Project Officer, then Captain Kamerman, discussions between C²I² Systems and ADS took place, in an attempt to conclude a Memorandum of Understanding (MOU) regarding co-operation on the Corvette Combat Suite.

159. This MOU was drafted by ADS and transmitted to me as an e-mail attachment on 28th August 1998 by Mr Duncan Hiles, then Managing Director of ADS. I responded to this letter almost immediately by means of my letter of 3rd September 1998. I need to point out that in the draft, in the first paragraph of the preamble on page 2 of the document, the following is stated:

"ADS has been nominated by the SA Navy as the supplier of the Command Management Sub-System and the Navigation Sub-System. Within the Integration Segment, C²I² Systems has been nominated as the suppliers of the Information Management Sub-System (IMS). These nominations are recorded in Annexure I." (Of their document).

160. This clearly shows that ADS also acknowledged C²I² System as the nominated supplier of the IMS as had the DOD and Amscor.

161. I could not accept ADS's wording of the MOU inter alia because paragraph 3 would have given ADS carte blanche to change the specifications of the system and because of ADS's demand for exclusivity i.e. ADS's demand that C²I² System not supply the IMS to any party other than to ADS for the South African Navy Patrol Corvettes.

162. I was not at that stage prepared to grant exclusivity in accordance with ADS's demand as I was not certain that ADS would retain their status as the nominated supplier of the Combat Suite Integrator. ADS's preferred status was based on the fact that it was a local company. By this stage I was aware that Thomson-CSF of France had purchased 50% of ADS from the Altech Group and I was concerned that ADS would lose its preferred status. I wanted to be free to offer our IMS to other potential Combat Suite Main Contractors.

163. I am of the opinion that the phased purchase of the ADS shares allowed the exclusivity of ADS's nomination as supplier of the Combat Suite to endure during the negotiation process. I contend that this exclusivity would have been negated and no longer justifiable had there not been this phased process

164. I also knew that the only reason that ADS, ourselves and the other local companies could justifiably be nominated a priori as suppliers of the Combat Suite was the fact that we were all South African companies who had participated and invested in the local development of the indigenous Combat Suite for many years.

165. In fact, other foreign companies such as BAeSEMA of the UK, CesiusTech of Sweden and STN Atlas of Germany, three of the traditional European suppliers of naval combat systems to Blohm+Voss, were also monitoring this developing situation with Thomson-CSF and ADS and had indicated that they were interested in competing with ADS should it lose its exclusivity as a result of its takeover by a foreign owner. In turn, these companies had approached us informally in order to determine whether we would supply our IMS to them should they successfully bid on the supply of the Combat Suite.

166. In this regard, in April 1997, Mr Lewis Mathison of Armscor, now the Combat Suite Programme Manager, but then the Armscor Manager responsible for the IMS, instructed us to provide various documents describing the IMS to BaeSEMA. The obvious reason for this was that BAeSEMA had expressed an interest to the Department of Defence, the S A Navy and to Armscor in tendering for the Combat Suite and/or Combat Management System. In fact, I know that various very senior managers and directors of BAeSEMA and British Aerospace (BAe) met with senior members of the DoD, the SA Navy and Armscor in this regard.

167. From British Aerospace, these persons included Alex Dorian, Managing Director, Alan Nicholson-Florence, Marketing Director and Chris Courtaux, Business Development Director. It is known that they met, inter alia with Rear Admiral Howell and Pierre Meiring of Armscor and I think quite a number of others. It is interesting to note that Alex Dorian's services with British Aerospace were terminated a few months after this and that he has since been the Vice President of Naval Systems for Thomson-CSF, based in Paris.

168. I was also told by a director of British Aerospace that they had meetings with Schabir Shaikh of Nkobi Holdings with regard to provision of the Corvette Combat Suites, as well as them, i.e BAe, expressing an interest in an equity stake in Altech Defence Systems.

169. As we were a South African company that had been nominated to supply the IMS and because the development of the IMS was already nearly complete, there was thus no way that I was prepared to accept exclusivity of supply to ADS, who could easily lose their own exclusivity if they were to be purchased by a foreign company, thereby excluding ourselves.

170. Accordingly, I responded to ADS's draft MOU such that the MOU would become effective once ADS was appointed as the Main Contractor for the Combat Suit.

171. ADS refused to accept this and therefore C²I² System and ADS never signed this MOU.

172 On 23rd August 1998 ADS and on 28th August 1998, C²I² System did, however, sign and Exchange of Proprietary Information and Non-disclosure Agreement, in terms of which ADS was not entitled to disclose any of our technical information or our price.

173. Regarding the interest of other combat system suppliers, we were formally approached by BAeSEMA (it is a subsidiary of British Aerospace) in early November 1998 with a Letter of Intent (LOI) regarding the supply of elements of the Combat Suit should they be successful in persuading the German Frigate Consortium to consider them as a potential supplier. This draft of the Letter of Intent called for complete exclusivity of supply to BAeSEMA. Due to the nature of the prevailing situation regarding the nominations for the elements of the Combat Suite, we refused to offer such exclusivity to BAeSEMA.

174. The situation concerning BAeSEMA and their proposed consortium of Advanced System Management was clearly conveyed to the S A Navy an the Department of Defence by means of briefing and letters and telephonic conversations to and with, inter alia, Rear Admiral Howell, then Captain Kamerman and Cdr Ian Egan-Fowler.

175. During one such telephonic conversation with Captain Kamerman, he mad the ominous remark, quoting Group Captain "Bomber" Harris of the Royal Air Force, "he who sows the wind will reap the whirlwind".

176. As it transpired, BAeSEMA, through Advanced Systems Management (ASM), received a Request for Quotation (RFQ) for the Command and Control System, a segment of the Combat Suite, from the German Frigate Consortium on 22nd December 1998. Although they put in some effort in preparing a quotation during the next three weeks or so, they decided on 14th January 1999 to withdraw from the bid to Blohm+Voss after having "reviewed the competitive position".

177. I have subsequently been informed by very senior members of management of British Aerospace Defence Systems Group, including a managing director of one of the companies in this group, that the reason for their withdrawal from their bid was that there was intervention from very high levels of the South African Government who advised them to withdraw or that British Aerospace would jeopardise their chances of winning the Lead-In-Fighter Trainer (LIFT) and Advanced Light Fighter Aircraft (ALFA) contracts with British Aerospace's Hawk and Gripen fighter aircraft for the South African Air Force.

I am now going to a section which I have called "Request for Quotation and Price Audits."

178. On 11th November 1998, we were requested by ADS to provide them with a formal quotation for the IMS. In Annex 1 titled Scope of Supply, the RFQ specifically notes the following:

"The subsystem (IMS) is as established at the level 4 DR2 (that is the Combat Suite Design Review 2) under Project Suvecs and as modified by the selection of the CS7 (Mod 1) architecture at the last Technical Committee meeting (TC 14)."

179. At this stage, we had to supply full technical details and pricing information to ADS. So effectively we were giving them the heart and soul of our system, but we did it under the Non-disclosure Agreement.

180. On 15th December 1998, we were requested by ADS to provide them with another formal quotation for the IMS to "accommodate an alternative configuration proposal".

181. Details of this alternative configuration proposal were not provided. However the RFQ instructs us to "Exclude/remove the Bridge (Bridge Inter Face Unit)" and "assume a single dual redundant FDDI LAN" and to "provide a connection oriented service, that is as per UDP/IP and TCP/IP" (That is the dual protocol stack which I mentioned earlier). Thus it appeared to us that ADS was reverting to the original requirements as specified by the Functional Specification and more recently by the User Requirement Specification.

18.2 Regarding the various prices that we offered for the IMS, these were always in line with the prices which we provided the Joint Project Team at the yearly audits, including such audits in April 1997 and May 1998, as well as at the IMS pricing review held in March 1999. I use the term "in line" because the technical baselines and scope of supply for the various requests for quotation given to us, invariably changed from instance to instance.

18.3 During the SCOPA hearing of 11th October 2000, then Captain Kamerman was questioned on the matter of price audits for the Combat Suite, inter alia, he states:

"I think you may be referring to the budgetary estimate audits that were carried out on the Technology Retention Programme."

"They were not in any way audits."

"When those budgetary estimate activities were carried out they were done significantly preceding any tender process for these Corvettes. In fact, it was approximately a year before we had."

184. Captain Kamerman's responses to the simple question of price audits undertaken by the Corvette Project Officer, i.e. himself, were incorrect. The true facts of the matter are that comprehensive Price and Risk Audits for the Corvette Combat Suite were undertaken in 1997 and 1998. These Price and Risk Audits, even during the currency of Projects SUVECS, were specifically in the context of the Corvette Acquisition programme, not the Technology Retention Programme. I contend that price and risk audits of such a nature were and are irrelevant for a Technology Retention Programme - by definition. Nevertheless, the last audit carried out under the description Corvette Combat Suite Price and Risk Audit was in May 1998. The Corvette Request for Offer (RFO) was issued on 13th February 1998 with Offers required by 11th to 15th May 1998. Thus for Captain Kamerman to state that these audits were "approximately a year before we had", i.e. initiated the tender process for the corvettes, is simply not correct.

18.5 Furthermore, in March 1999, I was summoned to Pretoria by the Joint Project Team (JPT), consisting of members of the South African Navy seconded to the Department of Defence and members of Armscor. At the meeting held at Armscor, they were flanked by members of the German Frigate Consortium (GFC), Thomson-CSF and ADS. The manner in which I had to present and confirm the prices which we had supplied to ADS was to all intents and purposes another price and risk audit.

186. I thus reject the Project Officer's denials of the existence of these pricings in his evidence before SCOPA on 11th October 2000.

Now I am going to address a section which I have entitled "System Management Sub-System or SMS"

187. At this point, I need to mention that on 13th April 1999 we were also requested to submit a competitive offer for another two sub-systems to the Joint Project Team through Blohm+Voss, that is a member of the German Frigate Consortium. This was in respect of the System Management System (SMS) and Navigation Distribution System (NDS) for the Corvette Combat Suite. We were eventually awarded the contract for the NDS. However, for the SMS, although our quote was less than that of ADS (even after unjustifiable upward adjustments to our price) ADS won the contract.

188. On 13th April 1999 the JPT acting with the German Frigate Consortium (GFC) as interlocutor, formally requested a "competitive/comparative quote" from both C²I² System and ADS in respect of each of the SMS and the Navigation Distribution Sub-System (NDSS) for the Combat Suite of Project Sitron. It was specified that these quotations be submitted by 15th April 1999. Annexed to each of the Requests for Quotation was a Statement of Work relevant to the particular sub-system.

189. I draw attention to the fact that C²I² System was given two days in which to respond to these two requests for quotation. Given the fact that we had no previously worked on either of these sub-systems and were competing against the previously nominated contractor (ADS) who had prepared two previous quotations in March and early April 1999, I aver that the time afforded to the C²I² System was manifestly unreasonable.

190. At the time of the request for quotation, the situation was complicated by the fact that both the technical director of C²I² Systems Gerhard Krüger and myself were overseas and unable to gain an overall perspective of these Combat Suit elements. Nevertheless, C²I² System managed to submit a competitive quote, Quotation No CCII/PROP/054, Issue 1.0 dated 15th April 1999, within the prescribed period. The quote was faxed to the German Frigate Consortium on 15th April 1999

191 Subsequently the SA Navy, by means of their letter dated 6th May 1999 had indicated that an acceptable price for the total Combat Suite had not been achieved by the negotiating process and that it had accordingly requested a Best and Final Offer (BAFO) for the Corvette Combat Suite, including the SMS and NDSS.

192. On 12th May 1999, ADS issued a Request for Best and Final Offer to C²I² Systems for the NDSS, thereby indicating that the JPT had a preference for the NDSS to being provided by C²I² System, but not for the SMS.

193. In preparing a Best and Final Offer for the NDSS, unlike in the case of the initial quotation, we were able to gain an overall perspective of the project and realised that we could offer four alternative and more affordable options. These options were dependant on whether the SMS and NDSS were contracted separately or together and whether ADS's Versatile Modular Console (VMC) or C²I² System's own console was used for the SMS. On the 20th May 1999, C²I² System submitted a second offer, Issue 2.0 dated 20 May 19999.

194. In the case of NDSS, ADS had in the meanwhile increased the scope of work of the order by including the necessity of providing a Navigation Sensor Sub-System Simulator (NSS Simulator). As there was no description or specification for this item, C²I² System had to make a nominal provision of R500 000 therefore and accordingly increase the price in the Best and Final Offer by this amount.

195. Although I am aware that the second offer in respect of the SMS was not submitted within the prescribed period, the German Frigate Consortium had nevertheless requested in their request for quotation that the validity period for C²I² Systems' quotation (for NDSS only or the SMS and NDSS together) to be until 13th December 1999. It is also relevant to mention here that the NDSS contract was only awarded to C²I² Systems by ADS one year later in June 2000 after extensive contractual negotiations with ADS and that this long delay certainly indicates that the JPT and the German Frigate Consortium had the requisite time in which to consider our second offer for the SMS.

196. In a telefax dated 29th June 1999 addressed by the Chief Executive Offer of Armscor, Mr Llewellyn Swan, to the German Frigate Consortium it was recorded that at a recent meeting of the Project Control Board regarding the selection of the major products and their suppliers for the corvette programme, those suppliers whose names appeared on the attached list were selected. The telefax requested that the German Frigate Consortium inform all suppliers of the Project Control Board's decision. The second page of the telefax lists the suppliers in respect of the Combat Suite with ADS / Thomson being selected as the supplier of the SMS. I did not have sight of this document, this letter, at the time.

197. On 2nd August 1999, as C²I² Systems had not yet received any formal notification as to whether or not it had been selected to supply the SMS, I addressed a letter to MR Klaus-J Muller of the German Frigate Consortium, requesting to be formally advised as to the selection of the IMS and that "should our quotation not have been successful, please advise us fully as the reasons therefore".

198 I received no response to the aforementioned letter and therefore on 23rd August 1999 I addressed a second letter to Mr Klaus-J Muller of the GFC where I reminded them that at the meeting held at Armscor on 21th July 1999 the GFC had advised the attendees that it had instructed ADS to inform companies involved in the Corvette Combat Suite of the outcome of the Project Control Board's decisions and that ADS had undertaken to do so "within one week" of that time and that such formal notification had still not been forthcoming.

199. On 1st September 1999 I received a response in the form of a telefax from the Corvette Consortium of South Africa (CCSS), which consisted of German Frigate Consortium, Thomson and ADS, stating that "your offer of 15th April 1999 was taken for the decision of the client for the selection of the SMS" and that C²I² Systems' tender had been unsuccessful. The telefax was signed by both Klaus-J Muller of the GFC and Pierre Moynot of ADS.

200 On 13th September 1999 attorneys Herold, Gie and Broadhead (HGB), acting on the instruction of C²I² Systems, addressed a letter of demand to both Klaus-J Muller and Pierre Moynot of the Corvette Consortium of South Africa requesting written reasons explaining why C²I² Systems' tender was not accepted.

201 I would like to draw attention to paragraph 2 of HGB's letter dated 13th September 1999 which states:

"2. Our client notes that its tender was not accepted by the Department of Defence. Our client requires that your client furnishes our client in writing with full reasons why our client's tender was not accepted, to reach our offices not later than 20th September 1999, including but not limited to:

2.1 the identity of the other tenderers;

2.2 the price tendered by the other tenderers;

2.3 which tender was accepted;

2.4 whether the winning tender was accepted by reason of price alone or if not, what factors were taken into account;

2.5 what aspects of the winning tender were preferred above our client's tender."

202. After further requests addressed by HGB to Klaus-J Muller and Pierre Moynot of the Corvette Consortium of South Africa on 1st December 1999 and 4th January 2000, HGB eventually received a response from Pierre Moynot of ADS in the form of a telefax on the 14th January 2000.

203 It is necessary and relevant to quote the entire contents of the telefax:

"Selection of System Management Sub-System (SMS)

Further to your various requests as to how the choice of the supplier for the SMS had been made and on which criteria, I would like to give you hereby the result of our investigation:

1. The request for quotation had been issued by the Project Team (S.A.N & Armscor) through the preferred Platform Supplier, namely the GFC, who at that time was the only official interlocutor of the Project Team.

2. Your client quotation has been forwarded directly to the Project Team by the GFC together with the one that we had submitted

The selection has taken place within the normal selection process conducted by the Project Team with the approval by the P.C.B., resulting in the letter addressed by Armscor's CEO to the GFC, dated June the 29th, 1999, which allocated this sub-system to our company.

The above can be easily checked by yourselves and/or your client.

Therefore we do not consider ourselves involved in any way in that selection process."

204. As can be seen from the aforementioned letter, all that Pierre Moynot dos is to explain the procedure of how the choice of the supplier for the SMS was made. He completely fails to address our valid enquiry as to the selection criteria used for the SMS.

205. However, more importantly, Mr Moynot makes it clear that it was in fact the Department of Defence and Armscor, represented by the Joint Project Team and Project Control Board, who were entirely responsible and accountable for the tendering and selection process for the SMS.

206. Additionally, the telefax dated 14th January clearly demonstrates that ADS's responsibility to integrate the Combat Suite and its role as a main contractor competing with other sub-contractors constituted a conflict of interest. This issue is dealt with herein below.

207. As both the GFC and ADS has failed to satisfactorily answer my queries and had stated that the decision had been made by the Project Team with the Project Control Board's approval, I subsequently addressed a letter to R Adm (JG) O.J. van der Schyf, the Director of Naval Acquisition of the Department of Defence on the 15th February 2000, requesting the following information:

1. What were the competitors to the C²I² SMS?

2. Which company's equipment was selected in the place of the SMS?

3. What was the price of the C²I² as offered to the DoD?

4. What was the price of the selected SMS?

5. On what grounds was this selection made?

208. As I received no reply from the DoD, I subsequently addressed letters to the Department of Defence and Armscor on this issue on the following dates:

7th March 2000, addressed to both to S. Shaikh, the Chief of Acquisitions of the Department of Defence and H.S. Thomo, the Chief Executive Officer of Armscor.

10th July 2000, addressed to S. Shaikh, Chief of Acquisitions of the Department of Defence.

5th October 2000, addressed to S. Shaikh, Chief of Acquisitions of the Department of Defence.

I did not receive a response to any of the abovementioned letters.

209. In April 2001 it came to my attention through a document that I obtained entitled "Report on the Process followed for System Management System (SMS) and the Navigation Distribution Sub-System (NDSS) for the SAN of Project SITRON" that ADS was awarded the contract through a fundamentally flawed process. The document is of particular relevance because it was prepared by Armscor and was intended to provide a brief overview of the process that was followed for the acquisition of the SMS and NDSS for the SAN Patrol Corvette of Project Sitron.

2.10 It is necessary to draw specific attention to the third and fifth paragraphs of this report which record the following:

"The Offers were presented to the Project Team on 16th April 1999, the defined closing date. Thereafter, a team of technical personnel, compromising of SAN and Armscor engineers did an evaluation of the Offers and made recommendations to the Programme Manager and Project Officer. Technically, all Offers complied to the User Requirement. (my emphasis) The CCII Offer had to be adjusted to include:

Handling fee for non-ADS components (3,2% of total)

Integration fee (7% of total)

Estimated extended warranty (1.85% of total)

For the SMS, the following prices were evaluated:

ADS CCII

R29.647m R30.04m

211 I have determined the total of these three adjustments is 12,05%, that is the simple addition of the individual components and not a compounded addition. This is supported by the fact that the report refers to a total price adjustment factor of 0,8795; which is in effect 100% minus the sum of 3,2% plus 7% plus 1,85%. The prices in the Report are inclusive of VAT.

212. However, I contend that it was not justifiable and was competitively unfair to add on a handling fee of 3,2% for non-ADS components for the reason that ADS was, certainly at that stage of the contract bidding process, merely another competitor. It was the JPT who had requested the competitive quotation through the German Frigate Consortium. I contend that ADS had, or, more accurately, should have had, nothing to do with the selection process for these sub-systems. Thus if a handling fee was, in fact applicable, then it should have been applied to both competing parties equally, or not at all.

213. Similarly, I contend that it was not justifiable and was competitively unfair to add on an integration fee of 7% for non-ADS components for the same reason as above. Thus if an integration fee was, in fact applicable, then it should have been applied to both competing parties, or not at all.

214. I do accept that at, on initial evaluation, it was justifiable to add the 1,85% to the offered price of the C²I² System's SMS in respect of extended warranty. Extended warranty had been explicitly excluded in the C²I² Systems offer as the two days given for quotation preparation was just too short for determination of the cost of providing such extended warranty under initial vessel operating conditions that were not clear or specified. However, if the adjustment is added to the price of the C²I² Systems SMS, then it needs to be verified that ADS had included this extended warranty in their offer.

215 However, it needs to be said that when C²I² Systems provided an updated offer for the SMS on 20th May 1999, that is just five weeks later, such extended warranty was specifically included in the offered price with no upward price adjustment.

216. The fact that the offer by C²I² Systems was unjustifiably increased to include handling and integration fees for non-ADS components illustrates that the competitive tender process was flawed and unfair as it permitted ADS to compete with C²I² Systems for the supply of sub-systems. It is my contention that this anomaly constituted a conflict of interest as well as an irregular tender process.

217. However, I believe that the shortcomings outlined above are minor by comparison with what I described further.

218. The report goes on to record that the evaluation team recommended the ADS option, inter alia, based on their conclusion that:

"the all inclusive ADS price was marginally better than the CCII price (base price divided by 0,8795)."

219. I draw attention to the fact that the quoted price for the SMS by C²I² Systems' was R26,43 million including value-added tax. Even if the above adjustments are made, and I dispute that they are justifiable, the total figure does not add up to the amount of R30,04 million, but to a lesser amount of R29,61 million.

220. Thus C²I² Systems's price of R29,61 million was lower than ADS's price of R29,65 million, even after the adjustment were added to C²I² Systems's price.

221. I thus contend that C²I² Systems's offered price for the SMS was misrepresented in an attempt to justify the selection of the higher ADS offer.

222. It should be noted that the overall adjustment factor of "0.8795" shows that the individual adjustments were not compounded.

223. The report states that:

"ADS has received funding under Project SUVECS for the definition and development of the SMS and has thus build up experience and a competent capability in this area."

If this was relevant, then I contend C²I² Systems should not have been requested to quote for the SMS if they were in any case going to be unsuccessful on these grounds. C²I² Systems could not really be expected to provide a better price that ADS having not been involved in the SMS before; nevertheless they did so while still being technically compliant.

224. The reports states further that:

"The SMS is primarily a "system Level' management tool and therefore should reside with the company which not only has the system expertise and knowledge, but also has the system integration responsibility."

If this was relevant, then C²I² System should not have been requested in the first place to quote for the SMS if they were in any case going to be unsuccessful on these grounds.

225. The reports states that:

"Given that ADS are the Combat Management system (CMS) suppliers, the system architecture requires intimate knowledge and close co-operation between the SMS and GMS. This would be best achieved if both were the responsibility of the same company

The success of the SMS requires extensive knowledge of all aspects of the Combat Suite - command and control and guns, trackers, missiles, interfaces, etc. ADS, being the designated Combat Suite integration entity, will be in a better position to ensure that all the user requirements are met, whereas CCII to date have focused more on data communications systems only. It would require a steep (expensive and risky) learning curve for CCII to catch up to ADS in this area."

226. If this was true or relevant, then C²I² Systems should not have been requested in the first place to quote for the SMS if they were in any case going to be unsuccessful on these grounds. Furthermore, if ADS's status as the nominated CMS suppliers meant that it was a "given" that ADS would ultimately receive the CMS contract, then there is no reason why the same should not have been applied to C²I² Systems in relation to the IMS. Alternatively, if the award of the CMS contract to ADS was not guaranteed at that stage, then this consideration should not have been taken into account in awarding the SMS contract to ADS.

227 Furthermore, it is completely untrue that "CCII to date have focused more on data communications systems only." C²I² Systems had already been nominated to provide the Tracker Radar Console, the Search Radar Console and collaboration regarding the Combat Team Trainer for the Corvette Combat Suite. C²I² Systems were also selected to provide the IPMS Simulator for the Corvette platform. In addition, it was well known to the Joint Project Team that C²I² Systems had been selected to provide the local component of the Submarine Combat Management System software and also had previously provided a number of other sophisticated systems of equivalent technology and complexity to the SA Army and SA Navy. These include Control and Display Systems for various SA Army radar systems and a Helicopter Take-off and Landing System for the SA Navy.

C²I² Systems had in any case been nominated to provide the Network Management Component of the SMS.

228. Thus I contend it was fallacious for the JPT to make this statement. Considering the following statement made in the report:

"ADS proved to be a lower risk than CCII of getting the task completed as outlined in the above points."

I contend that this statement is incongruous for the following reasons:

* noting whatsoever was proved. At best this is a false conclusion drawn from irrelevant and groundless premises.

* the tense might give the impression that ADS has already completed the SMS, which is quite false.

230. I would like to point out that on page 2 of the report it is recorded, in the case of the SMS, that:

"A fundamental point to note in this whole exercise is that the first quote received from ADS on 15th March 1999 was R64,73m and subsequent quote on 7th April was R37,62m. In going out on competitive tender, a normal business practice, the price was reduced to R29,65m. This equates to a saving to the State of at least R7,9m for the SMS."

231. I contend that, while it is admirable to negotiate the best value for money for the State, the above statement is irretrievably flawed. Not only was there a better price offered for a product which met the technical requirements (namely, the C²I² Systems' offer), but it would appear from this statement that the C²I² Systems was merely used to force a lower price from a previously single source tendered (namely, ADS).

232 I would also like to point out the on page 2 of the report it is recorded, in the case of the NDSS that:

"Similarly for the NDSS. The first quotation received from ADS on 15th March 1999 was R45,94m and the subsequent quote on 7th April 1999 was R25,03m. As a normal business practice, the eliciting of a competitive quote reduced this price to R15,99m, a saving of at least R9,0m to the State."

233. In relation to the award of the NDS to C²I² Systems, the report states that:

"CCII had already progressed a large way under project SUVECS in establishing the basic hardware and techniques for such data distribution."

This statement is again incorrect. At that stage C²I² Systems had done no work whatsoever on the NDSS under Project SUVECS or at all. C²I² Systems only received some minor funding under Project SUVECS during the following (i.e. 1999/2000) financial year.

234. The report further states that:

"The NDSS is not a trivial sub-system, but then again it is not as complex as the SMS or some of the other sub-systems comprising the Combat Suite."

The NDSS is certainly not trivial; it is, in fact, what is categorised as a mission-critical sub-system within the Combat Suite. This means that if it fails, the Combat Suite fails meaning that the whole ship fails functionally. The NDSS contract was nevertheless awarded to C²I² Systems without them having being involved in the NDSS before, or without having to provide a performance guarantee for the NDSS, or even this having mentioned to us as a requirement.

235. The report goes on to state:

"Data communications has never been a strong point of ADS whose real expertise lies in the domain of command and control systems."

The statement that "Data communications has never been a strong point of ADS" is certainly true. That is why C²I² Systems were contracted by Armscor to develop the IMS for the Corvette Combat Suite.

236. The report states further that:

"The risk of CCII not being able to complete the task was deemed to be acceptable."

I contend that it is inconsistent to conclude simultaneously that, in respect of the NDSS:

"The risk of CCII not being able to complete the task was deemed to be acceptable" while in respect of the SMS:

"ADS proved to be a lower risk than CCII of getting the task completed as outlined in the above points."

237. While C²I² Systems were awarded the NDSS contract, I contend that this was both unavoidable in light of the greatly lower price offered by us, but more importantly it was done in an attempt to placate us for losing both the IMS and SMS contracts.

Integrated Platform Management System (IPMS) Simulator.

238. At this point, I need to mention that on 23rd June 1999 we were requested to submit an offer for the IPMS Simulator (IPMSS) to Blohm+Voss, a member of the German Frigate Consortium. Although we were formally and finally selected by the Project Control Board to provide the IPMS Simulator in terms of Armscor's letter to the GFC dated 29th June 1999, Blohm+Voss then requested an extension of validity of our offer until 30th June 2000 and then again until 30th March 2001. On 19th February 2001, Blohm+Voss supplied to us for the first time with the detailed Requirement Specification and requested us to supply a "last and final offer" by 2nd March 2001, which we did after an extension of three days. We were eventually informed by them on 9th April 2001 that we were not being awarded the contract for the IPMS Simulator.

239. Pierre Moynot also refers to this matter in his letter to us dated 26th July 19999:

"To my knowledge, they (C²I²) have also been selected as preferred supplier for another sub-system part of the platform of sub-contractor to GFC."

240. During then Captain Kamerman's testimony in SCOPA hearings of 11th October 2000, he reported as follows:

"They are also critically involved in the software development of the machinery control system."

He was referring in this case to the IPMS Simulator.

241. In the draft Project Sitron: Contractor Security Plan (classified as confidential) dated 20th January 2001, C²I² Systems are also referred to as the contractor for the IPMS Simulator.

242. It is thus clear that C²I² Systems was de-selected in respect of the IPMS Simulator at a very late stage. Both Armscor and the GFC have been requested to provide reasons, but have so far refused to do so.

Request for Best and Final Offer (RFBAFO)

243. Returning now to the issue of the IMS, on 6th May 1999, a Request for Best and final Offer was issued by the Department of Defence to "Messrs German Frigate Consortium and African Defence System (Pty) Ltd" (sic) in respect of the Corvette. In substance, however, in respect of the Combat Suite, it was issued to ADS who passed it on to the sub-contractors. ADS submitted it to C²I² Systems as per their letter dated 13th May 1999 where they requested that the Best and Final Offer be submitted by 14th May 1999, that is the very next day. As it as a best and final offer with a host of industrial participation, warranty, optional 5th Corvette and other requirements, it was very difficult for us to provide a full and binding commercial offer within the timescales specified.

244. Attached to the letter (as Appendix "A") , was a covering letter from the Corvette Joint Project Team, dated 6th May, 1999, addressed to GFC and ADS and signed by Captain Kamerman, the Project Officer representing the Department of Defence and Mr Nortjé, the Programme Manager for the Corvette Programme, representing Armscor. Appendix "B" of the letter consists of the Combat Suite Baseline for Vessel Best and Final Offer as well as Captain Kamerman's letter on 31 March 19999 to GFC headed Project Sitron Combat Suite Design to Cost Measures, with a spreadsheet referred to in it.

245. This spreadsheet, consisting of two A3 pages, refers to C²I² Systems as the contractor for the Information Management System. Moresoever, this spreadsheet provides the price provided by C²I² Systems for the IMS. This is a clear indication, yet again, that C²I² Systems was not only the nominated supplier, but had now become the selected or preferred supplier or contractor of the IMS and thereby had a legitimate expectation of being awarded the contract.

Government Responsibility for Sub-Contracting.

246. Regarding the formal selection of the Project Control Board, I find it difficult to accept that the South African government repeatedly denies that it had anything to do with the sub-contracting for these defence acquisition contracts, specifically the Corvette. In fact, the ministerial sub-committee repeated this assertion during the SCOPA hearings of 26th February 2001.

247. The fact of the matter are that, in respect of the Corvettes, the Request For Offer nominated the various sub-contractors for the Combat Suite, the Request For Best and Final Offer selected these sub-contractors and finally an official letter from the Chief Executive Officer of the government's contracting agency, that is Armscor, notified the prime contractor of the selected equipment and the suppliers thereof. In this regard, they advised the GFC of not only their selection concerning the Combat Suite, but also the vessel platform.

248. In a letter dated 29th June 1999 to the GFC by Mr L. R. Swan, the then Chief Executive Officer of Armscor, the Project Control Board's decisions regarding the selection of the suppliers for the Corvette programme, are reflected, not only for the Combat Suite, but also for the ship's machinery. Here C²I² Systems is reflected as the supplier for the Integrated Platform Management System Simulator (IPMS Simulator). The significance of this document is that it makes it clear that it was the Project Control Board, acting on behalf Armscor, representing the Department of Defence, that took the decision regarding the selection of equipment suppliers.

249. One of the sub-contractors who are indicated in terms of this letter as preferred suppliers of the equipment is Maag Gear AG of Switzerland.

250. On the 23rd August 1999, Mr N Hopp of Blohm+Voss writes to Mr J Van Dyk, Senior Manager of Defence Industrial Participation of Armscor, as follows:

"Referring to your fax message dated 12.08.99 stating that Armscor is requesting GFC to change from Gear Manufacturer MAAG to RENK we like to inform ARMSCOR that MAAG has been chosen (sic) for technical reasons. We had been aware that the DIP of RENK was more attractive than the one of MAAG.

After your request we convinced MAAG to improve their DIP and NIP as follows: ......

Please take this into account when deciding in your meeting."

251. However, at the Project Control Board meeting of 24th August 1999 the following was minuted:

"Acting Project Officer Project Sitron informed the board that deliberation around the selection of either the Maag Gearbox or the Renk Gearbox were continuing and that Mr J van Dyk (Senior Manager Defence and Industrial Participation) was investigating the issue. The dilemma being that, whereas the Maag Gearbox is the approved selected option, the inclusion of the Renk Gearbox would provide much needed work for Gear-Ratio, a division of Reumech-OMC. The Chief Acquisition stated that the key issue was compliance with the technical baseline and if both gearboxes meet this baseline, preference will be determined by DIP related issues. He instructed the project team to take the lead in determining this requirement."

252. On the 25th August 1999, Mr B De Beer, manager of Defence Industrial Participation Agreements of Armscor (who reported to Mr J Van Dyk), wrote to Mr N Hopp of Blohm+Voss as follows:

"We would like to notify GFC of the importance of Reumech Gear Ratio to ARMSCOR and the DoD in terms of indigenous/strategic support capability and capacity."

253. On the 9th December 1999, Mr J van Dyk of Armscor wrote to Joesten Marketing (Pty) Ltd, that is Maag's agent in South Africa, as follows:

"Your conclusion that Armscor reversed the original decision of the "Technical Task" team is not true as the gearbox was originally a choice made by the GFC and not by Armscor. It is correct that Armscor opened this issue for detailed assessments of the two gearbox proposals. The results of the technical, price and DIP evaluation were tabled to the Naval Project Control Board who ratified the findings and recommendation of the respective evaluation teams."

This explanation appears to be disingenuous especially since the other documents I have quoted show that Armscor was indeed instrumental in causing the switch from Maag to Reumech Gear Ratio.

254. In passing and with reference to Mr B De Beers' letter of 25th August 1999 I point out the importance that Armscor/the Department of Defence apparently attached to "indigenous strategic support, capability and capacity" provides a potent reason for C²I² Systems IMS to have been selected in preference to Thomson-CSF Detexis.

Risk Issues.

255. In terms of the contract, the vessels are only to be delivered 30 months after the effective date of contract (EDC), EDC being in mid-April 2000. The first vessel therefore gets delivered to Simon's Town in October 2002 at the earliest without a Combat Suite. Thereafter, there is a period of between one and two years when ADS tests the sub-systems in a "stone frigate", that is the Integrated Test Bed (ITB) and only thereafter are they fitted into the ships and acceptance trials take place. In effect, one is talking here of a five to six year period. There was therefore more than enough time to fully complete C²I² Systems' product, even with the changes specified by ADS.

256. I further reject the contention that the reason why C²I² Systems did not get the contract for the IMS was the reason its system was not proven and therefore constituted a risk.

257. In this regard I should point out that C²I² Systems got the contract for the Navigation Distribution System (NDS). Although smaller in scope than the IMS, the NDS is nevertheless a mission-critical part of the Corvette Combat Suite. ADS was originally nominated to provide the NDS and had quoted for it, but because their quoted price was so high, the Department of Defence rejected it and then went out on a closed, competitive tender between C²I² Systems and ADS. C²I² Systems beat ADS in two rounds of tendering. We got this contract although we had no product. In fact, by the time we were declared preferred supplier for the NDSS, we had not even started any technology development on it. Apart from beating ADS in a competitive tender, even though this was loaded against us by a factor of 10,2%, we felt we were given this contract to placate us after having had the IMS contract taken away from us. However as far as I am concerned, the NDS contract is not only much smaller in value than the IMS contract would have been, but also the IMS is a much more significant part of the Combat Suite in terms of architecture, as well as because of its strategic, long-term importance to the SAN.

258. Furthermore, some of the other sub-contractors's systems were also not proven, for example the Optronic Radar Tracker (ORT) of Reutech Radar Systems, as well as Kentron's Surface-to-Air Missile (SAM) were in their comparative infancy stages of development. As such they constituted a significant level of risk. As far as I know, the other sub-contractors did not have to supply a performance guarantee.

259. As early as mid 1998 Alex Duigan of ADS had attempted to introduce the idea of integration risk by recording the following in the minutes of the SUVECS Workgroup on Computing Segment Technology held at ADS on 4th November 1998:

"Risk areas identified by SAN post May 1998 Road Show tabled on 9 July 1998 were: ....

2.2.3 Integration risk with the complexity of a single bus."

In fact, this statement was neither made during the worksession, nor in the Navy's Road show, nor was it true. It was later formally retracted by Alex Duigan by letter on 4 January 1999.

260. In view of the unfounded allegations of risk pertaining to C²I² Systems IMS, made by ADS at every opportunity available to them, I compiled a document entitled Refutation of Allegations of Risk concerning the Combat Suite Information Management System. In this document, I deal with all the points of criticism of the IMS.

261. Regarding the matter of risk, the Joint Project Team drew up a spreadsheet entitled Project Sitron Definition Audit: May 1998 (but 1998 struck out and replaced with 1999) where the "Risk Assessment" of the "Candidate Suppliers" is recorded. The costs and risks of the nominated sub-systems of these so-called "candidate suppliers" is described in terms of a sub-title of the spreadsheet being "Project Sitron Costing Estimate November 1998 (based on May 1998 Audit Adjusted for Escalation, ROE and Design Changes May - November 1998)". Here the Risk Assessment of the "Information Management System, including, Network Interface Cards, Gateway Interface Unit" is recorded as "Low".

262. I thus contest the subsequent assertions that the risk of the IMS was "high". Such assertions during the SCOPA hearings by the Chief of Acquisitions and the Project Officer were incorrect.

263. I believe that technically there was no risk, or very little risk, certainly none than could not be expected in the development of a new Combat Suite and none that could not be managed within the programme's formal risk management regime. I can also mention that C²I² Systems developed a Tracking Radar Console (TRC) on behalf of Reutech Radar Systems for the Corvettes. This includes an IMS link between the Tracking Radar Console and the radar system itself. For well over two years now, the Tacking Radar Console, with its IMS link, have been working very aptly.

264. It was alleged by Mr Shaikh during the SCOPA hearing of 11th October 2000, as well as by the Cabinet Sub-Committee on 12th January 2001, that C²I² Systems was requested to provide a performance guarantee for the IMS and that we have refused to do so. This is completely untrue. We were never asked for such a guarantee, either verbally or in writing, either by ADS or Thompson-CSF or the GFC or by Armscor.

265. Furthermore, C²I² Systems formally and in writing by means of three letters to Pierre Moynor of ADS dated 7th June 1999, 15th July 1999 and 29th July 1999 and without being requested to do so, offered both a performance guarantee and a risk management proposal, specifically tailored to the IMS in its role as the integration mechanism for the Corvette Combat Suite.

266. In my letter dated 7th June 1999 I made the following offer to ADS:

"Regarding responsibility for performance, C²I² Systems are definitely prepared to "put our money where our mouths are" regarding the IMS. In this respect, we are more than willing to discuss matters such as performance guarantees for the IMS, risk management, contractual terms and conditions, etc. These are matters which have been mentioned informally during the preparation of the numerous rounds of offer preparation, but have never been formally raised between our companies.

We believe that there are a number of ways that a satisfactory arrangement concerning responsibility for IMS performance could be achieved, i.e. where Thomson/ADS would not unduly have to take the risk for the IMS.

For example, C²I² Systems could be given a fixed period (typically 8 months) in which to achieve a pre-agreed target of pre-integration readiness, failing which the inclusion of the IMS in the Combat Suite could be reviewed."

267. These offers were not even acknowledged by ADS, the DoD or Armscor, let alone discussed or negotiated with C²I² Systems.

268. Despite allegations of risk made by, inter alia, the Chief of Acquisitions, ADS and later by the Corvette Project Officer, no proper risk assessment of the IMS (other than the favourable one mentioned above) was made by either GFC, Thomson, ADS or any other party. This is despite the fact that the IMS was subject to a very formal and rigorously applied risk management regime during the multi-year development phase of Project SUVECS and the first stage of Project Sitron (here I make reference to the minutes of the regular Project Progress Meetings, Technical Committee Meetings as well as Task Status Lists).

269. However, Blohm+Voss and Thomson-CSF made visits to us:

270. Klaus Katenkamp and Ranier Hohfeld, who were representatives of Blohm+Voss, a member of the German Frigate Consortium, visited C²I² Systems on 18th December 1998 prior to the Best and Final Offer stage to inspect and assess the IMS. They advised us that they were very satisfied with the IMS.

271. In about October 1999, ADS and Thomson-CSF also paid us a visit to our offices where we described and discussed the IMS. The feedback given to us from their Product Manager of Combat Management Systems, Emmanuel Mary, was as follows:

"As we discussed yesterday, I send you this message for confirming you my feeling about C²I² bus and about the discussion I had this week with Lewis Mathieson.

For C²I², I could say - Richard and the people I met in Cape Town are quite brilliant and competent.

- The technical choices they made are good, and there is no theoretical reason which allow me to say it can't work.

- But the company is small (that means that if a problem occurs, it can become a big problem very fast), and what they want to do is very sophisticated, complicated and will take time to validate, tune and make sure it works.

I have been very interested by the discussion that I had on the bus and on C²I² with Lewis. I think we understand now much better what are the real constraints of the other one. For example, I think that it's clear now for Lewis that our concern is not a technical one, but the fact that we just can't accept to be fully dependent on a non already proven technology for the system integration on such a big program. At the same time, it's clear for me that Armscor can't just forget what they invested in this technology (which can work.)"

272. Although he says that "what they want to do is very sophisticated, complicated and will take time to validate, tune and make sure it works", this had essentially already been completed. It is also incorrect to describe the IMS as "non already proven technology". The essential characteristics of the technology were already in use in the US Navy and in IMS developed by C²I² Systems had rigorously been proven in accordance with tests approved by the South African Navy, Armscor and ADS.

273. However, they only spend a short time with us (about two hours) and didn't even want to see the IMS actually working in our laboratories.

Risk-Driven Price Factor.

274. When the Corvette contract was awarded to the European South African Corvette Consortium (ESACC), it was placed as a single contract with the suppliers being placed in three categories namely:

1. Category A, being the German Frigate Consortium in respect of the supply of the ship platforms.

2. Category B, being the sub-systems of ADS and Thomson, as well as the integrated Combat Suite once sub-systems had been transferred from category C after formal sub-system Factory Acceptance Test (FAT), as accepted by ADS and the Joint Project Team.

3. Category C, the South African Industry sub-system suppliers as well as the foreign supplier of the SSM, where the pre-FAT acceptance test risk was taken by the South African Navy.

275. The IMS of C²I² Systems was initially classified as category C by the South African Navy. However, when ADS changed the whole Combat Suite architecture, ADS's CMS became central to the whole Combat Suite architecture and where the IMS would form the connectivity part of the CMS, the JPT decided that the IMS should be re-categorised as category B, which meant that ADS had to take responsibility for the IMS as well as the whole integrated Combat suite. So in effect, JPT forced ADS to provide a performance guarantee for our system.

276. By adding a risk premium of some R40 million to our price of R38 million, plus adding a mark-up of R4 million and adding a risk management fee of R9 million, that is making a price of R89 million in all, ADS pushed our price up so high that we were not competitive any more. C²I² Systems was then not selected on account of price, as driven by so-called "risk".

The next section is entitled "Baseline Changes.

277. Further significantly increasing our price, ADS obtained a quote from Detexis, a subsidiary of Thomson-CSF, who also quoted for the Combat Suite Data Bus" (hereinafter referred to as CSDB) to replace the IMS. The CSDB did not comply with the User Requirement Specification (URS) issued by South African Navy and in effect ADS replaced our system, which was fully compliant with the tender baseline specifications, with the completely non-compliant system of the Thomson-CSF subsidiary.

278. In an attempt to rectify this situation, that is in respect of baseline "management", the URS was contractually supersede by the specification called the System Specification, or the SSS classified as confidential, a document written by ADS.

279. Whereas the original issue of the SSS was almost identical to the URS in the second issue of the SSS dated 2nd July 1999 all references to our IMS are present, but in strikeout text. In the third and final issue dated 16th July 1999 all references to the IMS have been removed and replaced with references to the Detexis CSBD.

280. I believe that supersession of the URS with ADS's SSS specification is highly irregular in terms of the SANDF's formal acquisition practices for cardinal acquisition programmes. The URS itself states that it "takes precedence over all Contractor documentation which shall also be traceable to this document."

281. I have been told that the Department of Defence has attempted, irregularly in my opinion, to formalise the difference between the SSS and the URS in a so-called Delta Document. However, I have not had sight of this document.

My next section is entitled "Assessment of Respective Merits of IMS and detexis CSDB."

282. In late May 1999 it became apparent to the JPT that I was not going to accept our IMS's de-selection without a formal complaint. To address the matter, the Project Officer tasked a study group to meet on the 3rd and 4th June 1999 at SAN's Naval Engineering Bureau in Silvermine, Cape Town. The study group consisted of Lewis Mathieson, the Combat Suite Programme Manager of Armscor, Commander Ian Egan-Fowler, the SAN Project Engineer for the Corvette Combat Suite; and other Navy officers such as then Commander (now Captain) Nic Marais and Lieutenant Commander Andrew Cothill; as well as Dr Wolgang Vogel, an independent expert from Blohm+Voss who is an acknowledged ship combat system specialist. Detexis also brought in two officials, Jean-Marc Ferre, Export Sales Manager and Laurent Royer, Business Manager, to describe the Detexis Diacerto bus. The study team produced the documentation entitled "Report on the Diacerto Bus proposed for the SAN for Project Sitron (testified as restricted)"

283. The report cites 15 reasons why the C²I² Systems (IMS) should be retained and only six negatives, most of which are not true. (I am talking about the six negatives now) I shall deal with these six negatives in due course, but I shall point out in any event that the ultimate recommendation of the evaluation was in favour of the IMS in preference to the Detexis Diacerto CSDB.

284. The report provides the following conclusions concerning the Detexis Diacerto CSDB:

"1. Extensive use is made of copper (twisted pairs) for the connection of subsystems to SIFU's and SIFU's to switches. This greatly enhances the expected EMI/EMC problems which Thomson has already said they will not be accepting any responsibility for.

2. The LAN and implementation of the architecture is very simple and static. There is no automatic reconfiguration and after two faults, the LAN can be considered to be "down".

3. While the proposed products (100) Mbits/ethernet) are based on existing products (10 Mbit/s ethernet), there is still a degree of development which has to take place. The Diacerto boxes do not exist for 100 Mbit/s ethernet and have to be developed and qualified.

4. The system comprises many components of proprietary software. The fact that it is deterministic ethernet means that it is not "COTS" and the SAN will have to rely heavily on the supplier for future support, despite allegations to the contrary by the supplier.

5. This 100 Mbit/s ethernet system has never been done on a warship before.

6. The details of the design have not been thought through, e.g. error budgets and there is still a lot of design work that has to be completed. The design is in fact only a concept at this stage.

7. While a fibre optic backbone has been included in the system, this has been included purely to pacify the SAN and does not serve any real purpose other than to overcome the limitations of distances with copper. The backbone is not redundant.

8. The growth of the system is limited, if not non-existent. Because it is essentially a point-to-point system, major rework is required for each sub-system should another sub-system have to be added.

9. The increased number of cables present, as well as the complexity of the switches, will make trouble-shooting and maintenance difficult.

10. There is no forward error correction on the bus, therefore the guarantee of data delivery will suffer.

11. The system will degrade with time. Ethernet requires that the system is impedance balanced - as and when the wires/connectors are degraded or repaired, these discontinuities cause impedance imbalances and the system performance suffers accordingly.

12. There is no asynchronous mode. It is strange that this was one of the major stumbling blocks for the CMS requiring its own LAN, yet there is no problem when this LAN has the same problems of the IMS.

13. System synchronisation is going to be a problem. Ethernet, being a CSMA/CD system is inherently non-deterministic and difficult to synchronise. The proprietary software claims to make it deterministic, but the CS project team still feels that there will be problems with system/sub-system synchronisation. While the current architecture may comply to the April 7th architecture, the April 7th architecture was based on an open, deterministic FDDI architecture.

14. The addition of the Diacerto boxes and switches adds more hardware to the system + > decreased reliability and availability and increased maintenance and spares.

15. Strategically the core technical understanding and support of this system will lie in the hands of the supplier. The proposal is that technology will be transferred to ADS. However, ADS do not have any people who are datacomms experts nor should this provide any re-assurance to the SAN in terms of reduction of life-cycle costs or ease of upgrade.

16. It is the CS project team's expert opinion that for a mid-life upgrade of the vessels, the entire LAN will have to be replaced with the associated consequences on the CS.

17. The application the application lantancy maybe a problem."

285. The report offers the following conclusions on the "positive" side of the Diacerto data bus. There are 6 points of which I will read the points and then I will offer my response:

1. "100 Mbit/s ethernet technology is mature." Actually at the time, 10 Mbit/s was mature, but as point 2 hereunder indicates, the 100 Mbit/s (which was being proposed to SAN) alludes to some changes even though not conceptual.

2. "The transition from the current base of 10 Mbit/s ethernet to 100 Mbit/s ethernet will not require any conceptual changes." (Their emphasise) I have dealt with that point above.

3. "Network latency is low and guaranteed (it is in essences a hardwired solution)". This is incorrect as per their point 17 previously the network latency as a delay from transmission to reception is not actually low and cannot be guaranteed end-to-end that is through both switches.

4. "It is a simple network." My opinion is that it is a simplistic network, that overall is actually much more complex to implement, test, qualify and maintain.

5. "The selling price is lower due to the risk appointment." This is true and only if one thinks that R49 million is lower than R43 million which h was IMS' price prior to the unjustifiable premium for risk. Furthermore SAN's primary concern, as has previously been stated, was on life cycle cost and not acquisition cost. The report itself states that the life cycle cost of the Detexis system was in all likelihood to be very high (e.g. their points 14 and 16).

6. "It will satisfy the User requirements." It does not and cannot meet the requirements specified by the User Requirements Specification. As I have shown earlier, the Detexis latency of 6,5 milli seconds for a 165 byte message falls far short of the User Requirements Specifications requirement of 5 milli seconds for a 4 000 byte message.

286. The report lists the problems foreseen with the current IMS based architecture as follows:

1. "The IMS is still under primary development, but there is also some development required for the Diacerto bus."

The IMS was not, even at that stage, under primary development, it was well into the test and evaluation phase with all critical and major characteristics already formally proven.

2. "The IMS is also not off-the shelf, although it also uses COTS building blocks." That is commercial off-the-shelf technology building blocks. It is not possible to buy any combat system network "off-the-shelf" so it is a spurious argument. The IMS fully meets the requirements in the Element Costing and Description of making extensive use of COTS technology, certainly more so than the Detexis system. In other words, this supposed criticism of the IMS should more properly have been levelled at the Detexis system.

3. "The integration relationship between the IMS supplier and the System integrator is going to cause problems for the project later on."

This is neither a valid technical or logical argument. C²I² Systems is doing the NDS sub-system which provides mission-critical data to the Combat Suite; this didn't seem then, nor does it seem now, to constitute a "relationship problem". In any case it was ADS who precipitated any breakdown in relationship by changing the baseline to suit themselves and their parent company, Thomson-CSF.

4. "The cost of the IMS is high." Again, only if one thinks that R43 million is higher than R49 million.

5. "The IMS does not currently provide for TCP/IP." This is not true. Not only did we propose offering TCP/IP as an option, but we provided a working TCP/IP protocol, running on our hardware, to ADS in late 1998. As I explained earlier, this TCP/IP offer was referred to as the dual protocol stack. ADS actually requested in one of their Request For Offer for us to quote for TCP/IP running under APIS. However, the JPT directed us to "remove provision for the dual protocol stack" in their Request For Best and Final Offer in May 1999. In the circumstances, I find this point of criticism inexplicable.

6. "The IMS has also not been put on a warship." This is true, but largely irrelevant as FDDI and all IMS protocols are the basis of the SAFENET which is in widespread naval use around the world including by the US Navy, Royal Navy, German Navy and the Swedish Navy. Furthermore, SAN/Armscor had over a number of years commissioned the development of the IMS and spend a considerable amount of money on it (as had C²I² Systems itself) with the specific intention that the IMS should in due course be put on SAN warships. This is therefore hardly a valid point of criticism so late in the day.

287. The report ..(intervenes)

CHAIRMAN: Can I ask you just on that point when you say it had been used for instances in the US so this was not a novel system that you were developing? --- Not at all, as I have said, IMS consists of a number of different building blocks. I would say for want what of a better estimate 95% of those building blocks were in use by all these other navies. Only this very, very thin g layer of software which we were directed to developed by Armscor and the Navy was in any way unique.

I see which would make yours slightly different? --- Slightly different ja but it was a very minor - what we called a thin interface layer. It is certainly not a primary characteristic of the information management system.

I see thank you. --- The report concludes by stating the following:

287. "From a technical point of view, the CS projects team proposes that the current architecture based on the IMS be retained for the following reasons:

288. The report goes on to list 15 reasons as follows:

"1. The IMS is completing milestone III and is in an advanced stage of development/testing.

2. The IMS supports an open architecture.

3. With a fibre infrastructure in place it is easy to upgrade to other protocols such as ATM or fibre channel.

4. It will be easier to mange and troubleshoot with the IMS resulting in easier maintenance.

5. The IMS is quad redundant and has automatic re-configuration.

6. The IMS provides guaranteed data delivery.

7. The IMS sub-system interfaces have already been developed.

8. The EMC/EMI problems become non-existent for the LAN infrastructure.

9. The detailed system design has been done (DAC).

10. Growth of the system can easily take place.

11. Life-cycle costs will be reduced because of the easy growth, and higher reliability of the fibre infrastructure.

12. The IMS performance will not degrade as rapidly as a function of time (it is not reliant ce on impedance balances).

13. The IMS provides a better strategic advantage to the South African Navy as algorithms are locally developed and controlled.

14. The IMS has more features and flexibility.

15. Both Thomson and GFC recognise that the IMS is a superior product."

289. However, in a Report on the Process Followed for Information Management System (IMS) for the SAN of Project Sitron, issued to Mr H S Thomo, Chief Executive Officer of Armscor and signed by Mr Frits Nortje, The Corvette Programme Manager, it states the following:

"During a worksession over the period 03 -04 June 1999 with the Detexis engineers, The Combat Suite engineers did a technical evaluation of the proposed CSDB and verified that it will indeed meet the SAN's requirements for a databus, albeit with some limitations."

Firstly, the Detexis representatives were not engineers, they were, in fact, sales and business managers. Their job is to sell their product, not to evaluate it against a competing product.

290. Secondly, it is impossible for the Detexis system to "meet the SAN's requirements for a datbabus", because it is not a databus. In fact, in the report, the evaluation team had stated that "it is essentially a point-to-point-system".

The Diacerto Bus, even by definition of terms, can in no way conform to the SAN's stated requirements for a databus or LAN, as specified in the NSR or URS.

291. I contend that the Diacerto Bus is a proprietary technology (as per the JPT's Report) and does not support an open system architecture and therefore violates the Naval Staff Requirements (NSR).

292. In his report Mr Nortje continues:

"Based on these recommendations and the reduced price, the SITRON project team accepted the Detexis offer and included it in the technical baseline currently on the table."

293. I contend that Mr Nortje's report misrepresents the facts, findings and final recommendation of the evaluation team. In fact, his report in effect overturns a recommendation of the team of technical experts, consisting SAN and Blohm+Voss engineers, especially convened to evaluate the matter. I contend that this is highly irregular.

294. Also highly irregular in my opinion is the fact that the Sitron Project Team made a decision directly at odds with the recommendation of the evaluation team. Accumulatively, the seventeen points of criticism of the Detexis System make it inconceivable to me that the Detexis system could have been chosen.

Indeed, there are a number of points of criticism which would each individually be sufficient reason to reject the Detexis system.

Breach of Disclosure of IMS Price.

CHAIRMAN: Before you go to that section Dr Young what was the status of this study project or what was the report intended or who was it suppose to be submitted to? --- Well I am not fully, fully in the picture there but having seen and read the report it looks to me fairly obvious it was done by the more technical people of the team. First of all was to evaluate the respective products and then to recommend to the senior management of the Joint Pproject Team who would then make a recommendation to the Project Control Board on which option to choose.

And is that what happened to the report rapport? --- Well it would seem that the recommendation of the reports is actually overturned somewhere between the senior management of the Joint Project Team and the Project Control Board that is what it would seems to me.

295. I have been told that during the review (I am talking about the 3rd and 4th June, by the evaluation team, C²I² Systems' offer for the IMS, that is the price and technical specifications, was openly discussed by Detexis. That they had his knowledge is in breach of C²I² Systems' Non-Disclosure Agreement with ADS.

296. Furthermore, when I was told by the JPT that the IMS was in the process of being replaced by ADS, they advised me to formally approach ADS with a view to resolving this matter to the mutual satisfaction of all stakeholder. To this end, I flew up to Johannesburg on 20th July 1999 to try and resolve the matter with ADS. I met the Chief Executive Officer, Pierre Moynot, who, inter alia, told me that Thomson/Detexis could also supply the system for R38 million.

297. In response, I said that this indicated that our price had been given to Detexis, our competitor. His reply was to the effect that they had decided that our system had risk and that they therefore had decided that if they had to replace our system they would look for a Thomson-CSF group company that could offer something similar. They then spoke to Detexis who responded that if C²I² Systems would do it for R38 million, then they could also do it for the same price. He told me this face-to-face, but subsequently denied it when I wrote to him. He then alleged that ADS had merely compared prices internally. In this regard, I refer to copies of my letter of 29th July 1999 to the Chief Executive Officer of ADS, Mr Moynot's reply of 29th July 1999 and my reply of 30th July 2000.

298. I am sure that people like Captain Marais and possibly Commander Egan-Fowler can confirm that Detexis knew our price.

299. I consider it important to ascertain the source of this disclosure of our confidential price information to Detexis.

300. I do not know whether Detexis submitted a proposal and whether it was submitted before the closing date of the Request for Best and Final offer, that is the 14th May 1999. However, if they did so, it would be irregular because the RFBAFO issued by the JPT only specifies C²I² as a supplier of the IMS with there being no mention of any other supplier.

231. If Detexis was allowed to make a proposal after the 14th May 1999, then C²I² Systems should have been informed that it was now competing with Detexis for the network sub-system and it should also have been given the opportunity to put in a further offer. However, I must emphasise that Detexis could not properly been invited to make an offer without formal changes to the baseline changes which, as far as I am aware, never happened.

302. In my view the acquisition procedure relating to Detexis was highly irregular. Certainly it also had an effect on defence industrial participation and long-term strategic support of the Combat Suite, that is because a locally developed and conformant system was replaced by the non-conformant product of a foreign-owned company, which ADS was at that time.

I think we must adjourn at this point if that is convenient. --- For today?

Yes. --- Do we have to because we would prefer to finish today. (laughing)

There is a problem which one of my colleagues has if you don't mind we will adjourn until 09:00 tomorrow to ensure that we start early and give you an opportunity to finish.

We shall adjourn then until tomorrow at 09:00

PROCEEDINGS ADJOURN