VOLUME 11 PAGES 704 - 854

PROCEEDINGS RESUME ON 28 AUGUST 2001

PRESIDING OFFICER: Good morning ladies and gentlemen. Dr Young you are still under your former oath.

RICHARD MICHAEL MOBERLY YOUNG: s.u.o.

PRESIDING OFFICER: Mr Rogers, good morning. Ready to proceed?

MR ROGERS: Yes. --- I commence today with my section entitled :

"Conflicts of Interest: Corvette Suite (Project Sitron).

I am also concerned about the conflict of interest situation, information of which was disclosed inter alia at the SCOPA hearings of 11 October 2000 and 26 February 2001 as well as in the press. In essence, Mr Shamin Shaikh, who is the chief of acquisitions in the Department of Defence, is the brother of Mr Schabir Shaikh who is a director of Thomson-CSF Holding (Southern Africa) (Pty) Ltd and African Defence Systems (Pty) Ltd as well as Nkobi Investments (Pty) Ltd and Nkobi Holdings (Pty) Ltd.

Although it is alleged inter alia by the ex-chief of the SA Navy during the Public Protector's hearings into the Arms Deal that Mr Shamin Shaikh recused himself from all programme meetings where his conflict of interest was relevant, I believe this not to be true.

For one thing I was told by Mr Kevin Hanafey, senior manager of Armscor's Maritime division, and responsible for both the Corvette and submarine programmes, that on certain occasions Mr Shaikh merely handed over the chairmanship of the meeting to someone else and then remained present and took part in the discussions and decision-making. He described Mr Shaikh's supposed recusal as a farce, or words to that effect.

In fact if one refers to the minutes of the Project Control Board meeting of 24 August 1999" (and this is classified as confidential) " one may immediately conclude that Mr Shaikh not only chaired the meeting in his capacity of chief of acquisitions representing the Secretariat of Defence but that he signed the minutes as chairman. There is no record of him leaving the room or recusing himself and there is no mention of handing over chairmanship of the meeting to the chief of the Navy or anyone else for that matter. There is merely a brief reference, at the end of the discussion on Project Sitron, to a prior recordal of Mr Shaikh's 'possible conflict of interest'. I shall return to this hereunder.

These minutes prove furthermore that Mr Shaikh participated in the discussions on the Corvette Combat Suite:

'a. The project team categorised the C2I2 Bus as a category B risk, i.e. the prime contractor retains full responsibility for the delivery and performance of a fully integrated vessel, which includes sub-systems which have a critical effect on the overall vessel delivery. Further, acting Project Officer Project Sitron informed the board that if the C2I2 Data BUS option was selected over the ADS DETEXUS Data BUS the project team would have to find the extra funds required to bring both options to a par with respect to risk coverage. This would result in lifting the ceiling price of the Corvettes.'

Specifically with regard to the matter of the IMS, Mr Shaikh is recorded as saying the following:

'b. Chief of acquisitions informed the board that the CEO of Armscor had presented this matter to the Armaments Acquisition Council and that the Minister supported the issue of the main contractor carrying overall risk and the responsibilities for the sub-contractors. If the principle of the main contractor carrying the risk has changed, then the added difference in costs will have to be borne by the DoD. The principle of the main contractor carrying the risk must be adhered to. The AAC decided that the ceiling cost of the equipment must not be raised.'

My contention that Mr Shaikh did not recuse himself from matters involving the ADS and the Corvette Combat Suite is supported by the following reference to a memorandum from the programme manager, patron Corvettes, Mr Frits Nortje, to Sipho Thomo, CEO of Armscor, marked 11 February 2000:

'Furthermore the matter has also been referred to and discussed at the Project Control Board (PCB) where the final decision not to use the CCII databus war exercised, with Mr S Shaikh indicating that he had cabinet support in this regard.'

Regarding Mr Shaikh's reporting of his conflict of interest, I refer to paragraph 15 of the minutes of the PCB meeting:

'Ratification by the Board.

The following proposals by the project team, detail of which are (sic) contained at appendix F(sic) were ratified by the board ( Note: Refer to chief of acquisition's possible interest as indicated in paragraph 13 of the minutes of the PCB held 28 April 1999).'

I say that the proposals under consideration have nothing to do with the IMS matter.

However, when questioned during the SCOPA hearings of 11 October 2000 on the issue of conflict of interest, the DoD's written response refers to Mr Shaikh's recording of his conflict of interest:

'At the first PCB meeting held on 4 December 1998.'

The Department of Defence's written response to the SCOPA hearings of 11 October 2000 also refers to a so-called decision at the PCB meeting on 24 August 1999 to the following effect:

'The CS Supplier, including the Databus was accepted.'

The Department of Defence's written response also states the following:

'The project team presented a recommendation to the Project Control Board on 24 August 1999 for the Detexis IMS a proposed by the main contractor and supported by the project team. The Project Control Board, chaired by the chief of the Navy, in terms of the chief of acquisitions' recusal during Corvette Combat Suite decisions, ratified this recommendation which was supported by the CEO of Armscor (see note below).'

The minutes of the Project Control Board meeting of 24 August 1999 do not reflect that the aforegoing decisions were made at the meeting nor that the meeting was chaired by the chief of the Navy, nor that Mr Shaikh recused himself.

I have also heard that Mr Shaikh's first formal recording of his conflict of interest was to the Chief of the South African National Defence Force in late September 1999.

To me there seemed to be numerous inconsistencies with both the dates and the manner in which Mr Shaikh's supposed recording of his conflict of interest.

Also when questioned during the SCOPA hearings of 11 October 2000 on the issue of conflict of interest, Mr Shaikh responded that he only had one conflict of interest and that was concerning ADS. However I also contend that he has a further conflict of interest regarding Thomson-CSF, similarly by virtue of his brother's share-holding and directorship of Thomson-CSF Holding (Southern Africa) (Pty) Ltd and therefore indirectly with Thomson-CSF.

Additionally the German Frigate Consortium state in their response to the request for final offer for the Corvette dated 11 May 1998 that:

'It is proposed that the companies

1. Blohm & Voss GmbH (B+V) as lead shipyard;

2. Howaldtswerke-Deutsche Werft AG (HDW) as partner shipyard;

3. Altech Defence Systems (Pty) Ltd as nominated RSA Combat Suite Contractor;

4. Thyssen Rheinstahl Technik, GmbH as trade house

will form the South African Patrol Corvette Consortium (SAPCC) in order to act as vessel contractor and to accomplish the below mentioned activities.'

As it transpired both ADS and Thomson-CSF joined the German Frigate Consortium in the European South African Corvette Consortium (ESACC) which is the prime contractor for the Corvette acquisition.

I believe that the GFC and Thomson/ADS have joint and several responsibilities with regard to performance of the Corvette contract.

I thus contend that by virtue of ADS and Thomson-CFS's contractual relationship with the GFC that Mr Shaikh's conflict of interest extends to the entire Corvette programme from the date of 11 May 1998. If not, then from 18 November, i.e. when the German Frigate Consortium was declared preferred supplier for the Corvette.

I also wish to refer to Vice-Admiral Simpson's testimony at these hearings on 14 June 2001. In this regard I refer to his letter dated 17 October 2000 addressed to the Secretary of Defence, Mr January Masilela, dealing with Mr Shaikh's conflict of interest, the contents of which he affirmed under oath.

In his testimony Vice-Admiral Simpson-Anderson alleged that Mr Shaikh recused himself on every occasion when there was a discussion on the Combat Suite and that this was minuted, as well as that he handed over chairmanship to himself. I submit that the minutes of the Project Control Board meeting of 24 August 1999 show that this was not so."

Now I go to the next section which I have entitled:

"Conflict of Interest : Submarine Combat Suite (Project Wills).

Project Wills is the submarine acquisition programme.

Regarding Mr Shaikh's supposed recusal from all matters involving ADS and Thomson-CSF, the Department of Defence documents to SCOPA record the following:

'First PCB minutes paragraph 5, chief of acquisition informs of conflict of interest ... recused from Combat Suite decisions of both Wills and Sitron.'

ADS had developed a number of combat suites for the SA Navy's Daphne class submarines and were very interested in providing a combat suite for the Type-209 submarines one the upholders submarines offered by the United Kingdom fell out of contention.

Moreover, once Thomson-CSF took over ADS they were very keen to supply a combat suite from a Thomson-CSF subsidiary called Underwater Defence Systems (UDS) with some sub-systems being supplied by ADS.

However the SA Navy were not at all keen to get another ADS combat suite and therefore the supply terms of Project Wills were structured such that the submarine would be supplied as a complete working system inclusive of combat suite, the choice of which would be that of the vessel contractor.

ADS and Thomson did all that they could to overturn this condition of the supply terms and it would appear that Mr Shaikh supported them in this endeavour despite his conflict of interest.

In this regard I refer to a meeting of the South African Submarine Industrial Cluster (SASUBCLUB) held on 26 June 1998 where it was reported that:

'The chairman informed the meeting that Atlantis Consulting (Pty) Ltd had been requested to attend a meeting with ADS on 30 June 1998 being facilitated by Admiral Howell and Mr S Shaikh. As this meeting would have a direct bearing on the SASUBCLUB the meeting was requested to give Atlantis Consulting (Pty) Ltd a mandate to negotiate depending on the direction of the meeting.

It was agreed that should the SASUBCLUB be approached to include ADS, that ADS should be considered on the same grounds as any other applicant. These conditions include that no founder member loses workshare to ADS, ADS would become an associate member and that ADS agree to a quid pro quo with the SASUBCLUB with respect to workshare should a French offer be accepted as prime contractor for the submarines.'

On 2 July 1998 the secretary of the SASUBCLUB reported back to its members concerning the meeting of 30 June 1998 by means of a fax wherein he stated:

'SASUBCLUB Membership.

ADS: As tabled at our last meeting, and with the mandate given to attend the meeting called by Admiral Howell with ADS, we report back the following:

Date: 30 June 1998

Venue: Secretariat of Defence, Pretoria

Attendees: Director Acquisition, Mr S Shaikh, Chairman

S A Navy, Admiral Howell

Armscor, Mr K Hannefey

SASUBCLUB, Mr G Blackbeard and Mr B Blackbeard

ADS, Mr P Moynot and Mr D Hiles

Meeting resolution: ADS is to join the SASUBCLUB within the confines of their state role. SASUBCLUB will negotiate to ensue' (that should be ensure) 'an acquittable workshare dependent on the SA Navy's selection of submarine and combat suite. No workshare will be lost to SASUBCLUB founder members by inclusion of ADS.'

On 19 August 1998 another SASUBCLUB meeting was held, on this occasion with Messrs Pierre Moynot and Duncan Hiles of ADS. Mr Hiles reported the following to the meeting as reflected by the minutes:

'Mr Hiles traced the relevant ADS history back to the Daphne Submarine upgrade projects, confirming that one Combat Suite had already ben delivered and that ADS was awaiting a contract to install a Combat Suite on board the SAS Emily Hobhouse. He explained that the delay was due to the current moratorium on contracts exercised by Armscor and the SAN.

Mr Hiles also stated that ADS had not expected the acquisition of new submarines to materialise and had only concentrated their efforts on supporting and modifying the upholder submarines should they have been purchased.

Mr Hiles informed the meeting that ADS had been caught flatfooted by the initiative taken by Atlantis and the SASUBCLUB and that they only became aware of the Cluster when it was advertised in the press in May 1998.

With respect to the selection of Combat Suite, Mr Hiles stated that he chief of the Navy had confirmed to ADS that their Combat Suite would be fitted on board the new submarines. He reiterated that this was also stated at the special meeting called between Atlantis and ADS on 30 June 1998, chaired by Mr Shaikh.

Mr Hiles presented the Project Nickles Combat Suite as developed by ADS and then presented the Project Wills Combat Suite that ADS/Thomson now propose for the new submarine.

In closing Mr Hiles indicated that ADS saw synergy with the SASUBCLUB but also saw certain conflict areas which should be addressed.'

I contend that Mr Shaikh actively campaigned on ADS's behalf in order to make up the ground that they had lost by not expecting the acquisition of a new submarine.

However this was not the only intervention by Mr Shaikh regarding the submarine combat suite. I know that he called Messrs Peter Krollman and Ernst-Otto Max of STN Atlas Electronik into his offices following the industry briefing on either 23 November 1998 or 21 July 1999. I happened to see them straight after this and they were very, very shaken. They told me that Mr Shaikh had put a lot of pressure on them regarding the Submarine Combat Suite.

I have also been told that Mr Shaikh had various meetings with Mr Clements Steinkamp of HDAW, the German submarine shipyard regarding the Submarine Combat Suite.

Although HDW chose the STN Atlas Submarine Combat Suite and included this in their offer whereby they were declared preferred supplier for the submarine, they were subsequently forced by the Department of Defence to also make an offer for the ADS/Thomson/UDS Submarine Combat Suite.

However, although HDW complied with the Department of Defence's demand of providing an offer including an ADS/Thomson/UDS Combat Suite, they stood firm regarding their preference of the STN Atlas Combat Suite, which was finally selected.

Nevertheless this did not stop the Department of Defence trying to get STN Atlas to use ADS for defence industrial participation. At one stage I believe the Department of Defence suggested that ADS manage all the local submarine Combat Suite DIP for a management fee of some R10 million. I was told that Mr Shaikh made this proposal at a meeting of the Project Control Board that this was rejected. Later it was decided that ADS should at least provide the torpedo fire control system for the submarine.

In this regard Messrs Alfred Schulte an Ralf Gampe of STN Atlas especially flew out from Germany to a meeting with Mr Pierre Moynot of ADS at their head office in Midrand. When they got there they found Mr Moynot not even available, although he later turned up. I believe that he told Mr Schulte and Gampe that ADS were not interested in crumbs."

My next section is entitled:

"Conflict of Interest: FBS.

Furthermore it appears as if Thomson-CSF deliberately bought out Altech to gain control of ADS at the crucial time when the process regarding the award of the contracts was under way. In fact it would appear that this was planned from 1997 and possibly as early as 1994 with the knowledge and/or direct involvement of Schabir Shaikh. I believe that previous directors of Nkobi Holdings during that period may be able to provide some insight into this matter.

It should also be mentioned that Thomson-CSF, which thereafter purchased 100% of the shares in ADS, thereafter sold or gave 20% of the shareholding to Futuristic Business Solutions (Pty) Ltd (hereinafter referred to as FBS) a company that has, or at least had then, little or no capacity or experience in the field of defence electronics or logistics.

Regarding FBS, the four directors and shareholders of the company are Lieutenant General (Retired) Lambert Moloi, Tsepo Molai, Yusuf Mahomed and Ian Pierce.

Lieutenant General (Retired) Lambert Moloi is the former chief of staff of Umkhonto we Sizwe (MK) and former Minister of Defence Joe Modise's brother-in-law. Joe Modise is the former commander in chief of MK. Tsepo Molai is Moloi's son-in-law.

I believe it is interesting that when Yusuf Mahomed completed the statutory forms for the founding of FBS, he supplied his postal address as P O Box 1002 Parkmore, 2002, which was also the postal address of Ian Pierce and Associates, an accounting company. He supplied an address of No 1 Highbury, 3rd Avenue, Killarney, as his residential address.

Mr Shamin (Chippy) Shaikh also owns a company called SI International (Pty) Ltd. When he completed the statutory forms for the founding of this company he supplied his postal address also as P O Box 1002, Parkmore, 2002, again the postal address of Ian Pierce and Associates. He supplied and address of No 10 Highbury, 3rd Avenue, Killarney, as his residential address.

It appears from the above that there were very close links between Mr Shaikh, Mr Mahomed and Mr Pierce and therefore possibly between FBS and Mr Shamin Shaikh.

I would therefore contend that it is not beyond the bounds of possibility that there could be links between Mr Shaikh and FBS.

Some of FBS's contracts relating to the Strategic Defence Packages are in the field of logistics and they apparently teamed up, or are teaming up, with Logtek (Pty) Ltd to form Applied Logistics Engineering (ALE). Logtek has apparently taken over Conlog (Pty) Ltd which has apparently been taken over by a French company called Schneider Electric. Schneider Electric, among other things, builds electric motors for diesel-electric submarines, including those for the South African Navy's Daphne-class submarines.

Schneider Electric is also the, or one of the, preferred suppliers of electric motors for diesel electric submarines built by the Kokums shipyard in Sweden, which is in turn owned by HDW of Germany, the shipyard building the submarines for the SA Navy.

Regarding the German Frigate Consortium, the company Thyssen Rheinstahl Technik GmbH is a member thereof. Thyssen apparently entered into a contract with FBS to 'lobby and market Thyssen, its products and services to the relevant decision makers.'

This contract requires that:

'FBS takes upon itself to use its established network to lobby and market Thyssen, its products and services to key decision makers within the Government of South Africa or any of its departments or ancillary bodies including, but not limited to, the Department of Defence, Armscor, Arms of Service of the South African National Defence Force, the Joint Standing Committee on Defence, the Department of Trade and Industry, Parliament and/or the Defence Industry as a whole with the aim of having Thyssen viewed in a positive light during the adjudication of tenders for the programme.'

And that:

'FBS undertakes to use their best endeavours to secure for Thyssen the desired contracts on the best terms possible.'

Thyssen is, or was, a member of the German Strategic Alliance as was Daimler-Chrysler Aerospace.

I content that while it is legal to lobby on behalf of another company, that in the context of the strategic defence packages, it would be highly irregular for parties linked to highly placed decision makers to do so, or at least be allowed to do so -

'during the adjudication of tenders for the programme'.

Nevertheless it is clear that FBS now owns 20% of ADS and it would appear to me to be obvious that this was the idea once Thomson-CSF had purchased the first 50% of ADS from Altech. In fact Pierre Moynot says in a letter dated 19 June 2000 that :

'As a result of negotiations with them for the previous five months, Thomson-CSF International sold 20% to FBS on June 2nd 1999.'

Now all of Thyssen, GFC, Thomson-CSF and ADS are members of the European South African Corvette Consortium. As Chippy Shaikh had acknowledged his conflict with ADS and Thomson, then by logical extension this conflict of interest extended to the entire Corvette, at least from February 1999.

It appears that a similar exercise in terms of which control in a South African company is taken over by a foreign company who then sells or gives a percentage of its shares to a black owned company may have happened with Reumech OMC. In this regard Reumech OMC was recently bought by Vickers PLC of the United Kingdom to form Vickers OMC (Pty) Ltd."

I am going to the next section entitled:

"Predation of Other Segments by Thomson-CSF."

The other 12 or so nominated subcontractors got their contracts in the Corvette Combat Suite, except that Grintek Electronics, who was originally nominated to supply the South African built Ship's Communication System (SS) with the switching technology being provided by Plessey South African, was directed by the Department of Defence to replace this with another system, the so-called FOCON-32 internal ship's communication system, from a Thomson-CSF subsidiary called Thomson-Signaal.

As said earlier, the Combat Suite also originally included two sub-systems called the Action Information System (AIS) and the Weapon Control System (WCS), the latter being derived from the Target Designation Assembly (TDA). Both the AIS and TDA were developed by ADS for the SAN's strike craft, with both being working systems. However, when Thomson-CSF bought ADS, the latter suddenly contended that the AIS and WCS sub-systems would not meet the requirements of the Corvette and that both sub-systems would have to be replaced by a Thomson-CSF combat management system (CMS). This is despite the fact that many millions of rands of South African taxpayers' money had been spent by ADS on the development of AIS, WCS and TDA sub-systems.

As far as I know the only deficiency in the AIS/WCS combination was precipitated by the SA Navy's subsequent decision not to use the strike craft's ELM2208 search radar for the Corvettes. This radar was in fact becoming obsolete and in any case only had two-dimensional search capability which is limiting considering the threat of modern anti-ship missiles. The SAN therefore decided to acquire modern three-dimensional surveillance and tracking radar. The AIS and WCS had only been designed to handle two-dimensional radar data, specifically with regard to Threat Evaluation and Weapon Assignment (TEWA). However I believe that it war quite feasible for ADS to acquire the TEWA capability from Thomson (or a number of other possible sources) and integrate it into their AIS and WCS. I cannot believe that it became necessary to replace the AIS and WCS with R335 million of Thomson-CFS's Tavitac Combat Management System.

I believe the SAN allowed ADS to change the Corvette Combat Suite baseline in order to allow Thomson-CSF to supply their CMS.

Another aspect which I believe to significant to which I wish to refer relates to the following three sub-systems of the Corvette Combat Suite, namely:

1. The Surveillance and Target Acquisition Radar (STAR).

2. The Surface-to-Surface Missile (SSM).

3. The Hull-Mount Sonar (HMS).

Three foreign systems were initially baselined, i.e. they were preferred by the SA Navy in terms of capability and affordability, namely:

1. The TRS-3D/16 STAR from DASA of Germany.

2. The RBS-15 Mk3 SSM from Saab of Sweden.

3. The ASO 93 HMS from STN Atlas of Germany.

However at the end of the selection process they were all replaced by French companies, namely:

1. The MMR STAR of Thomson-CSF of France.

2. The Exocet MM40 SSM of Aerospatiale-Matra of France.

3. The Marconi 4130CI HMS of Thomson-CSF of France.

I believe that it is significant to note that Aerospatiale-Matra is part of the European Aeronautic Defence and Space Company (EADS). However 46,5% of Aerospatiale-Matra is owned by Dassault Industries of France while Thomson-CSF now owns 100% of Dassault Electroniques, which until quite recently was part of Dassault Industries, which in turn owns 6% of Thomson-CSF.

It would seem clear the whole process under the cover of the declaration of the German Frigate Consortium as preferred supplier of the Corvette negated the requirement for a formal tender process for the Corvette Combat Suite. This ensured that French companies and specifically Thomson-CSF received the lion's share of the Corvette Combat Suite supply contract.

The price of the Exocet SSM contract at R200 million appears to me to be very low. Possibly this only included only the initial supply of the deck launching system and fire control system onboard the vessels, as well as integration and qualification. Possibly the missiles themselves are not included in this price. The original scope of supply at R1,47 billion for the Corvette Combat Suite included 32 missile rounds as well.

If this is the case, it implies that there will be extensive future costs in supporting the Corvette Combat Suite over and above the acquisition cost,"

My next section is entitled:

"Date of De-Selection Decision.

I have already referred to the Department of Defence's evidence to SCOPA that the decision to select the Detexis CSDB in preference to the IMS was made at the Project Control Board meeting of 24 August 1999. I pointed out in my earlier evidence that this was not supported by the minutes of that meeting.

I now refer to the letter dated 23 August 1999 from Mr Pierre Moynot of ADS to my attorneys Herald Gie & Broadhead. Here Mr Moynot states the following:

'Our client then decided to choose the second option rather than the one by your client.

Anyway, as said earlier, the choice has been made by the State and I see no way I could reinstate your client in the project unless the State decides otherwise and agrees to pay the extra R40 million.'

It appears from Moynot's letter that the Public Control Board did not in fact make a decision concerning the IMS on the said day. It is not clear who the participants were in that decision.

It seems therefore that the Public Control Board itself did not actually make a decision concerning the deselection of IMS at the meeting of 24 August 1999, nor did they ratify anybody else's decision. The minutes suggest that the matter was to be a matter for further discussion, inter alia with me."

My next section is entitled:

"Armscor and SAN approaches to C2I2 Systems.

The Minutes of the Project Control Board meeting of 24 August 199 record that:

'c. Mr Swan and Rear Admiral Howell will meet with Mr Richard Young to discuss the matter with him (Mr Swan and Rear Admiral Howell for action).'

The DoD's response to the SCOPA hearings of 11 October 2000 also state the following:

'It was additionally decided at the Project Control Board meeting on 24 August that the CEO of Armscor, Mr L Swan and Rear Admiral of SA Navy, should meet with Mr R Young of C2I2 to explain the situation to him as he was threatening legal action. This meeting took place in September 1999 in Simonstown and the discussions of the meeting was reported to the next PCB on 6 October 1999. It was indicated that Mr Young was not in a position to carry the cost associated with such a risk premium and would not pursue any legal action at that stage.'

It is true that such a meeting took place either on 27 August 1999 or 3 September 1999.

The meeting was at the request of Armscor and was set up by mr K P Hanafey, the divisional manager of Armscor's Maritime Division on behalf of Mr Swan. Although I requested an agenda for this meeting in advance, I was not provided with one. For this reason I took my then personal assistant , Ms Bernice Myburgh, to the meeting to assist me with taking minutes and also to be aware of the discussions to take place. As it transpired, the interaction with Mr Swan and Rear Admiral Howell was more of a discussion with it taking place in an anteroom of Admiralty House without even a table to assist Ms Myburgh with taking notes etcetera.

It soon transpired the real reason for Mr Swan calling this meeting was to request me not to proceed with legal action against Armscor and the Department of Defence as this would not only disrupt the SA Navy's Corvette Programme but could also potentially derail the whole Defence Acquisition Programme, that is according to Mr Swan and Rear Admiral Howell.

As I considered it to be reasonable to negotiate with the Department of Defence and ADS to reinstate C2I2 Systems in the project without incurring the necessity and expense involved in litigation, I agreed not to proceed on the express condition that Armscor, the Department of defence and SA Navy would persuade ADS and Thomson-CSF to reconsider their position and include the IMS for the SA Navy Corvette Programme or otherwise make good the losses which C2I2 would suffer. Mr Swan agreed to take this matter further in this light.

I have already referred to the evidence of Mr Shamin Shaikh, given to SCOPA in an accompanying document that C2I2 Systems had been asked for and refused to provide a performance guarantee. It was alleged there that the request for such a guarantee be made at this meeting with Mr Swan and Rear Admiral Howell.

However I deny that Mr Swan or Rear Admiral Howell asked me to prove a risk premium or performance guarantee for the Combat Suite. The essence of their desire to meet with me was to ask me not to take legal action. After had acceded to this, the business of the meeting was essentially complete. However we continued to make small talk for another 20 minutes or so. During this time Mr Swan did bring up the matter of the prime contractor providing a performance guarantee for the entire vessel. He said that if he were the CEO of ADS or Thomson then he would ask me for a performance guarantee for the entire R6 billion Corvette contract, which would imply us providing a performance guarantee of 5% of this amount or R300 million. I responded that there was no businessman in his right mind who would offer a performance guarantee, or in our case a bank guarantee, for R300 million on a supply contract worth R43 million including value added tax. He agreed with me on this, emphasising that he was just making his observations in his personal capacity and not as CEO of Armscor.

I responded by saying that despite the fact that we could not and would not offer a performance guarantee of R300 million, I had already written three letters to the CEO of ADS, copied to him and to Vice Admiral Simpson-Anderson, Rear Admiral Howell and others, to the effect that I was prepared to provide a performance guarantee for the IMS."

One of the documents submitted at the same time to SCOPA was a letter on the matter of performance guarantees from Mr Swan to Mr Chippy Shaikh dated 5 October 2000. I consider it necessary to read the entire contents of the letter. From:

"Mr Llwellyn (spelt incorrectly) Swan
ex CEO Armscor,
Armscor Building
Pretoria
0001

4 October 2000

Mr Chippy Shaikh
Department of Defence
(Acquisition Division)
Private Bag X910
Pretoria
0001

RE DISCUSSIONS WITH MR RICHARD YOUNG

I would like to inform you that during 1999 I, together with Admiral Howell of the SA Navy had discussion s with Mr Richard Young in Cape Town concerning the Management Information System for the Corvette Programme.

The essence of these discussions revolved around the ability of the "contractor" (C2 12) to provide the performance guarantees necessary to satisfy Armscor that C212 could and would perform the tasks as required by Armscor and the DoD.

What prevailed from the discussions was the fact that C212 was not in the position to provide the necessary guarantees. Armscor/DoD required from C212 that guarantee to the full value of the Combat Suite, because that was the value of the effect that the IMS would have on the contract.

While Armscor/SAN recognised the contribution of C212 to the Combat Suite of the Corvette Programme of the development phase, it was not in a position to accept the risks attached to C212 solution unconditionally.

Yours faithfully

L R Swan"

"I find the following aspects of this letter strange.

Mr Swan spells his own Christian name incorrectly.

Mr Swan provides his designation as 'ex CEO Armscor'.

Mr Swan provides his address as 'Armscor Building Pretoria'.

However more importantly the content of the letter refers to the 'essence of the meeting' being to discuss the performance guarantees. This is incorrect. The essence of the meeting was for Armscor to request us not to proceed with legal action. This is not even mentioned in Mr Swan's letter. This can be contrasted with the chronology submitted by the DoD to SCOPA which correctly describes the essence of the meeting as follows:

'CEO Armscor reports to the Project Control Board the C2I2 will not pursue legal action.'

That the letter is written over 13 months after the meeting in question by someone long out of the employ of Armscor was seen to indicate that its content was not so important at the time of, or immediately after, the meeting in question.

On 8 May 2001 I contacted Mr Swan by telephone about our meeting and 'his' letter. He confirmed what i have stated above about the meeting. However he could not remember the letter and asked that it be faxed to him. We did this under a covering letter in which we asked him the following:

'1. Is the letter genuine?

2. Is it your signature?

3. If the letter is genuine was it prepared and signed by you or was it prepared by the Department of Defence or some other party and if so by whom and were you requested to sign it?

4. If the letter was prepared by some other party and you were requested to sign it, under what circumstances was it signed?'

On 16 May 2001 my assistant Marlene Abreu contacted Mr swan to ask him if he had received the fax. He confirmed that he had and said that:

'This matter is getting out of hand.'

PRESIDING OFFICER: Sorry, that date, did you say 16 May or 9 May?

--- It is 16 May. It is an error in the previous draft.

Is that an error, 9 June? --- In the previous draft. It is 16 May.

"On 29 May 2000 Mr Swan wrote to us on this matter saying that:

'Would you please desist from contacting me as you are well aware that I am not longer an employee of Armscor or in any way associated with the Department of Defence or Armscor.'

In the light of the aforegoing I seriously question whether Mr Swan actually compiled this letter."

My next section is entitled:

"Attempts to Resolve the IMS De-Selection with DoD and Armscor.

As I deemed that the decision to deselect C2I2 Systems as the nominated and selected supplier of the IMS to be both wrongful and unlawful, I immediately investigated all avenues of internal remedy before considering external remedy. This is addressed more completely in this section.

The programme plan for Project Sitron outlines the approach to be followed when executing the project.

It is stipulated in Clause 6.2.1 of the Programme Plan that any person involved in the project had the:

'right of appeal

It is a basic principle of the management of this project that any person involved in the project has the absolute right to appeal against any decision or action within the management of the project to the highest possible authority. This appeal should be addressed to progressively higher authority within the limits of the policies of the SADS and Armscor beginning with the programme management structures as defined within this programme plan.'

In this regard I therefore initially approached the management of the Corvette programme. The management team of the Corvette programme consists of members of SA Navy seconded to the Department of Defence and of Armscor. They are know as the Joint Project Team or JPT.

After having brought the IMS deselection matter to the attention of Mr L R Swan, CEO of Armscor, I believe he realised that there was a problem on this issue. He eventually instructed his senior manager of Armscor's Maritime Division, Mr K Hanafey, to intervene with the objective of satisfactorily resolving this matter between the relevant parties, specifically ADS, Thomson-CSF and C2I2 Systems and also the JPT and the DoD.

To this end Mr Hanafey convened a meeting between these parties which was held at Armscor Pretoria on 17 June 1999. Mr Hanafey suggested that each party give a short presentation after which we could see whether we could find common ground for a satisfactory solution to the problem. We also prepared and agreed on an agenda in advance.

My then partner, Mr Gerhard Kruger, and I flew up to Gauteng from Cape Town especially for this meeting which lasted about 30 minutes. The meeting started on a very poor note with then Captain Kamerman and Mr F Nortje arriving late and highly irritated, complaining that we were wasting their time and that 'they were online to Germany' regarding the Corvette contract negotiations at that time.

I did not receive the minutes or confirmatory notes of the meeting until 4 September 2000 and then only after several attempts from my side, the last being a letter dated 30 August 2000 to the Director of Naval Acquisition of the Department of Defence and the Manager, Maritime Division, Armscor. It should be noted that although the meeting took place on 17 June 1999 these confirmatory notes were only signed by Mr Hanafey on 15 February 2000.

During the meeting I raised the question as to whether the IMS if C2I2 Systems had been selected and if not, why not.

The minutes record that:

'JK (Captain Kamerman) FN (Frits Nortje) and LM (Lewis Mathieson) did not provide answers to the questions for fear of jeopardising the tender process.'

There was no constructive response whatsoever from the DoD and ADS.

With respect the only sensible contribution to the meeting was the following from Rear Admiral Howell who stated the following:

'ANH stated that this was similar in certain aspects to the submarine in that a system was decided upon and the only fair way to assess it technically ad commercially and inform people of the decision.'

I wholeheartedly agreed with that view. However the Department of Defence did not practice what it preached. Despite the projet team having performed such a review of the IMS only two weeks previously the evaluation team's recommendation was disregarded.

Regarding a fair commercial assessment of the IMS, I believe that there was nothing fair about the adding of R40 million to our price based on unfounded assertions of 'risk' without a risk audit even being undertaken.

I believe that there is also nothing fair to the taxpayer of this country about taking a foreign company's inferior product at R49 million when a superior indigenous product was offered at R38 million (excluding VAT).

Regarding a fair commercial assessment of the SMS, which I did mention briefly in my presentation to the meeting, I believe that there was nothing fair about adjusting the price of our SMS upward by 10% in favour of ADS's product and then still choosing the latter even when our price was lower, despite the unjustified adjustment.

Regarding 'informing people of the decision' and Mr Hanafey's final conclusion of the meeting that 'all parties would be informed of the decisions in due time', I believe that there is nothing fair about having to wait nearly 15 months for the confirmatory notes of the meeting and nearly 16 months to be formally informed that the IMS had not been selected for the Corvette Combat Suite.

After a meeting called by Mr Shamin Shaikh on 21 July 1999, to which I refer elsewhere in my evidence, I was approached by him outside the meeting venue. He started off by asking me why I was disturbing the Corvette acquisition project by complaining about the deselection of the IMS. Although I wanted to reply, he stopped me from doing so and gestured for Mr Kevin Hanafey of Armscor to join us. Once he had done so, we retired into a corner of the room where we discussed the matter for some 20 minutes or so. Mr Shaikh was very aggressive with me saying that if I had a problem I should have spoken to him about it. I replied that, in terms of the programme plan, I was addressing this matter at increasing higher levels of authority and had not yet reached him. Anyway I took up his offer and arranged to see him at a later date.

Accordingly, I flew up to Pretoria on 28 July 1999 to see Mr Shaikh at his offices. Also present were Rear Admiral (JG) Ockie van der Schyf and Rear Admiral (JG) Keg Verster, neither of whom said anything during the entire meeting, except when Mr Shaikh left the room for about 20 minutes to attend to some other business when we exchanged some pleasantries. It was /initially a very acrimonious meeting. Mr Shaikh firstly asked me to explain my problem to him which I did. His immediate response was to accuse me of many things, including of being arrogant and of being 'an agent of the apartheid regime' (because of having worked as an engineer for seven years for UEC Projects).

He said to me that if I was challenging this decision, then in effect I was challenging the Cabinet and the President because it was they who had taken this decision. While I know that Mr Shaikh briefed MINCOM on this matter, I was told that it appeared that he only presented one side of the matter to them, i.e. not our side concerning the nomination, selection, etcetera and actually how far technically we already were with the IMS. I was told that the Minister of Defence, Mr Lekota, was subsequently very angry bout this.

During this meeting I showed Mr Shaikh a copy of the Element Costing and Description, of which he was obviously completely unaware. He read it intently for about 15 minutes during the meeting but did not initially offer any comment or conclusion on its contents.

During this meeting Mr Shaikh asked me how big my company was in terms of annual turnover. When I told him, he told me that his department had a R50 million per year legal budget and I was 'welcome to take him on' or words to that effect.

At the end of the meeting Mr Shaikh instructed Rear Admiral Verster to ascertain the total of all our current contracts with Armscor. I took this as a threat that if we should challenge the validity of deselection of the IMS, then things could be very difficult for us on other projects.

The meeting lasted for about an hour without there being any resolution.

Approximately an hour after I had left his office, I received a call on my cellphone from Mr Shaikh's secretary. She asked me whether I was still in the area, which I was, as I was working in the AMD offices in the same building until I could catch my flight later that day. She requested on Mr Shaikh's behalf that I rejoin the meeting which was being reconvened just after lunch, i.e. about an hour later.

Also present at this time was Mr Moynot and a colleague, Danie, or Dawie, van der Walt from ADS as well as the two admirals. We then dealt with my assertion that C2I2 Systems had been nominated as the IMS supplier. Towards the end of the meeting Mr Shaikh said to Mr Moynot that if what I said was the truth then he would happily pay the extra R42 million to include the IMS in the Corvette Combat Suite. Mr Shaikh suggested that Mr Moynot and I find a mutually acceptable solution to the problem.

Regarding this interaction with Mr Shaikh, when he testified at the SCOPA hearings of 11 October 2000 that he had nothing to do with the subcontractors after the acquisition process had commenced until the contracts were signed, it was not true. Not only did Mr Shaikh have contact with me, as I described above, it was he who initiated it, not the other way round.

Regarding C2I2's deselection, we wrote letters to the Department of Defence who referred us to the GFC, who referred us to ADS.

After many unsuccessful attempt to resolve the matter with the DoD and ADS, I consulted with my attorneys HGB during July 1999 to ascertain my legal position concerning external remedy.

On 23 July 1999, HGB sent a letter advising ADS that C2I2 Systems was in the process of being deselected as the nominated and selected subcontractor for the IMS for the South African Navy Corvette programme.

On 26 July 1999, ADS replied in a letter to HGB that it was the State who had made the decision.

'In general I must stress that I have been quite surprised by all the noise made by your client around the selection process that was entirely between the hands of the project team (composed of representatives of Armscor and the S A Navy) under the supervision of the Director of Acquisition from the Secretariat of Defence.'

On 13 August 1999 HGB addressed a letter to ADS advising that C2I2 Systems's rights were being infringed and placed it on terms to confirm that C2I2 systems would be reinstated in the project.

On 23 August 1999 ADS replied in a letter to HGB that it war the State who made the decision.

'I would like to take the opportunity of your a.m. fax to clarify hopefully once and for all the matter in object.

As I have already explained to your client in my office as well as in the office of the director of acquisition / Secretariat of Defence, when requested by the Sitron project team to quote for the IMS system we have presented two options, one of them being your client proposal.

These prices of these two options were taken into account, the potential risks attached to each of them. In the case of the proposal by your client risks attached were far grater than for the second option for a number of reasons and hence the extra cost attached was more important than for the second one. A difference in price of about R40 million was the result of the comparison. Our client then decided to choose the second option rather than the one by your client. Consequently, should your client decide to pursue on this matter I suggest he addresses himself to the State rather than to me.'

Mr Moynot concludes his letter as follows:

'Anyway as said earlier, the choice has been made by the State and I see no way I could reinstate your client in the project unless the State decides otherwise and agrees to pay the extra R40 million.'

Subsequently during the period September 1999 to January 2000 I was contacted a few times by Mr Moynot to discuss the possibility of a joint collaboration with ADS and Thomson-CSF.

During January 2000 Mr Moynot requested that I come to ADS in Durban to discuss such a possibility. Telephonically he would not give me any idea as to its details in advance.

During this meeting Mr Moynot proposed the possible deployment of the IMS network within various strike craft upgrades being considered by Thomson-CSF with ADS's involvement." (Overseas strike craft.) "This offer was conditional that the IMS had been qualified at sea within the SA Navy's Warrior Strike Craft Upgrade Programme.

Since the IMS had been developed specifically for the Corvette it did not form part of the Strike Craft Upgrade Programme and thus could not be qualified at sea within this programme. Mr Moynot could easily have ascertained this without my having to travel to Durban. I therefore contend that he wasted my time and money on this matter. I refer to the correspondence between myself and Mr Moynot dated 19 September 1999 and 18 October 1999.

Nevertheless, I did advise Mr Moynot that we had always recommended to SA Navy that qualifying the IMS for the Corvette programme, but on a strike craft, was an excellent and not extraordinarily costly way of doing so. Mr Moynot agreed and undertook to bring up this matter with the chief of the Navy, Vice Admiral Robert Simpson-Anderson, as well as the chief of acquisition, Mr Shaikh. I reminded Mr Moynot of this proposal in an e-mail to him dated 18 October 1999. I have never heard anything since further on this matter.

On 1 November 1999, at the meeting facilitated by AMD, (Aeronautic, Maritime and Defence Related Industries Association) ADS agreed to hold discussions with C2I2 Systems with the objective of reinstating the IMS in the SA Navy Patrol Corvette programme. This meeting was attended by Lieutenant General (Retired) Lambert Moloi, Chairman of the ADS Board of Directors. Mr Moynot advised AMD that he could not attend. I reiterated my agreement not to take any action that would impede Cabinet authorisation of the Strategic Defence Packages in exchange for ADS's co-operating in negotiating a mutually acceptable resolution to the dispute. It was further agreed that another meeting between all the relevant parties would be held on 8 December 1999.

On 3 December 1999 the South African Government signed supply agreements totalling R30,3 billion (at that time) to modernise its defence equipment.

On 8 December 1999 C2I2 Systems attended a meeting facilitated by AMD with Armscor. ADS declined to attend due to the 'unavailability of members'. I submit, in retrospect, that as the South African Government had formally signed the Corvette contract with ESAC, ADS's position was secure and it was no longer imperative to negotiate with C2I2 Systems.

In January 2000 I reported the matter to the Secretary of Defence, Mr J B Masilela, and attended a meeting with him and special advisor to the Minister of Defence, Ms Sue Rabkin, on 26 January 2000. They advised me that the Ministry of Defence was initiating a complete investigation into the arms deal and this would include the circumstances surrounding the deselection of the IMS.

During the period February 2000 to August 2000 I telephonically contacted Ms Rabkin on a number of occasions to find out what the outcome of the Department's investigation were. She advised me that the Minister of Defence had indeed initiated this investigation but that I must be patient as 'these things took time'. Additionally, on a number of occasions, Ms Rabkin assured me that I was proceeding in exactly the right way concerning this matter.

On 1 February 2000 I was telephonically advised by Mr Swan's successor, Mr Sipho Thomo, that Mr Moynot had recently advised him that 'all was in order' concerning our dispute and that ADS had made a 'lucrative offer' to us and were waiting for a response from us.

This was definitely not the case.

As I was convinced that the deselection of the IMS had been through irregular procedures, as well as becoming aware of conflicts of interest involving the chief of acquisition, I first decided to co-operate with the Special Investigating (SIU) who had approached me in this regard.

During mid-June 2000 I started gaining the impression that the SIU would not get the required proclamation. The SIU recommended that this matter be brought to the attention of the Auditor General.

On 29 June 2000 I attended a meeting with members of the Auditor General and the SIU (which was facilitated by the SIU) in Pretoria, where I advised the Auditor General of the matter of the deselection of C2I2 Systems's IMS.

Although I was confident that the Auditor General (or at least his staff) understood my complaints, I subsequently had a telephonic discussion with Mr Wally van Heerden, the Deputy Auditor General. He advised me that the Auditor General's office had come to an interim conclusion that my complaint fell into the area of subcontracting and that the AG had a mandate only to investigate matters involving prime contractors.

As I considered ADS an Thomson-CSF to be effectively at the prime contractor level I did not accept the position the AG had taken on the matter.

Therefore on 11 July 2000 I formally requested that the AG conduct a forensic audit into the circumstances of the deselection of C2I2 Systems as the nominated and selected subcontractor for the IMS for the SA Navy's Corvettes.

On 25 July 2000 we received a letter from the AG formally advising us that my request for a forensic audit dit not fall within the ambit of the regularity mandate of the AG's office. The AG elected to refer the matter to the Public Protector and to the Independent Directorate for Serious Economic Offences.

In August 2000 I was advised by means of a letter from the Public Protector that they were investigating the matter and would inform me of the outcome in due course.

We had two meetings with Mr Shaikh in early September 2000. I am advised that these discussions may perhaps be regarded as without prejudice settlement discussions and I shall accordingly not say more about them. What I can say however is that in one of the meetings Mr Shaikh informed me that the decision to deselect the IMS had been that of the chief of the Navy.

On 25 October 2000 I attended a meeting with Advocate Dave Scrooby and Advocate Gary Pienaar of the Public Protector regarding the investigation in the Strategic Defence packages. Here I briefed them fully on my complaint regarding the IMS's deselection.

On 3 November 2000 I received an e-mail from Mr Swan advising that due to the fact that the matter had been reported to the Auditor General and Mr Shaikh consequently had to appear before SCOPA on 11 October 2000, the matter had 'gone too far to reach an off the record' solution and now had to 'run its course'.

On 9 November 2000 Ms Rabkin requested that I submit an affidavit to the Minister of Defence, the Honourable Mr Lekota, concerning the approaches made to me in Pretoria by Mr Shaikh during September 2000, which I did."

My next section is entitled:

"De-Selection: A Decision of the State.

After C2I2 Systems's deselection, we wrote letters to the Department of Defence who referred us to the German Frigate Consortium who referred us to ADS. On 23 August 1999 ADS eventually replied in a letter to my lawyers, HGB, that it was the State who had made the decision.

The assertions made by ADS in their various letters to me that it was the State that made the decisions regarding the selection of equipment for the Corvette seem to be corroborated by the letter of L R Swan, the then chief executive officer of Armscor, dated 29 June 1999 to the German Frigate Consortium, which reads as follows:

'Project Control Board Decision regarding the Project Sitron technical baseline:

1. At a meeting held recently regarding the selection of major products and their suppliers for the Corvette programme, the following were selected - see attached list.

2. Kindly inform all suppliers concerned of the above decision.'

Furthermore no one representing the State has ever told me that this was not the position.

I only received formal notification from the Department of Defence of the reasons why C2I2 Systems's IMS was deselected on 6 October 2000.

Mr Shaikh personally informed in September 2000 that the IMS had not been selected because of the decision by the chief of the Navy. He repeated this assertion before SCOPA. I accordingly sent a letter dated 18 October 2000 to the chief of the Navy enquiring about the reasons for his decision. I got no reply.

As Vice-Admiral Robert Simpson-Anderson had retired at the end of October 2000 I wrote to his successor, Vice-Admiral Johan Retief. However he would not supply reasons.

I also got a letter from Rear Admiral Howell who referred me to Armscor.

It is also certainly logical that the State must have made the decisions in view of the fact that the decision to rather selected the Detexis system was a complete deviation from what was originally envisaged and from the User Requirement Specification. In fact Mr Shaikh personally told me that this decision was taken or ratified by the Cabinet.

Finally I received the letter from the Director of Naval Acquisition, Rear Admiral Ockie van der Schyf on 6 October in response to my question raised at our meeting on 17 June 1999, i.e. 16 months later. In this letter Rear Admiral van der Schyf makes the following important points as follows:

'Therefore due to financial constraints of the project, the Combat Suite selection process essentially became a 'design to cost exercise' (with the emphasis on 'design to cost exercise')

Furthermore the combat systems had to be offered against the approved SA Navy Combat Suite User Requirement Specification, which is a functional specification.

It is therefore reiterated that the Combat Suite databus selection for the patrol Corvette, namely that from the supplier Detexis, was considered by the DoD to be both technically acceptable as well as being the most viable option amongst the offered alternatives within the approved project cost ceiling and an acceptable contract risk profile.' (I want to emphasise the approved project cost ceiling.)

Rear Admiral van der Schyf is wrong when he claims that the URS is a functional specification. It is a complete all-encompassing specification, including all functional and engineering requirements, as well as specifying customer furnished equipment and customer specified equipment, which happened to include the IMS. It is also wrong to assert that the Detexis system was found to be 'technically acceptable'. The report of the evaluation team indicates just the opposite.

Rear Admiral van der Schyf also stated in his letter of 6 October the following:

'Thus CCII was only a candidate supplier during the RFO and best and final offer rounds of Combat Suite tendering with no supplier being implicitly or explicitly nominated or excluded.'

I would contend that, with reference to both the URS and the element costing and description, this statement is clearly incorrect.

I did reply to this letter in my letter of 9 November 2000 where I enquired whether he was referring to the URS and requested that I be supplied with the document number and specific issue of the document to which he was referring.

I have still not received a response to this letter.

However, about two weeks later I received a phone call from Mr Shaikh who apologised for not responding to me sooner but that he had just received the letter that day. This may be so but apart from sending the original by mail, I personally faxed this letter to both Rear Admiral's van der Schyf's fax and Mr Shaikh's fax with my fax machine printing out a confirmation report that transmission had been successful in both cases. Nevertheless Mr Shaikh said that he would take my request seriously and that he would instruct Rear Admiral van der Schyf to respond to me immediately. Suffice to say, I have still not received a response nearly a year later."

My next section is entitled:

"True Objectives of the Strategic Defence Packages.

After the authorisation in principle of the SDP's and the announcements of the preferred main contractors, Mr Shaikh convened a suppliers meeting on 23 November 1998. At this meeting Mr Shaikh said that they, that is he and the government, did not care if the ships, that is the Corvettes, arrived at Simon's Town (I presume he meant towed) without engines. In fact he said that if the Corvettes could actually put to sea and fight that this would be 'the cherry on the top'. He also said that if the price of the Combat Suite was too high, that they might reduce the number of Corvettes from four to three."

PRESIDING OFFICER: Dr Young I think there is a paragraph missing between 464 and 465. Is that correct? --- This has been slightly edited since your draft summary.

I see. Anyway you are reading the final version? --- Yes.

Alright, proceed. --- If it is material we can look at your draft.

"Mr Shaikh called another meeting of suppliers on 8 February 2000. During this meeting a presentation was given by Mr Dewald Jooste of Armscor on the subject of technology transfer in respect of Defence Industrial Participation (TDIP). On completion of the presentation I raised a question as to the objectives of TDIP as this had not been addressed and was important in respect of the TDIP being negotiated between ourselves as local representatives of technology under TDIP from our overseas partners within the submarine acquisition programme. As Mr Jooste could not, or would not, answer my question, Mr Shaikh took over and effectively told me that 'there were absolutely no defence strategic reasons for TDIP' the only reason for TDIP being to support counter trade. Apart from being aggressive in the extreme when answering my legitimate question, I found Mr Shaikh's answer very disturbing. In fact at the end of the meeting the programme manager of the submarine project, Mr Rob Vermeulen, effectively negated Mr Shaikh, his superior, by saying the prime reason for TDIP in the submarine programme was to facilitate long-term supportability and upgradeability, which were strategic requirements of the SAN.

Consequently I find it interesting that Mr Shaikh tried during the SCOPA hearings of 11 October 2000 to justify the defence equipment acquisitions as being primarily a result of actual defence requirements. The Minister of Trade and Industry, Mr Alec Erwin, again made this assertion during a press conference of 12 January 2001 as well as the SCOPA hearings on 26 February 2001.

This certainly does not correspond with the Department of Defence's chief of acquisitions's previous pronouncements in this regard."

My next section is entitled:

"Cost Ceilings.

Now concerning Rear Admiral van der Schyf's assertions about cost ceilings for the Corvette and/or its Combat Suite, I find this quite significant considering the DoD's response as to why the extra R40 million risk apportionment added by ADS was sufficient to cause the deselection of our IMS.

This assertion about a cost ceiling was also made by Mr Dawie Griesel on 13 June 2001 earlier during these hearings. He made the following particular statements:

'there was also an interaction with the technical teams due to the fact to the, during the negotiation process the costs had to be negotiated to get under a predetermined ceiling'

and

'that was then necessary to interact with the technical teams in their technical negotiations with the respective bidders to ensure that the ceiling which was given was not superseded.'

In this regard Vice-Admiral Simpson-Anderson gave the following testimony on 14 June 2001 earlier during these hearings:

'The Naval Board previously decided not to compromise unnecessarily on the numbers and the quality of the platforms, since they had to last 30 years, possibly even longer. Compromises therefore had to be made in the area of the combat suite. That is that part of the ship that can be upgraded and added to as and when necessary. And since the project had a funding ceiling the combat suite would be designed to cost dependent on the balance after the platform cost had been deducted from the ceiling. So with whatever was left we had to go and then find a combat suite.'

After the announcements of the SDS on 18 November 1998 I attended a meeting called by Mr Shamin Shaikh and Mr L R Swan with the preferred system and subsystem suppliers on 23 November 1998.

Statements along the following lines had been made by Mr Shaikh and Mr Swan at the supplier's meeting that I attended on 23 November 1998. I took notes of this meeting as follows:

Mr Shaikh

'(All the packages have) fixed ceiling prices - not one rand more

(will be allocated to them)'

'If anything, price may come down.'

Mr Swan

'Armscor/SA Navy have a specific amount of money (for the packages). We have to come in at that.'

'(The ceiling price of the) Corvette Combat Suite is R1,4 billion.'

'Local companies are naive n negotiating contracts with overseas companies. Armscor can assist local companies in negotiations.'

Rear Admiral Howell

'The simultaneous Corvette and submarine acquisition programmes offer a fantastic opportunity for maximising commonality in terms of supportability, maintainability, upgradeability and (local) design capability (in at least critical areas).'

'The Lynx helicopter is a critical part of the Corvette weapon system.'

I would like to examine the true facts of the matter.

On 18 November 1998 the Cabinet approved in principle the Strategic Defence Packages and announced the selected preferred suppliers as follows:

The advanced Light Fighter aircraft a quantity of 28 at an amount of R10 875 million.

24 Lead and Fighter Trainer aircraft at a price of R4 728 million.

40 Light Utility helicopters at a price of R2 168 million.

Three Coastal submarines at a price of R5 212 million.

Four Patrol Corvettes at a price of R6 001 million.

Four Maritime Patrol helicopters at R787,5 million.

The total approved amount for the packages at that stage was R29,773 billion.

At this stage the Corvette had a nominated Combat Suite with a nominal cost ceiling of R1 470 million but these were at predicted April 1998 rands. (Which I believe the figure of R5,05 US Dollar was applicable.)

However by November 1998 this could have been escalated to some R1 800 million at the then prevailing exchange rate of R6,25 to the US Dollar.

The total approved cost of the package was R29 773 million or R29 773 billion at 1998 prices, apart from the Corvette Combat Suite which was 'in predicted April 1998 rands'.

This total included all costs including statutory, importation, transportation and programme management costs but not financing costs.

For the ceiling cost of the Corvette Combat Suite the following was applicable:

'The ceiling costs include the entire scope of supply of the Combat Suite element in terms of the management, products and services described herein, including all RSA taxes and duties.'

I find it interesting to note that the GFC offered a choice of two Corvette platforms, i.e. the MEKO 200 at US $949,5 million and the MEKO A200 at US $960,2 million (both prices inclusive of Combat Suite), the difference between these two options being US $10,7 or R66,9 million (at R6,25 @ US $1,00). The Government chose the more expensive A200 version, even though the IP values for both options were identical.

The MEKO A200 is more expensive because it includes a waterjet propulsion system. However this had never been done on a frigate or Corvette before, or at least in my knowledge not by Blohm & Voss, so it constituted a not insignificant risk. However this did not stop the DoD or SAN from choosing this option.

I have been told that this option was chosen by the SAN because they considered it strategically advantageous in the long term but this was also the reason for fitting a high-performance, modern fibre optic local area network into the vessel.

The price for the 590B Corvette offered by Bazan of Spain was US $832, 2, nearly US $130 million less than the MEKO A200 while Bazan's Industrial Participation offer was more than US $400 million more than the German Frigate Consortium's IP offer.

On 24 November 1999 the Cabinet approved contracts for the Strategic Defence Packages with the original selected preferred suppliers as follows:

28 Advanced Light Fighter Aircraft and 24 Lead and Fighter Aircraft together at a price of R15 916 million.

30 Light Utility Helicopters at R1 965 million.

Three Coastal submarines at R5 531 million.

Five patrol Corvettes at R6 873 million.

No Maritime patrol helicopters.

The total for the contracted package was R30 285 billion."

Possibly at this stage just for a matter of clarity I will put a slide on here. It was pointed out to me that I might have said five Patrol Corvettes, it is actually four Patrol Corvettes. Nevertheless, what I pointed out earlier was that the original approved package was R29 773 billion. The final contracted value was R30,285 billion. The numerical difference between those two amounts is indicated on the far side there was effectively R512 million. However if we see, or we note, that the amount of the Light Utility helicopters had been reduced from 40 to 30, the delta in the price is R203,75 million. If we take into account the number of Maritime Patrol helicopters had been reduced from four to zero, the price there was R787,5 million. Therefore the effective real increase is the sum of all these values which I have indicated on the far side there was R1 503 billion. We now need to actually analyse the reasons for these cost increases. I am not going to go into all the details but those of you who have got the notes in front of you can see that the actual Corvette Combat Suite price, the actual contract value, was signed at a fraction under R2,6 billion, that is R2 599 billion. Now if we consider this in the context of the previously approved ceiling of R1,47 billion we can see that there is a fairly major cost increase, so I have tried to analyse where this cost increase comes from. If we look at the April 1998 cost ceiling of R1,47 billion, I believe that taking into account rate of exchange variation as well as escalation based on CPI, that is the consumer price index, you can probably justify a price increase of some R330 million. This would mean that the R1,47 billion could justifiably be increased to R1,8 billion. Here I am working on nominal figures. I do not have the exact breakdown between imported content and local content and I do not know the exact, exact exchange rate that was used but I think my calculations are indicative of the point I am trying to make. Anyway the calculations which I have outlined show that there was a delta, or a difference, between the approved ceiling price to the contracted prices for the Corvettes of some R798, or make it R800 million. This was based on, the Corvette's price escalated to the final approved rate of exchange, baseline exchange rate, of R6,25 billion.

MR VAN ZYL: Sorry Dr Young, it is obvious that you have something in front of you which none of the panel members have. Is it possible that we can get copies of that? --- Absolutely, I thought that was ...

MR VAN DER MERWE: Mr Chairman do you have the tables 4, 5 and 6?

PRESIDING OFFICER: No. --- We are on page 81 here.

In this new document you are at which? --- Page 81.

81. --- Essentially it is exactly the same information, I have just put it into tables to make it easier for me to read.

Alright, you may proceed.

MR VAN DER MERWE: I think Dr Young just perhaps go over this information again now that the members have got the tables in front of them.

PRESIDING OFFICER: Mr Mahon?

MR MAHON: I have been having some difficulty, some of us do not have the ...

PRESIDING OFFICER: Do you have sufficient copies? --- Would you like me to start again?

Yes.

MR VAN DER MERWE: I think perhaps it is about paragraph 478.

PRESIDING OFFICER: Yes if you can start from there, from 478.

MR VAN DER MERWE: Well perhaps it is not necessary to read all the quantities again. --- No I think we can basically refer to the table here. I think basically just to summarise is that I had shown that the approved package costs in November 1998 was the R29,773 billion. The actual contracted amounts, it is indicated in the red column, the R30,285 billion ...(intervenes)

Which table is that? --- Look at that ...(intervenes)

Table 3? --- Table 3 yes. Okay in arithmetic terms the difference between these two amounts is some R512,00 or R511,87 indicated in the far right column, that is the arithmetic difference but it needs to be noted that in this case the number of Light Utility helicopters had been reduced from 40 to 30 ...(intervenes)

You are now on table 4? --- Well it is in the same table there. Okay that is right, table 4. And the number of Maritime Patrol helicopters from four to zero. If we take into account the price differences for those adjustments, then the real increase between the approved amounts and the contracted amounts is this column over here.

In other words the real difference of what was ultimately acquired, the price of what was ultimately acquired? --- That is correct. Was R1,503 billion. We are now looking at table 5 where analysing the origin of this price increase. In terms of the Corvette Combat Suite the final contracted amount was R2,599 billion. If we compare this in table 6 to the April 1998 cost ceiling of R1,47 billion and then add on an adjustment for both rate of exchange variation and CPI escalation, which I determined to be in the region of about R330 million, then the justifiable escalated cost ceiling for the Corvette Combat Suite is around R1,8 billion. If we take the difference between the contracted amount and the escalated cost ceiling, there is a difference of R798 million. I need to emphasise that the totals for the contracted amounts include all costs, including statutory, that is VAT and customs duties, freight, export guarantees and programme management costs as well as ECA premiums and the financing of the preferred cash flow. However there had been a number of programmatic changes. I am now on paragraph 480.

"There had been a number of programmatic changes such as extension of the repayment period as well as loan financing which would lead to some increases in financing costs. However it is clear from the analysis of the figures that such financing costs amounted to only a fraction of the extra R1,5 billion while it was clear from the Corvette costing that the price of the Corvette increased by R872 million.

It is quite obvious the price of the Corvettes increased by this R872 million in the main due to a R798 million, or nominally R798 million, increased cost of the Corvette Combat Suite.

I thus conclude that there was no cost ceiling, or real cost ceiling, applied to the Corvettes.

The second conclusion is that the Corvette Combat Suite cost increased in real terms by some R798 million.

In addition the scope of supply of the Corvette Combat Suite had decreased from the baseline established by the Element Costing and Description. This is borne out by the Project Office's (then Captain Kamerman) and the programme manager's (then Frits Nortje) letter to the German Frigate Consortium and ADS dated 6 May 1999:

'10. Since the initiation of discussions in december 1998, the process between us thusfar has been characterised mainly by reductions to the cost of the Vessel achieved by reductions of the scope of supply (quantity) or performance (quality) from that originally offered. The SA Navy is prepared to accept these reductions and the considerable reduction in value that they represent, in the spirit of achieving a viable, affordable solution within the budgetary constraints of the project. These are reflected in annexures A and B.

11. Despite these efforts however, the current overall price for the total vessel system to the project (i.e. inclusive of taxes, duties, etcetera, payable by the DoD and our own programme management costs) still exceeds the overall Cabinet approved budget ceiling.'

I content that the reason offered by the DoD proves that the justification offered by the DoD for deselecting the IMS on the basis of remaining under a cost ceiling was unjustified.

I believe the following extract from the same letter places into perspective the dilemma into which the JPT had allowed themselves to be trapped:

'You are reminded of the affordability imperative placed by the government on this acquisition relative to other equipment in the package and the likely consequences of a failure to achieve an affordable Corvette solution in the immediate short term to the probability or schedule of the Corvette acquisition.'

What the project officer and programme manager were reminding the German Frigate Consortium, Thomson-CSF and ADS, was that the Corvette programme would be cancelled or postponed unless there was rapid contract closure.

Apart from this being a very weak negotiating position against a supplier effectively in a non-competitive position, I contend that this hardly supports the government's latest pronouncements on the importance of the Corvette specifically, or the defence packages in general.

I believe that one of the reasons for the massive increase in price from the baseline described by the Element Costing and Description to the final contract price is the cost of Thomson-CFS's Tavitac Combat Management System at some R335 million. As this was essentially an off the shelf system, despite the need for the requirement for customisation for the SA navy, I believe this price to be very high. It would be interesting to compare this contract price to the original price estimates for the AIS and WCS but I would estimate that the combined price for these two elements to be no more than R150 million.

The second reason for this increase in price is the cost of Thomson-CSF and ADS's provision for some R423 million for system integration, whereas the JPT had previously estimated about R150 million for this effort.

I content that the DoD effectively sacrificed the four Maritime Patrol helicopters in order to facilitate the increase in the price of the Corvette Combat Suite.

It is well known that the combat capability of a modern surface combatant such as a frigate or corvette is severely diminished without an onboard maritime patrol helicopter. In my opinion the Navy would be hard pressed to find a commanding officer who would take a frigate into combat without a helicopter. This means the DoD will almost surely be acquiring these maritime helicopters in the near to medium term future. I would now estimate in 2001 rands that the four Maritime Patrol helicopters will cost about R1,45 billion.

As a taxpayer and citizen I certainly do not begrudge the SA Navy their helicopters. I just want to emphasise the implications of what I consider to be poor acquisition practices.

The DoD also sacrificed ten of the Light Utility helicopters in order to facilitate the other price increases of the packages.

It is well known that one of the most pressing needs for the SANDF is the replacement of its combat air transport capability. In fact the original force design called for 60 light utility helicopters while the revised force design called for 40. However this was finally decreased to 30.

During the SCOPA hearings on 11 October 2000 certain SCOPA members had misgivings about the increase in the price of the packages, not only due to escalation but in real terms. Mr Lalu Chiba questioned Mr Shaikh on the reasons behind the increase of (as it was put at the time) R1,2 billion in real costs.

Firstly, Mr Shaikh tried to convince SCOPA that the reasons behind these increases were due to programme management costs. This was plainly not the case. Although Mr Chiba tried his best to extract the truth about the real reasons for the cost increase, this issue was not satisfactorily addressed, especially concerning the cost increase of the Corvette and, in particular, concerning the Corvette Combat Suite."

My penultimate section I have entitled "Summary of Complaints", I am specifically going to address the IMS.

"We were originally nominated in 1997 in terms of the tender baseline as a South African supplier for the IMS.

Later in 1999 we were selected in terms of the request for best and final offer. When we thought that the IMS was being deselected, we formally approached the JPT acting on behalf of the State." (Here I refer to the meeting of 17 June 1999.) "They told us that - 'We would be advised in due course.' Later at the suppliers' meeting on 21 July 1999 the DoD told us to contact the GFC. At the same meeting the GFC instructed ADS to advise us. They responded that they would do so 'within one week'. This did not happen but after our enquiry by lawyer's letter ADS advised us on 23 August 1999 that we had not been finally selected and that it was a decision of the State. Nothing was heard from DoD or ADS again despite numerous letters to the chief of acquisitions until the director of Naval acquisition advised us by letter on 6 October 2000 that we had been deselected due to cost ceilings on the Corvette programme.

On 11 October the DoD advised SCOPA during the hearings that we were not finally selected due to refusing to provide a performance guarantee and also that they had made the final decision on 24 August 1999.

It is incongruous for the State to have made the decision on 24 August 1999 while ADS advised us on the previous day that we had been deselected by the State. I have proved that there was no such cost ceiling applied to the Corvette Combat Suite. On the contrary the cost of the Corvette Combat Suite increased in real terms by some R798 million and the Corvette as a whole by exactly R872 million and the Strategic Defence Packages by R1,5 billion.

I have also proved that not only were we never asked for a performance guarantee but that we offered to provide one without being requested to do so as well as formally made a practical risk abatement proposal. None of these proposals were even responded to by ADS or the Department of Defence.

MR VAN DER MERWE: Mr Chairman I think there might be ... Does your final paragraph, does the sentence, it stops in mid air, we will need to complete that sentence.

PRESIDING OFFICER: Yes. Is it a long sentence? You are saying none of these were, that final sentence? --- I said:

"None of these proposals were even responded to by either ADS or the Department of Defence."

I would also like to just say something, also not in my aide memoire but it is a repeat of what I said before in summary. In terms of the IMS and its technology, mainly based on this FDDI technology, FDDI technology was a new technology in the time scales of 1989 when the origins of this programme were initiated. We had a completely successful technology demonstrator in 1991. Thereafter there were six years of development to produce the IMS product. The results of these development efforts were that all characteristics and capabilities were developed according to the South African Navy's specified technical baseline. All critical and major characteristics were formally tested and proven between the period March 1999 and October 1999. The IMS is still working very successfully in the tracker radar console and the navigation distribution system. So what I am saying in effect, this is not just an idea, this is a real product which actually still exists, real hardware and real software. I would also like to say that the intrinsic IMS hardware and software has been chosen for the following overseas programmes. For the US Navy, their biggest programme at the moment is called Co-operative Engagement Capability and our intrinsic FDDI hardware and software has been chosen for this programme. The United States Marines Corp new $10 billion Advanced Amphibious Assault Vehicle has also baselined our FDDI technology as has the NATO AWACS aircraft, where it is interesting to note that the contractor in this particular instance is Thomson-CSF of Belgium. Our FDDI technology at present has also been chosen for the Horizon Frigate Programme which is a joint venture between Italy and France, where Italy will be buying four frigates and France I think it is eight frigates and at the moment our FDDI technology, and in fact the whole IMS, has been at the moment chosen for that programme. Despite saying this I would like to add that these are still effectively business opportunities and they in no way make up for the loss that we feel that we have suffered for the IMS not being selected. My final section is conclusions:

"In conclusion I wish to state the following:

Regarding the System Management System (SMS) the price offered by C2I2 Systems was misrepresented to justify awarding this contract to ADS, when clearly C2I2 Systems's price was lower than that of ADS with the JPT recording that both offered products were technically compliant.

Regarding the IPS Simulator, C2I2 Systems was clearly and unambiguously selected by the Project Control Board to supply this element and this was communicated to the German Frigate Consortium by Armscor on behalf of the Department of Defence. However the German Frigate Consortium have with, or without, Armscor's permission deselected C2I2 Systems's IPMS Simulator for reasons they refuse to explain. It would appear that C2I2 Systems is being penalised for crying foul on other parts of the Corvette contract.

With respect to the Information Management System, C2I2 Systems was involved in the development of the IMS for the South African Navy for seven years and was nominated in terms of the formal tender documents (i.e. Request for Information and Request for Offer) as the supplier of this subsystem for the Corvette Combat Suite. Later this nomination evolved into selection in terms of the request for best and final offer. Thus a legitimate expectation that C2I2 Systems would e selected as the supplier was created by our previous involvement in the project as well as the tender documentation of Armscor and the Department of Defence and events relating to the process of acquiring the Corvettes.

It was specified by Armscor and SAN that the South African industry should be the suppliers of the subsystems of the Combat Suite and that a South African company should be the Combat Suite contractor responsible for the integration of the Combat Suite subsystems.

The end result however was that C2I2 Systems was manoeuvred out of the contract with IMS by the French controlled company ADS which also became the Combat Suite main contractor.

I contend that there are no lawful reasons for not awarding the IMS contract to C2I2 Systems.

A clear conflict of interest arise, namely:

The fact that ADS, the nominated and eventually selected main contractor, could compete with other bidders for the subsystem contracts.

The fact that ADS obtained C2I2 Systems price and technical specifications and directly or indirectly disclosed these to what later became C2I2 Systems's competitor (Detexis).

The fact that Detexis and ADS are both in the Thomson-CSF group and form part of the prime contractor, i.e. the European South African Corvette Consortium.

The fact that Mr Shamin (Chippy) Shaikh played a role in the process regarding the selection of the contractors for the Combat Suite is improper considering that his brother, Schabir Shaikh, has a direct interest as director and shareholder in both ADS and Thomson-CSF Southern Africa.

In the bigger picture Thomson-CSF, through an irregular acquisition process, obtained a major share of the Corvette supply contract, contrary to what was envisaged by Armscor and the SA Navy.

Whoever made the decision in deselecting the IMS and selecting the Detexis Combat Suite databus, disregarded the report of the evaluation team. This report expressed a clear preference for C2I2 Systems's IMS and indicated that the Detexis Combat Suite databus was technically unacceptable."

PRESIDING OFFICER: That is the end of your testimony as per your aide memoire. We will take the tea adjournment for 15 minutes, after which Mr Kuper you will be ready to ask questions?

MR KUPER: Yes.

PRESIDING OFFICER: We take the tea adjournment.

PROCEEDINGS ADJOURN PROCEEDINGS RESUME

CHAIRMAN: Mr Van der Merwe, I didn't ask you if you had any further questions at this stage?

MR VAN DER MERWE: I don't have any more questions. Thank you, Mr Chairman.

CHAIRMAN: You don't? Yes. Mr Kuper?

MR ROGERS: Mr Protector, before my learned friend begins, can I raise a question of concern on behalf of Dr Young?

CHAIRMAN: Yes.

MR ROGERS: You will recall that on the previous occasion when he arrived here the stance was taken by the minister of defence that in order to testify my client required the consent of the minister of defence under section 118 of the Defence Act and also so transpired under section 11(a) of the Armscor Act. That was also a threat that was contained in correspondence from ADS's attorneys and I gathered from the meeting that we held, or the legal representatives held with you that it was even a view that you shared and that you did not think that a public inquiry could be used as a platform for as it were unanticipated information being disclosed about potentially secret and confidential military information. Now the consent that my client has been given by the minister of defence under those two acts is solely to disclose the contents of his aide memoir which he has read. He hasn't been given permission to say anything else. Now it appears to me that cross examination or examination, if it is to involve anything more than simply asking him to read to read what he has already said will involve first of all the putting of propositions to the

witness which will or may involve a disclosure of information of the kind for which the minister's consent is required, and more importantly, for my client to answer the questions unless his answer is simply a repetition of what is in his statement, it would require him to make disclosures of the kind on which on the previous occasion the minister of defence said he couldn't make without consent. And it appears to me therefore that if this principle is to be consistently applied and if examining legal representatives of other parties are to be allowed freely to put propositions relating to armaments and arms acquisitions and if my client is to be permitted to answer them, that the minister's consent for that also is required, and how it was achieved on the previous occasion was that my client had to give written notice to the minister of what he proposed to say, and the consent that was formulated was formulated precisely with reference to that, that he may disclose to the public protector the contents of the statement dated 17 August 2001 to the extent and in the manner directed by the public protector. And it appears to me therefore that applied consistently the principle that was adopted on the previous occasion and also for the proper protection particularly of my client and his particular contravention of the Defence Act and the Armscor Act, that the proper procedure is that parties who wish to put questions to my client should formulate them in writing, my client will formulate his responses in writing. The questions and answers will be submitted to the minister for his consent. And if that consent is given then the matter can be dealt with publicly.

CHAIRMAN: Any comments from any other counsel about that?

MR KUPER: Well, sir, if you give me just a moment to get over my astonishment. I am now responding. In the first place I just want to start with a correction. I am sure my learned friend will confirm it when I remind him. He was never faced or his client was never faced with a demand by the minister that he seek authority. It was expressly stated that the minister make no demands at all. I vouchsafed to my learned friend that if he wants to know what my private view was I thought his client would be well advised to seek advise. My learned friend had taken a different attitude entirely. He didn't see why the advise was required. But in the light of my feeling he thought well perhaps he should do so. There should be no talk here of the minister having made any demands at all. What the minister has done is to allow the information contained in the aide memoir to be conveyed to you to the extent that you require and in the manner in which you require for the purpose of the public hearing. It is out of the statutory structure that you only receive information but you have the power to test it by asking questions, as you have already done, without any objection on behalf of Dr Young when you saw elucidation, or by allowing interested and defected parties to put questions in so far as you allow it to be done. A minister's authority must be an authority for the conveying of information within the terms of that statutory framework, so that as a matter of substance one must take the minister's authority and the duties of this witness to assist in the proper evaluation of what he has now sought in public to say. The gyrations, the pointless and senseless exchange of question and answer by wrote in writing to put to a minister, come back to you, just the propositions are so absurd and so obviously directed not to facilitating this inquiry but to impeding it that it gives rise to the astonishment which I expressed. I certain do intend to ask Dr Young, if I am permitted to do so, to elucidate some aspects of his evidence. As my learned friend said more than once the last time we met about this, if he is telling the truth he can tell the truth a hundred times, it is not a problem. Well I think now as Dr Young has said, he wants the opportunity, he ought to be given it. So I submit to you that what you are faced is not with a valid objection, not with a bona fide objection but with an obstructionist one. And I want to add this: This can't be something that my learned friend suddenly light a light bulb above his head was visited with in the last few seconds. This must have been a point carefully nursed, carefully kept back, carefully not raised to be dealt with until the last moment, where, when it was raised, if it was good, it would inevitably mean the complete disruption of this inquiry in circumstances in which you have made it plain there are time constraints and there are other constraints. So why raise it now? Why not raised it last week, the week before, when something might be done. I ask you to overrule the objection, Mr Protector.

CHAIRMAN: Any other submissions in this regard? Or any further response from you, Mr Rogers?

MR KRIEGLER: I do wish to make one ... (intervenes)

CHAIRMAN: Mr Kriegler?

MR KRIEGLER: Thank you, Mr Chairman. We associate ourselves with the comments made by my learned friend, Mr Kuper, and I wish to add only this: One would have thought it obvious that the purpose of questioning or cross questioning is in order to test propositions. I know of no format involving a legal inquiry of anything remotely proximating this sort of inquiry in which a witness who makes allegations is afforded the opportunity in advance to consider the questions that will be put to him to test his own allegations. That is a proposition that is entirely foreign to me and I do not know of it, never heard of it. Of course the proposition that a party who is implicated is afforded an opportunity to see in what manner he is implicated is not a foreign concept. So it is not right for my legal representation to equate his client's obligation to make available a statement in advance of giving the evidence so that we know where he is coming from with the situation where he is afforded the opportunity to listen to questions which are directed at testing his evidence in advance of his testimony. It is apples with oranges, a comparison of apples with oranges. It has got, the one has nothing to do with the other, and in any event the submission of the statement was given by consent. It was subject of an agreement between the parties. There is nothing of the sort relating to forwarding questions in advance and nothing of the sort whatever have been considered for the reasons that I have given. So we also oppose the application.

CHAIRMAN: Thank you, Mr Kriegler. Mr Rogers?

MR ROGERS: Yes, I would like to answer, firstly to my learned friend Mr Kuper for the minister of defence. His memory is obviously short. We were here I think barely two weeks ago when my client arrived here with a full legal team at considerable expense ready to give evidence, and what should I see walking into the building but Mr Michael Kuper who then for the first occasion raises on behalf of the minister of defence a concern that our client may require consent to give his evidence under the act, and although he says, as he is entitled to say of course, well you client must take his own view of the matter and he can take his own advice. What responsible counsel or what fearful client is going to go into the witness-box when a counsel as eminent as Mr Kuper expresses it as his view and apparently that of the minister that in order to give evidence consent is required under the Defence Act, and if my client is prepared to face with equanimity the prospect of going to jail for ten years then he is of course free to give evidence. That is not a very appetising invitation. So, M'Lord, disruption started at the instance of the minister of defence on the last occasion that we were here. My learned friend says it is your function of course to test the evidence and my learned friend Mr Kriegler for ADS says but he knows of no system where cross examination would have to be conducted in the way I propose, but Mr Protector, it is equally so that I know of no system where in order to give evidence in chief a person is required to obtain the consent of a minister, but that was the position that was seriously, and we must assume bona fide advanced for the minister of defence, and I think in correspondence by ADS on the last occasion. I must assume in their favour that the reference to the need for statutory consent was not merely a rous to get from my client what he not been willing to give them up to that stage, which was a copy of the statement. I submit it was a serious view that in order to disclose what he was going to say my client did or may require statutory consent, and Mr Lekota, the minister of defence seriously considered what my client had said in his statement. He didn't come back and say well I don't think you require my consent because none of these matters fall within the ambit of the statute. Instead he came back and said I give you consent to disclose what is in the statement in terms of section 118 and in terms of section 11(a). So if it is an unusual procedure that we are bound to follow, it is unusual not through any doing of my client but through a view which was advanced and held previously by representatives for other parties here and one I understood you yourself shared, which is that consent was required. And if one looks at the very wide terms of section 118 and section 11(a) then there is no doubt that what my client is testifying on are matters which fall within the ambit of that section. He does not have the minister's consent to say anything that is not in his statement. My learned friend says but the point was held back. Well he must not imagine that merely because Dr Young's legal team is from the Cape that we are engaged with nothing else than Dr Young's affairs. We do have certain other work to keep us busy, and we spent to very full days attempting to assist Dr Young to settle his statement. Thereafter I have been engaged in other matters. We were waiting to see whether the minister would give his consent until the weekend, in fact until Sunday I was not instructed that Dr Young would be coming here and that my presence would be required. I myself was in court yesterday and I would have thought my learned friend, Mr Kuper, knew enough of me by now not to accuse me of holding back points or nursing them secretly in order to obstruct the hearing. He has worked with me often enough to know that that is not the truth. Mr Protector, I appreciate that it may delay the hearing, but I do not see on what basis anybody here can say that my client has ministerial consent to give any evidence which is not in his statement. My learned friend for the minister for defence, if that is the position, could presumably readily procure a consent from the minister which sufficiently protected my client. It is not the case that my client does not wish to give evidence or is frightened of giving evidence. On the contrary, he was here on the last occasion willing to give evidence and keen to give evidence, and his agreement to go along with the proposal was in the face of threats or veiled threats that he would be contravening the law by giving evidence without statutory consent. So my client is not unwilling to give the evidence, but this is the position which he faces this morning and his threat it seems to me and his risk of prosecution in answering questions today is as real in regard to matters not currently in his statement as it was two weeks ago. And presumably if the minister is to apply his mind as to whether he can in the public interest permit disclosure of the matters which will be touched upon in cross examination he would need to apply his mind to the content of it. It is not something that he could give as a blanket consent. And so it seems to me that sauce for the goose is sauce for the gander and that the questions should be put in writing.

CHAIRMAN: Are you aware, Mr Rogers, that yesterday this question of fear by you client was raised yesterday?

MR ROGERS: No, I wasn't here yesterday.

CHAIRMAN: But have you been informed by your instructing attorney that it was raised?

MR ROGERS: I am not aware that it was, no.

CHAIRMAN: Well it was, and maybe you better consult with both your client and your attorney in that regard because it was discussed here and subsequently discussed between the parties and all possible assurances were given to him in terms of him not possibly going to be prosecuted in terms of the Defence Act. And in fact even my office conveyed sentiments to the same in writing to your client's attorney, Mr Bateman. And so this matter has been canvassed not only yesterday, it was canvassed even before. And if you may well be aware, the initial consent that was given was only in terms of section 118. That is when reference to the Armscor legislation was made and that there was therefore an amendment and that this matter was further canvassed yesterday and it was laid to rest. Otherwise your client represented by your instructing attorney had indicated that he was not going to testify unless that matter was laid to rest, and now you raise it again today.

MR ROGERS: Yes, I think the question of getting consent under section 11(a) in addition to 118, that is a different matter. That consent has been given. But it has been given only in relation to the statement. I was informed that there would be no cross examination yesterday but a few clarificatory matters along the way had been raised by you. Presumably my client felt at that stage, I am not sure whether he was advised differently by my attorney, but he felt at that stage that he could answer the question without jeopardising himself. But we are now going into a different field. With very great deference to your office, Mr Protector, it appears to me that you are not in a position to give my client the indemnity he requires.

CHAIRMAN: Well your client through his lawyer yesterday requested cross examination to be defecting today. Are you aware of that?

MR ROGERS: Yes.

CHAIRMAN: So what was defected today, according to you?

MR ROGERS: Cross examination.

CHAIRMAN: So?

MR ROGERS: So now ... (intervenes)

CHAIRMAN: There was no objection to that. It was merely, the application was for it to be defect. Now are you saying it must not go on today?

MR ROGERS: I have raised the concern that if the witness answers the questions he will be exposed to precisely the risk that it was threatened last time he will be exposed to.

CHAIRMAN: What was defect today? Mr Rogers, I ask you again, what was defect today?

MR ROGERS: Yes, examination by other parties.

CHAIRMAN: Are you saying now today he musn't go on?

MR ROGERS: M'Lord, in the absence of a proper consent, yes.

CHAIRMAN: And what is a proper consent in your view?

MR ROGERS: Well it is for the minister of defence to decide what information he needs in order to give the consent. He is willing to give the consent in general terms that any cross examination arising out of the statement or any cross examination that you may permit he consents to, that will be sufficient. If he says I must apply my mind to the content of what is going to be disclosed then it would appear to me to require the written procedure that I have suggested.

CHAIRMAN: With respect to you, Mr Rogers, you are not representing the minister of defence and the minister of defence is ably represented here and the consent is present here in writing, and the representative of the minister of defence is not saying I can't carry on because the consent is not sufficient. How then do you purport to say the minister of defence must apply his mind and so on and so forth when I would expect his counsel to put forward what the minister of defence need to say or whether he needs to give further consent about any other matter.

MR ROGERS: What the minister of defence has put forward is this document, and I have explained what it relates to. It is a consent to the content of the statement. One thing I didn't hear my learned friend for the minister say is that he, Mr Kuper, has the minister's authority to consent to anything further being disclosed. If my learned friend confirms to you that he in fact has authority of the minister to permit cross examination at the answering of questions on any additional matters I would accept his assurance, as I would presume he would accept my assurance on any similar matter.

RULING

CHAIRMAN: Yes. Well my ruling in this matter is as follows. We are here about a complaint which has been raised by Dr Young at several forums, no less the auditor-general, no less my office and no less with the DoD itself in terms of his having been unfairly treated according to his evidence even mentioned in aide memoir in the sense that whereas according to his evidence a legitimate expectation had been created that he would be entitled or that he would be the preferred bidder and that therefore he would win the contract with regard to the system that he has testified, he at the end of that was not preferred. So what we are here about is really to hear that complaint and ultimately of course to determine whether his evidence justifies what he says was unfair treatment or prejudice. Quite clearly therefore what he says needs to be tested like any other evidence that would be given as he has.

Maybe I should also just for clarity sake refer to the consent which was given to the minister, and that consent says, and I quote:

"Authorises him to disclose to the public protector the contents of the statement or aide memoir dated 17 August 2001 to the extent and in the manner that he is directed to do by the public protector."

And I daresay those words indirectly must have been taken or put there with reference to the Public Protector Act 23 of 1994 and with specific reference to section 7(b)(i) which says, and I quote:

"The format and the procedure to be followed in conducting any investigation shall be determined by the public protector with due regard to the circumstances of each case."

And that permission for any counsel that seeks to ask questions of the witness, Dr Young, in these proceedings would be given in terms of subsection 9 of the same act which says, subsection 9(b)(ii), and I quote:

"Such person or his or her legal representative shall be entitled through the public protector to question other witnesses determined by the public protector who have appeared before the public protector in terms of this section."

Now in terms of that particular subsection I have asked counsel now to ask questions, and in terms of subsection (b) which I have referred to I have determined that those questions and answers are going to be given orally, and I do not think that such directives by me are contrary to this consent and I think the consent is quite clear.

And so I accordingly rule that as empowered by the Public Protector Act questions may be legitimately put to Dr Young orally and be responded thereto.

Quite obviously that ruling doesn't open the whole of the defence department to any sort of question. It would be qualified by us here in terms of it being relevant to what we are dealing with, in other words whether Dr Young was prejudiced when he made his bid and didn't succeed with regard to the defence packages. Clearly it must be limited to that particular issue. Of course as directed by his aide memoir, if any question is put which has no relevance Dr Young's counsel is quite clearly entitled to object to that if it has no relevance to the matter that we are dealing with here. And as far as we are concerned the consent clearly, even in terms of the qualification which is contained in paragraph 2 thereof allows anything that is relevant to be asked and nothing, for instance that Dr Young said before this consent was given or after this hearing has been qualified.

So to that extent therefore I rule that questions may be put that may emanate from the evidence or the aide memoir which was read into the record by Dr Young.

MR ROGERS: As you please.

CHAIRMAN: Yes, that is the ruling. Mr Kuper, you may proceed.

MR KUPER: Thank you.

DR R YOUNG s.u.o.

CROSS EXAMINATION BY MR KUPER: Dr Young, I just want to share an observation with you and see if you agree with it. I understand that there must have been about 50 bidders on all levels, successful and unsuccessful for the Corvette, aspects of the Corvette contract. Would you agree? --- I am only really familiar with the combat suite(?) part of it and I know there were probably about between ten of 15. That is the part of which I am familiar.

You wouldn't quibble with the figure of 50 in respect of the Corvette itself? It is not of great importance, I promise you. I just want to make ... (intervenes) --- Ja, it is relevant to me.

And you wouldn't quibble with the observation that in respect of the arms package as a whole there must have been literally hundreds of bidders whether successful or unsuccessful? --- I don't think this is relevant in my case.

Doctor, we are going to get on a lot better and a lot quicker if you just answer the question unless either your counsel objects or the protector intervenes. But the one attribute you don't have is to decide what is relevant and what is not. Can I put the question again to you and invite you to answer it, if you wish to participate in the process? The question to you is, there must have been hundreds of bidders both successful and unsuccessful in regard to the arms procurement package as a whole? --- Must have been.

Would you be surprised to know that the whole process, leaving aside yourself and your company, the whole process has resulted in no litigation at all? Does that surprise you? --- Yes.

It does surprise you? Does it surprise you that leaving aside yourself and your company there has been no suggestion by any contractor, successful or unsuccessful, that there was unfairness or defects in the process which prevented it from being fair or proper? --- I don't think that is true. I quoted the example of Mark Gere of Switzerland. I know that they complained about the process

To the department? --- Yes.

Well I will go into that and if you are right then we will have two people who complained out of hundreds instead of one. But that is the extent to which you can help us on this? My point, the observation I want to make is that the uniqueness of your position and your grievance is odd in the face of the apparent acceptance of everyone else that a commercial procurement package went the way it did. Now your involvement, the involvement of your company, as I understand it is somewhat less than 1% of the cost of the Corvette. Is that right? --- Probably.

It is probably closer to half a percent than a percent. So that if there was a conspiracy between the vast array of people who you have mentioned in your statement it was ganging up to a very small contract within the scheme of things, was it not? --- That is not entirely the case, because information management system is the backbone of the whole combat suite and it is well-known in systems engineering or systems contracting that the entity (in inverted commas) owns the backbone, owns the whole combat suite architecture and in fact can therefore, can direct the future of that whole combat suite for the life of the vessel, the combat suite.

You say then, if I understand you correctly, that perhaps a motivation might have been not the cost but the repercussions of who was in control of the architecture of the combat suite? Is that what you are saying? --- From a business point of view, not necessarily from a technical point of view.

Oh, I see. All right. But you do have a grievance. It may be a small contract, may be a you say, got repercussions with regard to the Corvette, but you have grievances, or rather your company has grievances. So let me ask you then, are you the sole shareholder in C²I² or are there other shareholders? --- I am not the only shareholder.

There are others? --- Hmm.

Are the others family, connected to you in some way through trust and the like or are they ... (intervenes) --- They are employees.

They are employees? And what is your percentage holding in C²I²? --- 90%.

90%, and are you the sole director or are there others? --- There are others.

Others as well? Now the claims which you say you have are surely measurable in money, are they not? You say you have been done out of your rightful contract. I just want to know from you, how much money do you think C²I² has therefore lost? What is the amount of any claim that you would bring? --- We haven't quantified that exactly, but you look at it ... (intervenes)

A rough guess is good enough. --- It is a factor of a number of times, the original prices at least, for at least IMS, but I am talking about the SMS here as well. So we are talking about a factor of that.

A rough guess would be good enough. --- I don't think I am in a position to do that right now.

You mean to say that having very actively pursued a belief that your company has been done wrong over the course of more than two years you have never got to the stage of actually being able to formulate the damages? --- No, because we decided that our first plan of action in terms of external relief would be an application for review for relief in terms of reinstatement. We decided that that would be the first thing. A possible damages claim could happen thereafter, but that wasn't the option. So we've never, we've been actually entirely concentrating for the last couple of months on the preparation of this evidence as well as possible rule 55 application.

Doctor, I am ... (intervenes)

CHAIRMAN: Sorry. In terms of your bid how much was it worth? --- Well in those, for the IMS we quoted R38 million excluding VAT, but that was, if you escalated that now it would probably come to about 50 or so. But that was only for certain amounts of equipment for the IMS itself. But all the other companies would have had to buy their sections that go, of the IMS that go into their equipment. So that amount is not indicative of the potential loss. It is much greater than that.

All right, I will accept that, yes.

MR KUPER: But not a loss, but you have quantified it? --- It is something that I have thought about, but it is something that I have not quantified yet.

I must tell you, doctor, for a number of reasons I am going to be asking you about the sincerity with which you actually pursue a claim in litigation, and one of the oddities I would suggest to you, hugely odd that if you believe your company has suffered damages in the kinds of amounts you have that you are unable to give enough a rough guestimate of that might be. But you say you can't and we can leave it at that. But you say, and I again I don't want to hold up on it, you say your first step was to review, to reinstate, to set aside the existing contracts and to reinstate you. But doctor, you must have known that that was the kind of window of opportunity that arose two years ago, not now? --- It is not quite true, because the final formal advice to us that we would be selected only happened on 6 October 2000.

Yes, I will deal with that. I will deal with your own legal situation and with the reasons you give for having delayed thus far. For the moment what you are say, is you have never had to go beyond the step thinking about litigation because you really thought the matter was going to be settled up to the year 2000. Is that right? --- Sorry, could you say that again? I didn't hear.

The reason that you have not taken the obvious recourse to a court of law where your claims might be properly tested, is not because you don't wish to but because you have been delayed by promises of settlement. Is that right? --- To a degree up until say the middle of last year, yes.

Up to the middle of last year? We will deal with that. --- Not with my financial settlement. I was talking about what I have in numerous, numerous correspondence talked about a win, win, win, situation. I wasn't talking about financial settlement. What I was talking about was the outcome of the discussions I had between Mr Swan and Admiral Howe about finding a mutual acceptable solution to all the stakeholders, which included ABC, Thompson, the Dod, etcetera and Armscor etcetera. I was not talking about a settlement in terms of liquidated damages type. Not like a ... (intervenes)

I want to suggest to you that you must well have known that once the contracts were signed there was no going back and your rights of recourse were either to review them at the time or to seek damages. You say not? --- No, this is the first litigation, legal situation I have ever been in my life and I did not precisely aware of, or I am aware of prescription in terms of, it is three years or whatever, but I don't know precisely. I think in fact I think the law itself is not precisely clear of when an application for review prescribes or otherwise.

Yes. Well let's just go back a little and look for a moment at what your position actually was as opposed to what you say now it might have been. You were represented by lawyers almost immediately, were you not? That is to say if we go back to May 199? --- No, I would say July 1999.

Sorry? --- I would say about July 1999 is the first time we consulted Errol Gee & Broadhead.

And that was for the very reason that you believed that you had a grievance of being displaced, or you would say, deselected out of the IMS contract, is that right? --- Hmm

Please don't nod. The record won't pick up a nod. --- Yes. Sorry, yes, yes.

Then cross examination will be made quicker if I can give you, doctor, a set of letters were written by you or on your behalf or to you, and to give them to the panel as well as my learned friends, in so far as we have enough copies. You will see, Dr Young, that there are numbers on the top of the pages. Those numbers don't run consecutively but they are useful. I want you to look for the letter of 13 August 1999. Just let me find it for you. --- Mr Kuper, are the dates running consecutively?

Yes, I think they probably are. Just let me get my bearings, Mr Protector. You will find against the - well let's not waste any time. Turn to page 63 if you would. Do you see that? --- Yes.

Now that is a letter by your attorneys to you giving your company and you legal advice, isn't that right? --- They were giving me the legal options, yes.

Yes, and the reason we have it and the reason that a number of other people have it is it was then sent by you as an annexure to a letter, is that right? --- That is right.

Now what the letter, the advice you had on 11 August 1999 was that in paragraph 2 you had according to your attorney what the legal fraternity terms legitimate expectations in regard to the appointment. That is as you still understand your position, is that right? --- That is right, ja.

Please don't nod. --- That is right. I said that is right.

And equally clearly as appears at page 64, as your attorney said to you, it also appears equally clear that your pending deselection has come about as a result of your system being too expensive for the project's budget. Do you see that? --- Yes.

And you see he goes on to say that he believes this has come about because ADS have manipulated or doubled the cost. Do you see that? --- That is right, ja.

And he says that when all those facts are taken into account there has been what he calls unlawful competition. Do you see that? --- That is correct.

And do you see in paragraph 3 he goes on to say that if that is happening and if the base line is changing then by a principle of administrative law you are also entitled to redress. Do you see that? --- That is correct, ja.

And then he says to you the likely procedure would be to institute an urgent application out of the high court calling for an interdict restraining the state from concluding the transaction, pending a review of the areas dealt with in the brief above. Correct? --- That is correct.

So what you knew and what you told the department of defence and what you told ADR in August 1999 is that if your position was not addressed, your grievances were not addressed you would be bringing an urgent application to the high court to review what had been done. --- That is not true.

Is that not true? --- That is not true. What I, all this letter does is that my attorney describes the various options and when I was requested during the discussion with Mr Hanofy who the covering letter was addressed to he asked me whether I could, he asked me whether I would forward this letter, which I did in good faith.

Really, doctor. Turn to page 61 and read into the record the last paragraph of your letter to Mr Hanofy. --- As requested?

Please. --- Yes.

"As requested we have not proceeded with legal recourse until now in order to give Armscor sufficient time to seek accommodation at ADS without resorting to such legal action. However, the agreed time period for such a positive response from ADS has now lapsed and we now have to proceed on this matter."

And the procedure according to the annexure that you sent him was this review to the high court? --- Yes, but thereafter we were approached by Mr, well first Mr Hanofy on Mr Swan's behalf, to withdraw our legal action, which we did in good faith. This was prior to that.

I know that in September you talk of a meeting, and we can deal with that. At the moment what I want to say to you is whether you agree that in August you had legal advice and you had made threats which encompasses all the subject matter of your present complaint in regard to the IMS and the ground and bases. Is that right? --- Yes.

And that from that time until now it has remained unresolved and you have not proceeded in a court of law? --- That is right.

All right. But you are still going to do so? --- Can I have, I want to consult with my counsel.

CHAIRMAN: You would like to talk to your lawyer? Yes. You have no objection to that? Yes.

MR ROGERS: May I just step outside for one minute?

CHAIRMAN: Yes.

MECHANICAL BREAK

CHAIRMAN: You may proceed, Mr Kuper.

MR KUPER: Thank you. There came a point in time in which I think you would have said it was no longer possible because of the granting of the contracts and the proceeding with the works to further alter or change the base lines or any of the configurations of the contract. Is that right? Does there come a time when the Corvette just has to be built and has to be equipped in accordance with what has been contractually arranged and there cannot be any major rearrangements without huge potential delay and huge potential cost? --- Obviously at some time that is true.

When did that happen here? --- Well I would say technically it is not too late to change now.

Oh, I see. So you have from August 1999 until now as we stand or sit here today, maintained the belief that the position is always retrievable? --- To a certain point of time, yes.

No, it is retrievable surely if you say when I ask you what point of time, you say it is not even irretrievable now. It means that if the Armscor authorities were to say we wish to return to the situation in which you were bidding for the IMS and the configuration was as you had suggested it, we can do that today. Is that what you say? --- It is technically ... (intervenes)

MR ROGERS: Mr Chairman, can I intervene at this stage? It is clear that what my learned friend for the minister of defence is trying to do, is to explore matters which may be relevant in a review application as to whether my client has delayed and whether for that reason even his complaints were well founded, a review should not be granted. That with respect is not relevant to your inquiry. You are not faced with the question of setting aside anything. There are no review proceedings which you are faced and I submit that this line of examination should not be permitted because it is clearly based on gaining some tactical advantage in future civil proceedings, My client perfectly accepts that on the merits of the matter his complaints concerning the acquisition process, those is relevant to your inquiry and they may also be relevant in subsequent proceedings. Obviously that is proper matter for examination. But matter relevant asking my client to express opinions as to when the delay becomes too late to retrieve and what advice he might have, legal advice he might have received from time to time, I submit it would be unfair for that to be the subject of cross examination.

CHAIRMAN: Yes. Mr Kuper, I would margin your question to the extent that you put it whether the situation is retrievable as of today was fair put to the point, but I think if you pursue it any further, because he says, whether reasonably or unreasonably, as far as he is concerned it is retrievable. So that is a matter that will be tested at another point.

MR KUPER: Yes. I entirely accept that. Now the real reason, if anybody had asked for why I was asking these question is really to just test your bona fides and those of the company in regard to a genuine pursuit of a legal grievance. Let me ask you this, if you will go to the bundle I have just given you at page 21, top of the bundle, you will see a letter which you wrote to the secretary of defence on 15 February last year. Do you have it? --- Yes.

Turn to the second page and you will see in about the middle of the page:

"We were also rather disconcerted to note the press article in the City Press published the weekend before last on the matter of the Corvette acquisition. We are even more disconcerted to have received some phone calls from people in Armscor that amount to a veiled accusation that we were party to the information being provided to the press. Nothing could be further from the truth."

Then you go on to say this:

"Our position is that press exposure of this kind would jeopardies finding the win, win, win, situation that we have been striving for for so long. Therefore taking our story to the press would be self defeating, certainly at this delicate stage. We consider such action as a measure of last resort. Second last resort would be an action of a legal nature, something we dearly wish to avoid but will do if absolutely necessary."

Now can I ask you, doctor, whether your attitude to taking the story to the press changed at any time since the writing of this letter? --- Yes, this is a long time ago and the undertakings that were made by Messrs Swan & Howe have never been followed through. So at the end of the day the last resort in democracy is to take it to the press.

So it is correct, would it not be say of you that you have deliberately sought media exposure as extensive as you could find to put your grievances in the hope that you would then be taking the second last measure designed to get some form of value? --- That is not entirely true. I had been approached by hundreds and hundreds of people in the press and I can tell you probably 80 to 90% of the approaches I have rejected.

I want you to tell us the approaches that you have accepted. I want to hear from you the extent of the disclosure of information regarding this by you to the press. Would you like to name them?

MR ROGERS: Mr Chairman, again it seems to me it is irrelevant if my client chooses to voice his grievances through the press. They are certainly entitled to ask him questions and to report on it. Whatever views my learned friend would have on that particular approach it with respect can't advance your inquiry.

CHAIRMAN: Well in this particular case I think testing bona fides of the witness is appropriate, but again with limitation. Mr Kuper, you pay proceed.

MR KUPER: Thank you, sir. And I would say to you, doctor, you know perfectly well now, if you didn't know it before, that there are statutory prohibitions which deal with the question of disclosures and there is question of authorities and if you feel that your answers might expose you in any way to any form of prosecution you are fully entitled to refuse to answer these questions. But the question I am asking you is, would you list for us the media, both visual and print, to which you have taken your story in regard to your grievances? --- Okay, I haven't taken my story to anybody. They have come to me, okay, and I have not disclosed any classified information.

Well then you will have to hesitation in telling me the names of the media whose approaches you were gracious enough to accept? --- Obviously e-TV and the independent group of newspapers, Business Day, Mail & Guardian. That is what I can think of mainly.

News Week? --- ... (inaudible)

Carte Blanche? --- Ja, Carte Blanche ... (inaudible)

No, I don't blame you for the fact that you can't remember them all. The collective memory of us sitting here can't remember them all, doctor. But it would be fair to say that rather than go to the court, which was the second last recourse you have launched an active, wide spread, intensive media campaign to disseminate your grievances? --- That is not true.

Very well. --- I have responded when I had been approached. I have not actively launched this campaign as you put it.

And as the protector's investigation and as SCOPA got under way you were able to utilise those unexpected platforms to put your grievance but to dress it up as accusations of malfeasance in the process. Is that right? --- Not at all. As I said in my aide memoir I was approached by the special investigating unit.

Before or after your press campaign. --- Long before, okay.

Was that because you had made presentations concerning your so-called deselection? --- To whom?

I don't know to whom you had various published your complaints. --- I think the thing I am seeing there was a presentation made to the department of defence on 17 June 1999.

All right. --- Would you like me to give you a list of the people who I've made that presentation to?

I would if you would be so kind. --- People I can remember, okay, that is the department of defence, the secretary of defence and Sue Racker(?), we didn't make actually give over the presentation but we gave them a copy, the chairperson of the parliamentary select committee on defence, the public protector's investigators and the auditor-general's investigators.

Yes. So again, I won't press it after this, I promise you, we have recourse to all channels and platforms, informal and formal, legal and commercial other than the law courts. Is that right? --- That is true, and I can tell you the reason why, is because all my legal counsel said that legal recourse is your last option, should be your last option.

I don't really expect that they had in mind what you have followed, but if they do then ... (inaudible). --- May I make an observation on that?

No, ... (inaudible). The basis on which you have put up the aide memoir contains wide ranging accusations, innuendos and the like. Have you satisfied yourself that these really are the way you want to express your attack, that this is so far as you are concerned balanced and proper and that you have not gone beyond what you are reasonably entitled to do? --- Okay. The use of the word "attack" is not appropriate in this context. As I've said earlier, I made a complaint to the special investigating unit after they approached me. They passed this, my complaint, onto the auditor-general who then passed it into public protector, who invited me and then issued me a notice to appear today. So to construe my appearance and my aide memoir as an attack is entirely inappropriate.

No, doctor, please. The content of the aide memoir is yours and yours alone. Nobody dictated to you what you should say or how you should say it or who you should think right to attack. I am asking you whether in the content of the aide memoir as you drew it up and as you have now read it out in a public forum over the better part of Tuesday, you are satisfied that you are reasonable and bona fide in everything you have written and said? --- I certainly hope so, because we've, I have very carefully tried to referenced facts which can be backed up in terms of documents, mostly not my own documents. Where I am not expressing a fact but rather an opinion I have been very careful to do so. And furthermore, this aide memoir has been very, very carefully reviewed by myself and my legal team and we are aware of the documents and the circumstances surrounding this matter and we've been exceedingly careful within the not so great time span to try to stick to the facts and only when necessary for me to express an opinion.

So the answer is yes? --- Yes.

Then will you help me in regard to an aspect of this? It may just be a trivial point but I want to get it out of the way. In paragraph 5 of your aide memoir you ... (inaudible) to refer in you evidence, that when in your evidence:

"I refer to any classified document I do not intend to submit it as an exhibit at all or to refer to its content beyond what is actually quoted in my evidence. However, I do have the documents in question in my possession."

Now when you came to read out the statement you amended that, you may not have intended to or you may have. You said: "I have some of the documents in my possession." Was that deliberate? --- Yes.

Does that mean that some of these documents which you have quoted from you don't have in your possession? --- I don't have them any more, no.

I am sorry? --- I don't have them any more.

When did you dispossess yourself of them? --- Some of the documents are, were in digital format, not paper format and they have been deleted.

Well let me ... (inaudible) classified documents, and again bona fides and the law has its own confinement. Did you come into possession of these classified documents in all cases lawfully, in the sense that the appropriate authority gave them to you?

MR ROGERS: Mr Protector, I am not sure that my client should be obliged to answer that question. In its form it is designed apparently to elicit some sort of admission that he did something unlawfully. No inference can be drawn as to his right to silence, but I would advise him, and my submission is that he should not be obliged to answer that question.

CHAIRMAN: Yes, it is, it could expose him to prosecution and he is not obliged to answer that.

MR KUPER: Let me then ask you this question before I leave the topic and of course give your advocate time to object. Seriously, is there such a thing as a classified document which is distributed in digital form and which is unsigned? --- Unsigned? Oh yes. Remember these days of modern technology you can have a document which is converted into image form, so still ... (inaudible)

Your answer is yes? --- Yes.

Very well. I wanted to ask you, but before the objection was taken and so let me be careful about it. I wanted to ask you in regard to paragraph 177. I am sorry, the wrong reference. Paragraph 209.

CHAIRMAN: What number?

MR KUPER: 209. You said:

"In April 2001 it came to my attention through a document that I obtained ..."

Now the question I want to ask you is how did you obtain this document? Which again, wait to see if there is going to be an objection.

MR ROGERS: Mr Protector, I think, I actually don't know what the answer to the question is, but I think just in its format, the fact that my learned friend is obviously concerned that the answer may be incriminating, perhaps I should raise the same objection.

MR KUPER: Mr Protector, let me make it clear that if my learned friend takes the objection, I won't seek to get you to overrule it.

CHAIRMAN: Yes.

MR KUPER: Let me then go onto another topic since this one is not going to be properly debated at this forum between us. Let me ask you about a ... (inaudible) statement that you made. Paragraph 177, and let's read that through in the light of the importance of what you say will have to the protector:

"I have subsequently been informed by very senior members of management of VAP Defence Systems in proving a managing director of one the companies in ... (inaudible) that the reason for their withdrawal from their ... (inaudible) was that there was intervention from very high levels of the South African government who advised me to withdraw or that British Aerospace would jeopardise their chances of winning the lead-in fighter trainer, LIFT, and advanced light fighter aircraft, ALFA, contract with BAD's ... (inaudible) fighter aircraft, the SAFF."

Now in order to follow this up, doctor, what I would like you to tell the protector is the names of the persons and particularly the managing director so that we or the protector can approach him to make these further inquiries. --- Mr Protector, am I obliged to answer this question?

CHAIRMAN: Yes. Well it depends on how you complicated those persons. I mean was it confidential or what was the position? --- Well it wasn't said a priori that the following five minutes of conversation is confidential, but they could construe it as being confidential. Or I could put it this way, there are three which we think come to light and I would say one of them said between you and me this doesn't mean to say, you know, this is a classified piece of information he has given me.

Yes. Let me put it this way, Dr Young. A person here may say between you and me, using a colloquialism for saying it is confidential, in which case then you may state that. But the question is also here about your credibility. Where you say I was told by so and so and you say to these hearings I can't say who that is all the ... (intervenes) --- Put it this way, I would prefer not to answer that particular question in these public phase of the hearings because I have already given this information to the forensic investigators.

Yes. So because of the circumstances which are best known to you, but we were not here, you would rather not answer that? --- Yes, I say, you know, this is just the public part. I have given the same information to both the auditor-general forensic investigators and to the chief investigator of the director of serious economic offenses, special operations.

MR ROGERS: Perhaps, Mr Protector, I don't know exactly what my client's attitude is, but it may be that his view is that he would submit the information to you but not as part of the public process. I am not sure if that is what he is saying.

CHAIRMAN: He says it has already been submitted. He has been interviewed at another place. Mr Kuper?

MR KUPER: Yes. The problem, Mr Protector, is this, I have always understood the secret phases ... (inaudible) would not run currently and would not intrude in the public phase. But the difficulty is this, Dr Young deliberately makes the allegation. So the sting and the stigma is made, released to the press, sent out to the media. We try now to test his bona fides so we can take up inquiries, and the answer is no, a stigma can be public but the name of the person to whom this attributed will be secret. I have told someone to whom you don't have access.

CHAIRMAN: Yes. Mr Kuper, I am not overruling the question, but the response is the witnesses. --- I would like to stick, I would like to stay with that.

Your response is? --- Is that I have given the names of these people to both the auditor-general's investigators and to the directorate of special investigation's investigators and as far as my understanding, and one the bases on which I came to these hearings was that certain preliminary evidence would be put here which would then be passed to the other phases for following up. So don't need to see why I should compromise these people in a public phase.

MR KUPER: Dr Young, the public besmirching of the government and its senior leaders is appropriate in your judgment in public. The beginnings of the justification by telling us the source, is not. If that is how you see it we will accept it and we will go on. Is that how you see it? --- Yes.

Now let me go to this question of legitimate expectation, and I am not going to band the legal concepts with you, I am just going to try and understand the content of the grievance. It seems that what you are saying is that because of the history of the matter between, say 1993 and onwards, and because of the risks and the sacrifices that local industry had to make, and because of the record of devoted attempts to provide and retain defence technical resources in local industry, that this was important to justify why local industry should, if the Corvette contract ever came into reality, get its reward. Is that a fair statement of your philosophy in this regard? --- That is the domain of technology retention, but what we were asked to do was much further than that. We were asked to invest our own funds and to take up a lot of time which could have been devoted to building up our businesses, our careers and many other things.

Yes, and that is why, that is why you add another dimension to it, and that is why you believe and your attorney seems to believe that it was there for what the law calls a legitimate expectation? --- That is not the only part. That was just the beginning part. That was the ... (intervenes)

What lese? --- Okay, then when the formal acquisition process started with the request for information, request for offer, the South African Corvette combat suite was nominated and we were included in that.

You were, as I understand it indeed, a candidate supplier. --- No, we were a candidate supplier. That term only came about for the first time in the user requirement specification which was December 1998.

What does it mean? --- The candidate supplier?

Yes. --- It was a supersession of the term nominated subcontractor.

What did it mean? What did candidate supplier mean? --- When it is only one candidate it means the preferred supplier.

What does candidate supplier means? --- Precisely what the English dictionary says. I am telling you in that context ... (intervenes)

What does that mean, doctor? Don't spar with me. What does it mean? What does candidate supplier mean? --- Candidate supplier means that that supplier is, okay, put it this way, if it is a set of suppliers they are all candidates. If there is only one candidate then the limiting position is that that candidate supplier is the same as the nominated supplier.

Doctor, I will ask you once more. I certainly don't want to waste time of the protector. What does the phrase candidate supplier mean? --- Well no more than the word candidate supplier.

Very well, it means what it means. So what it means is not a confirmation that you have been awarded or have a legal right to an award of the contract, does it? --- That was the term expressed in the user requirement specification, and as I said, there they changed the term which had previously been used from a nominated subcontractor to candidate supplier. But that was also, that was not the end of the road. Thereafter the navy with the department of defence issued requests for best and final offer, and thereby they issued a set of these final, the candidate suppliers had only become one in each instance and there we were specified ... (intervenes)

And they were all candidates. --- We were specified and our price was published, and in my reading, my interpretation that once you specify only one and you specify the detail of their product and their price then that implies a selection. In fact that document refers to us as the contractor, not the candidate supplier.

CHAIRMAN: Yes, but maybe if we can just stay with that. You are saying that they did put in this request for best and final offer? That happened, isn't it? --- Yes.

And didn't that have the effect then of ranking you together with these potential offers for ... (intervenes) --- You mean other competitive offers?

Yes. --- No, there were no other offerers. We were the only one. There was only one, our product and our price published not in the open but in the open project domain, not the public domain, the open project domain.

Yes, but that, you were in a special relationship, doctor, I mean you and your company because you were virtually involved in the development of the project much earlier on and then at a certain stage your relationship changes, you become a bidder. Do you understand what I mean? In other words you are not just an outsider who was offered specifications and you prepared your bit in terms of those specifications. You are aware of the product that was needed by the defence force. Is that a correct statement? --- I am not exactly sure what you mean. Would you try and ask me ... (intervenes)

You say you invested in the system, in other words IMS, you were developing it over the years. Why were you developing it? --- It was a specific, the specific reason that, I mean from way back in the sixties the navy had been trying to buy a new surface combatant. So we thought there was a very good chance that this project was going to come to fruition. We were asked on a risk basis, but a limited risk, to invest in the various products and that once the frigate or Corvette project was finally approved then our positions in that contracting model was secured. That was our, the basis on which we invested our time and our money in that product.

When you were saying they were secure, are you saying then DoD would not seek other possible competitors to compare to the product that you had? Are you saying that was the position that virtually you were going to get the contract? --- Yes. Yes, at that stage, yes.

Well was that stated specifically to you or was it just your impression? --- No, it was in the documents which I have, which I have referred to. It is fairly explicit. You know in contracting there is a particular meaning to the word "nominated subcontractor", and in terms of the element "costing and description" which I have referred to a number a times this, the set of South African subsystem developers are the only ones that are nominated. There is no options. The combat suite was specified and base lined and in those subsystems from those candidate suppliers in that particular document are the only ones that are referred to.

Are you familiar with the tendering process generally in government? --- Not very, very familiar, but this was no normal tendering process.

Yes. No, I am trying to, yes, I am not putting this as a trick to you, doctor, but you get a situation where a department may recommend, you know, given a number of tenderers or bidders, may recommend a specific one before a final decision is taken and that therefore has the status of not selecting but of recommending that we think this product is good, but when the final decision is made that recommendation is a recommendation and nothing less. I am talking generally now. If you told me you are not familiar with that you are not, you may not ... (intervenes) --- I am more familiar with the tendering acquisition process related around this Corvette combat suite.

I see, and you were under the impression that you had been virtually selected from the documentation that you referred? --- Very definitely and once our price was published I considered the, and we used, the term used for us was "contractor" I thought that was absolutely secure.

Yes.

MR KUPER: You thought, doctor, that your position was secure, not by reference to document that were sent to you for the purpose of your contracting, but you thought your position was secure because of the interpretation you placed on documents sent for example for to ... (inaudible)? --- No, the document I am specifically referring to is the request best and final offer which was sent by ADS. That included as an appendix a request in best and final offer sent to Messrs GFC ADS (Pty), but it was sent to us. We, that was just passed on.

Just beat with me, doctor. Don't be too quick to argue what the point may be. Did you ever receive the notification to the German frigate consortium and to others sent out on 21 May 1999 in respect of the Bafo(?) request and dealing with the question of alternative office? --- Yes, that ... (intervenes)

Was that passed on to you as well? --- Is that signed by the chief executive officer of Armscor?

It is signed by Captain Kellerman, as he then was, the project officer. --- I am not hundred percent sure.

Well let me read it to you.

"Best and final offer request (and it gives the notation dated 6 May as reference. This is 15 days after that.)

2. You are reminded of an important principle regarding alternative offers as discussed on 11 May 1999 and indeed on several occasions since February 1999.

3. As in any normal tender process even at this late stage you are free to submit alternative offers if in your judgment such alternatives could fulfil the requirements in a cost effective way and with due regard to other considerations like time scales and industrial participation.

4. However, such alternative offer should not be submitted in place of a compliance offer but in addition to a compliance offer. First and foremost you are required to submit an offer compliant to the requirements. Alternative offers must be distinctly separate offers additional to the compliance offer.

5. Furthermore, before an alternative offer can be considered the alternatives must be properly motivated and must be described and priced to a sufficient level to enable easy and direct comparison to compliant items."

Are you aware of this document? --- No. I am aware of something very similar sent by the CEO of Armscor where it is specifically stated that the alternative offers should not compromise the local content.

The notion of alternative offers then is well known to you? You try and retrieve your particular situation in this case by saying that although in fact it was known to you, you think there was a twist in the tail which that even the alternative offers should be locally biased? --- Not locally biased. That was the prescription from the beginning. What the CEO of Armscor, who is actually ultimately responsible for acquisition in terms of the Armscor Act, he then said there could be alternative offers but they would, in fact I would like to read, see the letter, but that was specifically saying do not compromise the local contents of the local technology.

And that is in terms of the prescribed percentages, is it not? --- No.

Not? --- Not as far as I know. I would like to see the letter from Armscor, Armscor about March. But nevertheless ... (intervenes)

Can I read it to you? 8 March 1999 from Mr Swan, the chief executive officer of Armscor. This is sent to the German frigate consortium, and as you say, things apparently went on to you.

"Corvette combat suite: Presentations by the Corvette combat suite industry given to the Corvette project team under the auspices of GFC22/24 February and subsequent discussion refer.

I wish to reaffirm and amplify the project team's instructions to you as follows:

GFC: As the preferred prime contractor must present a base line offer to the project team on 15 March 1999 that satisfies the S A Navy combat suite requirement specification. This must be costed in accordance with the costing template provided. In addition to the above CFC is requested to present alternative strategies to best meet the user requirement at the lowest price, eg alternative contracting model or models which achieve the most cost effective solution. Alternative sources of supply, both at the combat suite integration level as well as the subsystem level. With due consideration, however, of maximising the levels of direct participation by local industry. The technical and financial base line for the Corvette combat suite is to be finalised as soon as possible but not later than 12 April."

Is that the letter to which you referred? --- That is right, ja. That is correct.

So the notion of the alternative was well known to you. It was to be read in the context that you were and others were candidate suppliers. Correct? Is that right? --- At that stage, yes, March.

Ja. I want to leave this aspect of the debate for the moment to ask you something else. If there was in fact this legitimate expectation which amounted to the unqualified commitment to grant loyal local industry contracts when the opportunity came, if there was, I take it you weren't the only person, the only company who fell into that favoured category? --- That is correct. I have said it in my evidence.

I am just asking you to answer my question. --- Yes, I said yes.

There were a number of others? --- Yes.

Each of them had a binding commitment to receive the contract in respect of which it became the only candidate supplier? --- I am not going to speak for them. I am talking about myself.

As you understand it their rights were as strong as yours were? --- If they had demonstrated the same level of advanced development and the same level of low risk, yes.

Aren't all the people who were named as candidate suppliers in the charmed or favoured group? --- No.

The legitimate expectation didn't regard to all those in industry who had battled on, who had sought to keep the technology alive, who had invested their funds and to now that the opportunity was to approach, were entitled to say I want the contract? --- No, that is not true, because we had all developed and participated in this program, as I described, but, and we also provided these price and risk assessments on a yearly basis, okay. If at the final death, and I know that was one of the situations that happened, and I know that then Captain Connor was annoyed at the stage, some of the other subcontractors, when they finally got the request for quotation they added on huge increases to their prices, partly for risk and otherwise. So if you, the whole combat suite, we are talking about the ceiling price had been, and we've been told as I've said about this 1,47 billion, if suddenly you had quoted R300 million for something, or quoted, indicated that price in the yearly price orders, and suddenly when you actually quoted, you quoted 500 000 million then you basically you lost that exclusitivity(?).

You threw away your legitimate expectation? --- Yes, to a certain extent, yes. Or ... (intervenes)

You did or you didn't. --- Yes, you did. If it was beyond reasonableness, absolutely.

So if the prices when quoted, or the prices when adjusted for risk appear to go above original ceilings, agreed at best in principle in these audits of which you speak, then the legitimate expectation disappeared and the contractor could be thrown into the, or the intentional contractor could be thrown into the cold? --- Yes. Could be thrown into the?

Cold. Could be thrown out, could be deprived of the contract. --- Ja, if they didn't meet their pricing or if they had reported at a continuous basis that the risks were manageable or non existent and then suddenly there was a risk audit and suddenly it actually became obvious that the risks were very high, of course then you know, then effectively you were in good faith. And if you had met all those things, my position on the matter is yes.

Because we do know, oddly enough, that you competed to get contracts and was successful in getting contracts which according to you should have been reserved for another candidate supplier. --- Are you talking about ADS? You are talking about SMS and that ... (intervenes)

Don't you know about it? --- I am asking you. You must be specific here. You are talking about ... (intervenes)

You did it on more than one occasion, didn't you? --- I am asking you, are you talking about the SMS and ... (intervenes)

Please, please. Answer my questions. Don't try and spar with me to answer your questions. Did you on any occasion compete with any candidate supplier to get the contract which the candidate supplier had been legitimately expecting to get? --- In the case of MSM, which I have talked about in my aide memoir eventually, finally the GFC on behalf of the department of defence's joint project team issued us a request for quotation after the candidate supplier could not provide a price that was acceptable to the joint project team. The answer is yes.

And the IMS? --- IMS, there were no other candidate suppliers.

Sorry. Try the CMS, what did you do there? --- The CMS we didn't compete, try to compete with them.

Sorry, just let me hear your answer. --- I said we did not try to compete with ABS on the CMS. British Aerospace wanted to compete, not us.

Did you participate in any way with BAE in that ... (intervenes) --- Yes, I've said we did. I've said we did. We ... (intervenes)

Well why are you smiling again? --- I am not.

You did compete but through BAE. How is it an answer to say BAE stood between me and ... (intervenes) --- No, we offered to supply IMS to BAE and the other thing that they wanted from us was to assist in the data integration of the commander(?) control segment.

What about the legitimate expectation of the supplier with whom you were competing? --- Part of the legitimate expectation, as I have said before, was if one was a South African supplier. That was the basis on which the South African companies were nominated.

I can't help feel, doctor, and again you know, we've got to get through this inquiry. The protector has asked for us to be quick and we will be, but I can't help feeling that you are making up rules as you go along. --- No, I am answering your questions.

You are answering my questions by making up rules as you go along. Concerning the legitimate expectation, the content of it as applied to other ... (intervenes) --- No, I am not making up rules. I said that in my aide memoir I said the only reason, and we've been told this by Armscor that we could be, I said there were a number of so-called rules that had been given to us a priori. One is that you took the risk in development. Two, that you are a South African naval technology company and three, that you hade made sufficient development progress by the time what they called the negotiation process started that there was only manageable and not undue technical risks.

It is time almost to ask the protector to adjourn. I just want to put a question, I just want to get an answer so that when I ask you some questions this afternoon I really will know how to deal with your evidence. It is possible, Dr Young, that you feel that the officials in Armscor and in the defence force who had to deal with the problems relating to your contract were misguided, were in error, but were gentlemen trying to do their job as best they could. Or you might believe that all of them were engaged in some form of conspiracy to prejudice and oppress you and take away opportunities to your company. Which is it? --- Okay, in the case of SMS I cannot see how when we are asked and we provide in good faith a competitive price and our price is lower than the other one that we are not chosen. And then maybe there were other reasons, but when you ask continually over a period of six months for the reasons of the, and that is ones constitutional right, and you just get completely ignored one cannot help feeling that there is something else.

Doctor, can I ask you please to assist me in putting questions to you this afternoon, because depending on your answer I will ask certain kinds of questions, pending on another answer I will ask other questions. Is it your taste(?) to the protector that the officers and officials in the defence force and in Armscor who had to deal with the matter of which you complain were trying to do their job as best they could, or do you say they were guilty of some form of deliberate conspiracy to injure your company and to injure you?

MR ROGERS: I think before the witness answers that questions, it appears from the answer he started to give before my learned friend started to barrage him, that the position might be different in certain parts my client's involvement. He was not only involved in one particular part of the acquisition and he started answering the question in relation to SMS and there might be other answers in relation to other aspects. So I think to compel the witness to answer such a broadly phrased question is unfair.

CHAIRMAN: Yes. Mr Kuper, I don't know, would you like to maybe rephrase and repeat your question, because it is a broad question indeed and the witness was involved in a number of other ... (intervenes)

MR KUPER: Yes, Mr Protector, we can take the question, we can throw it away. Let's ask him another. In regard to any part of the treatment which your company received, any part, do you take up the case that you were deliberately and maliciously discriminated against, in other words as I say that your company's rights were deliberately injured by any officials in Armscor or the defence force? --- I wouldn't go as far as to say maliciously. All I am saying, as in my aide memoir or as I've read out, that maybe it was an error. Whether the error was maliciously, the end result was the same in that we were compromised, or our rights were infringed.

CHAIRMAN: That would then be an appropriate moment. We will take the lunch adjournment until 14:00.

PROCEEDINGS ADJOURN

PROCEEDINGS RESUME

RICHARD YOUNG s.u.o.

CROSS-EXAMINATION BY MR KUPER: Thank you, Sir. Dr Young, will you turn to paragraph 263 of your statement, I am going to debate with you the question of risk and cost. Do you have it? --- Yes.

You say there:

"I believe that technically there was no risk, or very little risk, certainly none that 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 am not sure that I read what you say correctly, and therefore I want you to clarify. Are you saying that from the point of view of the government, or those who were tasked on behalf of the government to ensure the best and safest and less riskiest package, there should not have been in their minds any question of risk in regard to the IMS? Are you saying that? Are you saying that it should not have concerned them, because it did not exist? Is that what you are saying? --- Okay. One has to look at it in the context of alternatives. No system that is still being developed is absolutely without any risk whatsoever. And as the report, the evaluation report has indicated that the alternative system also had some residual risks, because they were still in development, what I am saying in relation to the IMS is that we were monitoring risk on an absolute daily basis. This is what I call the formal risk management regime. Remember, a lot of other sub systems were going to be relying on our technology, our system. You cannot anticipate every single one of their requirements a priori. So suddenly when they start to use it, they can so oh, but this doesn't quite meet our expectations and there is a risk. Within two or three weeks, or

whatever it is, you have either taught them how to use it properly, or you have modified the thing slightly, so that risk goes away.

But Doctor, I don't want to debate too much with you. I think we are more or less understanding each other. Could I say that when you say I believe technically there was no risk, that that is clearly an exaggeration, that you don't need to say that? --- Okay, no I said or very little risk.

No-no. No risk. Don't run to the alternatives. I am putting to you, no risk. Surely you agree with me that that is not right. Even you, the most optimistic, the rosy coloured hues of the creator of the IMS, even you would accept there was a risk. Not so? --- I would go as far as to say that there, that was in the time scales that there are no issues that would have been outstanding by the time it came to be used by the other sub systems.

Doctor, all I want is clarity. Are you prepared to delete the words, "I believe that technically there was no risk", or do you want to defend them? Which do you want to do? --- Okay, I will go with very little risk.

So we can delete "there was no risk". It is common cause there was some risk. Is that right? Is that right, doctor? --- If I may say ... (intervenes)

It is common cause between you and the government and everyone else, that there was some degree of risk involved in using the IMS in the Combat Suite. --- Okay ... (intervenes)

Yes? --- I don't want, this is not a yes or no answer. In engineering there is this concept of tending to the limits. The limits of 0% or 100%. What I am saying is that the risk was tending towards the 0%. It does not mean to say it was 0,000. If my whole team had a Lockerby incident on our buildings and wiped out the whole team, yes of course there would be a risk. But it is tending towards the negligible.

PUBLIC PROSECUTOR: You have said little risk. --- Ja, I don't want really words like absolutely no. It does not mean 0,000. I am saying it is tending towards the zero. It is not absolutely zero. I can't, no human being can say there is absolutely zero risk. I could have a heart attack now, but I think the risk is low.

MR KUPER: Doctor, it is just because you used the words that I have queried it. --- Okay, what I am telling you, if I am explaining ... (intervenes)

So we have deleted it. We have agreed to delete "no risk". And we will substitute for no risk what you have got there, very little risk. Right? But I want to suggest to you that far from being an issue of very little risk, it was in fact rightly regarded as extremely complex, this question of risk and its impact on cost. Extremely complex. Would you not agree with that? --- Where, where - do I say that?

No, I am not telling you who says it. I am just asking you. It doesn't matter who said it. Would you agree that although you say here very little risk, in fact the question of the risk and its impact on the cost was extremely complex, it was a demanding issue, or wasn't it? --- It was not that demanding within the formal risk management regime, because we had been managing it in a formal way at various levels for many years.

So it wasn't demanding. Was it complex? --- Not extraordinarily so.

Was it complex? --- No, it was not complex.

So it was neither complex, nor demanding, the question of the risk and its impact on cost? --- Not as - no, not as far as I am concerned.

All right. Well that is what you say now. When you go to the bundle of papers to page 131, which is to say your letter of 7 June addressed to the managing director of African Defence Systems, do you have it? --- Yes.

"As we know, the SA Navy Corvette Project team (you write on 7 June) are attempting to finalise the configuration of the Corvette Combat Suite. This is clearly an extremely complex and demanding undertaking when considering the issues of performance, cost, risk and financing as well as the inevitable dependencies between these factors. It has become clear to us over the last number of weeks that the matter of the inclusion of the IMS within the Combat Suite is a particularly complex one, in the context of it being a South African developed sub system, and one which affects the performance of the complete Combat Suite. The complexity of the matter is exacerbated by the fact that Thomson-CSF has offered to provide financing and a performance guarantee for the entire Combat Suite. We understand that this would make taking responsibility for the IMS a difficult undertaking for Thomson-CSF, unless they had clear visibility into the IMS in terms of performance, completion status and risk factors."

You agree with that? --- Yes.

It follows then that when this issue arose at the time, you regarded it as a real, genuine and complicated issue. --- At the Combat Suite level, not the IMS level. Before we were talking about the IMS. Now we are talking about the Combat Suite.

Let us take it one by one, because extraordinarily they may be interrelated. The question of the interaction between the IMS system with the Combat Suite and its impact on risk, cost and the like, you accepted to be a real, genuine and substantive issue. --- I said before I was talking about technical risk relating to the IMS. Here I am talking about the complete scenario.

But the IMS was always the critical system. I mean, there is no surprise that you should be viewing it in regard to its context and its capacity to disable, if things went wrong, other systems, indeed the entire vessel? --- Okay. When we had originally designed the Combat Suite architecture base around the IMS, I believe that at the development stages of the IMS, there were no outstanding risks of any significance. What - okay, that was prior to this stage. What I am alluding to here, was by this stage of the middle of 1999, Thomson-CSF and ADS were now proposing their Tavitac Combat System. And the IMS would then have been, effectively what they were talking about was breaking apart this Tavitac Combat System and then gluing it back together again with the IMS. And those were unknowns to us at that stage. So those were risks that were not pertaining to the IMS. Those ere risks that were introduced later, after we were almost complete at the IMS and they were introduced by the introduction of this new architecture, and by a new combat management system that had never been originally envisaged. Was using different protocols and all kinds of things. And this is what I was referring to. We are not talking about the same context now.

What we are talking to and about is that on 7 June you realised that because the SA Navy Corvette project team was attempting to finalise the configuration of the Corvette Combat Suite, that this was an extremely complex and demanding undertaking. It had impacts on risks and cost, and more particularly complex issues of risk and cost, because the IMS within the Combat Suite, was a South African developed sub system for which Thomson-CSF, to use the quicketing phrase, would have to go bat, and that they, or unless they had a clear visibility into the IMS in terms of performance, completion status and risk factors, they may not be so keen to do that. Right? --- Yes.

And you accepted that that was from the side of IMS, entirely legitimate, and you said this at page 134. ADS, I am sorry. You said this:

"Responsibility for IMS performance. 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 and so on. 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 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 eight 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."

Now these are, I take it, the best comforts you could offer against the genuine anxieties of Thomson/ADS. Am I right? --- Just remember, it was ADS-Thomson who decided that they were going to modify the architecture and thereby re-introduce these risks. If we had stuck with the base line architecture, then these risks would not have re-appeared, as it were. They changed a lot of the technical base lines which made me say what I said here.

And what you said here, was, in this situation you are entitled to be anxious about the question of performance and risk and I can and do, are prepared to offer you certain comforts. --- Yes.

They are rather vague, but I take it they were the best you could do. --- They are not the best - what I was offering here, was let's get together to discuss this. Let's, if there were assertions of risk, let's do a formal risk audit. Let's get the technical people together to review the status of the development, to review the test results to date. Not have unnamed people in Paris making assertions of risk, without knowing the details of the status quo. That is what I was saying. Let's get together, let's ... (intervenes)

Doctor, what you were saying is what I have read. These are your words, your proposals, and your reproach to what topic you have headed "responsibility for IMS performance". So all I am saying to you is that if one reads this through, clearly you are regarding the anxieties as real. You are envisaging the need to provide such comfort as you can. And I put it again to you, the comfort which you are offering here as the number of ways that a satisfactory arrangement concerning responsibility for IMS performance could be achieved, are really the most constructive offers you can make. --- Not at all. I could have made multiple constructive offers. This was a ... (intervenes)

Then why didn't you? --- We did. We provided a subsequent letter to this.

You provided? --- A subsequent letter, where I talked about the options. Option 1 was reversion to the CS7 (Mod 1) base line. Option 2 was where, if they wanted to change the technical base line, then we would have to go back somewhat in our development. Option 3 was a combination of those.

All right. I am going to come to that letter. But let's put a pin in it. You did better, you say. They were, you treated those concerns genuinely, you made the proposals that you could at paragraph 8, but you were later on even to do better in regard to those anxieties. Now I am addressing the question between Thomson/ADS and you. Not at the moment dealing with the Ministry of Defence. I am just trying to get the context in place. Would you turn now to - it is a letter I should have referred you to earlier, because it predates this and it shows how the issue arose. If you will turn to page 153 ... (intervenes) --- Of?

153 of that pack. You will see the numbers are on the top right hand corner. They don't flow chronologically, but it is 31 May. As I say, this is an earlier letter which introduces the matter. It is after the best final offer situation, that you will see at the foot of page 153 you say:

"In a telephone conversation earlier today with Ismail Randeree of ADS he confirmed that they were considering a number of alternative options, including an alternative option to the IMS that would be offered to yourselves. As we understood that the project team had already made their equipment selection, this surely can only have subsequently come about due to issues of cost and risk. In fact, Ismail confirmed this, adding the two issues were dependent."

So you knew by the end of May, and you did not challenge the fact that cost and risk factors were real, were significant, required to be assessed and indeed impacted on the question of an alternative option. Correct? --- As I have said before, these questions were newly introduced by the fact that ADS diverted, diverged from the architecture as base lined previously. These were new risks, and they were risks at the Combat Suite level and not at the IMS level.

Well, they are risks at the Combat Suite level created directly by the IMS. --- Not at all.

No? --- Not at all.

I see. --- They were created by the fact that ADS were now trying to re-architecture their Tavitac Combat Management system to fit into an existing base line architecture. That is where the risks arose.

You don't accept change or anything in the form of development for cost reasons and the like can be allowed to impact upon the base lines as they had been originated before the commercial realities had come into play? --- Not where it affects me, where we had played our part.

Yes, no I accept that. Not where it affects you. --- Yes. Exactly.

That hugely self-interested perspective to this entire problem explains a great deal, I suggest to you. But I want you to go on to another letter. On 29 June, let me just get it for you. I am sorry, 29 July. I have missed the number now. This is the letter to which I think you were referring, which contained your best offer. --- Yes, what is the reference number?

The letter is dated 29 July and it is written by yourself to the chief executive officer of ADS. --- Mr Kuper, page number, please?

75. --- Yes.

You have it? --- Yes.

I just want to look at one or two things about it. At that stage you were already using the term not deselection, but non-selection of the IMS and you have already spoken to Mr Chippy Shaikh about your problem, and Mr Chippy Shaikh had expressed here in the meeting that he believed that ADS and C²I² Systems should attempt to find a mutually acceptable solution to the problem. Is that correct? --- That is correct.

Was that his approach? --- Mr Shaikh's?

Mr Shaikh's approach. --- Yes, that is one of the things he said, yes.

Yes. He wanted this to be resolved. Now you were writing then to ADS and you say at the top of the page 76, you have expressed your opinion that the IMS proposes a risk to ADS's combat management system, as well as to the entire combat suite for which ADS has offered to take responsibility for performance as a whole. Is that true, or is that the opinion that ADS had expressed? --- I think it is appropriate to complete the whole paragraph.

I am going to go through the whole paragraph. --- Okay. That is what I said, yes.

Was that ... (intervenes) --- ADS had offered to provide to a, to take responsibility for performance as a whole, yes.

Hadn't offered, they were duty bound, were they not, under the ... (intervenes) --- No, they hadn't got the contract yet. They hadn't been.

Ah! They anticipated that they would be duty bound under the contract.

"Our position on this is that ADS themselves changed the base line system architecture such that the IMS, if selected, were directly involved within the CMS."

This is the down side of you approach to system architecture, not? But of course, what you are implying is that that opinion is correct. The only answer you give is that Mr ADS, it is your fault for having meddled with the architecture. Is that right? --- That is right.

That is right. So we now are quite clear, because of what you attribute to meddling by ADS, a genuine problem of risk and cost affecting the IMS had come into existence. --- Yes, but it shouldn't have.

But it did. --- It shouldn't, that was the whole reason why the CS7 (Mod 1) architecture was chosen, so that there would be this division of responsibility. That is exactly why it was done.

We are back to that old point I don't want to revisit, commercial reality should only impact on projects if they don't affect you. --- Well, I am talking about my rights here. I am not talking about anybody else, that is why I am here.

Rights? You are talking about rights, or are you talking about your legitimate expectations? --- Well, that is, I put them in the same category.

Very well.

"Regarding the IMS being a risk to the CS as a whole, and Thomson/ADS providing a performance guarantee therefore, this is the implication that Thomson/ADS must bear for the right of exclusivity in offering a Combat Suite to the SA Navy."

What does that mean? --- It means that they wanted to change the architecture such that they included this Tavitac Combat Management System.

What is the right of exclusivity? --- There were other companies interested in competing against Thomson, and they were quite happy to go with the IMS based architecture, because they knew it was a superior architecture based on superior technologies.

Doctor, aren't we going to find that Thomsons wanted you to commit to exclusivity to them, and you weren't prepared to do so? Or ADS, doesn't matter which. Isn't that what you are talking about when you talk about this right of exclusivity in offering a combat suite? --- No, the combat suite is, it is the complete combat suite. I am, the ... (intervenes)

The right of exclusivity involves your IMS, does it not? --- No. No, I am saying, they didn't want to compete against British Aerospace and Celcius Space and STN Atlas.

What was the right of exclusivity that they were somehow demanding, which caused this problem? --- I would say that the right of exclusivity was to provide the entire combat suite to the DoD.

It must be remembered that there were in fact a number of other parties who had expressed an interest in offering a combat suite for the SA Navy's Corvette. They may well not have taken the same view of the risk that Thomson and ADS have done. What were you trying to convey to them? --- What I am telling you, is that British Aerospace, STN Atlas and Celcius Tech were also, also wanted to compete for the combat suite and they were not making these unfounded allegations of risk.

But wasn't the one the contractor namely the German Frigate Consortium and ADS, and weren't all the others not? --- At this stage as far as I am concerned, only the German consortium had been selected to provide the platform.

On what basis did the German consortium say in regard to ADS, how did they present ADS? --- I did not - okay, only later ... (intervenes)

How did they present it, do you know? --- I did not know at that stage.

Very well. --- I did not know at that stage that there was a, as I said in my testimony, that they had in their offer indicated they were going to form a joint venture with ADS and Thomson. Because I know, GFC, we were talking to them, they requested an offer for the commander control segment from British Aerospace. So if there was this exclusivity, why did they issue a formal request for a quotation from one of the biggest defence companies in the world, if they were to ... (intervenes)

I am told you are putting it too high, Doctor, but I don't want to quibble with you. --- Beg your pardon?

I was told that as a matter of fact you are putting things too high when you talk about others. But I would prefer to talk about this. You didn't know, you say, at the time you were writing this, that in fact ADS was part of the team of the German Frigate Consortium. --- I definitely did not know.

And that the German Frigate Consortium and this team had been the preferred team of the government. --- No, I didn't know at the time.

Well ... (intervenes) --- In fact, I was convinced, because otherwise, why would the German Frigate Consortium have asked British Aerospace for an offer for the commander, the commander control segment?

You see, you ask these questions. The answer, I understand, is they didn't. --- They did.

Well? --- They did.

Let's stay then with what we can deal with. What we can deal with other than your say so. --- May I make an observation? You ask me what I meant, and I am telling you what I meant.

No-no. I did not ask you what you meant in vacuo. I have taken you through sentence by sentence. I am asking you what I choose to ask you. I want now to go on. You say that you have a right to supply the IMS into the CS by virtue of certain points that you make. And then you go on at the foot of the page, to what I want to put to you:

"In the light of the above, as well as in the context of our telephone discussions early yesterday morning, we do in fact believe that there are various avenues of compromise that we can all look at on a without prejudice basis and to avoid confrontation that can lead to a win/win situation for both of our companies, while at the same time providing what the Department of Defence wants, namely a battle capable Corvette on time within budget, within minimum or manageable risk, and capable of support and upgrade over the entire life span of the vessel."

You say furthermore:

"I am of the opinion that the Navy should be prepared to pay a modest premium for the peace of mind of the IMS being included in category B, i.e. where ADS carries the risk, rather than category C, where the SA Navy carries the risk. However, I believe this risk factor to be no more than 30-35% of the cost of the IMS. In financial terms this should amount to no more than some R15 million. We believe that merely to apt the price of our competitors is unrealistic."

Goes on to another thought, I want to come back to this thought. Here you cost the risk factor as you see it in the IMS. Why 30-35%? --- Okay. One has to look at this in the context of what I said here under the options, the risk management options. This was basically a proposal, and that was just a preamble to what I am proposing in terms of option 1, 2 and 3. Okay? Now what I have said in option 2, which relates specifically to this question of the 30-35%, is that we had developed the IMS based on the technical base line that had been given to us by the Navy. I have mentioned before, getting slightly technical, things like Multibus 2, hardware, etcetera, etcetera. So the whole thing had been developed, at that stage, completely working and there were no residual risks. ADS had then come up with this new proposal, new architecture with new technologies. Okay? Specifically they wanted to change the hardware basis for the IMS. That would have caused us to go back and buy about two to three million rands worth of equipment, probably say an amount of money on software, and then we would have to redo all the smaller bits of software to make everything work together, and rerun the tests. But that was based on this new option, this new architecture they were proposing. It was option 2. Option 1, I have said, in order of preference, option 1 was revert to the project base line architecture. I.e., that referred to a CS7 (Mod 1). That was what the Navy had specified as their preferred and final option, and that was what ADS had asked us to quote against in their request for a quotation. And if they had done that, there were no implications in terms of costs.

Dr Young, it is really pointless to go on saying if commercial reality hadn't intruded, we could have gone back to the beginning. We are dealing ... (intervenes)

MR ROGERS: With respect, Mr Protector, I don't understand Dr Young ever to have said that commercial reality dictated that there had to be this changed architecture. Those are words that my learned friend is putting in his mouth.

MR KUPER: I thought the witness had agreed on a number of occasions. If not, let me rephrase the question. On the basis that it was being put by ADS that commercial reality had intruded, your risk calculation was now 30-35% of the cost of the IMS. Okay? --- If I had to take some time of educated engineering guess.

And it was just a guess, wasn't it? --- Of course it was a guess, yes.

It could have been far higher, couldn't it? --- No, I don't think so.

But then it isn't a guess. --- No, I said engineering, an educated engineering guess. That is what happens in engineering. You cannot work with exactitudes all the time, especially when you are making an advanced proposal in good faith.

15 million was calculated against what? --- As I have said ... (intervenes)

No, I am talking arithmetic. 30 or 35% gives you 15 million. What were you calculating against? Contract price of how much? --- Of the 45 million.

Thank you. --- Which is the price with VAT, isn't that?

Yes. Now the second option, that is:

"If they proceeded, ADS should immediately provide a development contract to C²I² for an amount of 15 million for the 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. This would be conditional on ADS receiving the main CS contract. It therefore represents no risk to ADS. Should C²I² Systems meet the specified requirements within nine months of order, then they should receive the contract for the supply of production IMS's for the Corvettes themselves, as well as for the integration test bed and IQA reference set. Should C²I² Systems fail to meet the specified requirements, then they forfeit any right to further supply."

What did you want the government, by the government I mean the persons tasked with ensuring that contracts were in place within the budgetary requirements for the Corvettes, to do when faced with the problems that were being raised by ADS? What did you want them to do? --- I don't think I specified anything that the government must do. I was, in fact I wrote this letter under advice from people from the project team. And the government advised us that we must deal with ADS.

But you asked the government to pay for this, didn't you? You wanted another 15 million. --- I said ADS must pay for it. This was, ADS must give a contract to C²I² Systems.

No, look in the preliminary to it. While the immediate step might be a contract to you, it wasn't your attitude that it wasn't too much to get the government to pay for this. Can I just read that to you? The modest premium for peace of mind, page 76. --- Yes, look, I am dealing with ADS here. Of course they are going to pass it on either in part or in total to government. But just remember, that we had provided this price to be effectively in line, as I described before, with our price and risk audits that had been held in the previous years. In those requests for prices we were never asked to make a provision for a performance guarantee. We were also never asked to make a provision for a major technical base line change. So we had made those offers in extremely good faith, and then, you can't on a R38 million contract, you can't provide an extra R15 million at your own expense to change the base line that had been re-introduced at a very late stage.

What percentage risk had you allowed for? --- There was no direct allocation of contingency, like a lump sum of contingency.

In short, you hadn't allowed for risk. --- No, it is not, that is not - I didn't say that. I said there was no allocation of a contingency fund. Where one is dealing with systems engineering and software engineering, basically these things are engineering tasks. One plans projects to a very fine level of detail with project management tools, where one allocates resources, specifically manpower, to each task. Say ten days, or 20 days, or 50 days or whatever. Within each element there is a small element of contingency. If you think something might take eight days, you might estimate ten days. Very often something takes 15 days where you allocated 10. But overall, an experienced company project managers come out about equal.

So did you allow for risk, or didn't you? --- We allowed for a small amount of risk, typically of software, small software problems and for example things like critical staff do leave. If they are females, they have children, etcetera. So you can, you have to allow for a little bit of risk. So that we, the managers allow for a certain amount of risk. But we didn't budget a huge amount of money, because that was not in line with the price and the risk orders.

There is no item, I am told, in your office which talks of, or identifies an item for risk. --- No.

No? --- No, there isn't.

Whereas all the other contractors, as I understand it, all had allowed for risk as such. --- I don't think so initially.

You don't think so. --- I don't think so initially. I think that that was something that was ... (incomplete)

Well, was there anything wrong in ADS revisiting the question of risk with you as a genuine problem? --- I don't think they ever visited the issue of risk with us at all.

Oh, you don't think that exchange of letters was revisiting the question of risk? --- No, not.

Not? Very well. --- Well, where was the exchange of letters? These are all my letters.

Oh dear! Doctor, if we can come back to reality, the ADS presented the government with the problems arising out of risk, as you were, I think, aware. Is that right? --- Is that right, did you say?

Yes, is that right? --- No, I was not aware of what, exactly what - these were very close negotiations between themselves and the joint project team. I was not party or aware of what was happening.

At all? You weren't aware that the question of risk was being revisited at the time? --- In a general sense, but not specifically.

The risk and the impact of risk on cost in respect of this very project of yours, this contract or right to which you were entitled to supply the IMS was being revisited as part of the sub systems which ADS was offering the government, you didn't know that? --- No. I didn't know that these, I - look, I wouldn't have written this letter if I had absolutely no idea of there being a risk issue. But I had certainly no idea of the detail, of what the requirements were officially.

Well, it was presented now to government. I just want you to understand, what was being presented to government in the form of Armscor and defence and the like, seemed to be a number of alternatives. It seemed to be that they could pay a high price with very little risk. That would come about if they took the C²I² data "bus" and if at the same time it would be the contractor's risk. What you might call a win/win for government. The second option was a low price, but with some risk, namely C²I² data "bus", but at client's risk, the government's risk. And the third option which appeared on the table, was a low price with very little risk, which was the Detexis data "bus" at contractor's risk. Understand that? Those three options. (Pause) Now, what we have to deal with is whether that identification of options was in some way critically flawed in a sort of malicious or injurious way. You know, I reading them think they are quite businesslike. Seems to me rather an incisive analysis of the options that government faced. Do you agree with that? --- I am not au fait to all the detail. There were various proposals at various times, so ... (intervenes)

So if government thought it was making the choice of low price with very little risk, if it thought it was doing that, can you fault it? --- No.

Now I want you then to go and get a document for me. I want you to get out your copy of the technical evaluation. The technical evaluation done on the Detexis "bus". You mention it in your statement. You say that you won't produce documents unless the Protector asks you for them. I want you now please to produce your copy of the technical evaluation of the Detexis "bus". --- Those are restricted documents.

Have you a copy of the Detexis "bus" report? --- I don't have a copy here. It is a restricted document.

Doctor, all the documents that you have been dealing with seem to me to be one or other form of restriction, and I am amazed that your answer at this moment to the production of this document is that it is restricted. But nonetheless, you say it is not with you. Does that mean it is in your case lying at your feet, or does it mean it is not in this room? --- If it is here, then it would be in this file, this document.

Would you mind taking a moment and see whether it is there, then we can appeal to the Protector as to whether it should see the light of day. Just see whether it is there.

PUBLIC PROTECTOR: How quickly can you get that document? --- No, we don't have it here.

MR KUPER: You don't have it here. --- It is a restricted document, we - if I may, I said right at the beginning that I do not refer to the contents of documents beyond which is quoted in my aide memoire.

Doctor, I am really at a loss to understand what your problem is. What you said:

"Where in my evidence I refer to any classified document, I do not intend to submit it as an exhibit at all, or to refer to its content beyond what is actually quoted in my evidence. However, I do have 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."

Now you are saying you are not prepared to? --- I don't have the consent of the Minister of Defence, and when we do so, we will make the documents available to the ... (intervenes)

Have you got the document available? --- Not here.

Where is the document? --- In Cape Town.

In what form did you receive it? --- I received it as a digital, in digital form.

From whom did you receive it? --- I don't think I am obliged to answer that question.

May we know the reason why you are not obliged? --- I am entitled to be in possession of restricted documents.

Are you? Any restricted document you are entitled to be in possession of? Is that your position, doctor?

MR ROGERS: Mr Chairman, I think we are again infringing on the area which was touched upon before, which may or may not involve incrimination. I don't think the witness should be obliged to answer that question.

PUBLIC PROTECTOR: Yes, but that is not really about incrimination, Mr Rogers. Whether he is entitled to receive any restricted document, he has referred to his status, I mean, previously was secret and then top secret when you were working ... (intervenes) --- Yes, I have got a top secret clearance.

Yes, so now that question then about whether you are entitled to receive any restricted document is legitimate. Can you answer it then? --- I did not ask for this document. It was given to me by somebody else, and they didn't even know what was in this digital document.

MR KUPER: Well, the question is by whom were you given these documents which are classified documents, the sender of which didn't even know the content. By whom was it, doctor? Help us.

PUBLIC PROTECTOR: Well, let's put it this way. Did you receive it officially? --- I received it unofficially.

Yes, then we might be talking about self incrimination.

MR KUPER: Very well. I want to now deal, so far as I can, with an aspect of that report, which I must tell you, doctor, frankly, concerns me considerately. And it is a matter that I will convey to the Protector and his panel. Because it seems to me that when you chose to quote extracts from documents, you appear to have been involved in an exercise of manipulation, in the sense that you quoted parts of a document that might be taken to support what you wanted to say, but you refuse to quote, and therefore withheld, anything which was contrary to the point that you were trying to make from the very document. Were you selective in your quotations? --- In my previous version I tried to quote complete documents, or complete letters. But the advice I got from my counsel was that it would just make it such a bulky aide memoire, it would be hundreds and hundreds of pages and it would not necessarily be relevant. So I tried to be, to quote the necessary parts, but not to cherry pick to compromise the other points of vies.

Well, I am quite sure your counsel would never have advised you to cherry pick, and what I am asking you to say is whether indeed you fell to the temptation of cherry picking, by not disclosing bits of the document that were completely contradictory to the point you were trying to make. --- I honestly did my best not to do that. That is why I have quoted the pros and cons for both the sides in total.

Yes. The Protector asked you whether you knew why the technical evaluation of the Detexis "bus" had been undertaken, and I think you responded that you didn't know. --- Did I?

It is my memory, it may be quite wrong. But let us agree that if you had your copy in front of you from Cape Town, it would say the brief of the technical evaluation team was to meet with representatives of Detexis in order to firstly better understand the product that was being offered; secondly, ask any questions with regards to areas of uncertainty; thirdly, do a preliminary technical evaluation of the product and fourthly, make a recommendation to project officer and program manager. You remember that, you endorse that? --- Sounds ... (intervenes)

And also the report was intended to provide a brief overview of the bus architecture being proposed by Thomson/ADS for the SA in Patrol Corvette of project Sitron. Now what I want to raise with you, was if you go to page 282 of your statement, paragraph 282 through to paragraph 289, you quote liberally from various aspects of the report as you see it. And for example on page 39 you set out the beginning of 16 points providing conclusions concerning the Detexis Diacerto. Do you see that? --- Ja.

My question is, why didn't you quote the paragraph that immediately preceded these 16 points, and which reads:

"From the outset it has to be said that Detexis, a former Desault company, is very knowledgeable and that the proposed LAN complies to the architecture proposed on 7 April and will do a job required."

Now my question to you is, why isn't that quoted in your statement? --- Okay, because firstly I think it is completely wrong. Okay, and I will tell you why. The architecture on 7 April I had no knowledge of. So I couldn't make any comment on that. Secondly, what I do know is that the Detexis "bus" could not possible meet the base lined SA Navy's user requirements specification. That is why I didn't do that.

PUBLIC PROTECTOR: But is that correct, doctor? You have referred to other aspects of that report, and you have gone on to discount them whether you thought they were wrong. So couldn't you have quoted it and gone on to explain why it was wrong, as you have done that in fact between these paragraphs that have been referred to, 282 I think to about 294? --- Maybe I could have, but hindsight is 20/20 vision. I thought that this was sufficient to get my point across.

MR KUPER: And what is candour? --- Candour?

Honesty, bona fides. Dealing with documents in a way which fairly represents their content, instead of suppressing the bits you don't like. --- Just remember that this investigation is also being conducted on the forensic side, and there his been complete disclosure and candour there.

It is only the Protector in the public hearing who is not entitled to complete disclosure and to candour? --- The, as far as I understand, the Public Protector and DSO and the Auditor General are working as a joint investigating team. So there is complete sharing of information. That is the basis on which I have been co-operating with the forensic investigators anyway.

Doctor, I know it is embarrassing to have to answer questions as to why you didn't put up perhaps the most important aspect of the report, but really, is that the best you can do? --- I don't think it is embarrassing, it is ... (intervenes)

That the Protector has it in secret, and therefore you disclosed it or didn't disclose it? --- I don't think it is embarrassing at all. I will say again, I think that in no way possible can the Detexis Diacerto data "bus", as I have seen it described, can meet the Combat Suite user requirements specification.

Yes. And the people who were drawing up this report and the ones that followed it, were they mala fide? Were the officials of the SA Defence who were mandated to go and look into this and to write the report, were they mala fide? --- Certainly the people who wrote that report were not mala fide.

Well? --- But what I am saying is that they came up with a conclusion and a recommendation ... (intervenes)

With which you disagree. --- No, which - no, which has been overturned. There is no basis on which a review gets commission, especially at taxpayers' expense, by experts and they fly out people from overseas, and then they come up with a recommendation and that gets overturned. I personally don't see that that is the correct way of, I believe that is irregular.

Doctor, is it your beliefs that have sparked these allegations across the board in every fora of the country? Is that what it comes down to, it is what you believe? --- Certain aspects, yes.

I am not going to debate with you in this hearing what the virtues of this report and later reports were in regard to whether Detexis could do its job, or not. I just want for the moment to have from you the acceptance that the content of the report, both that which you disclosed and that which you did not disclose, you accept to be entirely bona fide. --- Sorry, I am not quite getting you there. Could you just ask the question again?

All I want from you is to confirm that you accept that that report, both the parts that you disclosed and the parts you didn't disclose, were all drawn up and made entirely bona fide. --- Yes. I think they are bona fide, yes.

I want to deal with some other aspects for the moment. Before I leave, I believe that this very system, I am told, I don't know if it is right, has been now selected in the British Royal Navy's type 45 destroyer. Do you know that? --- Which system?

This Detexis system. --- I didn't know that.

I don't know if it is a lot of marketing hype, but I have been told it is the most advanced combat ship in the world. --- Okay, can I elaborate ... (intervenes)

Is that right? --- Can I elaborate a little bit of what I do know?

Is that - just answer my question. --- No, but I do know something else.

I also understand it was selected by British Aerospace. --- I am not sure.

British Aerospace knows about your FDDI technology, doesn't it? --- Yes, they do. I mean, British Aerospace is a big company. Certain parts of it do, and certain parts of it don't.

What do you want to say? --- I said ... (intervenes)

You said you wanted to say something. --- Oh, yes. In terms of the type 45 destroyer. Originally there was going to be a joint venture between the United Kingdom, Italy and France, and they were building the Horizon Frigates. And on that program, our FDDI and very very similar IMS were actually chosen. For political reasons the British pulled out of that and they are now going for the type 45 destroyer. That is what I do know.

And did I understand, while we are talking about contracts of these various systems at one, that we should be congratulating you on winning some contract in Italy or elsewhere, or did I misunderstand? --- Not in Italy yet, I said we were base line. We have not won any contracts yet. They take, these processes take a long time to unfold, but certainly, certainly in North America, yes.

You have won a contract? --- We have won some contracts, yes.

C²I²? --- We have, yes.

What is it to do? --- Provide the intrinsic FDDI, which is the basis of the IMS, hardware and software for various US Navy and US Marine Corps programs, cardinal programs.

And who takes responsibility for its working? --- In system engineering there are levels, as I had, as I explained the various system level hierarchies. Okay, at certain levels we take responsibility in terms even of our warranty to provide them working hardware and software. We can't take responsibility for their advanced ... (inaudible) assault vehicle at $10 billion. But they trust our hardware to a certain level, and they run extremely comprehensive tests and qualification processes.

And to what degree is the IMS that you wanted to offer into the Corvettes different from what is inside this American combat vehicle? --- Okay, again as I said, assistance included in the IMS itself, is based on multiple levels of hardware and software. And the basic or fundamental lower levels, the intrinsic building blocks as I have described them, have been chosen by overseas companies. Our IMS was only fundamentally different in terms of a very, very top layer of software what we call this APIS, application programming interface.

Would it be right to say that is a complex and risky level? --- Not really.

Not? Not like the others? --- Beg your pardon?

The others that are more risky, the other parts of your system. --- I don't think I said that.

I think you must, you are implying that. --- No, I am not saying that at all.

What I am saying is, the APIS side the most risky ... (intervenes) --- No, I am saying that is the most, I am saying that is the only difference. The others are all based on commercial off the shelf building blocks. It is only the very top layer, which is an extremely thin layer, which was custom designed at the insistence and specification of Armscor and the Navy at the time.

Let me ask you something else. In your statement you talk of a memorandum of understanding that ADS wanted you to sign and that you refused to sign. --- No, I said they eventually refused to sign. Again, we agreed to disagree and we both agreed to refuse to sign.

The reason that it could not be concluded was you refused to give them exclusivity. --- Yes. No-no, I said there were a couple of reasons. That was one of the reasons. The other reason was that they way that they worded their draft ... (indistinct) was that they had carte blanche the right to change the system specifications. I knew what they were thinking at the time. Also, they made another proposal that we would only be included, the IMS would only be included in the third Corvette. And they would go their own way with the first and second Corvettes, and then we would go, then we would be introduced at the third one. And I knew that if we were going to accept that, once they have got a working system, there is absolutely no ways that they are going to re-introduce our system at a later stage. That is why I refused to sign.

All I can do is read your statement. I mean I can't ... (intervenes) --- You asking me for clarification, I am clarifying.

No-no. The paragraph to which I refer is paragraph 162. What is put there is something very different, not a clarification. What is put there is very different. 162. It is very simple. None of this elaborate explanation.

"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 Systems not supply the IMS to any party other than to ADS for the SAN 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 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."

I take it you just didn't know, even now as you write the statement, you didn't know that the Consortium had teamed up with ADS. --- No, I didn't know it at that time.

And now, when you write the statement, are you writing about what you thought at the time? --- I said not at that stage.

Then I want to talk to you shortly about the question of the SMS. I think perhaps we can deal with it quite briefly. You object very strenuously to various costs that were added onto you product, your offer, particularly that ADS adds 2% of the total price as a handling fee, or add 7% of the total price as an integration fee, or 1.5% for the extended warranty. The position from government is that these are the prices which are charged to it, is it not? --- Yes, but the requested quotation was issued as a comparative competitive quotation, and I don't believe that it is fair when one, when both parties are meant to be competing on an equal footing, for one to be loaded and not the other. That was my position.

But doctor, is it not the government's position that it must look to what the actual cost is going to be, and if these costs are going to be added on, well then what can the government do about it? --- Then they should have been said in the request for, they should have been one of the terms and conditions.

That should have been one of the terms of conditions. Tell me, as a matter of practice, do you add handling fees in respect of your supplies? --- No. The whole, everything gets put together on certain, it is mainly based on level of effort, how long it takes to do things.

Do you, or do you not mark up on supplies probed? --- Yes, we would in certain circumstances.

So the practice which you are so fiercely objecting to here, is one that you yourself would implement? --- No. If I was asking two suppliers for competitive quotations for the same thing, and one of them was going to have their price loaded by 10.2% a priori, then I would tell them in advance, otherwise I don't think it is fair.

But hasn't the buyer of the goods, the user of the goods really got to determine your quotes on the basis of what it is going to cost him? --- When it is the governments of the states, then the potential suppliers are entitled to a certain degree of fairness, treating both parties equally. That is my position.

Thank you, very well. Another question about that position in regard to the SMS, and that is, as I understand you, you delivered the quotation or the second quotation late. Is that right, have I understood it correctly? --- We delivered the first quotation on time. The second one was unsolicited. It wasn't late at all, it was unsolicited.

I understood you to say it was late. Let's just look it up. You will know better than I where to find it in this statement of yours. --- There is an index in the back. Well, not an index ... (intervenes)

It is at paragraph 195. You were aware that the second offer in respect of the SMS was not submitted within the prescribed period. --- Yes.

Doesn't that mean it was late? --- Well, it was an unsolicited offer.

But wasn't it late? Whether solicited or unsolicited, it was after the prescribed tender period. --- It was, yes. I have explained my position there.

Your position is it should have been accepted and dealt with. --- No-no, I said the first one should have been accepted, not the second one. I was adding that for illustration. The first one was a valid offer submitted within the prescribed period.

Yes. And it is the first one in respect of which you make these objections of the ... (indistinct) right? --- Yes.

Mr Protector, just bear with me a minute. Protector, I am very alert to time. I hope I am coming towards an end. May I take a short five minute adjournment, I just want to speak to my instructing attorney.

PROCEEDINGS ADJOURN PROCEEDINGS RESUME

RICHARD YOUNG s.u.o.

CROSS-EXAMINATION BY MR COOPER: Thank you for the indulgence, Sir. I can now at least draw to a conclusion. Doctor, I just want to very briefly deal with the suggestion which I believe you were making in your statement, either expressly or by inference, that in regard to certain other awards the results were surprising or wrong or irregular. That dealt with the surveillance and target acquisition radar. It dealt, I think with the sonar, and I think it dealt with the anti ship missiles. Am I right, you made the observation that to your opinion or way of thinking this war irregular, and I think your implication was that it favoured Thomson/ADS. --- It would seem so, yes.

It would seem so. I just want to put to you certain aspects, and just know whether you can comment on them or not. Do you know that in each of those cases there were at least three international contenders? Do you know that very intensive investigation was done by teams of about 50 officials drawn from Armscor, the Navy, the Department of Defence and government scientific institutions and the like, in order to weigh up the competing aspects of the bids, do you know anything about that? --- I don't know the details. I do know that there was, evaluations were done.

The sonar went to a group called Thomson-Marconi. Are they not world leaders? --- I would say they are world leaders as much as SDN Atlas are world leaders.

And the anti ship missile went to Aerospatiale, if that is the correct pronunciation, and it was again an award to a world leader. --- All the competitors were world leaders.

Yes. So again you are not suggesting that the evaluation may not have been entirely bona fide, even though it doesn't meet your approval? --- The observation I was making that it seems strange that all the previously base lined options were overturned. At the end of the day French companies, all of them either Thomson or connected to Thomson, won those contracts. That is what I am saying.

It is a bit of a conspiracy theory point of view from which you are coming, isn't it? --- I came here at the request of the Public Protector to tell him what I knew about the strategic defence packages. That is something that I know. If there is something untoward, then it is for them to investigate, or to hand over to the forensic auditors. I came here to basically say what I know.

You are merely suggesting to them in what directions they might care to make their investigations. You are putting them on the track. --- If there is something.

You are not suggesting to them the track is a good one. You are just saying here are a number of tracks that your investigative hounds may run along. Now, let me ask you something else. The radar consoles, you had a problem with that as well, didn't you? --- What I said was that previously we had done some work on the search radar consoles. We actually had an agreement with Armscor with Armscor and the Navy and Reutech that we provide a package deal for a whole set of consoles. It was on that basis that we actually determined our pricing. And that was one ... (intervenes)

I think this is - sorry, go on. --- Okay, and in the element costing and description, our company is designated there as a co-supplier of the Star radar consoles. That is what I was saying.

In fact, of course, the main contractor can choose, can't he? --- Yes, I am just, I was just making an observation.

I see. Not a criticism, not a track down which the various teams of investigators should run. Let me ask you one or two other things, or rather make one or two other points, and then I can read your line. Just a question of detail again, in your attack on the Detexis "bus", one of the points that I understood you were making, was it did not meet the specification, inter alia because it only had a latency of 6.5 milliseconds. --- That is right.

Then I am informed that the specification requires a maximum time of 5 milliseconds. --- It is the other way round. When you try and send data you do it at the minimum time, not the maximum time.

Sir, it is a question of what the specification says. --- It has got to be less than five milliseconds.

That would, and you say this does not meet specifications? --- Well, 6.5 is greater than 5.

Thank you. Now well, there if you are right, you have a point there. We will have to get somebody to answer you. The other thing in regard to this is the question of jitter. Tell the Protector what is jitter? --- Jitter is the uncertainty in the time that it takes to transmit date from instance to instance. If you send the same kind of data repeatedly, if it takes a short amount of time in one instance and a longer or a different amount of time, that difference in time is called jitter. And in integrated systems jitter can cause instability.

And which database system, Detexis or your IMS, is the superior in that regard? --- I am not 100 percent sure, because I am not exactly sure of the jitter of the Detexis "bus", okay? But in my informed technical opinion the technologies which the Detexis system uses, specifically Ethernet, which is a non-deterministic technology, as well as the fact that they are using a protocol called TCPIP, which has been proved scientifically to be non-deterministic as well, I cannot see that they can make absolute guarantees of what we call end to end jitter.

So the bottom line to all that is that the Detexis "bus" may be the better system in regard to jitter? --- No, I didn't say that.

No-no, I know you didn't say that. You avoided answering it, so I am putting to you, the bottom line of it all may be that that is the position. --- No.

Not? --- I said with the IMS we, first of all we specify the total amount of jitter, and also we provide network synchronisation and time stamping, which is precisely to get around the problem of jitter.

All right. I want to just mention to you two matters, I am sure to your great relief but even more so to everyone else's, this - although you may have felt differently - this is not a cross-examination. I am not trying to deal with the details of everything you have said. I am not trying to put to you other versions of what you have said. Just trying to deal with it in a manner that may best assist the Protector. But what you must know, is this. Insofar as you have tried to analyse the progression of the various projects, SUVECS, what was the one before it, Sitron, and so on, you have tried to present them to the Protector as though they were interconnected, continuing phases of a single project. Is that right? And also that properly so characterised, the true nature of the project was an acquisition project. Not so? --- It was an acquisition project, yes.

I just want to say to you that it is going to be demonstrated to the Protector that you have not appreciated the proper differences in respect of each project, what the purpose and nature of each project was. The other thing that has been a thorn of irritation to you, has been this continuing question of whether your product is properly so described, namely whether it had even reached the stage where it could be classified as such. Now in your statement from time to time you have dealt with that, and you have put up your case of why you say for all intents and purposes at least, it should be regarded as a product. But I want to say to you that you have not persuaded the Department that that is so, and that again it will be contested. But at the end of the day, doctor, whatever has been the huge campaign which you have waged in support of the notion that you should be reinstated or compensated, however widely you have gone every forum but the obvious one, during that time, would I be right in saying, from September 1994 to the beginning of 2000, you won contracts from Armscor to the value of something like R23 million. --- Yes.

So during all this period you have not been out in the cold. --- Out in the cold, what precisely do you mean by out in the cold?

It is just a colloquial expression, doctor, don't worry. If you don't know what it means, let's leave it. Protector, thank you, I have concluded.

PUBLIC PROTECTOR: Are any other counsel going to be putting questions? Mr Kriegler, are you ... (intervenes)

MR KRIEGLER: I certainly intend to, Mr Protector, yes.

PUBLIC PROTECTOR: And Mr Mahon?

MR MAHON: Yes, Mr Chairman, not many, but I will be putting questions.

PUBLIC PROTECTOR: I am just trying to get a sense of how far we are still. Three counsel, four counsel. Yes, I see. Mr Maseromule, you are not interested?

MR MASEROMULE: Well, it may depend on what comes up.

PUBLIC PROTECTOR: Yes, and of course yes, Mr Rogers, yes. We will take the adjournment then until 09:00 tomorrow with the indications at least we should finish tomorrow with Dr Young. We will take the adjournment until 09:00 tomorrow.

PROCEEDINGS ADJOURN