VOLUME 14 PAGES 1106 - 1162

PROCEEDINGS RESUME AFTER LUNCH.

PRESIDING OFFICER: Yes, you may proceed.

JONATHAN EDWIN GOLD KAMERMAN: s u o

MR MALINDI: We adjourned when you were at a particular point. Can you recap that point and then proceed with your evidence? --- I am dealing with the rebuttal of the main theme number 1 and that is that Mr Young's claim to have been selected by virtue of his participation in Project Sitron in the early years and the continuance Project SUVECS, the technology project and then finally in his participation in the tendering process for Project Sitron in the later part. And I had already covered, just to recap, that the issue of his earlier participation where they were completely separate, a completely separate contracting model to, that followed later, and then I have come to the point where project sitron was deferred by the Minister of Defence in May 1995. With the hold placed on all further contracting, Mr Chairman, there were contracts running, contracts then running were honoured, and they all completed in the 1995 financial year, that is ending on March the 31st 1996, but they were tapered off and no new work had not yet been contracted were stopped and we tapered it off. The next and only capital acquisition contract placed under Project Sitron to date was the main contract tendered for in 1998 and placed in December 1999, which does not refer or connect to the previous Sitron contracts, there is no connection between then, by referral or any other means. There is therefore no contractual connection at all between the two phases of Sitron. Now, apart from C²I² and I need to say this to you, Sir, because throughout the theme, the vain that runs throughout Dr Young's testimony, is that in some way he was unique in this unfairness, that somehow he was unique in the fact at having participated and he had certain expectations and whether those were valid or not, he was not contracted. Well, in this particular phase, apart from C²I², there were several instances of local companies contracted for work in those years, 1993 to 1995 on Sitron, that did not end up supplying those equipments to the Corvettes in the 1999 contract. For example, Reutech, who originally contracted on the early days of Sitron for the search radar, the surveillance and target acquisition radar, they did not get it. Altech Defence Systems, originally contract for the sonar work, they did not get it. Both of those areas were areas where we came to realise that we were going down a blind alley of diminishing returns with regard to those particular technologies within the RSA. Notwithstanding those companies in treaties to us to make further investments and they would in fact make investments and they would be able to keep pace and so on and so forth, but we realised that our small radar industry could hardly cope with the tracking radar, let alone the additional burden of the research radar, notwithstanding the fact that Reutech had built a very good radar for the, search radar for the army, a project called Kameelperd, but the difference between land based radars and naval radars are very, very distinct and we did not have the technology in this country.

PRESIDING OFFICER: I do not get the impression that the plan earlier of diminishing the terms into that C²I². --- But I am merely trying to illustrate that there were many companies who challenged us at that stage, that we were in fact, that we should have continued even though, because they participated in those years, we should have in fact continued with .. (intervenes)

Yes, no, I get the point that you are making, but I just wanted to know whether it fell within that category. --- No, certainly it did not, with respect, Sir, that is not the emphasis I am placing. Sonar, definitely. We had invested a lot of money in Altech defence systems in the domain of sonar, but sonar is one of those things that you cannot play around, you do not do it on half measures, you either do it thoroughly or you are wasting your time. To illustrate a point, the research and development budget of Thomson Marconi Sonar Systems, which is a European sonar, just the research and development budget of that one company was larger than the entire acquisition budget of the South African Navy. So there was no way that we could just trickle funds in sonar and hope that we get a working sonar set. The company, of course, quite rightly said: no well, we have got this wonderful technology, look at it working on the submarine, why don't you fund us and so on. Then there was another major area and that was also Altech Defence Systems. They were originally contracted, like these other companies, for work on the Missile Fire Control System for the Corvette, they were going to produce the Missile Fire Control System, because there were going to transfer the Skerpioen, Scorpion missile from the strike craft to the Corvette. But time passed. That system started becoming logistically obsolescent and we realised that we should not continue. They did not, of course, accept that, but that was the reality of the time. So Young cannot therefore claim a right to work on the Corvette duties participation in the original and defunct Corvette program and planning reflected in a defunct programme plan that was entirely superseded by the programme plan reflected in the 1998 tender, the one I have referred to already, and I will come back to it. So, I just wanted to close off in terms of a theme on that thing, but the original work that was done was historically defunct by 1998 and there is no connection to it. The second aspect relating to this, you know, I was selected because I took part, was a contractual connection of the SUVECS Technology Retention activity in 1995 to the year 2000, in fact, that is a very strong contention in his testimony, that there is a contractual connection to both backwards, to the 1994/1995 activities and forwards into the tendering and contracting activities on Sitron on 1998/99. In fact, he claims that SUVECS was in fact a capital acquisition project disguised as a Technology Retention Activity as I said before. Now, SUVECS, I just want to read to you, Mr Chairman, an extract from a document called VB1000, it stands for Verdedigingsbeleid 1000, it is still in extant document, although it has been amplified by other documents governing the acquisition process followed by both Armscor as well as the Defence Force, and in appendix G, requirements to be met by acquisition projects, I wish to read into the record a particular extract from paragraph number 2, and it says:

"2(a)(ii) Where deliverables (and this is the guideline document for technology programs) are intended to be used solely to demonstrate technological capability, it is a technology project. The product, however, is not intended for operational employment. A new acquisition project may make use of this baseline for providing operational material at a later stage."

That is a guidance statement for us when we do technology projects. I need also add that of course the Defence Force does not spend technology money willy-nilly, there is a clear requirement for us to aim where possible at a technology demonstrator. In other words, not technology just for its own sake to keep the people in white coats in laboratories busy, but let us build something we can test. But the something we test, Mr Chairman, is not something we operationally can employ, we are testing it to prove that at a technological level it may work or it may not work and it if does not work, we can decide whether we pursue that or not and it if does work we can decide whether we pursue it or not. And that was precisely what SUVECS was. SUVECS, of course, was not an ordinary technology project. SUVECS was a technology retention funded program and in fact, the object of SUVECS, apart from the technology demonstrator, was precisely to retain the industrial base in naval technology and naval systems in our country that we had so carefully nurtured over the years leading up to the 1995 deferral. So yes, there is a connection in terms of the companies and the work and the nature of the work they were performing, but there is no contractual connection whatsoever, in fact there is no connection whatsoever in terms of how we managed it and what the objectives were and the constraints that we were under in terms of operating and executing a technology program and I will go into the detail of that shortly. So SUVECS was, as I said, it was aimed at preserving the local naval technology base, primarily as potential supplies of Combat Systems in future naval acquisition programs. I need not remind you that at that stage the Corvettes had been deferred and we had no knowledge of the navy's(?) intentions and of the executive's intentions in this regard and frankly, right up until 1997 there was every possibility that we would not be getting these ships, but we had a reality of our current fleet that was obsolescing and needed upgrading and replacement, even if we had not got the Corvettes and of course eventually one would have hoped in future years some time or other, an indeterminate point, the navy would of course have to replace its ships in any event. There were attempts by us in those years, 1995, when we looked at Russian secondhand vessels, in 1996 when we looked at a very strong possibility of Dutch secondhand vessels, we even went there with the Chief of the Navy and we went out to sea in these ships. Several occasions we looked at British secondhand options where we thought well, fine, we cannot afford the hull and machinery now, let us get the older ship and wring the last 20 years of life out of it, but we will put our own, or the modicum of a Combat System on board based on the technology that we can afford. So this was not aimed at equipping the Corvettes per se and it in fact says that categorically in every project definition which is a yearly requirement of a technological program, and every single approval that was given on an annual basis for the funding of this. We clustered these technologies around the vehicle of what we called a Surface Vessel Combat System, SUVECS, technology demonstrator for future upgrades, et cetera. As the records of approval and project definitions from 1995 to 2000 show, and of course, Sir, they are available to you if you wish to see them, I would rather not have them publicLy, they are secret documents, it was run strictly in accordance with the regulations and practices, governing technology retention activities and had none of the characteristics of a capital acquisition project, namely it was funded on a completely different funding capability codes to that of a capital acquisition project. It was funded one year at a time only with no promise of the next year's funding whatsoever against annually motivated and approved project definitions. There was no tendering amongst funding recipients, single sourcing being motivated by Technology Retention Requirements. I was aimed at a cluster of technology demonstrators, not qualified products as required by capital acquisition project. It was approved by and reported to the DoD/Armscor Technology Approval Forums, such as the ATAS, that is the Acquisition Technology Secretariat and not the acquisition project approval forums, that is the armaments steering committee, the Armaments steering board and so on. It had none of the mandatory milestone documents required of a capital acquisition project, namely a staff target, or a staff requirement, and an acquisition plan signed as required by the Minister of Defence, or in fact there was nothing signed by anybody in fact. To have continued the acquisition project Sitron under the guize(?) of a technology retention fund activity would in fact have been unlawful and in direct contravention of a ministerial instruction to freeze or defer Sitron expenditure. To suggest that this was so, as Mr Young does so recklessly, implies the connivance of all DoD and Armscor officials involved in the approvals, oversight and management of technology retention activities during the period, including inter alia the Naval Board, the Defence Command Council, the Chief of Staff Logistics, Project Control Committee, Chief of Acquisition, Armament Technology Acquisition Secretariat, Armscor Board, Armscor Expenditure Committee and at least five divisions in Armscor as well as the very large SUVECS and Gensin Management Teams. Ginsin was the development of the surface to air missile, because it was an existing air force technology program, and SUVECS gave them money to continue that, but we managed it together. So Young frequently refers in his evidence to program and technical management activities that were in fact carried out under SUVECS, such as technical committees, the so called TC's, Design Advisory Groups, the so called DAG's, Program Plans, Design Reviews, et cetera, as if they were in fact capital acquisition management activities under Sitron, where in fact these activities were to manage SUVECS and had no contractual bearing on Project Sitron whatsoever. On the issue of the design of the Combat Suite, he calls up a very particular milestone under SUVECS, the Design Review number 2, DR2, throughout his document, to prove that his system was part of the Sitron Combatting Design Base Line, whereas it was in fact, that is the DR2, a design review of the SUVECS technology demonstrator and the contracting and minutes will certainly reflect that. Now the aim of SUVECS was to enable local industry to survive, that was its aim, in order to, its vehicle was the technology demonstrator, but it was aimed, it was in order to survive, in order to have the potential to participate and the project definitions say those very words, in capital acquisition programs, not a specific one, but generically. .. (mechanical error) .. did survive, solely as a result of SUVECS funding and is now participating on the Corvette and submarine acquisition programs, very significantly, with the same technology, as well as bidding for the upgrade of the Helicopter Control Systems in the current fleet as well as selling the Data BUS Technology developed under SUVECS to several customers. I might add, not only is Mr Young supplying the systems that he refers to in his submission and that is the Navigation and Distribution System of the Corvettes, is also subcontracted to supply very major subsystems to the tracking radar, he was supplying the tracking radar Consols, developed under SUVECS. So as far as we are concerned, the State aims of SUVECS as far as C²I²'s participation is concerned, were therefore fully met. It is our great regret that we are not also obtaining the information management of the Data BUS from him, but I submit, Sir, that that was only one of the activities that he was involved in. He later claims, and I will come back to it, that he was not involved in navigation and distribution type activities and other activities with regard to work that he is doing. I will try to prove the opposite.

May I, Admiral, in your paragraph 4 of your introductory statement, where you say it will be shown that Dr Young does not understand and chooses to ignore the fundamental change in the contract and strategy in the Corvette Project between the years 1992 to 1995 and that pertaining 1998/99 period had found the basis of the formal tender and negotiating activities, which of course you have expanded on, with regard to your technology demonstrator and technology retention on that, it just occurs to me, for a man who has worked with you for so long and who is as brilliant as has been demonstrated and is demonstrated by the company that he runs, how couldn't he understand that? I mean, I thought this was so, even I understand it, so how can't he understand it? --- If you would indulge me, I am now going to take of my naval officer's hat for a while, if my council will indulge me. I do not frankly believe a word of it. Mr Young is an intelligent man, he is an intellectual man, he was at the very heart and centre of all of these activities and I believe Mr Cooper neatly summed it up, but this is nothing more than a bare faced attempt to rest and wring a commercial advantage either through the main contractor or latterly through a process of restitution or compensation. I am going to put my naval officer's hat back on again and say that we do not understand, and I will tell you this, I will tell you why I say that, we had at the time, I say w, Mr Young and myself personally, as well as all of my close colleagues in Armscor and the navy, a very close intimate relationship with Mr Young. There would be occasions, and my wife can testify to this, that he would phone me at home in the early hours of the morning, usually at the end of, closure of the financial year, in that fallow period between the last year's money running out and the commitment by the State to him or any other company of new money on the technology program that we were running. But we were inhibited, there was no roll-over, we were inhibited to a year by year, because that is the nature of technology programs. We could not commit or promise any work on the future until it was approved. And he would say to me on the telephone that my bank is calling in the loan that I have made to pay my people, my people's salaries, can you not swing something please? And we would go into a huddle and I do not want to perjure myself in this forum, but we would swing something in terms of going that little bit way beyond, walking things around that would normally take three weeks or four weeks for approval, that we walked around in an afternoon, in order that him and him alone could survive. Why did we do this? Not because we loved him, but because he has got good technology and he is a South African company and frankly he had been working with us and he was until that recently remained a very close professional colleague. That is the nature of these things. But I am making a long story, we do not understand it, no.

Sorry for the interruption. --- Not at all, Sir, not at all. Now, apart from the C²I² Data BUS during this technology activity called SUVECS, several items of technology work by companies that were funded under SUVECS did not materialise into work under Project Sitron that has now contracted again. Mr Young's weaves a web that he was the only unfairly disadvantaged local company. I, for example, LIW, we spent several million rand with LIW to produce a rotating launcher for the SAM Missile. And they had every expectation, not in a legal sense, but in the sense that is claimed by Mr Young, to be contracted to provide this Surface to Air Missile Launcher. They did not get the job, because the base line changed from a rotating launcher to a vertical launcher. Kentron, their sister company, I might add, came to us with the idea that it would be better to do vertical launching and they, under a separate air force program, technology program, they had matured to a certain degree of technology demonstration the vertical launch technology including thrust vector control and we said: gee, it is a good idea, we are not going to go the rotating launcher route any more, because, I do not want to go into it, but there is certain operational restrictions on that route, and LIW says how can you do this, we have been working for two years on this and there it is, it works, and we said sorry, guys, that .. yes, but you know there is other good reasons, operational and technical reasons why we are now going to go away.

MR MALINDI: Admiral, before you proceed, when you were working, is it LIW .. (intervenes)  --- Yes.

On a rotator .. (intervenes)  --- Missile Launcher.

Missile Launcher, and it was changed to vertical, whose, you have got requirements, were being used to change it to vertical? --- The Navy's, the South African Navy's.

Were those requirements previous developed and approved for the rotating launcher or what is the position? Did the requirements changed as the .. (intervenes) --- Yes, all right, I must stress to you, to answer the question if I may, a technology program does not have a user requirement, a technology program has a functional base line where you say: look, you are trying to aim at a technology demonstrator that will roughly accommodate these, this set of functional requirements so that should we get an acquisition program, should the ship materialise, should the nation be generous enough to give the navy new ships, we can utilise that technology, but not necessarily, and this is the key point, Mr Chairman, not necessarily and usually not exclusively and usually not with the luxury of even being able to do it within the parameters that you set, not usually entirely commensurate requirement base line or disfunctional base line I am talking about, for the simple reason that when you establish a user requirement base line, you do it for a ship, you do not do it for a technology demonstrator. The South African Navy cannot use technology demonstrators to defend our country in war. The navy uses operational fully qualified ships. So you use building blocks and by their very nature building blocks never together sit exactly squarely with the user requirements specification. So we had the generic requirement to protect a ship with a hemisphere 360 degrees around the ship. The only way you can protect a ship 360 degrees, if you have manually, if you have mechanically trained launchers two of them, one far and one off, there is no other way unless you have no superstructure inbetween and that is not a luxury we have on ships. So vertical launch as a technology was a superior technology for considering how to defend a ship in a hemisphere, in other words, 360 degrees around. But when we started SUVECS we did not have the technology in the country. The airforce developed that technology and brought it to us, or Kentron brought it to us through a technology program. So it did behove the State to change its course in mid stream, yes, but not in contravention of a user requirements specification that was extant and governing, but in terms of the evolution of technology and what the bounds of possibilities would be. Thank you, Sir. I want to go on. There were other companies that were so, if you wish, disadvantaged, because we did not end up contracting them even though they worked under SUVECS, Torpedo and Torpedo Launching System Upgrade from IMT, IMT is the company in the Cape which is an affiliate of, in fact, I think it is a subdivision of Armscor, but it is run as a company, and they are our scientific house for torpedo's and other things. They did a lot of work on Torpedo and Torpedo Launching Systems and they are also the torpedo scientific house for the navy, so they had every expectation, if you wish, but I am afraid we got to the point where we said well, we do not even think we can afford torpedo's at all on this ship, but even if we could, the MACH44 Torpedo which was what we were aiming for, is getting so obsolesent now that it simply does not make sense, even though they have excellent technology and they really took this thing, they took it to a demonstrator where they fired this torpedo and it worked beautifully, we said no, we are stopping. A Torpedo Fire Control System from ADS, irrespective of the torpedo, ADS worked on a Torpedo Fire Control System extensively, arising from their work that they had done on the upgrade to our submarines, an acquisition project called Project Nickles. None of those things materialised, not the SAM launcher, not the Torpedo Launching System, and there were others, I named some of the major ones. So there were several companies, I have just listed three, that were, if you wish, disadvantaged by this process. I continue if I may, Sir. SUVECS was therefore not a mere continuation of Sitron as planned by Dr Young, but a completely separate program, there is no contractual connection whatsoever between the two and he cannot therefore claim a right to work on the Corvette duties(?) participation on the Technology Retention Program. And I wish to state on record, at no stage whatsoever during the 1994 or 1995 Sitron activities the SUVECS activies 1995 to 2000 or the 1998/99 Sitron activities, or at any other time, were C²I² given any undertaking, contractually or otherwise or any obligation by the Department of Defence or Armscor to guarantee his position as a supplier on any future acquisition. In fact, to have done so would have been unlawful and a basic contravention of the way the State tenders for capital equipment. Sir, if I may continue. The second part, or the second claim that is a sub claim arising from the first theme of this "I was selected theme" was his selection by virtue of his nomination as the supplier in the request for offer to the German Frigate Consortium, which was the first tender document sent out for the Corvettes by this government after the 1995 deferment. There was a previous document in 1997 that was designated by the government as a request for information and it has no status as a tender document. We treated it as a tender, we did an evaluation, but it in fact was a request, the idea of the RFI in 1997 was to shortlist potential suppliers and we went out in 1998 on February the 13th with this request for offer document. But he claims that by virtue of his nomination as the supplier in that document, and he is listing in the Combat Suite User Requirements specification that formed the basis for GFC to offer a Combat Suite accords him the right. But I need, I state here under oath that he falsely contends that he was nominated by the State as the supplier of the Data BUS in the RFO to the GFC in that he was listed in the SA Navy Combat Suit Element Costing and Description which was annexure of part of the RFO as the primary basis of his claim to have been selected, claiming that such nomination accorded him the concomitant privilege and right to be contracted by the main contractor. Now, the reason we are saying this is the document, the Combat Suite Description sent by the State accompanying the RFO and it in fact forms the basis, here is the request for offer document and I read into the record:

"Armaments Corporation of South Africa Ltd, request for final offer, offer number EMAR97/1464 closing at 11:00 on 11 May 1998."

Offer remaining valid et cetera, and this is the document, page 1 of 43. There is an annexure, there was an annexure attached to this RFO and I read from the enclosures which were sent to the German Frigate Consortium:

"Receipt to the following is acknowledged."

And I have the one signed by the French consortium, but they were all signed by this. The request for final offer, this document. 1. SA Navy intrinsic and part of this offer was document number 2, SA Navy Patrol Corvette Ship platform requirements, appendices et cetera, et cetera, and then document number 4, appendix to this RFO was SA Navy Patrol Corvette Combat Suite Element Costing and Description document. Document number 5 was this document, a program plan, management plan for the acquisition of Patrol Corvettes for the South African Navy. There were also industrial participation requirements, preference certificates, contractual conditions and so on.

PRESIDING OFFICER: So, was the claim just false or was the claim a misinterpretation or what was it? --- I will attempt to answer that, Sir, if you will bear with me for a minute or so. The point that I am making is he basis his, throughout the initial phase of his claim that this document which was an absolute intrinsic wholly part of the RFO, nominates him and accords him thereby some right of contract and I will come to that in a moment. The reason we sent this document, this South African Navy Corvette Combat Suite Element Costing and Description, and in fact I was the author and I signed this document on behalf of the Chief of the Navy on 28 January 1998, was that we wished to sanitise, if that is the correct word, the issue of the Combat Suite during our evaluation of the ship platform tenders, because our experience has been that if you are in a constrained financial circumstance that the navy certainly was and still is, and you are buying ships, do not compromise on the thing that floats, do not compromise on the hull and machinery, because that is your 40 year investment. You can compromise on the combat suite, but do not compromise on the hull, particularly in our circumstance where we could not rob Peter to pay Paul between the combat suite and the platform, because we have a depurative of the fact that our country juts into three oceans and God put us here and that particular environment is a pretty harsh one, so we have to have a minimum of a 100 meter waterline vessel, we have to have a minimum vessel at 16 metres in beam to accommodate the role and pitch for helicopter operations, so I am not going to go on into that, but we were not, the Chief of the Navy was not prepared to compromise on those things. So, we also knew, and this was the second reason that we wanted to sanitise, put a box around our Combat Suite, was that at that juncture our industry was getting to the point where they had the potential to offer a main contractor equipment without too much embarrassment or probing or too much risk, but they were not necessary at that point, there was still in 1998, and in fact 1999 and 2000, this technology program that we were running, and some technologies had reached maturity to a certain degree, but others had not. And we wanted to ensure that we selected the best platform, but we also wanted to ensure that we selected a main contractor that admitted himself to acquiring the majority of the combat suite as far as was practically viable and commercially acceptable from our local industry. So we said: offer us a vessel, a total vessel, commit yourself to sourcing from our local industry, commit yourself to forming an alliance with our local industry in some way or other, we were careful not to specify the nature of that amount, but do not quote now for the technical or commercial aspects related to the combat suite. If you end up as a successful bidder, you will then be obliged to go into a tender process, a bidding process with, or for the Combat Suite, but we did not prescribe at that point any particular company or system. We did, however, you cannot just say to him: well, offer us a ship, we are not really going to tell you what the combat suite looks like, except that it comes from sort of local industry, or you should put on local industry, and then evaluate the offers. There are things in the offer that like the combat management system and the data base, they are intrinsic, you cannot evaluate the ship's weapon arcs(sic) without putting some generic weapon on the ship. You cannot evaluate the ship's operations rooms size without putting some populating, some generic system there, and that is exactly what we tried to do with this document. We issued this document therefore with a listing, and I can assure this panel that it was merely that, there was no intention behind this of, the various interpretations of the word nominate, it is a word that I wrote into my computer when I wrote it, and the only thing relating to the word nominate was it was literally that, it was the one we named, it was the one we proposed, it was the one that we put forward as a candidate, et cetera, et cetera. And there is a whole long list here, but we were very careful not to put any annotation of nominated supplier, in fact, we have a column called element supplier and under that there is a thing called the IMS and we put C²I² in exactly the same way that we say CMS and we put ADS, exactly the same way as we say Navigation Distribution System and we put ADS, in exactly the same way we put System Management System and we put ADS and so on. We also had three systems which we had already decided, we being the navy and the greater acquisition picture, that we would not even attempt to get from local industry, and those were those three areas that I mentioned, the Surveillance and Target Acquisition Radar, the Home Mounted Sonar and the anti-ship missile. It was just above our cost affectivity and our risk profile on local industry to source those systems. So we said for those systems, again, the shipyards had to have something to put on there and you can put a completely different radar on one ship in one offer and a completely different Radar on another ship in another offer, now that becomes an evaluation element in determining the ship. So we selected and that is a very small "s", we selected from James Fighting Shevron(?) James is a technical publication, we selected representative systems from, one from Ericson, which was a possible candidate to supply radar, and we said: all of you, all of you shipyards, but the Ericson Radar on in the meantime, we have not decided it, just put it on in the meantime. All of you put the Swedish Missile on, because we had data on that, we could supply it to them and it was an easy thing to, it was in the ball part of what we would eventually end up with. And all of you, all of you, put the STN Sonar on as a sonar. And they all did. The intention of that combat suites, and this is the key issue, the intention of this document was nothing more than to have a representative combat suite that all bidders would equip their ship bids with so that we could have a clear and clean and unfettered evaluation of the ships, and more than that, Mr Chairman, they all understood that exactly and they all responded to that exactly. Why did they do that? Very simply, because we instructed them in our RFO explicitly the way they should approach this document, which of course Mr Young is not aware of. I assume he does not have these documents, certainly on the program plan he keeps referring to the old one and I do not think he knows this and there is another reason I do not think he knows anything about this document. Firstly it was never in an electronic format and secondly we guarded it with our lives, it is Armscor's request for proposal, you just do now allow these things to go out.

PRESIDING OFFICER: But the instruction that you talk about, you said it was an RFO, was it communicated to the company to make sure that there was no misunderstanding of what you intended, that you intended selection of the with a small "S"? --- It was .. you mean local companies?

Yes. --- Absolutely. I personally briefed all local industries at intervals not exceeding a month I would go and brief them and the venue for that was that all company representatives, technical representatives and managerial reps used to meet with me anyway in my capacity as the project officer of SUVECS, I was also, I was wearing two hats at a time. We had a thing on SUVECS called Management Summary, management summary, by that I mean I would give a broad ranging overview of what was happening under the acquisition program. They had no other access to it and I was their conduit for that. And the management would come and go, sometimes there were technical people, sometimes the managers, there was one small company that was the exception, that there was one particular individual from that company that was always present there, because he uniquely on all of the companies, fused the functionality or the responsibility of technical director as well as managing director, he was always present at all of those briefings that I gave, his name was Mr Young, he was fully briefed and informed on this. So again I do not understand. But I wish to elucidate you as to what we told the main contractor, just so there is no mistake, the RFO cannot be seen in the light of this, if you take this out of the RFO and you read this in completely on its own, which was never intended in fact, not managed that way, then you might form the wrong impression and that is exactly what Mr Feinstein did in SCOPA, he waved this at me and I had to tell him: sir, you cannot take this in isolation, you have got to read it with its accompanying guideline which clearly indicate who this must be utilised. And I will take you to some of those guidelines if you will bear with me, Mr Chairman. Firstly in the RFO document itself, I turn and I read into the record, Sir, to page 4 of the main document, and I will read paragraph 1.1.4:

A ceiling budget (incidently we also have a costing budgeting and we told them do not quote, that is only our rough estimate, it has no status whatsoever) has been set at R1 470 million for the combat suite element and it is envisaged that the final definition and specification will be agreed during the negotiation phase, which was the phase precisely from December 1998 to July, August, September or right up to December of 1999, before incorporation into the vessel contract base line (the base line we reached on 3 December and duly was signed) allowance must also be made in the offer for prime contractor responsibility."

I go further, page 16:

"The offer shall include an allowance for prime contractor responsibility."

Page 25:

"The ship platform specification (which was one of the documents we gave them for the platform) will be expanded during contract negotiation (not before, during contract negotiation) to incorporate the combat suite element and become the vessel contract specification."

By that we are telling him that the current combat suite specifications will be expanded during negotiations. Of course the RFO document is a very high level document and that is why we gave them the program management plan, so that there was no misunderstanding contractually or no come-backs, and there were none incidentally. So if I turn to, I am not going to turn to all of these pages .. (intervenes)

Sorry, I just want to make sure I am understanding correctly. We are talking about combat suite specification being .. (indistinct) during negotiation. What happened, the .. (intervenes) --- That is exactly what happens. That is the issue, if I may, and I will come back to it, where Mr Young contends we had no right to amend the combat suite base line. That is the basis of his argument. That we cheated him by having the audacity to amend the technical base line of the combat suite, that is exactly what we intended to do, because .. (intervenes)

It was provided for. --- It was provided for.

Specifically. --- Yes, and I will go on in the program management plan, the only one extant, not the one Mr Young quotes so liberally in his, that is the old one, the 1995 one, I quote from the same quotation, and I am not therefore going to read it, about expanding it, that is page 7. Page 13:

"The offered ship platform specification will be compiled in accordance with (there is a CESWBS, it is a Ship Work Breakdown Structure, it is a technical document) and will be expanded during negotiation with the proposed vessel contractor to incorporate the combat suite element. This will be based on the combat suite functional specification, progress achieved during the interim development phase that will be compatible with the ship combat suite allocated base line. The relevant ship platform offer documentation will therefore evolve into the vessel specification, the vessel contract base line, which will include full vessel contractor and vessel integration responsibility. The vessel integration engineering will be undertaken in conjunction with local industry. The intention therefore is that the preferred vessel contractor will enter into a teaming arrangement with the combat suit contractor to supply the integrated vessels and the integrated logistics report as a complete and operating operational system. The contracting model is illustrated in appendix B."

Then again on that page, 42117:

"The vessel contractor takes responsibility for the design engineering effort of the project at the vessel contract base line, which marks the start of the vessel development phase. This engineering effort will mainly consist of inter alia (and I will read the one extract) detailed design/development of the combat suite, to meet all the combat suits subset requirement of the vessel specification and generation of the combat suite subset of the vessel product base line."

I go on to page 19. These are all guidelines to the main contractor on 13 February 1998. I beg your pardon, page 20. That is really a subsid(sic) of what I have just said in another way and page 23, and this is very significant:

"Although estimated costs will be derived from the parallel development of the combat suite (and that is the technical development taking place during negotiations) the final costs will only be apparent after negotiation with the preferred vessel contractor in particular the integration and business risk costs have to be determined."

Page 24:

"The vessel, including the ship platforms and the combat suite elements and the integrated logistics report, will be procured as one program from a single prime contractor who will be totally responsible for the activities of his subcontractors. The vessel contractor will be required to obtain agreement from Armscor (et cetera, it is an APMS vessel) of all major subcontractors prior to the vessel contract base line."

Mr Chairman, those are some extracts, I am not going to go over the entire issue, but if you read the entire document, that is the vain with particular reference to this thing. What I am trying to illustrate, Mr Chairman, with your indulgence, is that you cannot read this thing on its own. If you do read it and you read this and you read this, you cannot but form any other impression that there is going to be a tendering phase with the main contract for the combat suite, and in fact, Mr Chairman, a loan amongst every single local or overseas contractor, Mr Young appears not to have understood that. There have been no other objections, there have been no other clarifications sought, there have been no other activities or actions which would lead us, as the management team, to understand that oops, somebody did not understand it, we had better explain it again. But I think I have covered that in terms of my own belief as to the credibility of that statement. And I need to say to you that the process followed as per this: to reach a vessel contract base line in 1999 preceded exactly as defined in the RFO. That is the German Frigate Consortium was selected by the cabinet on 18 November 1998 as the preferred supplier. In their bid, and this is what Mr Young does not know or did not know or chose to ignore, the GFC offered to form a consortium with ADS to supply at least 60%, they made that commitment, because that was a DIP, Defence Industrial Participation commitment they had to make, at least 60% of the combat suite for the Corvette would be sourced from local industry. And I might add, that is by an order of magnitude, the largest percentage we have ever achieved in this defence force's history of local combat suite content for a major vessel system, or in fact any other major system, including air craft and others. At least 60% of the combat suite from local industry, without committing to any subcontractor or supplier. And their offer is again on record and if you wish to see it, Sir, we can furnish it, I would prefer not to read verbatim from the offer as it is commercially confidential. But I assure you, they do not commit to any subcontractor or supplier, they say we will give you 60% of the combat suite from local industry. But they do in their offer nominate - and this is with a big N - one local contractor with whom they intended as part of their offer, intrinsic to their offer to us, they say we will form, if we are selected as the preferred bidder, we will form a vessel consortium with Messrs Altech Defence Systems for the supply of the combat suite. So they have already, they were not alone, there were others, but not all of them did, they had come to this country, they had had discussions with ADS and in their offer of 11 May 1998 they proposed as part of their offer, to form a vessel consortium for the supply of the entire vessel with ADS providing them or providing this consortium with a combat suite, in other words, ADS would be the contractor of these things. And I wish you to just bear with me, but just hold that thought, because it has been alleged and in fact it was stated categorically yesterday in re-examination that ADS had the same status in the bidding process for the SMS as C²I² in May of 1999. With the regard to the right of us to put certain costs onto ADS which we would have to bear in the long run, in that at the time, after all, which was Mr Young's claim, they had no other status that C²I² in this matter. That is simply not true. They were part of the preferred supplier selected by the South African Navy, correction, the South African Government, on 18 November 1998, they were in fact already at that stage therefore part of the German Frigate Consortium, part of the greater vessel consortium with the German Frigate Consortium. I go on in terms of those process. GFC was instructed to expand their offer, to include an offer for the combat suite on 12 December 1998 against a South African Navy User Requirements Specification, duly furnished on that date wherein all suppliers, all suppliers, are explicitly listed as candidate suppliers only, including Mr Young, and you heard the polemic about that. I can assure you, from where I sit, the word candidate is absolutely clear and if you look it up in the dictionary it tells you exactly what it is. It has no connotation whatsoever, in fact, it is directly opposite to the word select. The main contractor free to offer any alternatives as he felt fit in that process. The German Frigate Consortium duly formed a formal consortium with ADS as they offered and promised to do, obtained quotations and made a series of combat suite offers to the State as part of their overall vessel offer during the negotiation phase. During this phase on numerous occasions and I will cite at least nine of them, if you will bear with me, Mr Chairman, they were instructed or requested or encouraged, whatever the word is, during negotiations, we made it perfectly clear, to offer cost effective alternatives to any equipment or supplier. This they duly did. And in the case of the IMS, C²I² is competitor provided as a cheaper alternative by the main contractor one. By exactly the same process, ADS listed by the State as the sole candidate supplier of the navigation distribution in the URS and listed by the State as a potential candidate in the RFO, lost the sub-contracting fair competition to C²I². Dr Young variously and repeatedly calls up the URS document to substantiate his claim of being specified and thus selected by that document. Yet in this document he was explicitly listed as a candidate supplier only. That is from the document side, but you know, credibility is not necessarily what you read in a document, because it is subject to interpretation. So let us examine what Young actually did during that period, what were his actions by which govern our disbelief in terms of his statements that he was duly the rightful and sole expectant of this contract. During the entire Combat Suite tendering and negotiation process, Young acted exactly contrarily to his claim supposition that he or any other supplier similarly listed in the vessel RFO documentation or URS had the preordained right of selection to supply any of their systems to the main contractor. He formed a rival consortium to the candidate local industry suppliers in December 1998, well before the tendering and negotiation phase that we have been justing with him about in the last several days, with Messrs Brittish Aerospace PLC and Plesitelemid of the Cape(?) and offered the State directly and not by any innuendo, but by letters to me and by a presentation that was made to me and my senior colleagues on the 16th, a letter to me on 12 December and wherein he invites and offers me an alternative, and by a presentation given to us - I might add under circumstances which I very nearly walked out on, because I was not aware that I was going to be given this presentation - it was also on December the 16th, which was a public holiday and he asked me to come around and talk about some serious matter which concerned him. When I walked in the room with my colleagues, there was Brittish Aerospace aligned on the table, there were sandwiches on the table and we proceeded. I listened to what they say, gave no commitment and walked out - however, I do have the presentation in its complete form, so that you can check that this is in fact perfectly true. What he was doing there was he was offering the State and the German Frigate Consortium, because he only had meetings, he correctly states that he had meetings with GFC, as the alternative supplier for the whole combat suite. That he had formed a consortium with Brittish Aerospace to offer the supply, including the Combat Management System as a system, the work of Combat System integration as well as other items of supply, including inter alia some items of supply from some certain other local contractors such as LIW and Kentron, which, because those items of supply are typical to Aerospace's portfolio of equipment. Despite these items, that is the Combat Management System and the Combat Integration Work, being listed against ADS and other local suppliers in this RFO document which he claims exclusivity origin from, as well as in the URS list of candidate suppliers that he claims exclusivity origination. That was his first action. So it stretches the bounds of credibility to suggest that at that time he was bidding against the people that were also listed in these documents, actively bidding, he now claims that by this process he was the sole and mandated suppliers. But not only that, during the process of the negotiation, he twice bid against ADS to supply the SMS, that is the System Management System and the NDS, that is the Navigation Distribution System, despite both of these systems again having been listed in these documents, that is the vessel RFO documentation or the URS against ADS, and in this competitive process in fact displaced or replaced ADS as the NDS supplier. Fair competition. Dr Young was also fully aware that C²I² was only listed as candidate suppliers in the Combat Suite URS document that formed the basis, the Combat Suite tendering and negotiation phase. When I say he was fully aware, he was informed by the State on 7 December 1998 explicitly in a letter and was informed as such by the main contractor as well in that same month by a letter and was in possession of the said URS in the same month. Yet, at no stage after issue of the URS until he was faced with a competitor to supply the Data BUS in May 1999, did Dr Young raise the issue, protest or complain to us or anybody else as to his candidate status. No other local companies listed in the RFO or URS, 14 of them, 10 to 14 of them in all, understood, nor have claimed to have understood exclusive selection rights with the supply of the equipment listed in the RFO or the URS. The reason for that, we were explaining ourselves on a daily basis. Some of them did not like it, but that is the real world. There is another thing as well .. (intervenes)

Before you pass there, you mentioned earlier on that during those explanations, the young officer, as I think you referred to him, was present, why was he always there? --- He as a small company, and it is probably right in his company, he is not only the manager and director responsible for corporate affairs and financing, financial control and so on, he is also the leading technical engineer in the company ... (intervenes)

Which company? --- C²I², Young, Dr Young.

Yes, I understand that, but you were explaining to the other companies, but he was always present .. (intervenes) --- Oh yes, we used the forum, the primary forum was our monthly get together, monthly, six-weekly, two monthly, but it was usually about monthly, of the SUVECS Technology activity, we were running SUVECS in parallel. So we had to gather these people once or so a month at least for technical discussions, for progress reports, and others would come and go, but always the technical management was there .. (intervenes)

He was present in the SUVECS contacts. --- He was present always in the SUVECS, and the minutes of the meetings will show his presence always. Now, just like the previous phase of Sitron, where people fell by the way-side even though they had got work, they were not contracted now on the Corvette and just like SUVECS where people fell by the way and were not contracted subsequently, several other companies listed in the original RFO documents or specified in the URS, did not end up as suppliers of the equipment that they were specified to supply in these listings. Or in some cases they did end up getting contracts, but only for a small portion of the scope of supplier that is called up in those documents, not only scope of supply, but in terms of the architecture of that subsystem, the technical integration of that system, the way that subsystem is put together in the whole combat suite. I think you heard quite a lot of that, the architecture side in the last several days. But there has been a distinct attempt to convey to this panel that he was unique in that this change of architecture, or the evolution, there was not only one change of the architecture, it was a continuous process, that somehow uniquely disadvantaged him and therefore the only explanation for that was we were either negligent or we were wilfully unfair in the process. That simply is not so and I will list some of these. Gintec and Plesi(?) originally listed to supply the internal communications systems, we displaced by Signal, a foreign company, Signal had a better product at a cheaper price, and it is not a strategically critical thing. ADS, originally listed to supply the navigation distribution System was displaced by C²I², I have said that already, AVITronics wholly South African Company, whose laser warning system was removed entirely, we could not afford it, it disappeared, and the Decoy Rocket Lauch's scope of supply was reduced by half. Now that was also a small company, a little bit bigger than C²I², but not in the order of large companies, not at all. Sistel, a very small company, a company operating in Pierre van Ryneveld, smaller even than C²I², whose jamma(?) scope of supply was reduced by half. Kentron, who had their Surface to Air Missile scope of supply reduced by half, we just could not afford to buy a full suite of missiles under this contract, not only the missiles, but we went from 32 lauch shells to 16 launch shells with a huge reduction in the money that they are going to get out of the contract. NRW, whose 35mm AHEAD with with .. (indistinct) ammunition, capability was removed entirely, which effected their ability to market their gun internationally, we could not afford to subsidise them on that. And then all companies saw the scope of supply across the entire Combat Suite reduced from five systems to four systems. We had this wonderful idea, well, good idea, that if you have got four - and it is the norm in this type of contracting - supply rather, that if you have four ships, you buy five systems, for logistics support, for testing, for evaluation, we simply could not afford to do so, we reduced our scope of supply. But this thing says five systems. The URS says five systems. We reduced it to four in the contents of this thing.

When you say Gintec also did not win. --- Correct, Gintec and Plesi, in here they are listed as the supplier for the internal communication system, internal communication system, Gintec Plessi, but they did not end up getting the contract, because their technology was either not at a maturity level or in the case of the internal communications, was too mature and they had not invested sufficiently, there was not enough time to invest, there was not enough money to invest, so we selected, we did not select, in fact we looked at a range of options, and the internal communications equipment contracted for is the Signal, it is a company in Germany, that is supplying the internal communication system. Gintec, that is the way life goes, they did not complain to us, they were not very happy, but they did not complain. May I continue, Sir?

Yes, certainly. --- So our contention, in fact, our statement before you as the head of this panel and your panel is that at no stage in the RFO or the Combat Suite tender process, was any company, including C²I² selected, intended, listed, designated or stated as the selected supplier by the DoD Armscor or anybody else, of the Data BUS in this competition.

You may proceed. --- I now come to the third claim still under the main theme "I was selected" and that is his claim of his selection by the State to supply the Data BUS by virtue of being selected as he supplier in the request for Combat Suite Best and Final Offer by the State to the main contractor and I now need to go to his evidence just to refresh myself and I turn in fact to his summary. I turn to his summary, my paragraph 503 and I read:

"With respect to the IMS C²I² was involved in the development of the IMS for SAN for seven years and were nominated (boldly) in terms of the formal tender documents i.e the RFO and the RFI as the supplier of the subsystem for the Corvette Combat Suite (and I have just dealt with that point). Later this nomination evolved into selection in terms of the Request for Best and Final Offer."

And I am coming to that in a moment. This is the Combat Suite Best and Final Offer. So let me deal with that now. Dr Young claims in his deposition that later et cetera .. thus in a parallel argument, in other words in an argument parallel to his argument of inalienable rights arising from his nomination in the RFO documentation, he falsely contends that the listing of C²I² in the State's request for Combat Suite Best and Final Offer accorded in the status of having been selected by the State as the supplier with the concomitant right to be contracted by the main supplier. Well, let us examine the facts. C²I² were indeed listed in the Request for Best and Final Offer issued on 6 May 1999, as at the time, right throughout this process, they were still the base line supplier for this equipment in the Combat Suite tender and negotiation process then under way with the main contractor. The crucial issue, however, is no selection, as I have explained, by the State on any of the Combat Suite Equipments had taken place at the time, with the scope and the price of the Combat Suite being open due precisely to the fact that the Combat Suite price was too high. We, in February we had the first round of offers and the price was simply too high, we then went into a very intense negotiation process, leading up to the document on 6 May and other documents which resulted in the Best and Final Offer. However, which Mr Young is probably not aware of and appeared not to be aware of all of these documents, again of them, not all of them were in electronic format, preceding the BAFO request and specifically included in the latter of clear and unambiguous verbal and written instructions and encouragement by the State to the main contractor, that he may and should offer any alternatives that are more cost effective in the effort to reduce the cost of the Combat Suite. The latter are reflected at least in the letter to the main contractor from the CEO of Armscor on 8 March 1999 and the Request for Best and Final Offer of 6 May and its amplifying letter from the Project Team on 21 May 1999. Mr Young has called up the BAFO request of 6 May 1999. Sir, I wish to read into the record what we actually said in the BAFO request of 1999, which Mr Young does not reflect in his evidence. I must also state that the request was not to him. It was a communication between the State and the main contractor. I beg your pardon. If you will bear with me for a moment. May I proceed?

Yes, just for clarification, the RFO which you have referred to, with regard to the explanations and so on that you gave to companies, you merely gave verbal explanations to them because that was communication between you and main contractor. --- Yes.

And at no stage did anyone of the .. (intervenes) --- No, we did not allow them to see the documents at all, we obviously gave them briefings on what we were doing, but without specific reference and of course without divulging any commercially sensitive information, because they were at the time negotiating with those contractors, or about to go into a negotiation phase.

Okay. Please proceed. --- I read from the 6th of May letter, signed by myself and Mr Nortje of Armscor to the Messrs German Frigate Consortium and African Defence Systems (Pty) Ltd and remember they had formally formed a consortium by that stage. I am not going to read the whole thing, I am going to read from paragraph 11, which is not of course reflected in Mr Young's evidence.

"While you are still encouraged to submit any options considered viable as potential cost efficiency measures for our consideration, we, the customer, are not prepared to consider any further reductions in the primary scope of supply or performance."

And the reason we said that is because we had gone through the catharsis of salami-slicing our functional requirements at the expense of the situation, but that was a clear indication to us, to them that they were still encouraged to submit any options considered viable. This is preceded by a whole history and I am not going to go through them all, there are eight or nine occasions where we told them: offer alternatives, offer cost effective alternatives. Mr Swan's letter is already in the record, it is a categoric instruction for them to offer alternatives. However, I am going to now go to this BAFO letter of 6 May was followed up categorically by another letter which has already been read into the record, so I am not going to read the entire letter, but it is the letter of 21 May 1999 signed again by both Mr Nortje and myself as the two leaders of this exercise, from ourselves to German Frigate Consortium and African Defence Systems, Best and Final Offer, et cetera:

"6th of May has reference. You are reminded of an important principle regarding alternative offers (in fact, the title of this letter is: baffo request alternative offers), as discussed on 11 May and indeed on several occasions since February 1999, 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 scale and industrial participation. However, such alternative offers should not be submitted in place of a compliant offer, but rather in condition to a compliant offer. First and foremost you are required to submit an offer compliant to the requirements. Alternative offers must be distinctly separate, additional .. "

Et cetera, and it must be motivated, I just recalled that Mr Cooper in fact read this into the record on Tuesday. But why I am calling this up is documentary evidence that in fact not only did we accord the main contractor the right to offer alternative offers, which is perfectly commensurable with a normal tender process, but we in fact encouraged him and requested him to do so, and the reason for that was we had a price ceiling problem and we had a risk problem which I will come back to later. With respect to his candidature on this exercise, he also writes in a letter to ADS on 7 June after the delivery of the Best and Final Offer, he invites the main contractor, in fact, after the BAFO exercise had already been completed and the BAFO had been submitted to us, which he claims is the basis for his selection, this evolution to his selection, he writes to the main contractor to review him as a candidate, stating explicitly, therefore the indigenous INS, his system in other words, is an excellent candidate for Defence Industrial Participation. So, you know, two can play with words here, I am not going to go further in calling up correspondence between him and anybody else, except where we are concerned. So I think I have shown that the main pillar of his argument, which is that he evolves through a nomination process in our tender documents into a selection status through the Best and Final Offer simply has no basis in fact or law, and in fact, I tell you now under oath it was never our intention that we believe that all contractors knew this and that is supported by the fact that all contractors local and overseas acted according to the way that we expected them to act and in accordance with the documentary tender process and the record that we offer today, except now latterly with the singular exception, Mr Young. That concludes our response in theme terms to that main issue and I propose going to the main theme number 2, unless you want to take a break, a short break.

PRESIDING OFFICER: Yes, we will take five minutes.

PROCEEDINGS ADJOURN. PROCEEDINGS RESUME.

PRESIDING OFFICER: Yes, you may proceed. --- I come now to what I have denoted as main theme number 2, which is that he as a South African Company as deselected as the rightful supplier of the Corvette Data BUS in favour of Detexis, a foreign supplier owned by Talis, the new name for Thomson, due to a combination of dereliction and/or favouritism by the DoD/Armscor Project Team and the Project Control Board and corruption/nepotism on the part of Mr Shaikh to use his influence to steer the contract to Detexis because he has a family connection to their sister company ADS, also Talis controlled. And the primary vehicle for this perfidy was the wholly unjustified apportionment of a risk allocation to his product by ADS, which artificially raised its cost to the customer and thereby rendered it uncompetitive within the cost ceiling of the customer, a cost ceiling which in any event was artificial and manipulated by Mr Shaikh and the project team and the project control board knowingly allowed the main contractor to get away with this by at least a regular controlled process. He therefore has the right to be reinstated as a supplier or to be accorded restitution from the State. I am not going to deal with the issues of corruption or nepotism on the part of Mr Shaikh, that is not my field and that is not my mandate to do so, so if you will bear with me, I will not address those issue, unless I am directed to by Mr Shaikh's counsel. So I will deal with the risk issue, if you will bear with me, but before we start, I went to appeal to the panel that we are not dealing with a technical risk of an engineer in a warm dry, software laboratory, the risk that his electronic design will not work by four o 'clock in the afternoon. And we are not dealing with a financial risk of an investment portfolio manager, that he might lose a million rand on the stock exchange this afternoon. We are in fact, Mr Chairman, dealing with the risk of the lives of the men and women who go into combat at sea to defend our nation. This is the risk that we have to manage. This is not something that comes lightly or falls lightly on the shoulders of those who have to manage it. So in terms of the rebuttal, his first claim is that the system is not a risk, therefore the main contractor had no right to apportion the risk allocation that he did, the State had no risk to allow him to do so and should have obligated the, we should have obligated the main contractor to carry the risk of his system, or C²I² system, or at least should have borne the cost of such risk apportionment. Well, he insinuates that this system is not a technical or cost risk and not only that, he falsely infers that the State could and should have obligated the main contractor to absolve him of risk and infers in fact, and this is the saddest part, the sinister motive on the part of the Project Team and the Project Control Board. Well, I would like to take you back to my briefing this morning without repeating it too much, is the nature of the risk associated with any Data BUS, whether IMS detectors, anything else. And that is that although only a Level 2 subsistent as I explained this morning, the Data BUS is nevertheless a highly complexed engineering system, affecting the whole of the Combat Suite performance or non-performance. Any risk of failure or under-performance of the Data BUS places the entire vessel's combat capability, survivability and safety at stake. Similarly, late delivery of the Data BUS immediately and directly jeopardises the delivery schedule of the entire project. The careful management of this risk is therefore crucial to the success completion of the project. It is therefore essential that the main contractor assume full risk responsibility for the Data BUS at the vessel level. The Project Team, fully supported by the naval board and project control board, therefore obligated the main contractor, to resume full risk responsibility for the Data BUS at vessel level and carry this risk and provide performance guarantees to the State for the entire vessel. In terms of the acquisition policy the cabinet mandated injunction to contract at the highest level possible. Now, in a risk perspective I would like to just briefly cover the C²I² offer. The C²I² offered to the main contractor is based on the local Data BUS technology demonstrator under development as part of the SA Navy's Technology Retention Project executed in 1995/99, as I said, to ensure the survival of the local naval industrial base. The C²I² offer was therefore at partial technology demonstrator status only and not a product in terms of the RSA-MIL- STD0003 and believe it or not, we have documents, arcane documents nevertheless that do describe what a product is and in terms of that prescription his system was not a product, because it requires a product to be so designated must have been qualified for production. While holding potential, significant potential, and we agreed to that, the C²I² IMS was not qualified, operationally fielded or tested in a war ship, any war ship, then or today.

How do you qualify a demonstrated product for production? --- You put it into a rigorous test regime which simulates in the case of a BUS, a demanding environment, not only physical environment, but the data intensity environment of an operational unit, and then in many case, those richer nations that can afford to do this, they actually install it on a test vessel and they subject it to test at sea until they are satisfied that all the things have been ironed out and only then, we do not have the .. (indistinct) to do that, certainly.

You are aware of Dr Young's response in this regard, that they are tested in their laboratories or alternative he makes reference to usage of similar systems in and where he says it was the same, so .. (intervenes) --- Yes, he does. If I can cover that briefly and then I will cover it further. The C²I² database was an election of on the one hand off the shelf commercially available products, hardware and software products, and then custom software which then makes that system unique, in other words, developed by C²I² and I might add proprietary to C²I² in case there is any suggestion, and there has been directly, there is directly, that somehow that is an advantage over the proprietary issue with Detexis, but nevertheless, that then is designed for production in terms of a complete plant, and the interactivity between these various building blocks relating to sensors, affectors, combat management Systems and of course the physical environment of being installed in a ship, and there are factors such as electro magnetic interference where you cannot just run a cable through a ship and have radars and electrical supplies running close to it, there is interference and there is shielding and bonding and I am not going to go into that, firstly it is not my field, but secondly it is just, please accept that the installation in an operational environment is quite different and quite custom for that particular environment. Now, Mr Young kept saying his, especially in his re, what do you call it, his re-testimony, when he was recalled?

Re-examination. --- Re-examination. That his product is installed, or he said it in a way that could be, when he said his technology is installed in other ships. Now, the inference that can be drawn from that is that he has his product operating or there are similar products operating. That is simply not true, that is like saying, if I can use an analogy, that the Opel motor company says that their technology is being used in Mercedes Benz, because Mercedes Benz also uses an internal combustion engine. Now you know that is not true, the engine is not the same, the control is not the same, the environment is not the same, and the price is not the same. So I am afraid when Mr Young draws to far an analogy, and he has the right to do that of course, but nevertheless I wish for you to put that in perspective, that his system or his technology is operating in the United States Navy, yes, the technology of FDDI SAFENET Two is operating in the US Navy, just like the technology of internal combustion is operating both in the Opel and the Mercedes Benz, but with respect, and with great respect, because Dr Young is an expert in these things and we have never said he is not and we completely acknowledge his expertise, it is simply not correct or honest to draw the inference that his product is functioning, the product that he was developing for us, that is not true. The engines are not the same, the control is not the same and the environment also, and the price is not the same. So I am afraid, when Mr Young draws too far an analogy, and he has the right to do that, of course, but nevertheless I wish for you to put that in perspective, that his system, or his technology, is operating in the United States Navy. Yes, the technology of FDDI, SAFENET 2, is operating in the US Navy, just like the technology of internal combustion is operating both in the Opel and the Mercedes Benz. But with respect, and with great respect, because Dr Young is an expert in these things and we have never said he isn't and we completely acknowledge his expertise, it is simply not correct or honest to draw the inference that his product is functioning, the product that he was developing for us. That is not true. At the time of being offered to us, in order to be categorised as a qualified and acceptable risk, the C²I² technology would have had to at least, and these are figures lifted from his own acknowledgement, and when I say risk I mean within the confines limited to his little technical system, not the wider risk that I described this morning. Complete development, at least R15 million by his own admission and nine to 12 months. Dr Young attempted yesterday to allude to the fact that that R15 million was derived from a scope of work and activities, and so on. It was not. In the letter it is derived entirely, being 35% of the R45 million that he proposed. It is a straight forward arithmetic deduction of R15 million being 35% of R45 million. So I am afraid, I use these figures and I use them from him. Whether that is, we can't categorically say that is so, I am merely giving the order of magnitude. But also, he would have had to undergo a full risk evaluation, including a

demonstration of functionality in a fully integrated ship environment. He proposed that to us. Not during the course of this particular exercise, but on several occasions in the past, that we in fact take his bus and put it on a strike craft. That would have been a wonderful thing to do, but for one smalley problem. We didn't have - two smalley problems. We didn't have the money to do that. The chief of the navy was not prepared to take one of his last remaining and precious few operational warships and turn it into a guinea pig laboratory under a technology demonstrator program, certainly, and we never did it. But the point I am trying to make is that any failure of the IMS at that juncture, in other words nine to 12 months down the line of the contract, would have meant a major and potentially catastrophic exposure for the main contractor, with the latter not only having to replace the IMS itself, if the C²I² product failed, but fundamentally redesign the selected architecture and physical and signal interfacing of the entire combat suite within a very tight delivery time scale and a very, very demanding contracting scenario of performance guarantees.

Of R300 million? --- Of R300 million. But if I may clarify, or rather amplify that, Thomson-CSF, the largest European defence contractor and the third largest defence contractor world wide, the other two are American unfortunately, has a huge reputation to uphold. They are the foremost defence contractor, as I said, in the European environment. Those are factors which can't be wished away either. And in a multi-multi-multi billion dollar contracting environment every year, they are not going to risk their reputation, even if it was R30 million. But in fact it was R300 million at that stage, and of course that R300 million, like unfortunately everything else, gets bigger and bigger as the rate of exchange and as inflation proceeds. It is probably now closer to R400 million. In other words, the potential impact of a late discovery of failure, or a late manifestation of failure, is much more than the actual cost of replacing the IMS itself. So let's look at the nature of the main contractor risk premium. The main contractor was obliged to contract at the vessel level and to assume the full risk for the performance and schedule of the IMS, and you have rightly said that is in the order of approximately R300 million. Due to the main contractor's calculation of his risk exposure at the vessel level with the C²I² IMS, he included a risk premium in his offer to the state for the IMS. This premium totalled some R42 million. R12 million to execute a comprehensive risk analysis, internationally, including independent expert studies in modelling as well as empirical testing in a realistic environment. That could be done. Now the need for such a study was considered prudent by the project team. We handled with him and it is in correspondence, we say, R12 million, bugger you! We considered R12 million too much. R10 million would be a better figure. But then the intrinsic right of the main contractor and the necessity to carry out such a study we didn't handle with. And some R30 million to cover integration development risks, particularly the very complicated interfacing with the combat management system, hardware and software, and partially, partially to cover the risk of having to replace the C²I² IMS in the event of an IMS problem arising with its attendant vessel. They are all performance implications. Now I might add, the R30 million represented therefore approximately 10% of the vessel performance liability of the main contractor and some 1% of the cost of the vessel, and is well within international norms, well within international norms. It was considered prudent and reasonable by the project team. What we were not prepared to do, was pick up the tab for this, as I will come to in a moment. The main contractor, in fact, not only not prepared to do, we were unable to do as I will come to, in terms of our costs ceiling, even if we were willing. The main contractor initially offered to waive this risk premium, if the state was willing to relieve him of the responsibilities of the IMS and related vessel performance. This was completely unacceptable to Armscor and the DoD. But I wish to make the point, as I did this morning, and I wish to re-emphasize that. The main contractor said, go for it. You can take the IMS, we will take away those risk premiums, but don't hold us accountable. We said, no way. C²I² was unwilling or unable, I can't say which, to post a performance guarantee to the main contractor to cover risks involved. Notwithstanding what is in the evidence, I know and we know the hours of telephone conversations, meetings, face to face pleadings. I personally spent hours involved in trying to get Richard to understand that he has to make a gesture. That it is not good enough to stand on a pedestal and say well, it is unfair. My bus has no risk, my bus is the best product. Why are these people apportioning risk, and why are you letting them apportion risk. We tried to explain to them that we were in a different contracting environment, that there were realities to be taken into account. And one of those realities was the costs ceiling. And the other reality was the main contractor's obligations to us, which we were not prepared to waive.

Just on that point, Admiral, of who was the decision maker, even earlier testimony from among others Minister Alec Irwin, did indicate what you have alluded to a number of times, that because of the main contractor's obligations, he was the decision, or they were the decision makers, the subcontractors. --- Yes.

But the other point that Dr Young tried to make is that, and even by way of letters, of correspondence between lawyers, that the lawyers would say it was the state that took the decision. --- Ja.

Not the contractor, which seems to contradict it. --- Yes.

What was the ... (intervenes) --- Yes, I am afraid we did not enter, as is appropriate for a government entity, we did not enter into the multitude of correspondence which was getting increasingly acrimonious between the two parties concerned. That is not our job at all.

Well, what was the true position? --- I want to frame my words very carefully, so that there is no misunderstanding. When we took this to the PCB on 24 August, we took a risk profile scenario to the PCB, and we said there is a costs ceiling, and that was confirmed, mandated. We couldn't exceed that. That in this risks scenario category B, there is an option which has low risk and low cost. In this categorisation of category C, if we put, if we are allowed to put the IMS in category C, we have high risk and low cost. And there were a number other sub variants of that. And the issue revolved around the confirmation of the risks scenario, rather than the selection of this product versus another product. It was the, and you will read it in the 24 August minutes, what we put on the table. I wasn't there personally, my assistant was there. I was on a course. But I fully support what was done. We put on the table that our recommendation the PCB for ratification was that the Detexis - correction, was that the data bus remain part and parcel of the category B equipments, and that the data bus is not, does not form part of this category C variant that we were proposing, or putting forward for the other equipments. And if it was not so, in other words if the C²I² bus was going to be in the category B equipments, then we would have to, the implication of that, the financial implication of that was in the order of R40 million. And that was, and the essence of the PCB ratification therefore was not necessary for the Detexis bus versus the C²I² bus. It was the confirmation of the risks scenario and costs scenario being proposed by the main contractor, was ratified. That we were to stay with the data bus as a category B item, that was absolutely confirmed, for all the good reasons I have stated, that the state was not prepared to pay the difference in price to get the local product. And I am afraid by inspection, that means that the Detexis bus became the base line. But I also need to tell you that up to that point we had gone through a significant effort to get Richard to acknowledge his responsibility to attempt to cover the risk, attempt to make some gesture, some financial gesture. What he did instead was to write a letter suggesting that the, a contract placed on him for R15 million, but that the Navy should pay for that difference. That was just not possible, but in any event that whole contracting thing, you don't start a contract on the supposition that one of your subsystems may fail in nine to 12 months' time. You just simply can't do that. And in any event, as I have said, his R15 million was very narrow in terms of its definition of risk. As I have indicated to you, I believe that after 12 months it is not R15 million any more. It is in the, at least in the order of very possibly closer to R100 million, just in terms of replacement of the bus and the knock-on effect throughout the program. And we would certainly have at that juncture for the main contractor to account for his obligation to us under his performance liability. Absolutely. So that was the scenario. So it has been put about that the PCB, that we had some sort of a valuation that says, and I will come to the evaluation aspect, that we took this, gentlemen here are two buses, pick one. That was not the scenario. We said there is a risks scenario, do you agree with that risks scenario. There is a costs scenario, do you agree with that costs scenario. And out of that flowed the inevitable selection or confirmation of the main contractor's risk and cost that he was putting on the table. So one can argue all day on whether the state selected the bus, or whether the main contractor selected the bus. I have tried to illustrate that it wasn't one of those black and white decisions.

Ja. If you could find a convenient point, we are at the point of adjourning until tomorrow. --- All right. If you will allow me then to just conclude this risk thing? I go on and I have already stated that he acknowledged the risk and there is numerous documents, 7 June 1999 which Mr Kuper had read into the record where he explicitly acknowledges Thomson's right to conceive of risk, and various others and I am not going to now go through them all, except that he says inter alia, furthermore, and this has been read but I wish to place it in different context. Furthermore, Dr Young's letter of 19 July 1999 to ADS and not intercepted by electronic means by the Navy, but in fact copied to my desk by him.

"Furthermore, I am of the opinion that the Navy should be prepared (how generous of him) 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, i.e. where the SA Navy carries the risk."

And I'll stop there, because you have already, this is already in the record, except to say then, SA Navy did classify the IMS under category B, where the main contractor carries the full risk as suggested by Mr Young in the above letter. But the SA Navy was not prepared to pay for the so-called modest premium, because it wasn't modest, it is not just R15 million, for the peace of mind as alluded to by Mr Young. And neither C²I², nor the main contractor, quite naturally, they are companies responsible to their shareholders, were willing to absorb the stated risk premiums. Nor was Armscor, as instructed by policy and the ... (inaudible) subcommittee. Now before I finish, if you would indulge me, were there other contractors? It was a question asked in scope. Where risk premiums were added by the main contractor, and that certainly was the case. C²I² were not the only local contractor to have been subject to the additional risk premiums by the main contractor in their offer to the state. In his initial offer for the combat suite the main contractor assumed full risk for all South African sub systems being offered from contracting onwards, mainly due to most of them still being under technology development. Just the additional risk attached to this aspect of the offer amounted to an additional cost to the state of some R280 million, including the following: ADS for five sub systems R29 million, GS communications R5,9 million, and these are all without VAT, by the way. Grinaker Electronics R26,5 million, Reutech R69 million, Denel R8 million, Reutech R1 million, Denel-Kentron R88,5 million and so on. All these costs were a main contributor to the initial cost overrun for the Corvette, and all of the above sub systems, except for the ADS supplied items were placed in the so-called category C. We were not going to allow ADS to put any of their systems in category C, because they were the main contractor. Whereby the state relieved the main contractor of schedule and performance liability until completion of FATs, and thereby we escaped these prohibitive costs of risk, as well as ensuring a maximum possible return on the technology in vestment, and I stress possible return, on the technology investment made in those companies and those systems. The cardinal point of this contracting strategy is that it could not be applied to the IMS or the CMS sub systems, for the reasons I have already illuminated and the analogy then is a sub system can be late and without catastrophically affecting the entire program, the CMS/IMS cannot. It was therefore risk manageable to place the non critical RSA items in category C. But it was not possible for the IMS. Now there is another very important situation vis-a-vis Dr Young and his testimony, and in fact the factual situation at the time. Other risk allocations within sub systems, in addition to the main contractor's risk premiums, most of the RSA sub contractors included an internal development risk premium allocation to their quotations to the main contractor, over and above the prices that we were expecting and had been calculating under the technology retention program, SUVECS. Because they are businessmen and while we have been calculating with their engineers the possible costs of the system exactly the same way that Dr Young appears to calculate costs, it is only the actual equipment itself and hence we arrived at the ludicrously low figure for our combat suite estimate of R1,5 billion in 1998 Rands, the business people in the Kentrons and the LRW's and the Reutechs and so on were not quite so naive. This averaged about 10% right across. And on some sub systems was a considerable sum. Kentron, for example, put aside R43 million internally, that they added to their quote to the main contractor, and of course we pick up the tab, eventually, to cover their own development risks, because they knew that what they had was a technology demonstrator. And to take that to a qualified product and to offer that under a draconian regime of performance guarantee to someone who contracts him, i.e. in this case the main contractor, they added those sort of figures. A singular exception, a singular exception, the only local company that failed to add a single brass cent for risk allocation was C²I², surprisingly given the implications of a delay or failure of his sub systems and his subsequent clear acknowledgement of a 30-35% risk in his development in a letter to the ADS. I have to ask this panel that the question that I would want to answer, and we tried to answer at the time, is why did Richard Young not add to his cost, his quotation to the main contractor, the 35% risk factor, at least? We don't know. We simply don't know. But there was no, alone he had no risk allocation whatsoever. So when it became clear that C²I² needed to post performance guarantees for his sub system in order to cover the main contractor which is standard, absolutely standard practice in defence industry sub contracting, both the main contractor and the state attempted to persuade Mr Young to do so, C²I² were unwilling or unable to do so. And at the time therefore, the risk apportionment that C²I² had not allocated, at least allocated to their sub system, was allocated by the main contractor. And we believe that was his bound and right. Whether it is fair, whether it is a bitter pill to swallow, it is the reality of international contracting. It is the reality of the obligations that we were placing on the main contractor. And there, Mr Chairman, I propose that we break.

PRESIDING OFFICER: Yes. Before we do, counsel, you have mentioned the availability constraints of Admiral Kamerman. I wouldn't hazard a guess as to how long the questioning would be. But quite clearly the evidence that he is giving, its importance is clear from its own contents, even with regard to your client.

MR ROGERS: Yes.

PRESIDING OFFICER: And so maybe in the interim, I do not know his commitments, where he is needed, but you might look into that possibility, perhaps unlikely, that there might be a slight delay, not a protracted one, and try to make provision for it. Because I would suggest that even at this point, because it is in the interests of everybody, that if we can wrap this up by way of - I do not know if the other witnesses are still going to be called, we shall be informed in due course, in the light of the latest developments and the evidence of Admiral Kamerman, but I would like an assessment tomorrow that will tell us, you know, where we are going, whether people are still going to be called as indicated, and with counsel for defence taking care of the possibility then of maybe delaying him, possible, and avoiding further inconvenience. I would just like you to think actively about that.

MR ??: Mr Chairman, if I could be excused tomorrow, I am afraid I have to get back to Durban ... (intervenes)

PRESIDING OFFICER: Yes, you will represent us also there, but thank you for your presence and your definite assistance in trying to push this matter forward. So you will be excused. Mr Kriegler?

MR KRIEGLER: Mr Chairman, may I, we may or may not attend tomorrow, depending on the instruction received from our client. He is not here at the moment and I will report back to him on today's proceedings, and so please excuse us if we do not attend tomorrow morning. But we will let you know, one way or the other ... (intervenes)

PRESIDING OFFICER: Through Adv Fourie?

MR KRIEGLER: ... what the position is regarding our intentions. I may just tell you, there is no secret about it, our current intention is just to introduce a statement, which will be a statement comprising the evidence of certainly more than two or three witnesses. We will certainly indicate who the witness would be, should he be required to testify, who could testify to the facts set out in the statement. But the intention is not at present to call them, or any of them of our own accord. We are there in your hands, or in the hands of any other party who may wish to do so. And we hope by no later than Tuesday next week to give that statement to everybody else.

PROCEEDINGS ADJOURN