By Lam Choong Wah

In the last two years, several events of importance to national defence have taken place, albeit almost unnoticed by the public.

In mid March 2010, the Malaysian government sent a Request for Information (RFI) to the European Aeronautic Defence and Space company (EADS) to seek details of its latest product – Eurofighter Typhoon combat aircraft. This means that the government has kicked off another multi-billion arms acquisition project.

Apart from that, on 23rd February 2011, DEFTECH, a wholly-owned subsidiary of DRB-Hicom, was awarded a contract worth RM 7.55 billion by the government to supply 257 units of armoured vehicles for the Army.

In the same year, the biggest arms acquisition project in Malaysian history – the RM 9 billion purchase of six Second Generation Patrol Vessels (SGPV)- was announced in December.

The project was awarded to a government linked company – Boustead Naval Shipyard (formerly known as PSC-NDSB) and the French company DCNS although the duo have a blemished record in providing defence assets to Malaysia.

What do all these defence spending projects have in common? All these deals were done without any open tender process.

This proves to a large extent that the Government Transformation Program has failed to increase the transparency of defence deals. In fact, the likelihood of Ministry of Defence (MINDEF) resorting to “black box operations” in arms procurement has increased.

It is time for civil society to propose alternative policies to alter the current situation since the BN-led federal government is unwilling to take concrete steps to stop the breeding of corruption in the arms acquiring process.

1. Arms acquisition exceeding RM 100 million must be tabled in Parliament for review

In the near future, it is foreseeable that multi-billion or even ten billion Ringgit spent for a single project will be a norm. Despite the astronomical sums of public funds involved, none of these deals have come under Parliament scrutiny!

History tells us that gigantic public investment, when left unchecked, is the perfect breeding ground for corruption. It is prudent for expensive defence acquisitions to be checked by Parliament. This must be the priority of defence procuring procedure reform.

It is suggested that any acquisition exceeding RM 100 million should be put under the purview of Parliament. However, a mechanism must be designed to avoid the MINDEF exploiting the RM 100 million-threshold policy.

2. Setting up an Independent Review Panel

When the Parliamentary Public Accounts Committee probed the procurement of 12 units of EC-725 helicopters in 2008, the committee proposed to set up an Independent Review Panel to help Parliament further evaluate any potential procurement in the future.

For avoidance of doubt, the panel should comprise of independent and professional defence analysts. While its core business should include evaluating technical, financial and strategic requirements for defence procurement. This panel would serve as a credible and valuable gatekeeper to scrutinize defence deals.

3. All arms procurement contract should include an anti-commission clause

Kickbacks or commissions in arms sales are a common global phenomenon. Not only does Malaysia encounter this problem, but also Taiwan, France, Sweden and other developed democratic countries.

The biggest lesson Malaysia should have learnt from the Scorpene submarine fiasco is that there is an imminent need to eliminate kickbacks in arms deals. One feasible solution is to include a compulsory anti-commission clause in defence contracts.

In the event that any party breaches the anti-commission clause, the other side can file a case at the International Court of Arbitration to claim back the lost money.

One success story is the case of French defence-electronics firm Thales SA against the Taiwanese government. The court ruled on 3rd May 2010 for Thales to compensate US$861 million to the Taiwanese government for violating and anti-commission clause in the contract.

4. Mandatory open tender procurement

The best way to ensure public procurement gets the best deal is through competition or tender, whereas direct procurement is the last resort if there is no other supplier can provide the required item.

However, a parliamentary answer received by MP Tian Chua (PKR-Batu) implied that MINDEF prefers direct negotiations to open tender. The reply dated 3rd March 2009 disclosed that from the period of 2006 til 3rd March 2009, 31%-54% of MINDEF acquisitions were done through direct negotiation.

Nevertheless, another parliamentary answer dated 18th June 2009 received by MP Ahmad Bin Haji Hamzah (UMNO-Jasin) states that all government acquisitions exceeding RM 500,000 must be done through the open tender process. Apparently, MINDEF didn’t get the memo!

In order to get the best value for public funds spent, the open tender process must be upheld by all ministries and agencies including MINDEF.

5. Making public the open tendering evaluation report

The Japanese government in December last year disclosed a tendering evaluation report (http://www.mod.go.jp/j/press/news/2011/12/20a.html) explaining why they chose the American F-35 fifth generation combat aircraft as the next generation fighter plane for the Japanese Air Self Defense Force.

The openness and transparency of the Japanese defence ministry has amazed many defence analysts and rendered speechless critics who insist on keeping defence matters secret.

We can formulate a Malaysian version of the Japanese report – while taking into account local confidentiality requirements. This would fulfil Malaysian’s right to know, while improving the credibility of open tender.

6. Auditing every high value acquisition

Other than the Auditor General, MINDEF does not take into account any “outsider’s” opinion in the procurement process. In the 2006 Auditor General Report, the Auditor General told MINDEF off for its poor management in the six patrol vessels project, particularly the absence of a monitoring mechanism and poor financial planning.

The Auditor General’s report criticized MINDEF for making avoidable errors which caused the project cost to balloon from RM 5.35 billion to RM 6.75 billion, a staggering 26.1 per cent increase!

This expose by the Auditor General woke people up to the fact that a procurement process without proper monitoring would result in disaster.

Having considered that the National Audit Department lacks professional auditors, it is suggested that the mandatory auditing process is staggered into two stages. In the first stage, mandatory auditing can be implemented for acquisitions costing above one billion Ringgit. Whereas in the second stage, it can be expanded to acquisitions above one hundred million Ringgit.  -The Rocket
 

*The author is a defence analyst and co-founder of Malaysia’s first Chinese-language military website, KL Security Review.