Strategic Defence Packages Joint Report INDEX PAGE i. Preface i 1. Background 1 2. Methodology employed 24 3. Post review of the arms procurement process 34 4. Selection of prime contractors – LIFT & ALFA 63 5. Selection of prime contractors – Light Utility Helicopters 114 6. Selection of prime contractors – Submarines 149 7. Selection of prime contractors – Corvettes 194 8. The International Offers Negotiating Team (IONT) 225 9. Cost to state and full financial and fiscal implications 246 10. Selection of subcontractors and conflict of interest 265 11. Allegations/complaints by C²I² systems (Pty) Ltd 289 12. National Industrial Participation (NIP) and Defence Industrial Participation (DIP) 347 13. Drafting of the contracts 371 14. Key findings and recommendations 373 A. Annexure A: List of abbreviations/ terminology/ definitions used 14 November 2001 Dr FN Ginwala Speaker of the National Assembly PO Box 15 CAPE TOWN 8000 Dear Madam Speaker TRANSMITTAL LETTER: JOINT INVESTIGATION – STRATEGIC DEFENCE PROCUREMENT PACKAGES The Public Protector, Auditor-General and National Director of Public Prosecutions hereby submit their Report to Parliament on the joint investigation into the Strategic Defence Procurement Packages undertaken by them. Due process and consultation have taken place in finalising this report. Your attention is respectfully directed to the appropriate legislation of the three agencies, which provides that their report must be tabled in Parliament as soon as possible. Yours sincerely SAM BAQWA, SC SA FAKIE BT NGCUKA Public Protector Auditor-General National Director of Public Prosecutions Strategic Defence Packages Joint Report i. PREFACE 1. Investigations, by their very nature, generate expectations and controversy: controversy in that an over-zealous investigation might be seen as a witch-hunt or a fishing expedition, whilst a superficial investigation might smack of a cover- up. 2. The test of commitment lies not in a preference for any of these extremes, but in a golden mid-way, where a balance is struck between the demands for accuracy, rigorous investigation and the rights of privacy of those affected. 3. Our pursuit has been deliberate; to conduct a proper and diligent examination that reaffirms the solid foundation and pillars of our legal system and ultimately enhances our democracy. 4. Because of human nature, news that an investigation is underway tends to create the expectation that something bad will be found. Any investigation is expected to either implicate or exculpate. Often that is not the case. 5. The investigation has essentially been about probity: whether those representing the government have conducted business diligently, properly and in the best interest of the country. Secondly, whether the contracting parties have followed the rules of good faith and fairness. 6. The issues of procedure, checks and balances, compliance with policy and good business practice have all been an important part of this inquiry. Relating to this has been the question whether crimes have been committed and, more Preface i Strategic Defence Packages Joint Report specifically, whether prosecutions could be and ought to be instituted. Our findings, given the purpose of this report, will probably be the subject of considerable debate. 7. We have at all times endeavoured to act in accordance with the spirit of the Constitution in conducting the investigation with resolute independence, depth of courage and an uncompromising standard of intellectual integrity. 8. In essence, we are duty-bound to conduct our business in a measured, accountable and objective manner that instils legitimacy and respect for the law. That, we hope, we have done without the abuse of power or process. 9. An investigation of this kind can, of course, never be perfect because the discipline involved is not an exact science and the human element can never be accounted for fully. 10. The challenge, presented by this investigation, goes to the raison d'etre of the institutions supporting constitutional democracy and those involved in the administration of justice. The impartiality, objectivity and independence of the three institutions involved are issues that have remained in the arena consistently. We hope that we will not be found wanting. Preface ii Strategic Defence Packages Joint Report CHAPTER 1 BACKGROUND INDEX PAGE 1.1 Introduction 2 1.2 The legal mandates, powers and functions of the Public Protector, the Auditor-General and the National Director of Public Prosecutions 13 1.3 The allegations and concerns investigated 19 Chapter 1 – Background 1 Strategic Defence Packages Joint Report CHAPTER 1 BACKGROUND 1.1 INTRODUCTION 1.1.1 The Basis for the Submission of the Joint Report This joint report is submitted to Parliament in terms of sections 182(1)(b) and 188(3) of the Constitution, 1996 (Act No 108 of 1996 – hereinafter referred to as the Constitution), and section 35(2)(b) of the National Prosecuting Authority Act, 1998 (Act No 32 of 1998, as amended). The report relates to the investigation into the Strategic Defence Packages for the acquisition of armaments for the South African National Defence Force, which was conducted jointly by the Offices of the Public Protector, Auditor–General (A-G) and the National Director of Public Prosecutions (hereinafter referred to as the National Director). 1.1.2 The Defence Review: Aim, Logic and Force Design Options 1.1.2.1 Section 200(2) of the Constitution, provides that it is the primary objective of the South African National Defence Force to defend and protect the Republic, its territorial integrity and its people in accordance with the Constitution and the principles of international law regulating the use of force. South Africa also has international commitments, particularly in the African Region, to support operations under the auspices of the United Nations and other similar organizations, which involve military resources. The SANDF has the additional task of protecting the coastline and the marine resources of the Republic. 1.1.2.2 During May 1996 the former Minister of Defence, Mr J Modise presented the White Paper on National Defence for the Republic of South Africa to Parliament. Chapter 1 – Background 2 Strategic Defence Packages Joint Report (White Paper). It has received strong support from all the political parties and was approved by Parliament. A policy framework and the main principles of defence were thereby established. 1.1.2.3 The White Paper also made provision for a Defence Review to include the following: (a) Options with regard to the size, roles and the structure of the SANDF. (b) Addressing the implications of the core force approach for the size, doctrine, structure, weaponry, equipment and other features of the SANDF. (c) Addressing the Strategic and technical implications of the constitutional provision that the SANDF “shall be primarily defensive in the exercise of it powers and functions”. 1.1.2.4 The aim of the proposed Defence Review was to elaborate on the policy framework based on the long-term planning of issues such as structure, force design, force levels and armaments. 1.1.2.5 The former Minister of Defence appointed a working group to draft the Defence Review with the Secretary of Defence as coordinator. The working group presented several briefings to the parliamentary Standing Committee on Defence. For the periods September 1994 to January 1999 and February 1999 to 1 June 1999, the committee was chaired by Mr T Y Yengeni and Ms T R Modise, respectively. The current chairperson is Mr J N Mashimbye. Chapter 1 – Background 3 Strategic Defence Packages Joint Report 1.1.3 Logic of the Defence Review 1.1.3.1 In determining the appropriate size, structure and force design of the SANDF for the 21st century, the following had to be established by the Defence Review: (a) The tasks that the SANDF will and may have to perform in the future. (b) The manner in which these tasks should be undertaken. (c) The equipment and weaponry required by the SANDF to fulfil these tasks. 1.1.3.2 The identification of the SANDF tasks has been based on the following: (a) The constitutional provisions on Defence. (b) The policy contained in the White Paper on Defence. (c) An analysis of the internal and external security environment. 1.1.3.3 The Defence Review indicated that defence planning can be described as “needs driven and cost constrained”. 1.1.4 Force Design Options 1.1.4.1 The Department of Defence developed different force design options. These options reflected the different permutations of the level of defence, defence structure and cost, for public consideration during the consultative conferences on the Defence Review. 1.1.4.2 Cabinet and the Parliamentary Defence Committees were presented with four options, which were discussed in detail. The chosen option relevant to this investigation is set out below and was approved, subject to the availability of finances. Chapter 1 – Background 4 Strategic Defence Packages Joint Report SANDF FORCE DESIGN SA Air Force Fighters Light Fighters 16 Medium Fighters 32 Helicopters Combat Support Helicopters 12 Maritime Helicopters 5 Transport Helicopters 96 SA Navy Submarines 4 Corvettes 4 1.1.4.3 During the selection process, certain foreign countries approached the DoD, formally and informally with various offers to enter into agreements to procure military equipment. These offers entailed packages consisting of Naval, Air Force and Army equipment. This resulted in the DoD adopting a “package” approach to the acquisition process as opposed to the individual purchasing of equipment types. These offers became known as the Strategic Defence Packages (SDP). 1.1.4.4 The South African Defence Review was approved by Parliament in April 1998. 1.1.5 Special Review of the Auditor-General [RP 161/2000] 1.1.5.1 During November 1998, the Defence Audit Centre of the Office of the Auditor- General identified the procurement of the SDP as a high-risk area from an audit point of view and decided on the need to perform a special review of the procurement process.