KUALA LUMPUR – Parliament’s Public Accounts Committee (PAC) progress report on the contentious littoral combat ships (LCS) project has revealed that the Attorney-General’s Chambers (AGC) did not approve certain agreements.
According to the report, a Sixth Supplemental Agreement (SA6) for the project was signed between the Defence Ministry and main project contractor Boustead Naval Shipyard Sdn Bhd (BNS) on May 26 this year.
The agreement details new terms on the LCS contract, including increase in costs, contract extension, unlimited Liquidated Ascertained Damages and payment methods based on work progress.
“The SA6 did not get the AGC’s consent, which said the Defence Ministry was informed that further actions are needed for the agreement draft and should have been resubmitted to the AGC before it was signed.
“The Defence Ministry’s decision to go behind the AGC by signing the SA6 is an improper action that should not have been done as it can lead to legal implications to the government. This sort of decision cannot be repeated,” read the report, which can be found on Parliament’s official website.
In addition, the committee found that since the construction period for the ships has been extended to 83 months, it is expected that all five ships will only be delivered to the Royal Malaysian Navy in 2029 instead of in 2022, as agreed on in the original contract.
“Through the mobilisation plan in the Fifth Supplemental Agreement (SA5) signed on May 31, 2022, the Defence Ministry has carefully detailed plans after the failure to adhere to the original LCS construction schedule where all six ships were supposed to be completed in 2023.”
It added that the main issue in the project is the ships’ detailed designs, which is currently at a 96% completion rate at the construction contractor level, with only 84% having gone through the verification, confirmation and approval stage by French shipbuilder Naval Group as the ships’ design supervisor.
“However, the construction contractor has assured that the detailed design must be completed before August 24, as contained in the SA6.”
The government’s decision to reduce the number of vessels from six to five, the report said, is due to how the sixth ship has yet to begin its building process, with the equipment purchased able to be used on the other five ships.
“Although the number of LCS has been reduced to five, the cost of the ships’ construction increased from RM9.128 billion to RM11.22 billion with an increase of RM2.098 billion resulting from the cost of design (RM0.211 billion), the price of equipment (RM1.214 billion), insurance and risk (RM0.466 billion), financial costs (RM0.143 billion) and project management costs (RM0.066 billion).
“Delays and extended time are also the main factors for this increase (in cost).”
As part of its recommendations, the committee said the Defence Ministry must ensure the implementation of the mobilisation plan according to the conditions set, which call for the first LCS to be completed in May next year and handed over to the navy in August 2026.
“The Defence Ministry must make sure that the contractor completes the detailed design, including obtaining approval from the Naval Group before August 2024 as stipulated in the SA6.”
The committee also suggested that the government ensure the acquisition of BNS by Ocean Sunshine Bhd would achieve its intended goal.
Previously, the PAC had called witnesses such as Defence Ministry deputy secretary-general (development) Datuk Shahrazat Ahmad, Armed Forces Fund Board chief executive officer Datuk Ahmad Nazim Abd Rahman and BNS chief executive officer Azhar Jumaat. – October 9, 2023
The LCS project first courted controversy last year when multiple government and corporate reports outlined discrepancies behind the deal with BNS and other companies, as detailed by Scoop in a recap on the project