/ 10 March 2015

Arms deal ‘the shakiest acquisition I have ever seen’

Richard Young
Richard Young


On Tuesday, Richard Young, managing director of CCII Systems, who lost out on the bid to supply the information management systems (IMS) for the combat suites for the new corvette ships, will wrap up his evidence at the arms deal commission of inquiry.

Since being sworn in last Thursday, Young has walked the commission through reams of documentation, which he obtained using various legal and quasi-legal instruments over the years.

At the heart of his evidence is the assertion that the arms deal contractor selections were, at the very least, procedurally flawed and illegal. His submission to the commission is well over a thousand pages. But what was not said at the commission this week is equally important: Young’s experience as an arms deal bidder ends where the involvement of Schabir Shaik in the arms deal begins.

Thomson-CSF, later renamed Thint, won the contract to supply the combat suites. African Defence Systems was employed by Thomson-CSF as a subcontractor, and eventually won the contract to supply the IMS instead of Young’s company.

Jacob Zuma’s former financial adviser and convicted fraudster, Shaik, through his company, Nkobi Holdings, acquired significant shares in African Defence Systems.

After being convicted of bribing Zuma, Shaik went to the Constitutional Court in 2008 to try to stop the state from confiscating the profits of his relationship with African Defence Systems and Thomson-CSF. This amounted to R33-million, and the state said this was the proceeds of crime.

Before that court action, during Shaik’s criminal trial, it emerged that Thomson-CSF had backtracked on its arrangement with Nkobi Holdings, before Shaik could purchase the shares, supposedly because the company thought that Shaik was unpopular with then-president Thabo Mbeki.

Thomson-CSF, which had set up a South African company with one eye on the arms deal in the early 1990s, was worried that its relationship with Shaik would be a liability when it came time to bid for the arms contracts. And so on July 2 1998, Zuma met Thomson-CSF to intervene on Shaik’s behalf, and Nkobi duly purchased shares in the arms company.

All the while Shaik made payments eventually amounting to more than R1-million to Zuma, although he said these were just a friendly favour.

But the Constitutional Court, agreeing with the Supreme Court of Appeal, which had upheld Shaik’s conviction, found on the facts that: “The payments were made by Shaik in order to influence Zuma to promote Shaik’s business interests and, in attending the meeting in London in July 1998, Zuma did, as a matter of fact, promote Shaik’s interests.”

Meanwhile, from 1994 to 1999, Young’s company, with funding from the state, had been developing IMS technology, in case the state needed it.

‘Amazing’ process
When the time came to buy the corvettes, Young’s company was listed as a candidate supplier to supply the IMS for the corvettes. With the state having partly funded the development of the IMS, and with the technology already built (“you could come and see it, you could touch it,” Young told the commission), it seemed clear that Young’s company was the obvious choice to supply the IMS for the corvettes.

Young’s testimony at the arms deal commission has centred on why his company was not selected. It appears that the decision to select other companies was taken even though their quotes were much higher than CCII Systems.

Ultimately, the combat suites cost the state R2.6-billion. At the commission, Young said this price was “amazing, for lack of a better word”. He said that, during the bidding phase, the department of defence had “made it so clear to us” that the ceiling price for the combat suite was R1.4-billion, “and it was not to be exceeded under any circumstances except perhaps rate of exchange, which took it to R1.9-billion”.

“To be frank, it’s clear that there must have been other activities other than on the record … that shows that there was something going on that would indicate that R2.6-billion was an acceptable price,” Young said. He added “all indicators were to the opposite”, that R2.6-billion was not an acceptable price to the government. And yet it paid this seemingly inflated price anyway.

Young said that when CCII Systems was told it would not supply the IMS, it had already built the IMS at the government’s request, making the decision not to select it even more astounding. “The IMS existed, you could come and kick the tyres, so to speak … it had been like a child growing for seven or eight years.” And yet it was “replaced by something as immature” as what was eventually selected.

Unnecessary spend
Not only did his company already have the product the government wanted, Young said his company was also the cheaper bidder.

That was until the main contractor decided that Young’s company was a “risk”, and added a “risk fee” on to his bid, which pushed up CCII Systems’s bid.

Young said that the chief executive of Armscor at the time had asked why the final price for the combat suites had skyrocketed. He was told that some of the contractors who were eventually selected had “double-accounted” for their services.

Young said African Defence Systems had charged the state “an amount of no less than R234-million” for a service known as “responsibility”. For “system integration”, African Defence Systems quoted the state R187-million.

Young presented to the commission “the angry letter” written by a senior defence official in May 1999, just months before the arms deal was signed.

The letter was addressed to African Defence Systems and the official wanted answers about the “unacceptable prices” of that company. Young said African Defence Systems’s responding letter contained two glaring errors, one related to the date and one on a pricing issue. 

This is the central issue in Young’s lengthy and technical evidence: that there does not appear to be any legitimate reason for African Defence Systems’s selection, given that it appears that the company’s technology was inferior, that it would cost the state more and that senior defence officials were unhappy about the huge cost escalations.

Young said: “All of this points to the shakiest acquisition process that I’ve ever seen in my life.”