KUALA LUMPUR (Aug 23): Boustead Naval Shipyard Sdn Bhd (BNS), the main contractor for the littoral combat ship (LCS) project, paid substantial amounts of milestone payments relating to combat management systems for the vessels to its subcontractors, even when no tangible deliveries were actually made.

This was revealed by the declassified report of the forensic audit that Boustead Heavy Industries Corp Bhd (BHIC) ordered to check on the irregularities related to the project.

BNS issued two letters of award (LOAs) relating to the CMS to Contraves Advanced Devices Sdn Bhd (CAD), one for RM287 million and another for RM898 million.

Alliance IFA (M) Sdn Bhd director and chief investigating officer Prabhat Kumar, who prepared the report in 2020, said the payments to CAD, and later Contraves Electrodynamics Sdn Bhd (CED), to whom the project was reassigned, was managed by then LCS programme director Anuar Murad.

CAD is 51%-controlled by BHIC, with 49% held by German outfit Rheinmetall Air Defence AG. CAD in turn is the sole shareholder of CED.

“During the review of milestone payments made to CED for the LOAs till FY2014 (financial year 2014), we noted that Anuar Murad used to submit a recommendation letter with CED’s invoices for payment based on the completion of milestones, requesting (former BHIC managing director) Tan Sri Ahmad Ramli Mohd Nor to approve the payment,” Prabhat said.

“However, we did not find any document attached with the invoices of CED to confirm the completion of work till that milestone. After taking over the position of director of defence, Azhar (Jumaat, who later took over the LCS project from Anuar and was appointed BNS chief executive officer) rejected various payments which were requested by CAD/CED due to insufficient supporting documents.”

According to the report, BNS made three milestone payments to CED between April 23, 2012 to July 9, 2013 totalling RM100.45 million for the RM287 million LOA, of which 70% or RM71.75 million were for payments of mobilisation fee without any tangible deliverables.

The balance RM28.7 million was then paid out on the recommendation of Anuar Murad for the completion of a preliminary design review that was approved the same day, though no supporting documents pertaining to this milestone completion was attached.

Under the second LOA of RM898 million, together with a supplemental LOA to develop Boustead Integrated Technology (BIT) Centre issued for RM305 million (totalling RM1.203 billion), BNS made 50.5% or RM607.52 million milestone payments to CED. Of these milestone payments, about 50% or RM300 million were payments made without any tangible deliverables.

These comprise RM89.8 million that BNS paid for the BIT Centre plan on June 13, 2012 a month earlier than scheduled, despite there being no documents to confirm the completion of this milestone, and two payments of mobilisation fees of RM134.7 million (paid on April 23, 2012) and RM76.25 million (paid on Nov 16, 2012).

The balance were disbursed for: completion of BIT Centre Infrastructure (RM96.24 million), approved by Anuar Murad and Ahmad Ramli but without any financial verification; for Shore Integration Facility design approval (RM90.225 million) that Anuar Murad said had been verified and supported but provided no supporting documents; and for placing orders for Software Integration Facility (SWIF) hardware (RM120.3 million).

The RM120.3 million SWIF milestone payment was also paid on the recommendation of Anuar Murad and approved on the same day. But communication between CED and DCNS SA/Naval Group — which CED contracted to design and build the vessels — revealed that there were discrepancies with respect to hardware delivery, where certain equipment were found missing. The forensic audit also could not find any document to confirm the placement of order to procure the hardware.

Alliance IFA also detected anomalies in the payment to CAD based on payment milestones up until FY2014 under the LOAs for Main Surveillance Radar (MSR) and Towed Array Sonar (TAS).

For MSR, milestone payments of RM82.27 million were made, of which about 72% or RM59.51 million were for mobilisation payments without any tangible deliverables. And the remainder RM22.76 million was paid for completing a Critical Design Review milestone on the recommendation of Anuar Murad, but again no supporting documents were attached as proof of this achievement.

As for TAS, RM94.58 million milestone payments were made, of which about 80% or RM75.75 million were paid without any tangible deliverables.

Aside from that, Prabhat said Alliance IFA noted a mobilisation fee of RM153 million that was paid under seven other LOAs that were issued in favour of CAD, without any tangible deliveries.

The LOAs involve Combined Integrated Communication System (RM61.14 million paid for mobilisation without any tangible deliveries); Medium Calibre Gun (RM26.58 million); Small Calibre Gun (RM12.84 million); Torpedo Launching System (RM11.73 million); Supply Link Y System (RM3.05 million); Radar Electronic Support Measure (RM10.86 million); and Surface to Air Missions (RM26.89 million).

“The payments to CAD or CED were done based on the recommendation of Anuar Murad who mentioned that he had verified the progress of work against the respective milestone and requested Ahmad Ramli to release the payment.

“However, we did not find any document attached with his recommendation to confirm that the milestones were completed. For example, a payment of milestones for placing an order with the OEM (original equipment manufacturer) was released to CAD, but the copy of invoice or purchase order was not attached,” Prabhat said.