KUALA LUMPUR (July 21): The Ministry of Defence (Mindef) has yet to collect RM162.75 million in penalties from a contractor following delays for the supply of armoured vehicles, according to the Auditor General’s (AG) 2025 Report on Monday.

The late delivery of 70 vehicles — out of 259 contracted — by between six days and slightly over 34 months also resulted in a "loss of use" as the army could not utilise them within the planned period, affecting its defence ability, the report said.

Delays in penalty claims against the contractor opens the government to risk of losses if they cannot be collected, said the AG in the report. This as the government has paid the contractor in full, without effective enforcement of contractual safeguards.

"There is weakness in contract administration and management of procurement," it said.

According to the report, Mindef had signed a contract worth RM7.55 billion in 2012 with a company identified as ‘Syarikat 406420-U’, in a partnership with a Turkish firm for the supply of 257 units of armoured vehicles called Gempita to Tentera Darat Malaysia (TDM).

The contract was eventually revised to RM7.517 billion, with the delivery changed to 255 units of said armoured vehicles and four Class B or non-armoured support vehicles.

However, the audit found that 70 vehicles were delivered late by between six days and slightly over 34 months, spanning December 2017 to November 2022.

Despite this, “Mindef only issued the penalty notice worth RM162.75 million on Jan 15, more than two years after the contract’s expiry on Dec 31, 2022,” AG said.

“Mindef has made a full payment totalling RM7.517 billion for the period from May 5, 2011, until June 12, 2023,” it added.

Under the contract terms, the supplier was liable for liquidated damages of 1% of the delayed delivery’s value for each month of delay, capped at 12 months.

The AG flagged that the RM53.93 million performance bond was insufficient to cover the penalties, putting the government at risk of non-collection.

The audit also revealed that a separate RM1.42 million penalty had not been imposed for delays under contracts involving maintenance, repair and supply of spare parts for armoured vehicles.

The supplier has since appealed for the penalties to be reduced to RM4.27 million, citing force majeure due to pandemic-related disruptions. However, defence officials noted only RM12.57 million in deductions could be reasonably considered, suggesting a revised penalty of RM150.18 million is likely.

“The procurement division of Mindef is currently preparing a paper on this matter to be submitted to the contract coordination panel,” the AG said.

For more AG's Report 2025 stories, click here.