Seriti Commission

Overview of SDPP Acquisition Process

D Griesel

1

Seriti Commission

Contents • Armscor Overview

• Standard Armscor Policy and Practice Documentation

• SDPP Procurement – Deviations from Standard Policies

• SDPP Initiation Process

• Final Offer Solicitation

• SOFCOM

• Project Teams

• Offer Evaluation, Consolidation and Recommendation Process

• Contract Negotiation and Contract Authorization

• Summary of ADPP Acquisition Process

• Armscor Internal Audits

• Conclusion

2

Seriti Commission

Armscor Overview • Armscor established in terms of section 2 of Armaments Development and

Production Act 57 of 1968 – applied during SDPP Acquisitions

• 1968 Act repealed in 2003 – superseded by Act 51 of 2003.

• Section 2 of 1968 Act -

– established Armscor as a body corporate capable of suing and being sued

in its corporate name; and

– “of performing, subject to the provisions of this Act, all such acts as are

necessary for or incidental to the carrying out of its objects, the exercise of

its powers and the performance of its functions”

• Section 3 of Act – Armscor’s objectives were “to meet as effectively and

economically as may be feasible the armaments requirements of the Republic,

as determined by the Minister, including armaments required for export”

3

Seriti Commission

Structure Of Ministry Of Defence

4

Department of Defence Dept Mil Vet

Seriti Commission

Armscor Overview

• Armscor had the power to enter into any contract or perform any act,

whether in the Republic or elsewhere, which may be necessary for or

incidental or conducive to the attainment of any of its objects or which is

calculated directly or indirectly to enhance the value of the services which

it may render in respect of any of the activities contemplated in the 1968

Act or which the Minister of Defence may from time to time determine.

• Section 5 of 1968 Act - the affairs of Armscor were to be managed and

controlled by a board of directors.

• This is still the position under the 2003 Act.

5

Seriti Commission

Standard Armscor Acquisition Process

• In terms of 1968 Act – Armscor appointed as Defence Materiel Acquisition

Tender Board

– Authorization of contracts and decisions regarding preferred bidders –

had to be made by Armscor Board (Tender Board)

• In terms of standard tendering and contracting processes – Armscor is

responsible for all phases of tendering and contracting process.

6

Seriti Commission

STANDARD ARMSCOR POLICY/PRACTICE DOCUMENTATION

7

Seriti Commission

Tender Solicitation and Contracting

• KP 021 - Standard practice for the request of proposals, quotations,

submissions and orders

• Describes handling of RFO’s and submissions for contract authorization.

8

Seriti Commission

Standard Tender Solicitation and Evaluation Process

9

Tender Evaluation and Contracting Process

Tender Solicitation Process Receive DOD Requirement

(URS)

Verify Requirement

Compile WBS & SOW

Compile Value System & RFO

Approve Value System & RFO

Solicit Offers from Suppliers

Evaluate Offers

Compile Eval Report

Approval to Negotiate

Finalize Negotiations

Authorize Order

Place and Admin Order

User Requirement

Review

Process Ass + Line + User

Project team/ Consolidator/ Proc Assuror

Process Assuror’s

Report Tender Board Tender Board

Seriti Commission

Armscor Roles and Responsibilities in Tendering and Contracting Process

10

Receive DOD Requirement (URS)

Prepare RFP & Value System

Evaluate Offers & make Recommendation by means of submission

Issue Order

- Forward complete RFP to offerors - Advertise on Tender bulletin

Receive offers on closing date

Distribute Committee Submissions

Verify correctness of Submission and adherence to procedures

-Minutes decisions -Countersign approved orders -Advertise on bulletin

PROCUREMENT SECRETARIAT AUTHORIZATION COMMITTEE (TENDER BOARD)

ACQUISITION DEPARTMENT

Tender Board (Authorization Committee) considers submission and makes decision

Seriti Commission

Information and Offer Solicitation in Acquisition Process

11

t

PRELIMINARY DESIGN

PRELIMINARY DEVELOPMENT

DETAIL DESIGN

DETAIL DEVELOPMENT QUALIFICATION

ROC SR (URS)

DP AP CR ST PSR DOD PROJECT

MILESTONE DOCUMENTS

ARMSCOR BASELINES

RBL FBL ABL PBL MBL IOBL OBL

CONCEPT PHASE

TECHNOLOGY ACQUISITION

DEFINITION PHASE DESIGN DEVELOPMENT

PHASE

INDUSTRIALI-SATION PHASE

PRODUCTION PHASE

COMMISSIONING PHASE

XDM ADM EDM PPM PM MODELS

RFI RFO

INDUSTRY

TENDER BOARD

CONTRACT

Information and Offer Solicitation

Seriti Commission

• Standard practice for the selection of contractual sources – set out in

A-Proc-097. Established the practice that could –

– best meet Armscor’s need as described in the relevant RFP and

– ensure the source selection process for the impartial, equitable and

comprehensive evaluation of each offeror’s proposal and minimize the

cost of the selection process.

• A-Proc -097 - contains amongst others, the roles and responsibilities of

evaluators and process assurers, guidelines with respect to the

determination of evaluation criteria and generation of an RFO and

subsequent evaluation of the received offers.

12

Selection of Contractual Sources

Seriti Commission

Acquisition Policy • KB 1000 - Armscor Policy: Acquisition and Weapon System Management

Support dated 1 May 1995

– describes the policy for the management of military acquisition

programmes that deal with the acquisition of product systems and

products

– describes the technical baselines to be approved by Armscor

• completely aligned with the DOD Acquisition Policy, VB1000

– describes the composition of Baseline Review Boards who have the

responsibility to approve each identified baseline and to authorise

projects to continue to the next phase.

13

Seriti Commission

DOD/ Armscor Levels 5&6 Process Alignment

14

ROC SR

DP AP CR ST PSR (URS)

RBL FBL ABL PBL MBL OBL

CONCEPT PHASE

DEFINITION

PHASE

DESIGN DEVELOPMENT

PHASE

INDUSTRIALI-

SATION PHASE

PRODUCTION

PHASE

COMMISSIONING PHASE

Prelim Study

Funct Study

Proj Study

Syst Study

Level 6

(DOD)

Level 5

(Armscor)

Acquisition Study

Industrialization Phase

Production Phase

Commissioning Phase

Concept Phase

Definition Phase

Design Development

Phase

Industrialization Phase

Production Phase

Commissioning Phase

Assessing the need

Defining the solution

Contracting the right Contractor and managing the contract

Product Support

Baselines (Technical)

Project Milestones (Governance)

Seriti Commission

• KP 019 – Delegations

– Described decision-making powers and delegations within Armscor

– Armscor Board of Directors being the Tender Board, has the sole authority

that can authorise preferred bidders and also authorise contracts to be placed

on identified preferred bidders.

15

Delegation of Decision Making Powers

Seriti Commission

Management of Acquisition process • VB1000 – General policy for the management of Category 1 Matériel

Acquisition Process, Issue 2, dated 20 April 1994 (Joint Armscor/DOD

Policy).

• Describes the approach to be followed by members of the Defence Family

in the acquisition of weapons systems.

• Contains amongst others -

– the mandates and roles of Armscor and the SADF in the acquisition

process,

– policy to be applied with regard to the management of the acquisition

process of armaments, i.e. Category 1 matériel though all the phases

of the process.

16

Seriti Commission

SDPP PROCUREMENT –

DEVIATIONS FROM STANDARD POLICIES

17

Seriti Commission

SDPP – Deviations from Standard Policies

• A-Proc-097 : Practice for the selection of contractual sources

– guidelines were used in the development of value systems and RFO’s

– deviations in respect of the responsibilities of the Armscor Program

Manager and Project teams.

• The practice dictates that the process would be led by Armscor

and only provides for participation by the DOD on evaluation

panels.

• In the SDPP process, some of the value systems and evaluation

reports were finally approved and signed off by the DOD and not

by Armscor.

18

Seriti Commission

SDPP – Deviations from Standard Policies

• KP 019 – Delegations

– the Armscor Board of Directors being the Tender Board, has is the sole

authority that can authorise preferred bidders and also authorise

contracts to be placed on identified preferred bidders.

– In the case of the SDPP’s the preferred bidders were recommended to

AASB, AAC, Minister’s Committee - eventually authorised by Cabinet

– subsequent contract placement was also authorised by Cabinet,

19

Seriti Commission

SDPP – Deviations from Standard Policies

• VB 1000 - General policy for the management of Category 1 Matériel Acquisition Process

– did not reflect the organisational structures that were formed post 1994 as an output of the MODAC1 process, namely AACB, AASB and AAC

• VB1000 Structure – PKK (PCC), VBR (DCB),VBK (DPC)

– the only 2 non-negotiable milestone documents of the project are the Staff Target and the Acquisition Plan

• Approved AP’s did not exist for all projects

• mandatory AP in the SADF (DOD) environment did not constitute a hold point that from a policy perspective prevented Armscor to authorize a contract.

• The importance of the AP to Armscor was that it authorized the financial ceiling for issuing a FA to Armscor, without which Armscor would normally not be in a position to consider authorization of a contract on a preferred bidder.

20

Seriti Commission

SDPP – Deviations from Standard Policies

• DOD Policy Directive No 4/147: MOD Policy for Dealing With International

Defence Equipment Offers in the MOD (8 Aug 1997)

– Aim - To provide MOD policy guidelines and management procedures

for dealing with foreign initiated, international government to

government defence equipment offers relating to armament

acquisition for the SANDF, that are to be integrated with an

interdepartmental co-ordinating and decision making structure.

– Applicable to Armscor

21

Seriti Commission

DOD Policy Directive No 4/147

• Acquisition Strategy to incorporate the following:

– The equipment offers are to address approved MOD requirements.

– The MOD requirements statement are to at least have been

progressed to a functional baseline or beyond.

– The individual equipment elements of an offer are to be

comprehensive enough to be evaluated against the corresponding

functional baseline.

– The individual elements are to be able to be evaluated against

competitive offers via application of the same value systems that are

developed for MOD functional requirements.

– Auditability of all decisions is to be ensured

22

Seriti Commission

DOD Policy Directive No 4/147

• MOD Management of Assessment of Offers –

– “Prior to translating an offer into separate, standard armament

acquisition projects, an assessment procedure incorporating the

following iterative, multi-tier approach is to be followed :”

• First Order : Appointment by MOD of a workgroup to undertake

strategic implications of the offer.

– First order value system incorporating military evaluation of

supplier government

– Recommendations regarding political, interdepartmental and

intradepartmental involvement are to emanate from the MOD

evaluation.

23

Seriti Commission

DOD Policy Directive No 4/147

• Second Order

– Implementation of recommendations via representative MOD

evaluation team to develop second order value system.

– Recommendations regarding project teams and project

management requirements to bridge the gap between

elements of the offer and separate, standard acquisition

Projects, are to accompany the second order value system

• Third Order

– Project teams must develop third order value systems for the

individual elements of the offer iaw the second order value

system.

24

Seriti Commission

Impact of Policy Directive 4/147

• Policy Directive 4/147 only relevant to International Defence Equipment Offers

• Numerous Non-SDPP acquisition programmes were being managed by

Armscor in parallel with the SDPP’s

• Policy Directive did not amend any of the standard policies/Practices that

guided other acquisition programmes

• Examples of other acquisition programmes managed concurrent with SDPP’s

– Astra Trainer Aircraft

– C130 upgrade

– Rooivalk Combat Support Helicopter

25

Seriti Commission

SDPP INITIATION PROCESS

26

Seriti Commission

Period Prior to SDPP

• Prior to the approval of the SDPP acquisition, Armscor was in the process of or procuring various product systems on behalf of the DoD.

• before these processes could be completed, the individual procurement processes were suspended at various stages in 1997.

• decided by DoD that the individual procurement processes which had been initiated by Armscor on behalf of the DoD prior to 1997 would be superseded by the package approach reflected in the SDPP.

– LUH – RFI had been issued

– Corvette – Process initiated in 1992 – Progressed to RFO – Cabinet Review.

– AFT – RFO issued in May 1995. Supplementary RFO developed but not issued

– Submarines – Staff Target in August 1996 for replacement of Daphne Subs

27

Seriti Commission

SDPP Initiation

• Seven programmes that constituted the SDPP – emanated from the draft

Defence Review

– Identified 14 required equipment types

– 7 equipment types were deemed to require foreign participation

– Remaining 7 types of such a nature that they could be

developed/manufactured by local South African industry

• Programmes for equipment acquisition which had been previously

initiated as individual requirements but which formed part of the 7 types

identified to require foreign participation, were stopped as individual

projects and were subsequently incorporated into the SDPP process.

28

Seriti Commission

SDPP Initiation

• The initiation of the SDPP acquisition process can be traced back to June 1997 - The international government-to-government defence equipment offers were dealt with by the DoD and Armscor in accordance with DoD Policy Directive No 4/147 approved by the Council of Defence on 08 August 1997.

• A formal process was initiated whereby RFIs for 7 cardinal equipment types were issued by Armscor to the embassies of 9 countries on 23 September 1997

• under the signature of Mr R.F. Haywood in his capacity as Executive Chairman of Armscor.

• All Embassies received RFI’s for all the types of equipment, and were required to distribute the RFI’s to relevant companies in their respective countries.

29

Seriti Commission

Issuing of RFI’s

• RFI’s Issued to 9 countries :

– United Kingdom

– Germany

– France

– Canada

– Italy

– Spain

– Sweden

– Brazil

– Denmark

30

Seriti Commission

Issuing of RFI’s

• The information elicited in the RFIs dealt with aspects such as:

– Functional performance of the offered equipment;

– Industrial Participation considerations relating to South African

Industry involvement; and

– Financing schemes to facilitate the business arrangements.

• On the 31st of October 1997 -

– total of 37 responses to the RFI’s were received from the countries

above, except from Brazil and Denmark who declined to offer.

– Unsolicited responses were received from Russia and the Czech

Republic.

31

Seriti Commission

RFI Evaluation

• Received responses were evaluated against previously approved value

systems in each of the categories of :

– functional performance

– financing

– Industrial Participation

• Subsequent to completion of the offer evaluation process, the CoD

approved a shortlist of 23 products offered by 8 countries, to enter a

subsequent round of “Best and Final Offer” bidding

32

Seriti Commission

Shortlisted Products

• The shortlisted products were arrived at after evaluation of the RFI

responses against the RFI value systems that existed for each product

type.

• Minimum Functionality levels were determined by the respective User

environments.

• The minimum functionality levels were determined on the basis of

minimum functionality that would meet the User’s Requirement to such

an extent that the products would be acceptable for use in the intended

role.

• The shortlisted products were identified on the basis of them all meeting

the minimum functionality requirements.

33

Seriti Commission

Shortlisted Products

EQUIPMENT TYPE

COUNTRY

PRODUCT

Corvettes / Frigates

United Kingdom

Germany

France

Spain

GEC F3000

GFC MEKO 200 / A200

DCN LAFAYETTE

Bazan 590B

Submarines

United Kingdom

Germany

France

Italy

Sweden

Upholder

GSC 209 1400 MOD

DCN Scorpene

Fincanteri S1600

Kockums T192

Advanced Light Fighter Aircraft

(ALFA)

United Kingdom/Sweden

Germany

France

BAE/SAAB Gripen

DASA AT2000

Dassault Mirage 2000

34

Seriti Commission

Shortlisted Products

35

EQUIPMENT TYPE

COUNTRY

PRODUCT

Lead-In Fighter Trainer

(LIFT)

United Kingdom

Czech Republic

Italy

Italy

BAE Hawk 120

AERO VODOCHODY L159

AERMACCHI MB 339FD

AERMACCHI AEM/YAK 130

Main Battle Tank (MBT) United Kingdom

France

VICKERS CHALLENGER 2E

GIAT LECLERC

Maritime Patrol Helicopter (MH)

United Kingdom

France/Germany

GKN Super Lynx

Eurocopter Cougar

Light Utility Helicopter (LUH)

Italy

France/Germany

Canada

Agusta A109

Eurocopter EC635

Textron Bell 427

Seriti Commission

FINAL OFFER SOLICITATION

36

Seriti Commission

Final Offer Solicitation

• During February 1998, the RFO's for the short-listed products in 6

equipment categories (excluding LIFT) were submitted via the Military

Attache’s of the respective countries /suppliers.

• The closing dates for submission of the best and final offers ranged from

11 May to 15 May 1998 for the 6 categories of equipments.

• The RFO for the LIFT lagged behind the initial six equipment types. The

RFO was sent out on 11 May 1998 and responses received back on 15 June

1998.

37

Seriti Commission

Final Offer Solicitation

• The RFO’s for the short-listed equipment types indicated that the final

offers should consist of 4 separate sections, each detailing the following

aspects:

– Functional Performance of equipment and Tender Price for the

specified quantities;

– Economical advantage for South African Industry related to Industrial

Participation programs in the two categories of

• Defence Industrial Participation (DIP) and

• National Industrial Participation Programme (NIP);

– Financial benefits as available from financing arrangements.

38

Seriti Commission

SDPP Third Order Value Systems

• Prior to acceptance of the final offers, detailed value systems, against which

the respective proposals would be evaluated, were lodged with Armscor’s

Procurement Secretariat.

• In terms of paragraph 5.2.3.1 of KP021, Armscor Procurement Secretariat was

responsible for issuing RFOs to prospective offerors; receiving offers from the

offerors; and distributing such offers to the various Integrated Project Teams.

– constitute the “third order” value systems contemplated in the Ministerial

Policy Directive 4/147.

• developed per equipment type.

• based on the requirements of the respective URS’s and were aimed at

evaluating the functionality of the offered equipments.

39

Seriti Commission

SDPP Third Order Value Systems

Guidelines established by Departmental Coordinating Team (SOFCOM) :

• Three elements of each offer (Military Value, IP Value, Financing) will carry

equal weights

• Determined uniform method of calculation of program cost

• The final consolidation of the results of the evaluation of the respective

elements of the offers would be achieved by adding the 3 indices to obtain

a Best Value option, being the bidder obtaining the highest score.

• The recommenced option in each equipment category would thus be the

option achieving the highest Best Value score, where

– Best Value = Military Value Index + Financing Index + IP Index

40

Seriti Commission

Elements of Second Order Value System • Military Value Index - determined from the results of the evaluation by dividing the

technical evaluation outcome by program cost, and then normalising the results to a

value of 100, with the best value option carrying a weight of 100.

• Financing Index - determined from the evaluation of the elements of the offers relating

to financing, by normalising the results to a value of 100, with the best option carrying a

weight of 100.

• Industrial Participation Indices for the elements of the offers relating to proposed

industrial participation projects (DIP and NIP) - determined by normalising the results to

a value of 100 (one hundred), with the best options carrying a weight of 100.

– A consolidated Industrial Participation Index - determined by adding the DIP and

NIP indices, and again normalising the highest scoring option to a value of 100.

41

Seriti Commission

STRATEGIC OFFERS MANAGEMENT COMMITTEE

42

Seriti Commission

Strategic Offers Management Committee

• Seven procurement programmes running simultaneously

– consolidated into 1 procurement package under the aucpices of the

SDPP

– necessary to coordinate and consolidate the acquisition process. For

such purpose the SOFCOM was created.

• SOFCOM – was a coordinating committee

– appointed by the AAC on 7 April 1998

– established with the aim of supporting the Minister of Defence in the

management and execution of the DoD involvement in the SDPP

acquisition.

43

Seriti Commission

Strategic Offers Management Committee

• SOFCOM operated under a formal constitution which spelt out the

functions of the committee

– constituted of senior representatives from Armscor, the Acquisition

Division of the DoD (“DAPD”), Arms of Service (SANDF), DTI and the

DoF.

• SOFCOM functioned under the dual chairmanship of :

– Chief of Acquisitions of the DoD Mr. Shamin (Chippy) Shaikh and

– General Manager: Aero Maritime of Armscor, Mr. Heinrich de Waal

Esterhuyse.

44

Seriti Commission

Strategic Offers Management Committee • SOFCOM membership :

– Chief of Acquisition (Co-Chairperson);

– General Manager: Aero Maritime, Armscor (Co-Chairperson);

– Chief of Finance (DOD);

– General Manager, Combat Systems, Armscor;

– Director Weapon Systems, Acquisition Division;

– Chief of Army Representative;

– Chief of Air Force Representative;

– Chief of Navy Representative;

– Chief of Intelligence Representative;

– Department of Trade and Industry Representative;

– Department of Finance Representative;

– Representative from Acquisition Division (SOFCOM Secretariate);

– Representative from Armscor (SOFCOM Secretariate).

45

Seriti Commission

Strategic Offers Management Committee Members

46

Seriti Commission

Strategic Offers Management Committee

• SOFCOM met approximately once every 2 weeks during the 3 months it

was in existence.

• Most of the time the SOFCOM performed the function of, among other

things, reviewing and monitoring the progress of the evaluations

performed by the different project teams and

• primarily concerned to ensure that there was consistency and alignment

in approach on the part of the 7 project teams,

• especially in light of the fact that the DIP, NIP and Finance project

teams straddled each of the 7 projects.

47

Seriti Commission

Strategic Offers Management Committee

• The constitution of the SOFCOM did not provide for decision-making

authority in respect of any matters that would materially affect the

evaluation as it pertained to the selection of the preferred bidder.

• SOFCOM was entitled to submit recommendations to the CoD.

• The Minister of Defence had approved this deviation from the standard

Armscor procurement procedures through the appropriate structures.

48

Seriti Commission

Strategic Offers Management Committee • SOFCOM continued to formally function as a committee until the recommendation of

the preferred bidders was presented to AASB on 8 July 1998 (albeit that it was not dissolved).

• SOFCOM was responsible for developing the Second Order Evaluation Value System which was eventually to be used for the consolidation of the evaluation results from the respective teams.

– The formula that was ultimately adopted was the following:-

BV = MV + IP + FI

– Where:

• BV = Best Value

• MV = Military Value (Military Performance Index/Cost)

• IP = Industrial Value Index

• FI = Financing Index

49

Seriti Commission

PROJECT TEAMS

50

Seriti Commission

SDPP Process – Offer Evaluation

• The received proposals were evaluated by 12 (twelve) project teams, i.e.

– 7 (seven) Program-related teams for the technical appraisal,

comprising members from the respective Arm of Service (SANDF),

Armscor and the Defence Secretariat;

– 1 (one) NIP team for the NIP appraisal, comprising members from DTI;

– 3 (three) DIP teams for the DIP appraisal, comprising members from

Armscor, SANDF and the Defence Secretariat; and

– 1 (one) Financial team for the Financing appraisal, comprising

members from Armscor, Defence Secretariat, SANDF, Department of

Finance and Financial Institutions.

51

Seriti Commission

ALFA Team

52

Seriti Commission

Corvette Team

53

Seriti Commission

LIFT Team

54

Seriti Commission

LUH Team

55

Seriti Commission

MBT Team

56

Seriti Commission

MH Team

57

Seriti Commission

Submarine Team

58

Seriti Commission

Integrated Project Teams

• The IPTs consisting of members from both Armscor and the DoD, were

established for each of the product systems.

• The appointment and responsibilities of the members were in accordance

with VB1000.

• The IPTs were responsible for:

– preparation of the RFI and RFO documentation based on the URS;

– development of the Third Order Value System, in terms of paragraph 15c

of the DoD Policy Directive No 4/147, for individual product systems;

– adjudicating received offers against the approved value system;

– negotiating the technical contents of the contracts; and

– negotiating the Supply Terms.

59

Seriti Commission

OFFER EVALUATION, CONSOLIDATION AND RECOMMENDATION PROCESS

60

Seriti Commission

SDPP Evaluation and Consolidation Process

61

Seriti Commission

Evaluation Results - ALFA

62

Seriti Commission

Evaluation Results - Corvettes

63

Seriti Commission

Evaluation Results - LIFT

64

Seriti Commission

Evaluation Results - LUH

65

Seriti Commission

Evaluation Results - MBT

66

Note : MBT recommended by SOFCOM to AASB, but excluded from final SDPP contracts

Seriti Commission

Evaluation Results - MH

67

Note : MH recommended by SOFCOM to AASB, but excluded from final SDPP contracts

Seriti Commission

Evaluation Results - Submarine

68

PROG FIN COST TOTAL MIL MIL IP MIL + IP FIN BESTOFFEROR/PRODUCT COST (M USD) COST PERF VALUE VALUE INDEX INDEX VALUE

(M USD) (NPV @ 13,5%) INDEX INDEX INDEX

GERMANY 995.9 532.6 1528.5 80.6 100.0 100.0 100.0 100.0 100.0GSC 209 1400 MOD (523.0)

FRANCE 1210.2 728.1 1938.3 85.7 66.0 72.0 69.0 93.0 77.0DCN SCORPENE (615.0)

ITALY 1173.1 574.4 1747.5 100.0 83.0 67.0 75.0 87.0 79.0FINCANTERI S1600 (632.4)

SWEDEN 1280.8 738.7 2019.5 80.9 91.0 69.0 80.0 78.0 79.3KOCKUMS TYPE 192 (676.6)

Seriti Commission

Evaluation and Consolidation Process

• Consolidated evaluation results were presented to the AASB on 8 and 16 July 1998.

• During the presentation by SOFCOM to the AASB on 8 and 16 July 1998, the Chief of Acquisition of the DoD, who was the presenter, introduced a “Non-Costed Option” for the LIFT.

– This “option” was a consolidation of the evaluation results for the LIFT, but excluded cost.

– Implied that the normalized Military Performance Index without having been divided by cost, was added to the normalized Industrial Participation Value and Financing Indices.

– The exclusion of cost in the Military Value, brought about a change in “Best Value” scores and also in the ranking of the offerors

69

Seriti Commission

LIFT Non-Costed Option Results

70

Seriti Commission

Recommendation Process

• SOFCOM recommended result of costed options to AASB on 8 July 1998

• AASB met on 8 and 16 July 1998 - submitted their recommendations to

the AAC.

• AAC submitted their recommendations to the Minister’s Committee

• Minister’s Committee submitted their recommendations to Cabinet.

71

Seriti Commission

Minister’s Committee

• Mr Thabo Mbeki as Chairman and Deputy President of the Republic of

South Africa;

• Mr Mosiuoa Gerard Patrick Lekota as Minister of Defence (Initially Mr J.

Modise);

• Mr Alec Erwin as Minister of Trade and Industry;

• Mr Trevor Manuel as Minister of Finance; and

• Mr Jeffrey Thamsanqa Radebe as Minister of Public Enterprises (Initially

Ms. S Sigcau).

72

Seriti Commission

Preferred Bidder Recommendation

• Evaluation results and indicated preferred bidders that were presented

to the AASB, AAC, the Minister’s Committee and subsequently to

Cabinet for approval, were all presentations and were not part of the

project governance documentation that would normally be submitted

to structures such as the AASB and AAC.

• Post SOFCOM consolidation, the procurement process outside of

Armscor’s control.

• This action therefore constituted a deviation from Armscor’s standard

procurement processes where Armscor would normally be solely

responsible for authorizing and appointing a preferred bidder

73

Seriti Commission

CONTRACT NEGOTIATIONS AND CONTRACTING AUTHORIZATION

74

Seriti Commission

Contract Negotiations - IONT

• November 1998 - Cabinet announced the preferred suppliers that had

been selected.

• Cabinet approved the establishment of the International Offers

Negotiating Team (IONT) to negotiate the umbrella agreements with each

of the preferred suppliers in respect of the SDPP and to finalize financing

arrangements with financial institutions.

• IONT was led by a chief negotiator and reported to the Minister’s

Committee and directly to the Deputy President as and when required.

75

Seriti Commission

Armscor Contracting Model

76

Seriti Commission

Contract Negotiations

• During the period of approximately 1 year between date of approval of the

preferred suppliers and the date of contract signature, negotiations were

conducted at 2 tiers :

– Negotiations by IONT resulting in

• “Umbrella Agreements” with suppliers.

• financing agreements with financial institutions.

• Alignment of equipment quantities and delivery phasing with the

negotiated funding.

– Negotiations by project teams - resulting in the “Supply Terms” to the

umbrella agreements.

77

Seriti Commission

Negotiated Agreements

• Umbrella agreements

– provided in-principle agreement with regards to certain elements of

the contract at a high level, for instance, including but not limited to

NIP and DIP undertakings, performance guarantees as well as price of

the system.

– the schedules, annexures and appendices to the umbrella agreement

contained detailed specifics of the individual elements agreed to in

the umbrella agreements.

• Supply terms to the umbrella agreements

– contain commercial as well as technical specifications of the product,

• NIP and DIP agreements

78

Seriti Commission

Contract Negotiations

• The 2 tiers of negotiations and subsequent agreements - constituted a deviation from the standard Armscor procurement processes.

• In the ordinary course of Armscor’s standard procurement processes, Armscor would be solely responsible for the negotiations and conclusion of contracts with the preferred suppliers.

• In the case of the SDPP’s, the IONT which was led by an independent chief negotiator who eventually reported to Cabinet,

– negotiated the high level agreements with the prospective preferred suppliers.

– Made eventual submission to Cabinet to obtain approval to enter into the contracts with the respective suppliers

• This process was outside of the area of control of Armscor.

79

Seriti Commission

International Offers Negotiating Team

IONT consisted of the following members:

• Mr Jayendra Naidoo as Chief Negotiator and Chairman;

• Technical and DIP domain addressed by the CEO of Armscor, who

– led the technical and DIP negotiating workgroups

– supported by Chief of Acquisition of the DoD;

• NIP domain addressed by the Acting Director Industrial Participation of

the DTI

• financing domain addressed by the Senior Manager, Budget Office of the

Department of Finance

80

Seriti Commission

SUMMARY OF SDPP ACQUISITION PROCESS

81

Seriti Commission

SDPP Process - RFI

• RFI’s were submitted to embassies of 9 countries for forwarding to

possible suppliers in their countries

– to determine whether they had a product that could satisfy the

requirements.

• 37 responses received on 31 October 1997.

• RFI responses were evaluated according to previously approved value

systems.

• Shortlist of acceptable products determined from RFI response evaluation.

82

Seriti Commission

SDPP Process - RFO

• During February 1998, the RFO's for the short-listed products in 6

equipment categories (excluding LIFT) were submitted via the Military

Attache’s of the respective countries /suppliers.

• The closing dates for submission of the best and final offers ranged from

11 May to 15 May 1998 for the 6 categories of equipments.

• The RFO for the LIFT lagged behind the initial six equipment types. The

RFO was sent out on 11 May 1998 and responses received back on 15 June

1998.

83

Seriti Commission

SDPP Process - RFO

• The RFOs required that the final offers should consist of four separated

sections per submission, i.e.

– technical and pricing information,

– economical advantage for the South African defence and non-defence

related industry (DIP and NIP) and

– proposed financing arrangements.

84

Seriti Commission

SDPP Process – Offer Evaluation

• The received proposals were evaluated by 12 (twelve) project teams, i.e.

– 7 (seven) Program-related teams for the technical appraisal,

comprising members from the respective Arm of Service (SANDF),

Armscor and the Defence Secretariat;

– 1 (one) NIP team for the NIP appraisal, comprising members from DTI;

– 3 (three) DIP teams for the DIP appraisal, comprising members from

Armscor, SANDF and the Defence Secretariat; and

– 1 (one) Financial team for the Financing appraisal, comprising

members from Armscor, Defence Secretariat, SANDF, Department of

Finance and Financial Institutions.

85

Seriti Commission

SDPP Process – Consolidation

• The results provided by each project team was normalized to a 100 (one

hundred) point score

• presented individually to the SOFCOM on the 1st and 2nd of July 1998.

• The independent group scores per equipment type were consolidated by

the SOFCOM to arrive at a preferred supplier per equipment type.

86

Seriti Commission

SDPP Process – Recommendation

• a recommendation per program was compiled by the SOFCOM,

• AASB and the AAC were briefed on the results.

• followed by a special Ministerial briefing to the then Deputy President,

Minister of Defence, Minister of Trade and Industry, Minister of Public

Enterprise and the Deputy Minister of Defence on 31 August 1998.

• 18 November 1998 - briefing was presented to full Cabinet

• Cabinet approved the preferred suppliers for each of the equipment types

and authorized that negotiations be entered into with the preferred

suppliers in order to arrive at an affordable contacting position with the

respective suppliers.

87

Seriti Commission

SDPP Process- Preferred Supplier Approval

• Subsequent to Cabinet approval of the preferred suppliers,

– Preferred suppliers notified by letter under the signature of the Chairman of

Armscor of their selection as preferred suppliers,

– unsuccessful bidders were simultaneously notified that they weren’t selected as

preferred suppliers.

• Following on cabinet approval of the preferred suppliers, the IONT was formed,

comprising inter alia members from DoD, Armscor, Department of Finance (Treasury)

and DTI.

• IONT negotiated umbrella contracts and financing arrangements at a high level,

• respective program teams negotiated the technical terms with the respective suppliers

in order to finalize the configuration of each of the equipment types while remaining

within a predetermined cost ceiling.

88

Seriti Commission

SDPP Process – Contract Authorization

• Upon conclusion of the negotiation process - final briefing was presented

to Cabinet on 1 December 1999

• Cabinet authorized the signing of contracts with the suppliers of the

corvettes, submarines, LIFT, ALFA and the LUH.

• These contracts were subsequently signed on the 3rd of December 1999.

89

Seriti Commission

SDPP Process – Deviations from Standard Armscor Processes

• The Department of Finance (Treasury) evaluated the financing component

of the offers.

• deviation from standard Armscor procurement process where the

evaluation did not simply take place on technical, Industrial Participation

and cost grounds.

90

Seriti Commission

SDPP Process – Deviations from Standard Armscor Processes

• After consolidation of evaluation results - the proposed preferred suppliers were

recommended by the SOFCOM to the AASB and subsequently to the AAC and the

Minister’s Committee.

• The next stage was approval by full Cabinet of the contracting decision arrangements

which occurred on or about 1 December 1999.

• The contracts were signed on the 3rd of December 1999.

• In terms of Armscor’s standard tendering and contracting processes - Armscor as the

Tender Board would have been responsible for all phases in this process.

• In the case of the SDPP - the decisions regarding the selection of the preferred bidders

and the awarding of the contract was not made by Armscor Tender Board, but rather

was made by Cabinet

• Signature of the contracts was only subsequently ratified by the Armscor Board.

91

Seriti Commission

ARMSCOR INTERNAL AUDITS INTO PROCESS

92

Seriti Commission

Armscor Audits into SDPP Process

• The SDPP process was the subject-matter of two internal audit reports.

• The 1st (first) internal audit report was carried out over the period 6 to 30

November 1998 (“the first internal audit report”)

• the 2nd (second) internal audit report was produced on 21 July 1999 (“the

second internal audit report”).

• Audits were performed at the request of the General Manager:

Aeronautics and Maritime in order to enquire whether the processes

followed during the valuation of the SDPP were proper and transparent.

• The internal audits were carried out JG Grobbelaar of Internal Audit, Dr. BJ

van Tonder and Mr. W van der Walt from the Quality Engineering Services

Division.

93

Seriti Commission

Armscor Internal Audit Findings

• Audit reports concluded that no evidence of improper conduct was found

on the part of any of the Armscor employees involved in the evaluation of

the various proposals.

• The reports of the teams that evaluated the technical merits of the

proposals were adequate and contained sufficient information to verify

the adequacy of the procedures that were followed and the

appropriateness of the recommendations made to the SOFCOM.

94

Seriti Commission

First Audit Report - Findings

• The first internal audit report concluded that:

– although the evaluation were not performed strictly to A/PROC/097

since the process was influenced by parties outside of Armscor, the

basic principles and rationale in determining best value for money

were applied;

– the MOD policy for dealing with the SDPP stipulated a multi-tier

approach to be followed during the assessment of offers. The policy

outlined a three-order evaluation to be performed and according to

the SOFCOM constitution it managed the second order evaluation

95

Seriti Commission

First Audit Report - Findings

• The calculations of Military Performance Index values were verified by hand

calculations based on data included in the reports -

– were verified to within a few percent in all cases except for the submarine.

– Mr JG Grobler of Internal Audit confirmed the accuracy of the calculations

made for the submarine proposals during a further investigation.

• On instructions of the SOFCOM all final offers were evaluated and no offeror

was excluded due to non-compliance with any critical requirements.

• It must be noted that all offers were considered to meet the Defence Force's

minimum technical requirements.

96

Seriti Commission

First Audit Report - Findings • The evaluations were not performed strictly to A-Proc-097 (Armscor procedure for the

selection of contractual resources)

– the process was influenced by parties outside Armscor,

– the basic principles and the rationale of determining best value for money were

applied.

• The MOD policy for dealing with international Defence Equipment Offers dated 8

August 1997 stipulated a multi-tier approach to be followed during the assessment of

offers.

• The policy outlined a three-order evaluation to be performed and according to the

SOFCOM constitution it managed the second order evaluation.

• No First Order Evaluation in terms of the policy has been performed and it is uncertain

whether some other First order evaluation has been performed that could account for

the change in recommendations regarding the LIFT.

97

Seriti Commission

Second Audit Report - Findings

• even though a number of concerns exist regarding procedures followed,

the role of programme teams, accountability and actions by parties

outside of Armscor no evidence was found that would indicate gross

misconduct within Armscor with regard to the execution of work

• negotiations were conducted professionally and with integrity.

98

Seriti Commission

JIT Report - Recommendations

• The following recommendations of the Joint Investigating Team (“JIT”)

(consisting of the Public Protector, National Prosecution Agency and

Auditor General) into the SDPP process, related to the acquisition policy :

– “(§14.2.1) It is recommended that the policy document, referred to in

paragraph 3.2.5 above (VB1000) be further refined with specific

reference to the lessons learnt from the acquisition process under

investigation as reflected in this report. The staff of DoD and Armscor

involved in procurement should be properly trained to ensure that

they assimilate and fully understand the policy with a view to its

effective implementation.”

99

Seriti Commission

JIT Report - Recommendations

• (§ 14.2.6) Adequate audit trails, with particular emphasis on the visibility

of supervision, decision making and assumption of responsibility should

be in place at appropriate levels in the procurement process.

• “(§ 14.2.11) The guidelines contained in the Defence Review that relate

to the selection and appointment of subcontractors must be followed and

steps taken to ensure that an open and fair process is adhered to for the

selection of subcontractors”

100

Seriti Commission

JIT Report Recommendations - Implementation

• Subsequent to the release of the JIT Report

– a total review of the DoD/Armscor Acquisition Policy was initiated,

amongst others, addressing the recommendations from the JIT.

– Culminated in the promulgation of DODI/ACQ/No 00005/2003 (DAP

1000) on 1 September 2004.

– This document was subsequently reviewed and an updated version

was implemented on 1 July 2010.

101

Seriti Commission

CONCLUSION

102

103

Although there were a number of deviations to the standard Armscor procurement process, Armscor executed on its mandate in respect of the SDPP acquisition - “to meet as effectively and economically as may be feasible the armaments requirements of the Republic, as determined by the Minister, including armaments required for export”.