ISSUES EMINATING FROM
ARMSCOR’S ANNUAL REPORT
FOR THE 2005 / 2006 FINANCIAL YEAR
Presented to the
Portfolio Committee on Defence
13 MARCH 2007
Introduction
The Portfolio Committee on Defence, having conducted departmental hearings
on the annual report of Armscor on Tuesday, 12 September 2006, prepared a
report and the report was adopted by the Committee on Tuesday 24 October
2005.
Contained in the report were specific questions to which Armscor had to
prepare information to be submitted to the Portfolio Committee and this
presentation serves to address these questions.
The presentation furthermore addresses the paragraph numbers as reflected in
the report adopted by the Portfolio Committee.
Issues from Armscor’s 2005/2006 Annual Report
3
Armscor Group Operational Budget 2005 / 2006
4
Performance against Acquisition goals
5
SANDF Operational Support
6
Manage DOD Strategic Facilities
7
Transformation Challenges
8
Risk due to insufficient funding for Armscor
9
Auditor General’s Report
10
Conclusion and Recommendations
3.
Armscor Group Operational Budget
There is a need for Armscor to build its skills base. Therefore a briefing
on reskilling needs to be available in 6 months
The committee needs a report with regard to the replacement of the main
frame and technology renewal
The committee needs clarity on why Armscor spend 72% of its budget on
salaries
Briefing on reskilling of Armscor employees
Staff categories in Armscor.
Critical enabling competencies.
Service delivery application / domain area.
Concerns / issues.
Interventions.
Briefing on reskilling of Armscor employees
Staff categories in Armscor
1. Support Staff: Eg. HR, Corporate Affairs, Finance.
2. Non-technical support to the core function: Registry management,
Legal, Financial, etc.
3. Technical personnel.
Categories 1 & 2 generally easily available on the market. On
appointment need orientation on Armscor processes.
Category 3 consists of personnel with tertiary qualifications in a
technical discipline (engineering, technology, scientist).
Category 3 personnel are extremely difficult to find. Scarcity /
shortage exacerbated by the fact that other organisations need
people with these qualifications.
Briefing on reskilling of Armscor employees
Critical enabling competencies
Project Management (integration, scope management, time management
– scheduling, cost management, HR management, etc.).
Technology Management (planning and coordination).
Engineering Management (requirement analysis management, system
design, implementation & integration, etc.).
Briefing on reskilling of Armscor employees
Service delivery application / domain area
Competencies applied in the following areas:
Broad military.
Vehicles (combat, combat support vehicles, artillery systems,
etc.)
Aircraft (fighter aircraft, helicopters, unmanned aerial vehicles,
etc.)
Vessels (submarines, mine counter measure vessels, auxiliary
support ships, etc.)
Electronics (information warfare, cryptography, navigation
systems, etc.)
Weapons (guided missiles, torpedoes, rockets, bombs, etc.)
Diverse (special forces, diving systems, shelters & infrastructure,
etc.)
Support (general support, reporting & communication, etc.)
Briefing on reskilling of Armscor employees
Concerns / Issues
The issues identified regarding employees in the core function include:
People with the right qualifications not readily available in the market.
People with the right qualifications even when they have the technical
experience still need military specific domain knowledge which can only be
gained by on-the-job training and experience.
Transformation challenges: people from designated groups (DGs, ie. Black
people, women and people with disabilities) even more in short supply, the
market pays a premium for them and they tend to be more mobile.
More experienced employees (possible mentors/coaches) form the actual
execution core and are therefore generally loaded which puts a strain on the
coaching focus.
Aging workforce (average age = 45) and associated retirements.
Ongoing general war / competition in the market for the same small pool of
competencies.
Briefing on reskilling of Armscor employees
Interventions
These problems are addressed through the following measures:
Addressing pay as much as is affordable.
Bursaries and trainee programme.
Investment in coaching skills and coaching.
Recognition for people who fulfil the coaching role.
Succession planning (creating pools of suitably qualified personnel through onthe-job training).
Financial support for staff who want to embark on further studies.
Ongoing profiling of staff in terms of pending retirements, termination trends,
work loading and making provision for continuity.
Investment in developing specific learnerships.
Investing in an e-learning infrastructure to enable employees to learn on their
own with less support than would otherwise be required.
Always striving for more financial investment on trainees.
Employing younger people and in line with the transformation goals.
Sending people on training courses.
Replacement of the main frame and technology renewal
Replacement of the main frame
Initiative / Strategy:
Transform current application systems to be more cost effective and include
additional functionalities as defined in the User Requirement Statement
Commencement date:
1 April 2005
Objectives:
Technology renewal
Cost reduction
Replacement of the main frame and technology renewal
Replacement of the main frame
The Mainframe running costs are high in comparison with client
server platforms.
The database systems, programming languages are outdated
Outdated development language such as Cobol and database
management systems such as IDMS are rarely supported, as skills are
dwindling and expensive. Moreover, training institutions are no longer
providing training for these technologies because they are outdated.
Shrinking Defence Budget.
Cyborg is no longer supported with effect from 1 Apr 2007.
The application system that is being used by Human Resources
Department to maintain employees biographical and leave data. The
system was originally bought from Cyborg Systems Africa. This company
was taken over by Hewitt Associates however who rendered all support
services for the system. Armscor was notified in October 2005 that Hewitt
Associates were going to cease all their African Cyborg support operations
at the end of April 2007.
Replacement of the main frame and technology renewal
Replacement of the main frame
Progress
The User Requirements Specification completed in October 2006.
An RFI was issued to the industry to assess the cost implications
The price quoted ranged from R45,8m to R213,3m
Reasons for
nonachievement
Approval was obtained from the Management Board in May 2006
to delay the project and finalize the enterprise architecture first.
The initial approach was not holistic. Important systems were not
included.
Action(s) to
rectify
situation
The scope of the project has been expanded to include other
critical systems that were not included in the original scope.
The ICT division has submitted a business case to the Board of
Directors to approve funding to the tune of R60m over the next five
years.
Time estimates for implementation have been revised from 2009
to 2012 subject to approval of the board and availability of funds.
Replacement of the main frame and technology renewal
Capital renewal
ICT Equipment needs to be replaced on regular cycles as indicated in
the following table
Item
Replacement
Cycle
Desktops / Laptops / Palmtops / Pocket PC /
Tablet PC
3
Printers
5
Servers
3
Networking equipment
5
Cabling
7
Replacement of the main frame and technology renewal
Capital renewal
Initial problem statement:
IT Capital Budget never enough to cater for all the requirements
ARMSCOR is not getting enough funds due to the budget cuts of the DOD. This
has resulted in budget cuts for the IT department, making it difficult to renew the
infrastructure and applications.
The total cost of ownership of the current ICT infrastructure and services is
approximately R60m and the funding that ICT receives is on average R50m
indicating an under funding gap of R10m annually. This is evident in the
deteriorating infrastructure and the poor response times being experienced by the
users on a daily basis.
In addition, the maintenance, support and maintenance costs of the infrastructure
are very high such that no funds are available to develop new systems or renew the
infrastructure.
Replacement of the main frame and technology renewal
Capital renewal
Objectives:
Provide for the renewal of IT equipment every 3 to 5 years depending on
business requirements
To properly plan the purchase of IT equipment so as to minimise disruption of
service due to equipment failure
To evenly spread, without the usual peak in budget requirements, spending on
replacement
Replacement of the main frame and technology renewal
Capital renewal
How the situation has improved:
Areas for potential cost reduction have been identified and the potential savings
have been quantified as a result of the Enterprise Architecture Project
Guidelines in place for managers to allocate the right device to the right person
based on the requirements of the job
A project is underway to consolidate the servers at the Head Office in order to
reduce maintenance, license and support costs.
Replacement of the main frame and technology renewal
Capital renewal
What still needs to be done:
Complete the server consolidation
31/03/07
Deploy initial Thin Client devices
31/08/07
Complete printer consolidation project
30/09/07
Replacement of computers and notebooks
annually
Replacement of network components
annually
Why Armscor spend 72% of its budget on salaries
Operational budget for 2005/06.
Operational investment/requirements of Armscor.
Skill profile of Armscor.
Organisational structure.
Why Armscor spend 72% of its budget on salaries
Operational budget for 2005/06
Description
Actual 2005/06
Rm
% Breakdown of
Actual
Personnel costs
339,7
72%
Subsistence & Travel
14,5
3%
Computer Services
41,5
9%
Contractor Services
21,8
5%
Water & Electricity
10,2
2%
Other operating costs
27,1
5%
Depreciating
18,4
4%
TOTAL
473,2
100%
Operating Costs
Why Armscor spend 72% of its budget on salaries
Operational investment / requirements of Armscor
Armscor is a service organisation whose operational investment (as
reflected in the distribution of its operational costs) is in the competencies of
its personnel. This is unlike for example, a manufacturing organisation
which has to create a product and which would need machines, raw
materials and even a warehousing and distribution infrastructure, which
would add to its costs.
Furthermore, the technically complex nature of Armscor’s operational
environment demands high level personnel in the technical functional
disciplines which leads to a staff profile as indicated on the following slides.
Why Armscor spend 72% of its budget on salaries
Occupational Levels
Armscor Broad Band
Generic Occupational Level
EX (Executive)
Top Management
SU (Strategic Execution/Unique Authority)
Senior Management
MP (Managing/Professional Contribution)
Professionally qualified, experienced
specialists and mid-management
STS (Supervision/Technical/Specialist
Contribution)
Skilled technical and academically
qualified workers, junior management,
supervisors, foremen, superintendents
AS (Advanced Operations/Support)
Semi-skilled and discretionary decision
making
OS (Operation/Support)
Unskilled and defined decision making
Why Armscor spend 72% of its budget on salaries
Staff / skill profile
AFRICAN
COLOURED
INDIAN
WHITE
TOTAL
OVERALL
TOTAL
BB
M
F
M
F
M
F
M
F
M
F
EX
4
2
0
0
0
0
2
0
6
2
8
SU
4
2
2
0
1
0
44
3
51
5
56
MP
23
8
8
0
10
2
290
38
331
48
379
STS
39
20
10
8
5
9
44
94
98
131
229
AS
41
60
14
23
2
8
9
50
66
141
207
OS
44
27
9
2
0
0
0
0
53
29
82
TOTAL
155
119
43
33
18
19
389
185
605
356
961
Why Armscor spend 72% of its budget on salaries
Unlike a typical organisation whose staff distribution profile is triangle
shaped, Armscor is more diamond shaped.
Furthermore, in order to fulfil its mandate, the organisation employs
people with skills which fall in the higher paying functional groups
(ie.: Technicians, scientists and engineers) which raise the payroll.
8
56
379
229
207
82
4.
Performance against Acquisition goals
4.1
Maritime Defence: Strategic Defence Packages
The committee wish to congratulate Armscor for the deliverance of the 4
Corvettes to the South African Navy, although the submarine programme
is complete the committee need clarity on the issues of the 3 month delay
4.2
Air Defence: Strategic Defence Packages
Only seven of the twelve light utility helicopters were delivered due to
technical problems. The Committee needs a report on what are the
technical problems that occurred and has this been corrected
The budget for the Airbus has been overspend due to the complete plan
not being reflected in the budget, what caused this to happen, and also
the additional funds supplied by DOD was not reflected in the baseline
that the Committee requested
4.3
Landward Defence: Strategic Defence Packages
The Committee needs a report on the delay due to the affordability
program of the new generation light infantry vehicles and whether has the
studies been completed
The Committee needs clarity with regard to the 41 months in the
completion of the ground based air defence system due to nonperformance by Denel and other sub-contractors
4.1 Maritime Defence: Strategic Defence Packages
Three month delay in submarine programme
The submarine program is running three months behind schedule due to the
Contractor working to an over-optimistic schedule associated with the harbour
acceptance trials of the submarines as well as some unexpected technical
problems encountered during these trials.
Cognisance should however be taken of the fact that the acquisition programme
stretches over a total period of eight years which commenced during 2000, and a
delay of three months over this period is considered to be negligible.
4.2 Air Defence: Strategic Defence Packages
Technical problems encountered with the light utility helicopter programme
The delivery of the first A109LUH was delayed due to the fact that the process of
confirming the qualification results and compliance to specifications took longer
than initially planned for.
Due to the time lost to confirm qualification prior to acceptance of the first
helicopter, it was not possible to deliver the initially planned number of 12
helicopters within the report period.
4.2 Air Defence: Strategic Defence Packages
Airbus budget and baseline
Armscor had the approval (financial authority) to spend the funds.
The A400 programme has a special arrangement regarding funding within
the DOD.
4.3 Landward Defence: Strategic Defence Packages
Delay due to affordability program of the new generation light infantry vehicle
New Generation Infantry Combat Vehicle Product System:
Project HOEFYSTER provides a complete level 5 New Generation Infantry Combat
Vehicle Products System (NGICV-PS) to replace the Ratel Infantry Combat Vehicle that
has been in service since 1976.
The offer as submitted on 24 February 2005 by Denel as main contractor, as well as a
NGICV SV prototype vehicle was evaluated by Armscor and DAPD.
The technical performance of the vehicle offered was mostly on par with the
requirements, except for a few minor deviations that could be overcome with some minor
design changes or adjustment in the specifications.
The unit production cost and total project cost was not acceptable. The IPT was
mandated to obtain the “best offer” from Denel, and present that for consideration to the
Armaments Acquisition Steering Board in Project Study Report 3.
4.3 Landward Defence: Strategic Defence Packages
Delay due to affordability program of the new generation light infantry vehicle
NGICV – PS: Background:
Denel submitted a reviewed offer on 18 November 2005 to Armscor. The unit
production prices of the combat variants as well as the total project cost was
still not acceptable.
During December 2005 Armscor requested Denel to present their “best and
final offer” by February 2006. Denel submitted a revised offer (Issue C) on 03
February 2006. The prices offered for the turrets were considered acceptable,
but the prices for the vehicle platforms were still unacceptable. Denel, together
with Patria and Land Systems OMC, again revised the offer and a more
acceptable price was offered on 03 March 2006.
The Project Control Board advised the Integrated Project Team to enter into
detail contract negotiations with Denel based on the revised offer received. The
offer clarification process then started with Denel.
4.3 Landward Defence: Strategic Defence Packages
Delay due to affordability program of the new generation light infantry vehicle
NGICV -Current Status:
Negotiations with Denel with the aim of arriving at a contracting position
commenced on 8 November 2006.
Negotiations with the aim of contracting for a phased acquisition program has
progressed very well, although a number of detail issues still need to be
resolved before a contracting position can be achieved.
Technically both teams have negotiated for an excellent product.
The outstanding issues to be resolved before a contract can be established,
are presently being addressed at a high level between Armscor/DOD and
Denel.
4.3 Landward Defence: Strategic Defence Packages
41 Month delay in ground based air defence system - Background
Contract was placed on Denel during November 2002.
•
Value R801 122 885,00
•
Activation Date – February 2003
•
Programme period – 36 months
Delay of 5 months in activation due to problem with guarantee for
advance payment.
•
Extend contract period to 41 months – 30 June 2006
May 2005 – 9 month late delivery notification from Denel
August 2006 – further 45 month late delivery notification from Denel
Total projected slip on program of 54 months – expected delivery date of 30
November 2009
Penalties contractually payable – 10% of contract value (R80.1 million)
4.3 Landward Defence: Strategic Defence Packages
41 Month delay in ground based air defence system – Denel non-performance
Delay in programme activation mainly attributed to the following:
Extensive delay in contracting of subcontractors – mostly local
Subcontracting of some work elements still outstanding
Delay of more than 1 year in translating Armscor System Specification into
subsystem specifications
•
Specifications on subcontracted elements not finalized
Design shortcomings identified in certain subsystem elements and are now being
redesigned
•
Thermal Imager
•
Power supply for Radar
•
Radio Interface Module
Logistics development is lagging due to non finalization of subsystem designs
Large personnel turnover causing loss of continuity
4.3 Landward Defence: Strategic Defence Packages
41 Month delay in ground based air defence system – Risk mitigation
All foreseeable risks have been identified and detailed risk mitigation
plans have been developed per risk.
Factory acceptance now performed by Armscor per subsystem element
as they are completed
Early user exposure to subsystems implemented
•
First missile firing by users planned for October 2007
User training on subsystem level implemented instead of first training
once entire product system is completed
5.
5.1
SANDF Operational Support
Disposal of SANDF surplus stock
Armscor shows a net loss of R7.3m due to moratorium put on stock sales
by the NCACC, this is of great concern to the Committee and we need to
know what preventative measures are being put in place to prevent this
from re-occurring
5.
SANDF Operational Support
Preventative measures to combat re-occurrence of moratorium
A forum has been established between the Secretary for Defence and the CEO
of Armscor to discuss on a regular basis all stock sales issues.
A forum that includes the Chief of Acquisition, the Chief of Logistics and the
General Manager: Armscor Business was created to screen all applications
before submitting the requests to the NCACC.
6.
Manage DOD strategic facilities
The Committee is concerned about the R2.7m net loss on the IMT,
Alkantpan and Protechnik under funding and therefore the Committee
needs a presentation on what measures are being put in place to prevent
this from re-occurring
6.
Manage DOD strategic facilities
Measures to combat re-occurrence of under funding of strategic facilities
Various presentations stating the strategic nature of IMT, Alkantpan and Gerotek
were made during 2005 which resulted in the DOD providing additional funding of
R16m per year as from 2006/07
•
IMT R3m
•
Gerotek R3m
•
Alkantpan R10m
Break-even strategies were developed and implementation started 01/04/2006
No additional funding could be obtained from the DOD for Protechnik. A Breakeven strategy was developed and implementation started in 2007.
7.
Transformation Challenges
The Committee needs a presentation with regard to preventative
measures being put in place to stop the loss of personnel due to salaries
and limited growth career opportunities.
The Committee needs a presentation by April 2007 on the transformation
and Equity policy with the emphasis on Affirmative Action, Gender and
Race in managerial positions
7.
Transformation Challenges
Measures to stop the loss of personnel due to salaries and limited growth
career opportunities
Salaries
The problem arose mainly due to the fact that during the years 1992 – 2002
Armscor paid below market average general annual remunerations
increments. As a result the company was found, by 2001, to be paying on
average, on the 25th percentile of the market.
From 2003 to 2005 Armscor granted above market-average general
annual remuneration increments.
In 2004 the position of each employee in relation to the market for the
applicable functional group (occupational category) was factored into the
exercise to ensure that employees are as aligned as affordable to their
occupational categories in the market.
7.
Transformation Challenges
Measures to stop the loss of personnel due to salaries and limited growth
career opportunities
2006 : focus specifically on employees that possess scarce skills which are
being utilised in vulnerable capability domains - additional 2% based on
scarcity as measured by performance, competence and market position
comparability.
Remuneration model to cater for the implementation of interim salary reviews
and promotion related salary increments.
Model based on competence, performance and pay level in relation to the
market.
7.
Transformation Challenges
Measures to stop the loss of personnel due to salaries and limited growth
career opportunities
Limited career growth opportunities
Broad Banding in order to promote a more flexible utilisation of employees.
=> Only six jobs levels. (Still the preferred organisational design by
management.)
However the system does recognise the movement and associated
remuneration alignment within the broadbands. Notwithstanding the withinbroad band movement, some employees still find the limited movement
between broad bands a cause of grief.
7.
Transformation Challenges
Measures to stop the loss of personnel due to salaries and limited growth
career opportunities
Other factors which may limit career growth, such as under-utilisation of staff
are monitored. For instance new employees are subjected to a postappointment follow up interview which may help identify this problem in time.
Relatively low average turnover rate at less than 6% limits opportunities to
create space. (However, due to market factors this may be higher in some
categories -typically those where it should be lowest.)
Remuneration measures spelt out above try to mitigate this.)
7.
Transformation Challenges
Transformation and Equity Policy
Consultative Forum
Manpower planning: Demographic profile of the country and the regions.
Numerical goals: Appointment of blacks and women, representation of blacks,
women and people with disabilities.
Diversity sensitization.
Accommodation of people with disabilities. Audits.
Some specific measures: Post-appointment interviews, motivation of
requirements beyond the Honours degree.
Bursary scheme, TDP.
Remuneration disparities.
Training, coaching, composition of project teams.
Manager responsible for AA.
7.
Transformation Challenges
Transformation and Equity Policy
The progress that has been made over the years in the broad band STS
(≈Skilled technical and academically qualified workers, junior management,
supervisors, foremen, superintendents) is indicated in the following two slides.
7.
Transformation Challenges
Transformation and Equity Policy: Employee statistics for STS +
Employee Total Per Gender
STS and above personnel
600
500
485
491
135
147
499
483
481
488
483
486
167
171
182
190
184
186
400
300
200
100
0
03/2000 03/2001 03/2002 03/2003 03/2004 03/2005 03/2006 01/2007
Female
Male
Female
03/2000
01/2006
Male
Total
%
03/2000
135
485
620
21.8
03/2001
147
491
638
23
21.8%
27.7
03/2002
167
499
666
25.1
Female
Female
03/2003
171
483
654
26.1
03/2004
182
481
663
27.5
78.2%
72.3%
03/2005
190
488
678
28
Male
Male
03/2006
184
483
667
27.6
01/2007
186
486
672
27.7
7.
Transformation Challenges
Transformation and Equity Policy: Employee statistics for STS +
Employee Total Per Race
STS and above personnel
700
600
572
566
575
72
91
555
549
529
114
129
138
03/2004
03/2005
03/2006
549
515
500
400
300
200
100
48
99
157
0
03/2000
03/2001
03/2002
03/2003
Black
White
Black
03/2000
01/2007
Black
Black
01/2007
White
%
Total
03/2000
48
572
620
7.7
03/2001
72
566
638
11.3
03/2002
91
575
666
13.7
03/2003
99
555
654
15.1
03/2004
114
549
663
17.2
03/2005
129
549
678
19
03/2006
138
529
667
20.7
01/2007
157
515
672
23.4
23.4
7.7
White
White
92.3
76.6
8.
Risks due to insufficient funding
Armscor reported on its inability to appoint a new trainee programme but
if you look at the goals set by Armscor part of the things that needs to be
addressed is that of the trainee program, the Committee therefore
recommends that more funds should be allocated towards this
programme
The Committee needs a presentation on the workings of the Armscor
bursary scheme, what are the criteria required to qualify for this, what
happens after completion of studies, what is the passing rate and what
are being done to retain these skills?
8.
Risks due to insufficient funding
Armscor’s trainee programme budget
Armscor recognises that the trainee programme – Talent Development
Programme (TDP) forms the bedrock of its renewal and transformation.
As a result would like to invest more financially in this initiative.
Additional financial investment is unfortunately constrained by other critical
competing demands on the organisation’s financial resources.
8.
Risks due to insufficient funding
Armscor’s bursary scheme
The criteria are a combination of the following:
Proposed field of study (typically technical, engineering and natural sciences, as
well as selected fields such as computer science and commercial science).
Academic merit.
The parents’ ability to support the studies.
8.
Risks due to insufficient funding
Armscor’s bursary scheme
Entrance requirements
In order to be eligible to participate, applicants musta.
Have completed Grade 12 with University exemption.
b.
Be in or have already written and passed their first year
c.
Have expressed interest in a career within the defence industry
d.
Be willing to become employed in Armscor.
e.
Be able to obtain and retain the required positive security clearance.
f.
Have relevant subjects to enable them to be employed in Armscor.
8.
Risks due to insufficient funding
Armscor’s bursary scheme
What happens after completion of studies?
The bursars are appointed into the TDP.
Historically some were lost.
Have now adopted a system of linking the provision of bursaries and the
appointment of trainees to long-term staff plans.
Adjusted the pay levels.
8.
Risks due to insufficient funding
Armscor’s bursary scheme
Passing rate:
19 Appointed since 1999.
4 Dropped out.
5 Completed studies, were appointed as TDPs then resigned.
3 Completed studies, got trained and currently employed.
3 Completed studies, currently completing vacation work requirements, to be
appointed into the TDP.
3 To complete studies in 2007.
1 To complete in 2008.
9.
Auditor General’s Report
The Auditor General report states that the following policies and
procedures were not formally approved during the year under review
therefore the Committee needs a report on these issues:
A formal information systems change control policy
Data backup and related disaster recovery policy
Logical Access and security policy to control access to the
information system
9.
Auditor General’s Report
Information systems control policy
The IT policy was reviewed and revised in October / November 2006 to ensure
that it addresses the change management questions posed. It was
subsequently approved by the Board of Directors in their first meeting of 2007.
Data backup and related disaster recovery policy
The IT policy as approved addresses the question of disaster recovery. In
addition, detailed Backup and Restore guidelines have been approved by the
management of Armscor.
9.
Auditor General’s Report
Logical access and security policy to control access to the information system
Legacy Mainframe Systems – It is not economically feasible to rewrite the
legacy mainframe systems to comply with the new logical access and
security controls. This requirement is to be addressed as part of the
transformation of the application systems of Armscor.
Modern Application Systems – The Information Systems Security Policy has
been revised and is going to serve in the April meeting of the Board of
Directors.
10. Conclusion and Recommendations
There is a need for Armscor to present to the Committee on the following
issues:
R51m saving with regard to Information Technology, Operational
Items and Vacancies the Committee feels that this was an under
spending.
A small saving of R12m which could not be explained.
A report on the outcome of the suspension of the CEO and how
R126m and the R21m respectively was lost
R3.4b unspent money, the Committee needs this unpacked
10. Conclusion and Recommendations
Under spending of R51m
EXPLANATION :
1.
PERSONNEL COST
1.1
2.
Vacancies not filled
Rm
11,6
- Management Board (General Manager Acquisition and Company Secretary)
1,7
- Acquisition and Quality (Unavailability of highly skilled technical manpower)
9,9
ADJUSTMENT OF PROVISION FOR POST RETIREMENT BENEFITS
13,1
The IAS19 (AC116) valuation of the group’s post-employment benefits was carried out at
31 MArch 2006. Based on the latest projection performed at 31 March 2006 the present
value of the obligation is R199.4m (2005: R148.3m) and the fair value of assets is
R263.2m (2005: R184.3m). Provision is being made for the projected obligation, spread
over five years.
3.
COMPUTER SERVICES
15,3
A project aimed at moving legacy mainframe applications to client server technology, as
well as other technology renewal projects were postponed awaiting completion of the
enterprise architecture investigation.
4.
SUBSISTENCE AND TRAVEL
Variance due to rephasing of acquisition projects, requirements not received from the
DOD and concerted efforts to reduce subsistence and travelling.
5,0
10. Conclusion and Recommendations
Under spending of R51m
EXPLANATION :
5.
CONTRACTOR SERVICE
2,6
Certain maintenance (airconditioner, electrical and building) was carried out by Armscor
itself and not contracted for externally as well as provision for legal costs which did not
materialise fully (R1.3m).
6.
WATER AND ELECTRICITY
1,9
During the previous financial year the Tshwane Metropolitan Authority did not register
Armscor’s water usage. The outstanding account as agreed upon, settled in the current
financial year, was less than budgeted for.
7.
DEPRECIATION
1,0
Rescheduling of Capital Expenditure over a longer term in Armscor Business
TOTAL
50,5
10. Conclusion and Recommendations
Small saving of R12m
Rm
EXPLANATION:
1.
2.
Savings due to concerted efforts to reduce costs
8.8
Postage and telecommunication, stationery, publications and advertisement
4.6
Marketing (Fewer shows facilitated than planned)
1.2
Maintenance on buildings and equipment – Armscor Business
1.5
Various smaller items (social investment, security services, etc.)
1.5
Regional Council Services Levies
1,0
Savings are due to the cancellation of Regional Council Services Levies.
3.
Rent and Maintenance: equipment
1.0
The variance in car hire was due to rephasing of acquisition projects, requirements
not received from the DOD and concerted efforts to reduce subsistence and
travelling.
The variance in rent of Photocopy equipment: positive was due to the positive
variance in the rate exchange.
4.
Sub Contractors – Armscor Business
2,0
The variation was due to a negative variance in actual sales which resulted in less
sub-contracting than budgeted for.
TOTAL
12,8
10. Conclusion and Recommendations
Report on the outcome of the suspension of the CEO and others
On the 24th February 2005 the Armscor Board of Directors suspended the
Chief Executive Officer, Mr Thomo, the General Manager Armscor Business, Dr
Jan de Necker and Executive Manager DMD, Mr Boet van Staden, following
allegations levelled against them with regards to the marketing of the Ratel to
Jordan.
The allegations related to the failure to return the Ratel back to the
Department of Defence after the expiry of the temporary export permit. The
Board considered the allegations serious enough to warrant an immediate
suspension of the three officials pending a full investigation.
The Board engaged the services of the Gobodo Forensic and Investigative
Accounting (Pty) Ltd to undertake an investigation of the allegations against the
three.
Gobodo Forensic Accounting presented its final report to the Board at a
special sitting of the Board on 9 June 2005.
10. Conclusion and Recommendations
Report on the outcome of the suspension of the CEO and others
The investigation revealed no evidence of wrong doing or negligence to
substantiate the allegations against the three Armscor officials, consequently, the
main findings and recommendations of Gobodo were as follows:
i)
The Chief Executive Officer, Mr Sipho Thomo should be absolved of any
irregularity in this entire matter and his suspension should be lifted with
immediate effect;
ii) The suspension of the General Manager: Armscor Business, Dr Jan de Necker,
should be lifted with immediate effect.
iii) The suspension of the Executive Manager: Defence Matériel Disposal, Mr Boet
van Staden, should be lifted with immediate effect.
After deliberating on these issues, the Board of Directors accepted the above
findings and recommendations.
10. Conclusion and Recommendations
Report on the outcome of the suspension of the CEO and others
The three Armscor officials were reinstated on 10 June 2005 and resumed their
duties on Monday, 13 June 2005.
This matter was reported publicly in the Armscor’s Annual Report, and as such has
been fully and satisfactorily concluded.
10. Conclusion and Recommendations
Report on the loss of R126m and R21m respectively
Country
Description
Status
DOD Action
Value (R)
Current Status
Jordan
Ratel 3
LC expired/ Contract
terminated
Stock list withdrawn
95,700,000
Chile
Cheetah
Aircraft
Contract Terminated
Stock list withdrawn
3,955,600
Contract Terminated
Polokwane
B Vehicles
Tender Allocated Wait for
NCACC approval
Authority not
granted
5,955,822
Approvals received and sales
continue
Wallmansth
al
B Vehicles
Tender Allocated Wait for
NCACC approval
Authority not
granted
10,814,689
Approvals received and sales
continue
Gabon
Mirage F1
Contract Terminated
Stock list withdrawn
40,000,000
Sold
Ghana
Rinkals
Ministerial Approval
Authority not
granted
1,000,000
Total Value
157,426,111
DOD 80%
125,940,889
Armscor 20%
31,485,222
New letter of intent signed
Await issue instruction
10. Conclusion and Recommendations
Unpacking of R3.4b unspent money
Funds re-phased to 2006/07
on request of the DOD
A109 LUH
102.933
No requirements from the
DOD
SAAF Kitty
0.945
Gripen
2.565
Corvettes
291.608
Hawk
190.360
Submarines
79.677
Sub-Total
295.858
Sub-Total
372.230
Rate of Exchange Savings
Gripen
10.745
Corvettes
117.033
Submarines
94.174
Sub-Total
221.952
Delay in order placement
Drummer
20.935
Sub-Total
20.935
10. Conclusion and Recommendations
Unpacking of R3.4b unspent money
Non-performance by Contractors
LUH
219.169 Only 7 of 12 planned helicopters delivered
Hawk
532.808
GBADS
243.193 Late delivery by contractor
Casspir Mk III
82.290
Longer than expected industrialization phase
Rooivalk helicopter
71.746
Long lead times on spares and problems with
Eurocopter accreditation delayed achievement of
planned work
UAOVS
23.864
Unexpected technical problems during aircraft
qualification
Sub-Total
1 173.070
Contract amended to allow delivery with incremental
functionality
Thank you
5.
5.1
SANDF Operational Support
Disposal of SANDF surplus stock
Armscor shows a net loss of R7.3m due to moratorium put on stock sales
by the NCACC, this is of great concern to the Committee and we need to
know what preventative measures are being put in place to prevent this
from re-occurring
5.
SANDF Operational Support
Preventative measures to combat re-occurrence of moratorium
Background
During 2001 and 2002 the Auditor General and SCOPA raised serious concerns
regarding the redundant assets that have not been disposed of
A business plan was drawn up and on 26 September 2002, the Plenary Defence
Staff Council approved the implementation of this plan for the disposal of
excessive category 1 materiel
•
•
•
Armscor Business will work on risk and will receive no transfer payment to
cover the costs of this function.
Instead of receiving a transfer payment from the DOD, Armscor Business is
allowed to retain 20% of the sales value of stock and the balance will be paid
into the account of the DOD.
The 20% retained income consists of 12.5% to recover operational costs
incurred and an incentive in the form of a 7.5% commission.
5.
SANDF Operational Support
Preventative measures to combat re-occurrence of moratorium
Function and processes:
The main responsibility of DMD is the management of the warehousing,
marketing and sale of disposed redundant and surplus defence materiel of the
DOD, as and when the materiel is identified by the DOD.
Such disposal is done to the best possible advantage of the DOD and the State in
terms of the Armscor Act as well as the Service Level Agreement between
Armscor and the Department of Defence.
The sales process is induced by either a pro-active or reactive action and is
executed by means of foreign/local sales, tenders and replacements.
5.
SANDF Operational Support
Preventative measures to combat re-occurrence of moratorium
Restrictions placed on DMD:
On 10 March 2005 DMD received a “for information only” copy of a letter sent by
the Deputy Director General of the Chief of Acquisitions and Procurement
Department to the office of the Chief of Logistics, in which it is stated that all
requests received for the disposal of stores by Armscor be frozen until further
notice, as well as that DAPD will not authorise Armscor (DMD) to proceed with any
new requests for the sale of disposed materiel
5.
SANDF Operational Support
Preventative measures to combat re-occurrence of moratorium
Cost drivers:
The operational expenses of the Defence Material Disposal Division
The maintenance, security, personnel and the management of the existing
eight warehouses;
The cost of rendering assistance to the Arms of Service during phases 1 to 4 of
their disposal investigation, which occurs prior to the stock being made
available to DMD.
Conclusion:
A forum between the Secretary for Defence and the CEO of Armscor discuss on
a regular basis all stock sales issues.
A forum that includes the Chief of Acquisition, the chief of Logistics and the
General Manager: Armscor Business was created to screen all applications
before submitting the requests to the NCACC.
10. Conclusion and Recommendations
Unpacking of R3.4b unspent money
FUNDS NOT COMMITTED ON:
LUH ( ECA )
GRIPEN ( ECA)
HAWK (ECA)
SAAF (KITTY)
CORVETTES (UNKNOWN)
102.933
Re-fasing of orders and fa's on request of DAPD
2.565
Re-fasing of orders and fa's on request of DAPD
190.36
Re-fasing of orders and fa's on request of DAPD
945
Unknown funds
278.568
Unknown funds
CORVETTES (VARIOUS
SERIES)
13.042
Surplus funds as requirements not formalised well
SUBMARINES ( LOCAL)
79.677
Surplus funds no requirements
1612.145
10. Conclusion and Recommendations
Unpacking of R3.4b unspent money
FUNDS NOT COMMITTED ON:
NON PERFORMANCE BY
CONTRACTORS
LUH
GRIPEN
HAWK
MARITIME HELICOPTER
219.169
10.745
532.808
17.208
Only 7 of the 12 helicopters were completed.
Savings on ROE and PM.
Mainly due to signature of CO 147
(R409.522m),Invoices not submitted by AB
Logistics/BAE Systems,ROE and escalation.
Integration Design Review Milestone only achieved
80% on local and overseas orders. Delayed
deployment of personnel to UK.
CORVETTES
117.033
Mainly due to ROE and esc.savings against the WDR
projections (R76m) together with late contracting
as a result of the WDR inputs only approved late in
January 2006 (R33m) together with savings on
Stat costs and PM
SUBMARINES
94.174
Due to savings on statutory costs(R81m),PM and ROE
and escalation savings.
991.137
10. Conclusion and Recommendations
Unpacking of R3.4b unspent money
FUNDS NOT COMMITTED ON:
NON PERFORMANCE BY
CONTRACTORS
GBADS
CASSPIR MKIII
ROOIVALK
243.193
82.29
71.746
Mainly due to late delivery by the contractor.
The number of Casspir variants made the
industrialisation phase more complicated and the
Eng.Data pack had to be updated. The SAPS
vehicles, to supplement the total of 174 vehicles
required intensive rework to obtain same
configuration as the ARMY's
Long lead times on spares and repair(Batch orders
1to7) and accreditation req.from Eurocopter to
enable DAS to execute and complete work in
progress on the dynamic components of the
Rooivalk (gearbox and drive train elements).
10. Conclusion and Recommendations
Unpacking of R3.4b unspent money
FUNDS NOT COMMITTED ON:
UNMANNED AERIAL
OBSERVATION SYSTEM
23.864
Non performance and penalties imposed on contractor.
DRUMMER
20.935
Due to accreditation problems on the original RFO,
DAFA suggested that there must be two orders,
thus delaying the placement of the orders.
UNDER R10m
442.028
3045.31
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