Department of Defence pays R300 million to settle cancelled contract


Another sizeable chunk has disappeared from the already over-stretched Department of Defence (DoD) budget to settle contractual obligations.

Making matters worse, according to Business Day, is that a contract for “aero-medical equipment” to be supplied by Austrian company, AMST Systemtechnik GmBh, has not been delivered to the SA National Defence Force (SANDF).
“A bungled contract has cost the taxpayer almost R300 million with nothing to show for it after a ruling by the International Chamber of Commerce (ICC) arbitration court,” the paper reported of the 2009 contract entered into with Armscor.

An internal DoD memorandum said AMST claimed Minister Nosiviwe Mapisa-Nqakula’s department “repeatedly” failed to respond to numerous letters calling for it to honour its contractual obligations regarding advance payments.
“As a result … AMST alleges it was left with no option but to cancel the contract and recover costs under the agreement. The contract provides for an arbitration process in the event of a dispute between the parties in accordance with rules of the International Chamber of Commerce,” according to the memorandum.

It concludes: “In order to avoid further escalation of interest on the capital it is recommended that the DoD should, as a matter of urgency, effect payment”.

DoD head of communications Siphiwe Dlamini confirmed the ruling in favour of AMST adding “it has been settled at the reduced cost demanded by AMST”.

The Austrian company initially claimed over R447 million (at current exchange rates). This was reduced at a December sitting of the ICC arbitration court and increased to the settlement amount in August.

While the paper gives no details of the equipment AMST’s website said the company, headquartered 60mk north of Salzburg, provides “aero-medical solutions for the 21st century”.

In addition to aero-medical centres, listed under its special equipment, the company also offers human centrifuges, hyperbaric chambers and ejection seat trainers among others.

Aero-medical building design and layout and advanced aero-medical training systems are also part of its product and service offering in the specialised areas of aero-medicine and aircrew training.

Defence analyst Helmoed Heitman told the paper aero-medical equipment is installed in military transport aircraft to ensure the survival of injured and wounded soldiers.
“It is a disaster for the DoD to have allowed itself to be dragged into a situation such as this. It asks the question whether the equipment was bought elsewhere if at all and if our medics are having to make do with obsolete equipment,” he is reported as having said.