'Collusive' air force contract 'shouldn't have been put out as general tender': defence expert

The South African and international defence networking systems companies slapped with a multimillion-rand fine for price fixing on an air force contract may not necessarily have been involved in collusion or corruption.

This is the view of defence analysts reacting to the Competition Tribunal’s R2m fine it issued this week to Swedish-based company Saab Grintek Defence and a R32,135 fine issued to Pretoria-based company KF Computers.

The two were investigated by the Competition Commission for a tender KF Computers won, through the help of Saab, for the network maintenance and support services for the air force’s ground command and control systems and intelligence system.

The systems provide crucial information which enable the air force to control missions and plan flights, among other things.

The tender was issued by the State Information Technology Agency (Sita) in December 2015.

On Monday, the tribunal announced it had fined both companies.

KF Computers director Joaquin “King” Ferreira declined to comment.

“As far as I am concerned, it is water under the bridge,” he said.

Defence analyst Darren Olivier said he did not believe that this was a clear-cut case of collusion or corruption.

“While both companies evidently breached tender regulations and so the settlement fines are probably fair, this is a contract that should not have been put out as a general tender in the first place,” he said.

“That is because the software being maintained is so deeply complex and specialised that KF Computers and Saab Grintek Defence, which has since sold off this side of the business to GC2T, were the only ones with the expertise and experience to maintain it.

“The Ground Command and Control System is, along with the interlinked Air Picture Display System, the most crucial system in the air force. It's deployed everywhere from the Air Force Command Post down to each individual squadron, and controls every aspect of mission and flight planning, tasking, aircraft configurations, crew availability and tracking.”

Olivier said KF Computers was a tiny consultancy run by Ferreira, who was the original designer and chief engineer of the first version of Ground Command and Control System in the 1980s.

“His deep knowledge of the system has been invaluable in keeping it operational and running smoothly over the decades. There's an argument to be made that without his involvement in ongoing support and maintenance, the system would not nearly have been as reliable as it has been.”

He said GC2T, which had taken over the air force-related software business of Saab Grintek Defence, was the only company that had any experience in maintaining ground command and control system and its associated systems.

“Given this, it makes no sense for Sita to have turned the maintenance of these crucial core military systems into general tenders, as though they were regular enterprise IT systems like Microsoft Exchange. These are not readily transferable skills and these are systems that absolutely cannot and must not go down — ever.”

He said the right way for the contract to have been handled was for Sita to sole-source it to KF Computers and Saab Grintek Defence, coupled with projects to develop the same skill sets within the department of defence for new generations of [network] developers and operations personnel to learn, master, and maintain the systems.

“The air force would be far worse off if neither of these companies were able to support these systems. In this case, system reliability is more important than the absolute lowest price.”

Defence analyst Helmoed Heitman said there were very few companies which operated within the defence sphere with even fewer operating in the field of air force intelligence and command and control systems.

“It is incredibly specialised. Yes, if there was price collusion then that must be punished, but what must also be questioned is how the tender was put together and advertised.

“It is not just any business which can get involved in such specialised work which requires top expertise to not only develop such systems but also to maintain them to expected standards.”

On Monday in a statement the tribunal said that the Competition Commission’s investigation found that in January 2016, Saab assisted KF Computers in completing its tender documents and, in turn, Saab’s pricing for the tender was higher to ensure that KF Computers would win the tender.

“The commission concluded that the conduct between KF Computers and Saab amounted to collusive tendering,” it said.

As part of the sanction, the tribunal said both companies must refrain from any future anticompetitive conduct and implement competition law compliance programmes.

In addition, Saab must, in relation to its black economic empowerment commitments, from a financial perspective “increase its enterprise and supplier development ...  in the next financial year”.

“This increase will be used to procure goods and services from additional firms owned by historically disadvantaged individuals. Saab undertakes not to reduce its enterprise and supplier development expenditure for a specified period.”

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