KUALA LUMPUR, Aug 17 — The governance, procurement and finance investigation committee’s (JKSTUPKK) report on the Royal Malaysian Navy’s littoral combat ship (LCS) project had ultimately recommended the Malaysian government to honour the existing contractual obligations instead of terminating them.

In the recently declassified report, the committee had proposed two options for the government to undertake in the existing contract — namely retain or terminate — following their investigations.

As per the option to retain the contract, the committee had also noted the need for the government to reconsider whether to continue with the building of the six LCS or reduce their number.

"The Investigating Committee believes, Option 1 which is retaining the contract is worth considering by the government.

"However, the Investigating Committee is proposing to the Defence Ministry to immediately table all the investigation findings, financial implications to the government and the project’s direction to the Cabinet in order for the Cabinet to deliberate and decide on the best course of action for the six LCS,” it said.

Under the first option, the committee said the government must ensure stringent control over progress payments made to Boustead Naval Shipyard (BNS) so they are exclusively used to fund the building of the LCS.

"This is to avoid any sort of payments made to other parties unrelated to the LCS project,” it added.

The committee also said Liquidated Damages (LD) must be enforced against BNS as per obligated under the contract and not to consider any LD exceptions made against the company.

It also said the government must seriously consider any application by BNS to increase construction costs for the completion of the six LCS.

"A cost-benefit study must be conducted since the estimated project cost is set to go beyond its ceiling cost of RM9.128 billion,” it added.

Moreover, BNS is also required to further improve on their governance of financial management, equipment procurement and service with suppliers to ensure the quotations obtained are valued for money.

As for Option 2, the committee noted that if the government needed to honour several clauses within the contract if it does opt for contract termination.

The committee also highlighted the financial implications of said option, noting that BNS’s financial position is at a very weakened state since it has debts totalling RM956.89 million owed to nine financial institutions and RM801.11 million owed to suppliers.

It also further noted that the remaining unpaid financial allocations of RM3.188 billion out of RM5.94 billion that have been paid for the LCS project would be insufficient for the completion of six ships.

Should the government insist on reappointing new contractors, the committee said other issues might emerge including longer re-negotiations, increased cost and even concerns over whether new contractors would be able to guarantee it is beneficial to the government.