Thatcher gave Pergau Dam arms company “unjustifiable” £300m contract
R.A.McCartney | 02.10.2007 18:33 | Analysis | Anti-militarism | History
In 1988 the Thatcher government illegally paid the Malaysian government £234 million from the overseas aid budget to secure an order for two British arms companies. Anti-fraud campaigner and former MCCS employee Rob McCartney reveals how they simultaneously lied to cover up important evidence about fraud allegations being made against one of the companies, and awarded it a £300 million contract without any apparent justification.
“William Hague reclaims Margaret Thatcher” screamed the Sunday Telegraph headline. In the past few days the Tories have made a sustained effort to see off Brown's subtle claim to be Thatcher's natural successor. Hague proclaimed Thatcher “our greatest prime minister”. Shadow chancellor George Osborne told the Telegraph “we are successors of the Thatcher inheritance". Tory leader Cameron rather pathetically told the BBC "I've had several times I've been standing alongside Margaret Thatcher”. However, as the Tories and Labour competed for Thatcher's mantle, an important anniversary passed almost unnoticed. Examination of events twenty years ago reveals some nasty secrets about the prime minister who was elected on a promise to cut taxes by eliminating waste.
On October 2nd 1987 The Independent published a front page exclusive about BATES. This was a computer controlled artillery system being developed for the British army by Marconi Command and Control Systems. The Independent reveal the project was running years late and appeared to have doubled in price. It also reported allegations that the company was paying little attention to quality in its effort to complete the project on time. Sources working on the project told The Independent that testing of the BATES software was “a total farce”.
In November 1994 the High Court ruled that in 1988 the government had illegally used £234 million from the overseas aid budget to subsidise the building of the Pergau Dam in Malaysia. It also ruled the government had illegally linked that to an arms deal with the Malaysian government. MCCS was one of the two companies involved that arms deal.
In March 1988 Dale Campbell-Savours, a Labour member of the House of Commons Public Accounts Committee, accused MCCS of misleading government auditors about progress on BATES. MCCS were given interim payments worth tens of millions of pounds in return for meeting progress milestones on the project. In 1995 the National Audit Office listed “claiming interim payments before entitlement”, and thus defrauding taxpayers on the interest on the payments, as a recognised method of fraud. The BATES system should have been in service in 1988. Rob McCartney says “I believe all its milestone payments had been claimed by then”. At the time government spokesmen indicated they had no fundamental disagreements with MCCS over the project. However, The 1991 Statement on Major Defence Projects revealed the project was running six years late.
Campbell-Savours also accused MCCS of using “misleading” Engineering Change Requests to alter the specification of BATES in order to increase the price of the contract. Tory minister Sir Tim Sainsbury, replying to a Parliamentary question from him, claimed that the cost of changes to the BATES specification was “less than 1.5%” of the project cost. Yet according to The 1991 Statement on Major Defence Projects, within months the government were claiming the changes were so massive that they had “re-defined” the project. It also showed that the contract price had increased from its initial “firm fixed price” of £100 million to £190 million. “Judging from the MOD's own documents, this increase can only be explained by the changes to the specification” says Rob.
Sainsbury told Parliament in 1987 that if MCCS failed to deliver on time and to specification, they were contractually bound to pay for some other company to complete the work. However, instead of ordering a criminal investigation, or holding MCCS to their original contract, the Thatcher government agreed to “re-negotiate” it. Rob Points out “That's another way of saying they gave them a new contract. There doesn't appear to be any possible justification for doing this. They did it at the same time they were illegally using £234 million from the overseas aid budget to bribe Malaysia to buy arms from MCCS”.
The government announced it had accepted delivery of the BATES System in July 1993, and the press were told a price of £300 million had been agreed. However in February 1997 the Tory minister James Arbuthnot refused to answer a Parliamentary question about BATES, claiming that there were continuing negotiations. “This was plainly just a device for covering up the truth” says Rob McCartney. “BATES wasn't even worth the original price of £100 million by the time it was delivered. It was still using the same technology which had been introduced onto the project in 1982 when another company briefly held the contract. According to my accountant, depreciation makes IT equipment worthless after just four years, and by 1993 BATES was eleven years out of date”.
In 2004 Sir Raymond Lygo publicly confessed that when he was the head of British Aerospace, they regularly underbid to win UK government contracts, with the intention of using changes to the specification to increase the price. Questioned by the Public Accounts Committee, Sir Kevin Tebbit, the top MOD civil servant, was unable to name a single measure which had been put in place to prevent this. Instead he suggested that it could only happen on Cost Plus contracts and therefore was no longer relevant. However in 1997 Labour minister Lord Gilbert stated that the 1985 BATES project had been a Firm Fixed Price contract, which in 2007 remains the strictest form of contract the MOD can award.
MOD spending on weapons procurement is billions of pounds over budget every year. Rob says “BATES was not an isolated case and nothing has really changed over the last 20 years to prevent this happening over and over again”. In 2000 he reported his allegations about BATES and a number of more recent projects to the MOD Police. “They made no attempt to prevent evidence being destroyed. The also accepted blatantly false statements by the MOD as fact. For instance, the MOD submitted a written report which said that 'the price paid for the BATES system was the price which was originally agreed'. When I complained that the MOD were clearly lying, which is a criminal offence, MOD Police officers told me 'we don't care', 'we work for the MOD, we're part of the MOD', and 'as long as they're happy, that's all we care about'”. Rob is continuing to call for some other Police force to carry out a criminal investigation into his allegations. He has also appealed to the anti-corruption organisation Transparency International to support this (see
http://www.indymedia.org.uk/en/2007/09/380641.html)
ENDS
1. DEFCON GUIDE NO 5 (Edition March 1979)
INCENTIVE (TARGET COST) CONTRACTING
MINISTRY OF DEFENCE PROCUREMENT EXECUTIVE
http://www.aof.mod.uk/aofcontent/tactical/toolkit/content/topics/dcguides/dcg_5.htm
2. Appendix 1, Ministry of Defence: The Risk of Fraud in Defence Procurement
National Audit Office, 10 March 1995
ISBN: 0102258953
3. The 1991 Statement on Major Defence Projects, National Audit Office (ISBN: 0102121031).
4. Sir Tim Sainsbury's statement - Hansard column 691, 20 November 1987
5. Lord Gilbert's letter of to Dafydd Wigley 23 June 1997 (D/Min(DP)/JWG/MP/2046/97/M)
6. Tebbit questioned by the Public Accounts Committee
http://www.publications.parliament.uk/pa/cm200506/cmselect/cmdfence/557/557we03.htm
7. Campaign Against the Arms Trade report “Who Calls the Shots”, 2005, www.caat.org.uk/publications/government/who-calls-the-shots-0205.pdf
8. “BAe faces MoD fraud inquiry”, The Observer June 18 2000 http://observer.guardian.co.uk/uk_news/story/0,6903,333611,00.html
On October 2nd 1987 The Independent published a front page exclusive about BATES. This was a computer controlled artillery system being developed for the British army by Marconi Command and Control Systems. The Independent reveal the project was running years late and appeared to have doubled in price. It also reported allegations that the company was paying little attention to quality in its effort to complete the project on time. Sources working on the project told The Independent that testing of the BATES software was “a total farce”.
In November 1994 the High Court ruled that in 1988 the government had illegally used £234 million from the overseas aid budget to subsidise the building of the Pergau Dam in Malaysia. It also ruled the government had illegally linked that to an arms deal with the Malaysian government. MCCS was one of the two companies involved that arms deal.
In March 1988 Dale Campbell-Savours, a Labour member of the House of Commons Public Accounts Committee, accused MCCS of misleading government auditors about progress on BATES. MCCS were given interim payments worth tens of millions of pounds in return for meeting progress milestones on the project. In 1995 the National Audit Office listed “claiming interim payments before entitlement”, and thus defrauding taxpayers on the interest on the payments, as a recognised method of fraud. The BATES system should have been in service in 1988. Rob McCartney says “I believe all its milestone payments had been claimed by then”. At the time government spokesmen indicated they had no fundamental disagreements with MCCS over the project. However, The 1991 Statement on Major Defence Projects revealed the project was running six years late.
Campbell-Savours also accused MCCS of using “misleading” Engineering Change Requests to alter the specification of BATES in order to increase the price of the contract. Tory minister Sir Tim Sainsbury, replying to a Parliamentary question from him, claimed that the cost of changes to the BATES specification was “less than 1.5%” of the project cost. Yet according to The 1991 Statement on Major Defence Projects, within months the government were claiming the changes were so massive that they had “re-defined” the project. It also showed that the contract price had increased from its initial “firm fixed price” of £100 million to £190 million. “Judging from the MOD's own documents, this increase can only be explained by the changes to the specification” says Rob.
Sainsbury told Parliament in 1987 that if MCCS failed to deliver on time and to specification, they were contractually bound to pay for some other company to complete the work. However, instead of ordering a criminal investigation, or holding MCCS to their original contract, the Thatcher government agreed to “re-negotiate” it. Rob Points out “That's another way of saying they gave them a new contract. There doesn't appear to be any possible justification for doing this. They did it at the same time they were illegally using £234 million from the overseas aid budget to bribe Malaysia to buy arms from MCCS”.
The government announced it had accepted delivery of the BATES System in July 1993, and the press were told a price of £300 million had been agreed. However in February 1997 the Tory minister James Arbuthnot refused to answer a Parliamentary question about BATES, claiming that there were continuing negotiations. “This was plainly just a device for covering up the truth” says Rob McCartney. “BATES wasn't even worth the original price of £100 million by the time it was delivered. It was still using the same technology which had been introduced onto the project in 1982 when another company briefly held the contract. According to my accountant, depreciation makes IT equipment worthless after just four years, and by 1993 BATES was eleven years out of date”.
In 2004 Sir Raymond Lygo publicly confessed that when he was the head of British Aerospace, they regularly underbid to win UK government contracts, with the intention of using changes to the specification to increase the price. Questioned by the Public Accounts Committee, Sir Kevin Tebbit, the top MOD civil servant, was unable to name a single measure which had been put in place to prevent this. Instead he suggested that it could only happen on Cost Plus contracts and therefore was no longer relevant. However in 1997 Labour minister Lord Gilbert stated that the 1985 BATES project had been a Firm Fixed Price contract, which in 2007 remains the strictest form of contract the MOD can award.
MOD spending on weapons procurement is billions of pounds over budget every year. Rob says “BATES was not an isolated case and nothing has really changed over the last 20 years to prevent this happening over and over again”. In 2000 he reported his allegations about BATES and a number of more recent projects to the MOD Police. “They made no attempt to prevent evidence being destroyed. The also accepted blatantly false statements by the MOD as fact. For instance, the MOD submitted a written report which said that 'the price paid for the BATES system was the price which was originally agreed'. When I complained that the MOD were clearly lying, which is a criminal offence, MOD Police officers told me 'we don't care', 'we work for the MOD, we're part of the MOD', and 'as long as they're happy, that's all we care about'”. Rob is continuing to call for some other Police force to carry out a criminal investigation into his allegations. He has also appealed to the anti-corruption organisation Transparency International to support this (see
http://www.indymedia.org.uk/en/2007/09/380641.html) ENDS
1. DEFCON GUIDE NO 5 (Edition March 1979)
INCENTIVE (TARGET COST) CONTRACTING
MINISTRY OF DEFENCE PROCUREMENT EXECUTIVE
http://www.aof.mod.uk/aofcontent/tactical/toolkit/content/topics/dcguides/dcg_5.htm 2. Appendix 1, Ministry of Defence: The Risk of Fraud in Defence Procurement
National Audit Office, 10 March 1995
ISBN: 0102258953
3. The 1991 Statement on Major Defence Projects, National Audit Office (ISBN: 0102121031).
4. Sir Tim Sainsbury's statement - Hansard column 691, 20 November 1987
5. Lord Gilbert's letter of to Dafydd Wigley 23 June 1997 (D/Min(DP)/JWG/MP/2046/97/M)
6. Tebbit questioned by the Public Accounts Committee
http://www.publications.parliament.uk/pa/cm200506/cmselect/cmdfence/557/557we03.htm 7. Campaign Against the Arms Trade report “Who Calls the Shots”, 2005, www.caat.org.uk/publications/government/who-calls-the-shots-0205.pdf
8. “BAe faces MoD fraud inquiry”, The Observer June 18 2000
http://observer.guardian.co.uk/uk_news/story/0,6903,333611,00.html
R.A.McCartney
