CHAPTER THREE ACQUISITION AND TECHNOLOGY MANAGEMENT

CHAPTER THREE

ACQUISITION AND TECHNOLOGY MANAGEMENT

INTRODUCTION

The Defence Secretariat was responsible for all defence acquisition programmes prior to its disbandment in 1968 pending the imposition of UN sanctions. The Defence Secretariat provided a measure of civil-control to the defence acquisition process. The establishment of Armscor saw the transfer of this acquisition responsibility to this state corporation existing outside of the public service domain and the DoD specifically. With the introduction of armament sanctions against South Africa, in addition to its main functions of developing the South African defence industrial base and managing defence acquisition, Armscor provided the ability to circumvent such UN sanctions.

Armscor became South Africa's leading arms manufacturer and exporter of all military type equipment. Armscor became the spending authority of all capital folio 1 and folio 2 funds of the DoD. All technology funding and defence industrialisation activities were controlled, directed and funded by Armscor. The Armaments Development and Production Act (Act no 57 of 1968) thus empowered Armscor to be an acquisition agency with Tender Board status, as well as be a manufacturing company. The Act entitles Armscor to undertake inter alia the following activities:

To develop, manufacture, service, repair and maintain on its own account or as the representative of any other person to buy, sell, import or export and, through advertising or otherwise, to promote the sale of, armaments, including armaments required for export.
To hold, manage, develop, let or hire, or buy, subscribe for or otherwise acquire, or sell or otherwise dispose of, or hypothecate or otherwise deal in, immovable or movable property or whatever kind, including stocks, shares, bonds, debentures and securities of, and any interest in, any company, and where necessary, to act as trustee for debenture holders.
To procure the registration of the corporation in any country or territory.
The power of arrest in connection with the safeguarding of property and premises.
The entitlement to prosecute any person in connection with the export, import, marketing, transit, development and manufacture of armaments.
The authorisation of any employee of Armscor or authorised person to enter the factory or premises where armaments are developed or manufactured and carry out inspections. Any person hindering such a inspector will be guilty of an offence.
Armscor may delegate to any person or body of persons any powers conferred on the corporation. A person or body of persons shall not be divested of power delegated by him or it, and may amend or withdraw any decision made in the exercise of such power.
No person shall disclose to any person any information in relation to the acquisition, supply, marketing, importation, export, development, manufacture or repair of or research in connection with armaments by, for, on behalf of or for the benefit of the corporation or a subsidiary company, except on the written authority of the Minister or of a person authorized thereto by the Minister.
The corporation may, with the approval of the Minister granted in consultation with the Minister of Finance, raise money with or borrow or obtain money from any person or body at such rate of interest and on such conditions as the corporation may deem fit, issue debentures and, if necessary, provide security or make provisions for the repayment of money so raised, borrowed or obtained.
Armscor is exempted from provisions of certain laws other than the Companies Act and other law relating to companies.
With the approval of the Minister granted in consultation with the Minister of Economic Affairs, to lend or advance money to a person or company engaged in any undertaking for the performance or promotion of the activities referred to in 2.1 above, to acquire an interest in, or to provide, or by underwriting or otherwise to assist in the subscription of, capital for such company or to finance it or to facilitate, promote, guide or assist the financing thereof: Provided that if such act is performed in respect of a subsidiary company, the approval of the Minister is not required.

The establishment of the Defence Secretariat post-1994 saw the creation of a Defence Acquisition and Procurement Division reporting to the Secretary for Defence, thus once again instituting oversight and civil-control over defence acquisition.

The Defence Act, as amended, recognises two components of the Department of Defence, namely the Defence Secretariat and the South African National Defence Force. Armscor, as a state corporation with its members employed outside of the jurisdiction of the Public Service Act, is not a component of the Department of Defence and may therefore not be a budget holder in terms of the Exchequer Act. The defence capital budget therefore resorts with the Defence Acquisition and Procurement Division which is accountable for the appropriate management of public monies and resources and Armscor acts as the Acquisition Agency of the Department of Defence.

Distinguishing Between Acquisition and Procurement

Acquisition refers to all those actions that have to be taken to satisfy the need for materiel, facilities or logistic services. It involves, in sequence, requirements planning, operational research, technology acquisition, design and development, operational qualification, quality assurance, industrialisation, initial procurement and commissioning.

Procurement on the other hand, is a much narrower concept that involves contracting for a requirement on the basis of an existing specification or by purchasing, manufacturing, leasing or hiring where the production process has been previously qualified during an acquisition activity. Procurement can be a component of acquisition.

Two Parallel Acquisition Processes

Two parallel processes can be identified that run simultaneously during the acquisition of cardinal defence capital equipment and specifically high value defence capital equipment. The first relates to a wider government process, the second to the DoD’s acquisition management process. These two parallel processes are identified as the following:

Inter-departmental consideration and management of large scale acquisition programmes. These include issues of National Industrial Participation and Financing implications.
DoD acquisition management.

INTER-GOVERNMENTAL MANAGEMENT OF ACQUISITION PROGRAMMES

High value, cardinal defence capital acquisition programmes require consideration by various government departments due to the strategic and financial implications of such programmes. The acquisition of defence capital equipment establishes long term supply chains and consequently establishes long-term relationships with both defence related companies and governments.

Issues to be considered when acquiring high value, defence capital equipment include:

Establishing defence, trade and international relations that may endure for periods ranging between thirty and fifty years to provide the necessary maintenance, logistic support and future upgrades of the capital equipment to be purchased for the SANDF.
Balancing the national technology vision and national technology requirement with the potential transfer of key technologies and capabilities that may occur as a result of such capital acquisition programmes.
Positioning the capital acquisition programme within the national economic and industrial policies and strategies of government, and specifically the implications of the capital acquisition for developing or reinforcing strategic trading partnerships.
Engaging in financial programmes that do not place undue constraints on scarce national and financial resources.
Adequately meeting the military-technical requirements of the SANDF in terms of the equipment so that the SANDF may fulfil its Constitutional obligations, yet in a manner that does not compromise other national priorities and considerations.
Evaluating the implications of the capital acquisition programme in terms of potential benefits to the South African economy, and the implications from a national budgetary perspective relating to the fiscas.
Assessing the arms control and non-proliferation implications, with the objective of being a responsible purchaser of defence equipment.
Counter-trade issues affecting both defence and non-defence economic benefits for local industries and to serve strategic national industrial objectives.

A committee will be established to ensure that an integrated government approach is adopted during defence acquisition programmes. This committee will analyse each intended large scale defence capital acquisitions programme from both an industrial participation and technical perspective for Cabinet consideration. The committee is chaired by the Chief of Acquisitions reporting to the Secretary for Defence, and should consist of the following representatives:

Department of Defence.
Department of Trade and Industry.
Department of State Expenditure.
Armscor.

DEFENCE ACQUISITION MANAGEMENT

The management of the acquisition of defence capital equipment and defence technology has been described in the Defence Review, as approved by Parliament in May 1998. Extracts from this document are presented below.

Principles Fundamental to Armaments Acquisition

Principles. Civil control and oversight over all defence acquisition programmes will be executed by the Defence Secretariat within the MoD. The MoD will consist of a Defence Acquisition Division at HQ level responsible to the Secretary for Defence. Armscor will be appointed as the acquisition agency to support the MoD Acquisition Division.

Political Accountability. The executive authority and responsibility for defence acquisitions rests with the Minister of Defence. The Minister is responsible for the defence function of Government and is accountable to the President, the Cabinet and Parliament for the management and execution of this function (Defence Review Acquisition Chapter: Par. 32).

Division of Roles. The functions of requirement identification, policy making, selection of successful tender, execution of acquisition projects and acceptance of equipment into service are to be separated. The Defence Review sets out the following distinctions:

User Requirement. The SANDF is responsible for determining the requirement and for accepting the equipment into service once acquired. The Chief of the SANDF states and specifies the equipment and services required to fulfil the SANDF's obligations, roles, functions and tasks. The Arms of Service participate in the various acquisition planning and approval forums, being the users of the equipment and services (Defence Review Acquisition Chapter: Par. 33).

Planning, Programming and Budgeting. The Secretary for Defence is responsible for planning, programming and budgeting for all acquisitions. The Secretary is furthermore responsible for programming, budgeting and in-year control and auditing of defence expenditure, and also for inter-departmental and industrial co-ordination. The Departmental Acquisition and Procurement Division (DAPD) within the MoD is directly responsible to the Secretary for Defence to execute these functions on behalf of the MoD. (Defence Review Acquisition Chapter: Par. 34).

Policy. The Secretary for Defence is responsible for determining all acquisition related policies and the drafting of related strategic plans.

Control. The Secretary for Defence is responsible for ensuring that all acquisition activities are executed in terms of national objectives and policies. The Secretary is the Accounting Officer of the DoD and performs such duties and functions as may be necessary for civil control of the defence acquisition function, and to enhance parliamentary and ministerial control over SANDF acquisition programmes. The DAPD will be responsible for the management of the overall acquisition process and counter-trade issues. The DAPD will act as the single nodal point from the DoD to Armscor for all acquisition related issues. (Defence Review Acquisition Chapter: Par. 34).

Accountability. Acquisitions are subject to oversight by civil authority, including the executive and parliament. To this end, the Secretary for Defence is accountable to parliament and the executive for all acquisitions, and for all public moneys spent in this regard. The DoD will submit annual and ad-hoc reports to parliament on all acquisition activities (Defence Review Acquisition Chapter: Par. 66).

Execution of Acquisition Projects. The DoD will utilise Armscor as a specialised and professional acquisition agency to support the DoD, once the successful contractor has been identified by the process listed below.

Project Approval. This takes place at the following three levels for non-cardinal and cardinal projects (cardinal projects are defined as those which are worth R80 million and above or smaller projects which may have serious political implications):

Routine Programme. The Armament Acquisition Control Board (AACB), chaired by the Chief of Acquisition, is the third level of control and screens all projects and all other routine programmes in terms of requirements and amendments.

Non-Cardinal Projects. The second level of approval for acquisition is the Armament Acquisition Steering Board (AASB), chaired by the Secretary for Defence. This board approves non-Cardinal projects and screens Cardinal projects. The selection of the successful contractor and monetary commitments for non-Cardinal projects and the screening of the successful contractor and monetary commitments for Cardinal projects is undertaken at this level.

Cardinal Projects. The approval structure for project submissions consists of three levels. The highest level of approval for acquisitions is the Armament Acquisition Council (AAC), chaired by the Minister of Defence. The final selection of the equipment and suppliers, as well as monetary commitments for Cardinal Projects, is undertaken at this level. The AAC will identify major armaments procurement projects that will be presented to Parliament for approval.

Duplication. The acquisition capability should not be duplicated in other DoD structures and processes within the Department of Defence, but is to be rationalised within DAPD to effect greater efficiency and transparency .

Subsidising the Defence Related Industries. Public funds from the defence budget will provide support to defence related industries on those key strategic technologies and capabilities required in the defence interest. This may take place via specific items such as research and development funding or in a more general sense via trade shows, exhibitions and marketing facilitation. Public funds will not however be used for direct support to make defence related industries more competitive via direct subsidisation, although they will be able to apply to general assistance given by the DTI via its supply side measures and other industrial policy interventions which are available to all South African industries.

A central stokvel contribution system to capital projects is to be introduced in the DoD to centralise all control and execution of project or project related activities within the DoD. This stokvel will be managed and controlled by DAPD on behalf of the DoD. Armscor as the DoD acquisition agency will be funded from this stokvel account.

TECHNOLOGY MANAGEMENT

The aim of defence technology acquisition management is to identify key strategic technologies on a long-term basis that will support the future needs of the SANDF. Technology management is regarded as the activity of planning, approval, contracting and controlling of technology establishment projects.

The highest level of approval for armaments technology acquisition is the AAC, chaired by the Minister of Defence. Cardinal technology programmes and long-term plans are approved at this level.

The Secretary for Defence is responsible for implementing all national technology requirements, for political control over all projects, and for ensuring that all spending in the R&D environment is in keeping with all government policies.

The Defence Research and Development Board (DRDB), chaired by the Chief of Acquisition, and the Armament Technology Acquisition Secretariat (ATAS) represent the operational level of management, providing detailed structure to all plans and budgets, as well as the management of the execution of technology development projects. The DRDB approves all technology projects and allocation of budgets to all technology projects.

Further organisational structures are deployed by ATAS to ensure involvement of SANDF user groups, as well as specialist representatives from industry in the identification and planning phases of programmes.

ACQUISITION STRUCTURES

The role players within the MoD and the DoD involved in the approval of armaments acquisition are the Minister of Defence, Deputy Minister of Defence, the Secretary for Defence, the Chief of the National Defence Force, Chief of Acquisitions and Procurement, the Chairperson and Chief Executive Officer of Armscor and the Armscor Board.

The DoD Acquisition and Procurement Division (DAPD), consists of an HQ division and is responsible for specialist acquisition and procurement management within the DoD, and ensures the acquisition of all equipment and services on behalf of the DoD. The Chief of Acquisitions and support staff are responsible for directing and co-ordinating all acquisition and procurement activities between the Arms of Service and Armscor. DAPD will serve as the centralised control and centralised execution of all acquisition and procurement activities within the DoD.

The DAPD is the process leader for acquisition and procurement of all Category 1 (Armaments) and Category 2 (Non Armaments) items within the DoD. The Chief of Acquisitions is also the chief policy advisor to the Secretary for Defence and reports directly to the Secretary.

All appointed project teams will be under the joint supervision and control of the DAPD and Armscor, although the DoD has overall responsibility for the project teams and acquisition projects.

As the acquisition agency of the DoD, Armscor is responsible for professional program management and the drafting of tender documentation for the contracting of industry on behalf of the DoD. This is in order to ensure that technical, financial and legal integrity in contract management is in accordance with DoD requirements. The DoD and Armscor will jointly oversee Industrial development of the Industry.

Depending on the size of the contract, projects are approved either by the AAC, the AASB or by the Armaments Acquisition Control Board (AACB).

Once projects have been approved and contractors selected by one of the above acquisition forums, contracts are then placed by Armscor and DAPD on industry. All such contracts are then authorised by formal Contracts Authorisation Committees with respect to legal, financial and technical selection integrity.

The Armscor Board serves as a Tender Board and ensures that all contractual obligations of project management are in accordance with national procurement legislation, and that these decisions are made in the best interests of the state.

Organisations representing defence related industries are involved timeously in the acquisition process in order to ensure local defence related industries participation and industrially cost-effective solutions for the DoD’s requirements (Defence Review Acquisition Chapter: Par. 45). All technical review teams will include members from Armscor, the Secretary for Defence, and the SANDF (Defence Review Acquisition Ch Par. 46).

All tender adjudication for armaments will be based on a pre determined value analysis methodology and procedures. This value analysis system will be formulated jointly by the members of DAPD and Armscor. The value analysis system per project must be approved and supported by DAPD prior to any evaluations, and should not be used to exclude previously-disadvantaged contractor and should not limit national strategic considerations which can override technical performance parameters. This value analysis system must be above reproach and should not be a subjective analysis, and will be controlled by the Secretary for Defence.

All other routine acquisition projects (capital provisioning of spares, etc) or programmes dealing with weapon systems and/or equipment which do not fall under AAC, AASB, AACB, or DRDB, must obtain Secretary for Defence (DAPD) approval and support before contracts can be awarded to successful suppliers by Armscor. The principle of a single nodal point between Armscor and DoD through DAPD must be adhered to.