Mindef to develop system to monitor contract performance

PARLIAMENT | The Defence Ministry will develop a contract monitoring system to enhance efficiency and transparency in the management of asset and project procurement, including earlier enforcement of actions against project delays.

Deputy Defence Minister Adly Zahari said the move followed findings in the 2025 Auditor-General’s Report Series 2, which highlighted weaknesses in the enforcement of contract terms, particularly concerning the issue of late penalties.

He said that under the ministry’s current procurement system, penalties for delays were only imposed when extension of time (EOT) applications were considered, even though enforcement could have taken place earlier.

“An EOT should come with two scenarios - either with or without a late penalty. Sometimes EOT is granted without a penalty due to technical issues… but I believe if an EOT is to be granted, we can enforce it with a penalty.

“We acknowledge the weakness in enforcing contract terms, so we are in the process of developing a contract monitoring system to assist officers in tracking contracts,” he said when winding up the debate on the report for the ministry in the Dewan Rakyat yesterday.

RM162m in late penalty

Commenting on the findings in the report, Adly said the ministry had issued a late penalty notice amounting to RM162.75 million on Jan 15 to the supplier of 68 Gempita armoured vehicles and two type B vehicles (non-armoured), following delivery delays between 2020 and 2023.

He said the company had submitted a response letter and appealed for the penalty to be waived, citing force majeure (unforeseeable circumstances that prevent someone from fulfilling a contract) due to the Covid-19 pandemic and the Russia-Ukraine conflict.

“The appeal was presented at the Contract Coordination Panel (CCP) meeting on May 6, and it was decided that the company would be subjected to the full late penalty of RM162.75 million.

“Secondly, the performance bond amounting to RM53.93 million and the remaining penalty will be recovered either by set-off from the current contract or collected separately from the company,” he said.

He added that instructions had been issued to the bank on June 25, 2025, to claim the bond, and the ministry would proceed to recover the remaining penalty through set-off.

Responding to findings related to the execution of procurement through the “breakdown” method involving RM107 million, Adly explained that the approach was taken due to logistical challenges and differing technical expertise required for the assets involved.

“Our assets are located in places like Kota Belud, Sabah, and Port Dickson and Gemas in Negeri Sembilan, among others. That is why in this breakdown approach, we took into account those aspects, as well as the readiness of the assets.

“We assessed those needs so that when the quotation process is carried out, the assets can remain operational to safeguard national sovereignty and security,” he said.

- Bernama

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