Unfinalised Supplementary Contracts Put LCS Project At Risk Of Delays - Audit Report
KUALA LUMPUR, Oct 5 (Bernama) -- Delays in finalising several supplementary contracts for the Littoral Combat Ship (LCS) project have posed a risk of delays to the construction of LCS1 to LCS5, according to the 2026 Auditor-General’s Report Series 2.
The report, tabled in the Dewan Rakyat today, revealed that the contract documents for the Integrated Logistics Support and Trial Aids (ILS-TA), Surface-to-Surface Missile (SSM), Ammunition 3P Medium Caliber Gun (3P MCG) and Integrated Decoy Launching System (IDLS) had yet to be finalised.
For the ILS-TA contract, valued at RM535.37 million, it said the contract documents had still not been officially finalised as of June 25, more than four months after the Letter of Acceptance (LOA) was signed on Aug 5, 2025.
The delay was not in accordance with Treasury Circular (PK 4.2), which stipulates that government contract documents must be completed within four months of the LOA being signed.
“During this period, the government made two progress payments totalling RM100 million. However, the contractor did not make use of the provision under PK 4.2 to submit its third payment claim within the stipulated period.
“Based on the work progress as of June 25, 2026, the contractor was eligible to submit a claim amounting to RM132.73 million. However, the claim could not be submitted as the contract had yet to be finalised,” it said.
The report said the delay in finalising the contract stemmed from a dispute over the warranty period, as well as the minimum requirements for First Outfit of Stores (FOS) and Onboard Spares (OBS), which had yet to be agreed upon.
According to the report, physical progress on ILS-TA stood at only 30.49 per cent against the target of 37.41 per cent as of June.
The report also found that the contractor had suspended ILS-TA work from May 15. However, in a letter dated July 7, the contractor said several critical work scopes were still being carried out to ensure the project remained on track.
The Ministry of Defence (MINDEF), in its response, said the ministry’s legal adviser was of the view that the suspension notice was invalid as acceptance of the LOA had created a binding contractual relationship between the government and the contractor.
The ministry explained that the delay was due to prolonged technical, commercial and legal reviews that had been ongoing since October 2025 to ensure the contract documents were in order.
“The issue was resolved after the revised contract was signed by the contractor on Aug 11,” it said.
Meanwhile, the Auditor-General’s Report also revealed that the contract for the supply of the Naval Strike Missile (NSM) system had yet to be finalised following the Norwegian government’s cancellation of the export licence for the weapon.
It said the government had made payments totalling EUR124.35 million, or 96.6 per cent of the total contract value of EUR128.72 million, before the Norwegian government permanently cancelled the export licence.
MINDEF said negotiations between the Malaysian government and the supplier were held in Türkiye on Aug 12 and 13, and that the matter would be referred to the Dispute Resolution Committee before proceeding to arbitration if an amicable settlement could not be reached.
-- BERNAMA