The report said a clause in the main contract states that fines for delays are supposed to be charged at 1% of the average price of a littoral combat ship (LCS).

In the event of a delay of more than 12 months, it said, the defence ministry had the right to end the contract or maintain it while ensuring that the company fulfilled its obligation, with the ministry maintaining the right to claim damages in the aforementioned clause.

“An audit review found that the 245-day delay in delivery of the LCS 1 ship meant that a late fine of RM116.54 million needed to be charged to the company until Dec 31, 2019.

“Until June 30, 2020, although the delay was more than 12 months in April, the defence ministry had not produced a letter of demand to the company for the late fines,” the report said.

Instead, the defence ministry only released a reminder to the company on June 14, 2019 about the delay in delivery of the warships.

“The delay in enforcing the conditions of the contract on late fines led to a loss in government revenue worth RM116.54 million for 245 days until Dec 31, 2019,” it said.

A reply from the defence ministry to the audit department on July 22 this year said a letter of demand was served to the company on June 15.

The delay of 435 days as of June 10 meant that the company was supposed to pay a total of RM217.5 million in damages.

The report also said the ministry’s progress payments in 2019 exceeded the actual work done on LCS 1 by 21.1%.

It said the ministry paid RM910 million last year, which was 63.8% of the total cost of RM1.427 billion although the ship’s actual construction only stood at 42.7%.

It added that the navy’s LCS project team later confirmed that the progress payment plan in its contract had not been updated despite the delays in delivery of the warships.

“The payments exceeding the actual work done on LCS 1 were a loss to the government because LCS 1 was not completed according to schedule,” it said.