INTRODUCTION
1. The White Paper on Defence forms the basis for the Defence Review.
2. The White Paper on Defence, as approved by Parliament on 14 May 1996, states that the SANDF will be a balanced, modern, affordable and technologically advanced military force, cpable of executing its tasks effectively and efficiently (Chapter 2: para 11.7). It further states that:
2.1 The government will not endanger the lives of military personnel through the provision of inadequate or inferior weapons and equipment (Chapter 3: para 43.6).
2.2 The SANDF has to maintain a core defence capability because of the inherent unpredict-ability of the future. Such capability cannot be created from scratch if the need suddenly arises. The maintenance and development of weapons systems is necessarily a long-term endeavour (Chapter 4: para 6.2).
2.3 Deterrence requires the existence of a defence capability which is sufficiently credible to inhibit potential aggressors. Although South Africa is not confronted by any foreseeable external military threat, this capability cannot be turned on and off like a tap. It is therefore necessary to maintain a core defence capability (Chapter 5: para 7). A core defence capability includes a balanced and sustainable nucleus with, amongst other features, the maintenance and, where necessary, the adequate and appropriate upgrading or replacement of equipment and weaponry (Chapter 5: para 8).
2.4 The services of an efficient defence industry are required to maintain, upgrade and, where necessary, replace weapons and equipment of the SANDF. The industry will permit the cost-effective purchase of certain products and systems, ensure life-cycle maintenance and support of such systems, and perform refurbishment and upgrades of existing equipment (Chapter 8: para 3). However, the defence equipment required by the SANDF cannot and should not be procured exclusively from the local industry. Many complex systems cannot be produced domestically and will have to be imported. Management expertise for the specialised procurement functions is located within the DoD (Chapter 8: para 5).
3. The Defence Review will also address the strategic and technical implications of the constitutional provision that the SANDF will be "primarily defensive in the exercise or performance of its powers and functions" (Chapter 5, para 11).
4. For a more detailed reference guide to aspects addressed in the White Paper, referring to the industry, see Appendix A.
5. The White Paper on Science and Technology, Preparing for the 21st Century, states that the essence of the new strategy of the SANDF is to convert the current force into a small, but technologically more capable one. Refer to Appendix A for a more detailed extract from the White Paper, referring to defence technology.
DEFINING THE DEFENCE INDUSTRY
6. For the purpose of the Defence Review, the South African defence industry is defined as those sectors of organisations in the public and private sector, commercial companies and business units of such companies, mainly involved in the electronic, mechanical, aerospace, maritime and chemical sectors of the manufacturing industry, which are, directly or indirectly, active in research, design, development, production, assembly, test, evaluation, upgrading, procurement, export, import, maintenance, logistic support, human support and project management, of goods and services for security forces, local and overseas.
DEPARTMENT OF DEFENCE REQUIREMENTS
Core Defence Capabilities
7. Defence contingencies, posture and finally the characteristics required in the core defence capability of the SANDF, eventually lead to those specific capabilities which should be provided for in such a force. These capabilities are:
7.1 Intelligence is an overarching capability required by the SANDF (both strategic and tactical).
7.2 Landward defence capabilities to counter attacks from over land. These forces should be mobile and largely self-contained.
7.3 Air defence capabilities to counter air attacks, including both fighter-based capabilities, as well as localised anti-aircraft defence capabilities.
7.4 Maritime defence capabilities to counter attack from seaward and attacks on seaward trade, including mine clearance capabilities and capabilities to act against air, surface and submarine attacks.
7.5 Defence against chemical and biological warfare (CBW) with the emphasis on detection of CBW agents and the protection and decontamination of forces and equipment.
7.6 Once operations have begun, the SANDF should have an interdict capability for interdiction on the battlefield.
7.7 On halting enemy aggression, the SANDF must have a counter- attack capability to drive the enemy from own or friendly territory.
8. Command and Control (C & C) is critical to the effective execution of the self- defence function at all levels. This is required at individual Arms of Service as well as joint C & C. Emphasis should be placed on electronic warfare and command information systems.
9. The SANDF must maintain an effective supporting capability which includes operational medical support, operational logistics support, land, air and sea transport and operational personnel services to ensure the high morale of soldiers engaged in operations.
Categories of Local Support Required
10. A local industry capability to support the SANDF, can be divided into three categories.
10.1 Strategically Essential. Technological capabilities can be classified strategically essential if they potentially satisfy a unique environment-dependent need which cannot be satisfied through procurement of standard equipment, provide an operational winning edge, or ensure self-sufficiency in technologies for which high-priority operational requirements exist, but which are effectively unavailable to the RSA due to political, economic and other considerations.
10.2 Cost-Effective Local Sourcing and Export. Due to already established local capability, where the RSA has a global competitive edge, certain niche systems are more cost-effective, over the life cycle of the system, to source locally than to buy them from foreign suppliers. These capabilities can ensure faster turn-round times for the servicing or upgrading of systems, battle damage repair, lead to import replacement (i.e. foreign exchange savings and local employment) and to export opportunities.
10.3 Non-Strategic Capabilities. Some components, sub-systems and systems are neither strategically essential nor economically viable to source locally. In these cases, the local capability should be to understand and support these systems in order to enable informed specification and selection, and to maintain and upgrade them locally with support from the overseas supplier.
11. Within the context of the above categories, the SANDF's requirements for technological support capabilities are described hereunder.
SANDF Requirements for Local Industry Support Capabilities
Strategically Essential Capabilities.
12. Capabilities that will provide the SANDF with a distinct combat advantage: The latest generation equipment is often not available from foreign suppliers, or where available, their combat effectiveness is reduced through the common knowledge of their performance characteristics and counter-measure susceptibility. Examples of strategic systems requiring self-sufficiency in local design, development and production capabilities are:
12.1 Command and control systems.
12.2 Secure communications systems.
12.3 Electronic warfare systems.
12.4 Fusing systems for missiles, bombs, projectiles.
12.5 Sea mines.
13. Capabilities to ensure the survival of combat platforms. Battle tanks, fighter aircraft, attack helicopters, combat vessels, etc. need a self protection capability to survive enemy attack. Examples of such requirements are:
13.1 Surveillance and threat detection systems.
13.2 Short-range air-to-air missiles.
13.3 Point defence surface-to-air missiles for naval vessels.
13.4 Ground-based air-defence systems.
13.5 Minor calibre guns.
13.6 Armour protection capabilities.
13.7 Camouflage and other signature control capabilities to reduce platform observability.
13.8 Electronic counter-measures (ECM).
13.9 IFF (Identification of Friend or Foe) systems.
14. Capabilities to satisfy unique, environment-dependent needs: Equipment available from foreign suppliers is often not optimized for local use due to our different climatic conditions (hot, dry, dusty), terrain features, existing equipment, human factors or operational doctrines. The ability to develop equipment or to adapt bought-out equipment to suit the SANDF's requirements locally is therefore essential. Such capabilities include:
14.1 Ergonomic design, i.e. the design of man-machine interfaces such as driver cabins, cockpits, gun control mechanisms, etc. to suit future SANDF operators.
14.2 Engine performance enhancement, i.e. the ability to develop or adapt engine sub-systems, such as cooling systems, dust filters and air conditioning to fit local climatic conditions.
14.3 Vehicle mobility upgrades - local terrain characteristics demand the use of wheeled (rather than tracked) combat vehicles, requiring specific attention to tyres, suspension and drive train performance.
14.4 The integration of new or improved weapons, sensors or other systems on SAAF aircraft requires specialised aerodynamic, electromagnetic interference and structural dynamics expertise in order to qualify the combined systems and release them to service. Similar expertise is required for the integration of any new systems on vessels, tanks, command and control systems, etc.
14.5 The development or adaptation of medical equipment to suit local conditions and SANDF operational requirements as well as for support of peacekeeping or peace support operations or disaster relief.
15. Capabilities to detect and counter rapidly emerging threats require a flexible engineering capability to develop a variety of systems and counter-measures to fit an evolving force design and threat assessment. Systems with such capabilities include:
15.1 Reconnaissance and surveillance systems, including unmanned aircraft.
15.2 Air space control systems which include advanced radar systems and sensor fusion technologies.
15.3 Multi-purpose stand-off weapons.
15.4 Chemical and biological defence, including the ability to detect and identify hazardous agents, to protect soldiers against, and to decontaminate equipment of such agents.
16. Capabilities to maintain and upgrade equipment currently in service with the SANDF. The maintenance of existing equipment in a serviceable state, or the upgrading of equipment in order to extend the useable life-time, requires specialised technological capabilities in industry. Major systems for which long-term maintenance support capabilities are required include the following:
16.1 All aircraft and helicopters.
16.2 All combat vehicles.
16.3 155mm Gun systems and Multiple Rocket Launchers (MRL), including upgrades to their ballistic characteristics.
16.4 Tanks and armoured cars.
16.5 All command, control and communications systems, including radars, computers, etc.
16.6 All guided weapons systems.
16.7 Combat vessels.
16.8 The ability to upgrade or alter specific sub-systems and components in selected areas (e.g. the implementation of repairs to jet engines outside the original engine manufacturer's (OEM) specifications).
16.9 The ability to repair battle damage to a wide variety of weapon systems.
17. Requirement for a technology and knowledge base in the defence industry: The cost and complexity of most modern military equipment demand a sound technology base in industry to support the SANDF to operate and deploy such equipment in the most effective way. Capabilities required include:
17.1 Systems engineering capability for a broad range of weapon systems. (i.e. a thorough scientific understanding of the functional characteristics of all the sub-systems and their complex interactions, which make up the characteristics of the overall system.)
17.2 Modelling and simulation capabilities, which are indispensable tools for the analysis and design of complex systems.
17.3 The capability to test and evaluate at various levels of systems complexity is essential for all new or improved equipment in order to verify performance to specification, irrespective of whether such equipment originated from local or foreign sources. This requires specialist expertise and test facilities.
17.4 The capability to specify equipment requirements. In order to ensure that the DoD will remain an intelligent buyer of military equipment from foreign and local sources, the aforementioned capabilities - to analyse the needs, to specify the right equipment and to verify conformance to requirements - are all essential. The purchase of systems as complex and as expensive as modern combat vessels, fighter aircraft or battle tanks cannot be done solely on the basis of marketing information.
Cost-Effective Local Sourcing of Non-Strategic Equipment
18. System requirements for which local capabilities exist and for which local sourcing will be considered on a life-cycle cost basis, include:
18.1 Electronic and electrical components and subsystems, including computers.
18.2 Electro-optical equipment such as night vision systems.
18.3 Ammunition for selected weapons; bombs, mortars, etc.
18.4 Small arms.
18.5 Vehicles.
18.6 Small boats.
18.7 Diving support equipment.
18.8 Navigation systems.
18.9 Military engineering equipment.
Non-Strategic Capabilities
19. Some systems are neither strategically critical nor economically viable to source locally. In these cases, the local capability should be to understand and support these systems in order to enable informed specification and selection, and to maintain and upgrade them locally with the support of an overseas supplier, e.g.:
19.1 Hulls and propulsion machinery for naval vessels
19.2 Medium and large calibre naval gun systems
19.3 Complete airframes and engines for fighter aircraft
19.4 Hulls and propulsion systems for battle tanks
19.5 Specialized ground support equipment for aircraft.
DoD POLICY FOR THE DEFENCE INDUSTRY
20. The SANDF requires the services of an efficient defence industry to address the needs of the SANDF for maintenance, upgrading and where necessary, the replacement of its weapons and equipment. The industry will ensure the cost-effective purchase of certain products and systems, ensure the life-cycle maintenance and support of such systems, and perform refurbishment and upgrades of existing equipment.
21. The DoD is by far the largest, and in many cases, the only client of the defence industry. Most of the products produced by the industry are also developed to the specific requirements of the SANDF. The SANDF funds a large portion (approximately 50%) of research and development spending in the industry and therefore owns much of the immaterial rights of the products manufactured in the industry. The SANDF also contracts a large portion of the logistic and operational support of its equipment to the industry. The technology and know-how and capacity for the maintenance of the weapon systems and supply of services such as informatics, command and control, etc., resides within the industry. This makes the industry part of the SANDF's logistic and operational capability and capacity, during peace and war.
22. The industry is also controlled by Government in terms of conventional arms control measures and the non-proliferation of weapons of mass destruction, i.e. national policy.
23. The defence industry is also part of the larger industrial base of the RSA and as such, participates and is guided by national industrial policy.
24. The defence industry is, however, part of the SANDF's logistic and operational capability. The DoD, in its strategic planning, has the responsibility to determine and ensure the required technology, services and industrial capacity and capability it requires from industry, i.e. departmental policy.
25. The defence industry is therefore regulated and supported by both national and departmental strategy and policy. Most of these strategies, guidelines and policy already exist (refer to the Policy Environment section of this chapter). These policies, however, need to be placed in context, coordinated and support each other.
26. Policy is dynamic. There is at present a policy environment regulating and guiding the SANDF and the industry in place. Policy is also in the process of development.
27. This document takes all present DoD strategies, guidelines and policies into consideration.
28. A White Paper on the SA Defence Industry is currently being drafted and will be submitted to Parliament for acceptance and approval during 1998.
DoD ACQUISITION POLICY
Acquisition Management Policy
29. The Joint Standing Committee on Defence makes recommendations on the defence budget, functioning, organisation, armaments, policy, morale and state of preparedness of the SANDF and performs other functions related to parliamentary supervision of the defence force.
30. For the SANDF to carry out its primary role, the availability of armaments is essential. Optimal modern armaments for the SANDF are obtained through a process of armament acquisition. This section describes the approach to be followed by members of the DoD and Armscor in the acquisition of armaments.
31. This entails the management of the total spectrum of activities to be carried out by the participating organisations within the defence family to meet the armament requirements that will ensure that the SANDF has the necessary user systems for maintaining a combat-ready capability. The four role players involved in armaments acquisition are the Minister of Defence, the Secretary for Defence, the Chief of the National Defence Force, and the Chairman of Armscor. They are partners and decision-making at all levels allows for the viewpoints of the four partners. Armscor will be the acquisition agency of the DoD. Control bodies in the process allow for participation by nominated members of the partnership.
The Role of the MoD and the DoD HQ
32. The ultimate political authority and responsibility for theacquisition function rests with the Minister of Defence. The Minister of Defence 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. The Arms of Service Chiefs are responsible for stating the armaments requirements of the Defence Force which are approved by the Minister. These stated requirements are satisfied through the acquisition of optimised user systems and final acceptance of these systems against the stated needs in a procurement plan.
33. The Chief of the SANDF states and specifies the equipment and services it requires to fulfil its specified obligations, roles, functions and tasks. The arms of service participate in the various acquisition planning and approval forums as the users of the equipment and services.
34. The Secretary for Defence is responsible for ensuring that all acquisition activities are executed within national objectives, policies and constraints. The Secretary is furthermore primarily responsible for high level programming and budgeting and in-year control and auditing of defence expenditure, and also for inter-departmental and political and industrial co-ordination. The Secretary is the Accounting Officer of the DoD. The Secretary will perform 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.
35. The Departmental Acquisition and Procurement Division (DAPD), consists of an HQ division, responsible for specialist acquisition/procurement, to ensure the acquisition of equipment and services on behalf of the DoD. The chief of DAPD and his support staff are responsible for directing and co-ordinating all acquisition and procurement activities between the Arms of Service and Armscor. DAPD serves as a single nodal point between DoD and Armscor. Chief of DAPD is the process leader for acquisition and procurement of Category 1 and Category 2 items within the DoD. The Chief of Acquisition is also the chief policy adviser to the Head of the DoD on acquisition matters and reports to the Secretary for Defence.
36. Armscor is the acquisition agency of the DoD, responsible for professional programme management and the drafting of tender documentation for the contracting of industry on behalf of DAPD during the execution of armament acquisition programmes. This is in order to ensure that technical, financial and legal integrity in contract management is in accordance with DAPD requirements. The DoD and Armscor will jointly oversee industrial development of the industry in order to support DoD acquisition programmes.
Acquisition Management
37. Within the framework of defence management, the acquisition function satisfies the need to provide armaments to the SANDF. Defence management seeks the optimum combinations of personnel and equipment which will provide the maximum defence capability for available funds. A structured decision-making and authorisation process for the acquisition of armaments by means of baseline management and consequent phased contracting is followed, resulting in transparency and accountability. The armament acquisition process is fundamentally a systems engineering process, requiring good programme management.
38. Program management requires the management of many logistic, technical, financial and legal disciplines such as engineering, resource management, contracting, quality assurance and design assurance. To cope with the many acquisition functions, project teams will, where appropriate, consist of members from Armscor, the SANDF, and the Defence Secretary (DoD Acquisition Division). The appointed project officer will be the project team leader. The project teams shall consist of members from the arms of service and Armscor allocated to DAPD and shall preferably be collocated under DAPD.
Requirements Planning
39. The Defence Budget is a result of a sequence of events. The Defence Policy is described in the White Paper on Defence. The Defence Review was compiled from the White paper on Defence. This Defence Review spells out what tasks the SANDF is required to execute, what course(s) of action and with what force structure and force support the SANDF can afford to execute these tasks. These planned activities will be converted into programmes to ensure that personnel and equipment are maintained in an orderly and economical fashion. Finally, annual budgets will be developed in such a manner as to be able to manage the allocated finances in an audit-able and efficient manner. The process of requirements planning therefore consists of three distinct actions, planning, programming and budgeting, which are executed through an iterative process.
Inter-relationships
40. Through acquisition management, a balance is maintained between technology development, design development, industrial development and international marketing. The process is guided by departmental policies, procedures and practices. To achieve the lowest cost of acquisition and to maintain production technology, it is essential to increase production quantities (economies of scale). Since the quantities required by the SANDF are generally small, increases in quantities can only be achieved by international marketing and export. Government and the defence family have a direct interest in the successful export of armaments.
Acquisition Management Process
41. Technology development and industrial development are closely related to armament acquisition and are therefore part of the overall acquisition process. The model used for structuring the armament acquisition management process allows for sequential and parallel phases separated by formalised baselines. Underlying the above phased approach is the systems engineering process. This process systematically translates functional needs stated by the operational user into technical design and manufacturing parameters. It also ensures that, parallel to the functional process, all other stakeholders and interest groups are kept involved. This process is managed by appointed project teams, representing all members of the DoD and Armscor. A project team is responsible for the execution of a project and for the submission of project milestone documents, as prescribed, to the approval committees and boards for acquisition programmes.
42. The approval structure for project submissions consists of three levels. The highest level of approval for acquisition is the Armament Acquisition Council (AAC) (chaired by the Minister of Defence). The final selection of the equipment and supplier, as well as monetary commitments for Cardinal Projects, is undertaken at this level (Cardinal Projects are defined as those worth R80 million or more, as well as projects with political implications). The AAC will identify major armaments procurement projects that will be presented to Parliament for appoval. 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. 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. The present constitutions of the above forums will have to change to reflect the new participants of the newly-structured MoD and DoD HQ.
43. The Armscor Board serves as a decision-making board for tender adjudication 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.
44. No approval of any project may be given unless monies have been budgeted for by the DoD. No placing of contracts may be undertaken unless approved by DAPD.
45. Once projects have been approved by the AAC, AASB and AACB, contracts are placed on industry for project execution. All such contracts have to then be authorised by formal Contracts Authorisation Committees with respect to legal, financial and technical integrity. The composition of these Authorisation Committees must reflect adequate and appropriate representation of all relevant stakeholders in the acquisition programs and must include members from Armscor, the SANDF, the Secretary for Defence (MoD Acquisition Division), and other relevant divisions of the MoD.
46. Organised defence industry should be involved timeously in the acquisition process in order to ensure local defence industry participation and industrial cost-effective solutions for the DoD's requirements.
47. All technical review teams will include, where appropriate, members from Armscor, DAPD, and the SANDF.
48. All other routine acquisition projects (capital provisioning of spares etc) or programmes dealing with weapon systems and/or equipment which do not serve before the AAC, AASB, AACB or DRDB, must obtain Secretary for Defence (DoD Acquisition Division) approval and support before contracts can be awarded to successful suppliers by Armscor. The principle of single nodal point between Armscor and DoD through DAPD must be ad-hered to for all acquisition related activities.
49. The DoD transformation programmes may make further recommendations to the DoD for the adjustment or changing of the present acquisition approval process as indicated in the MODAC studies. The MODAC studies must be reviewed to make recommendations on the roles and functions of the members of the Joint Parliamentary Standing Committee on Defence in the acquisition approval process. The proposed draft Green Paper on the State Tender Board Procurement System may necessitate changes to the process followed thus far by the DoD in its acquisition management process. On acceptance by Parliament of the proposals of this Green Paper and the final re-engineering of the DoD acquisition function, the relevant Armscor Acts must be reviewed to reflect the new functions and authority of the Armscor Board and the powers of the corporation.
Limited Self-Sufficiency in Arms Development
50. South Africa should not strive for self-sufficiency in arms development, but only limited self-sufficiency in key areas, as determined during the Defence Review and the subsequent DoD strategic planning process. Defence industry studies to indicate development, purchase or partnership options will be executed from time to time.
51. DoD acquisition guidelines will form the basis for defence industry planning. Technology development will be targeted primarily at those areas where self-sufficiency is to be maintained. The acquisition guidelines will guide acquisition decisions and will therefore be included in the value systems for tender evaluation.
Long-Term Requirements Statement
52. The DoD may publish an annual Acquisition Master-Plan to indicate all new acquisition projects required for political approval from the Minister and to inform the Joint Standing Committee on Defence and Parliament. The Department of Defence will publish a medium-to long-term Defence Requirements Statement (LTDRS) to guide long-term technology and industrial planning.
Domestic Procurement
53. It could be more cost-effective and operationally expedient to have the technology and capability to manufacture (if economies of scale can be achieved), upgrade and maintain equipment locally. Local manufacture allows understanding of the technology and processes, which again allows modifications to be made to improve serviceability, turn-round times and operational capability through upgrades, etc. It also has the advantage of stimulating the local economy through investment and savings on foreign exchange and in some instances, earn foreign exchange through exports. It also ensures independence from possible foreign coercion in times of tension. In certain strategic areas, such as electronic warfare, secure communications, equipment developed specifically for local conditions, etc., systems and services are not available on the international market.
54. Preference may therefore be given to the procurement of defence products and services from local suppliers, providing such procurement represents good value for money.
Competitive Procurement
Open Competition
55. Fair and open competition will be used as far as is practicable in the procurement of armaments. This will include the invitation of foreign tenders.
Tender Adjudication
56. Adjudication of tenders will not necessarily be based on the lowest price, but on value for money and industrial development goals. Life-cycle costs, DoD requirements, local industrial development goals, social responsibility (economic empowerment of previously disadvantaged persons), and subcontracting will be taken into consideration in the awarding of contracts. The DoD affirmative procurement policy will be administered by the Secretary for Defence and will be considered during contract negotiations.
57. Where practical and not contrary to commercial confidentiality or security interests, companies who lost in the tender process should be informed of the reasons.
Competition on Sub-Contracts
58. Suppliers of major systems or items will be required to allow the maximum amount of competition on the sub-system and parts level in an offer (i.e. reduce vertical integration).
Bench-marking
59. In the adjudication of single source offers, Abench-marking@ against comparable foreign systems or products should be employed to ensure value for money. The basis for single-source offers should not include intellectual abilities, technical performance, previous work performance, additional work requirements, etc. Single-source offers should only be considered when no other suppliers respond to tender invitations or when there is a single supplier of specified equipment.
Contracts Bulletin and Accredited Suppliers
60. Requirements and tenders will be announced for a minimum of 21 days in a monthly contract bulletin published by Armscor. These bulletins will consist of both electronic and printed media. The ability of suppliers to meet the technical, schedule, financial and other contractual requirements of armament acquisition projects will be carefully evaluated before they are contracted. Rather than repeating the complete evaluation for every contract, companies that meet the basic requirements will be accredited as defence suppliers for a five-year period. This procedure will substantially improve the efficiency of supplier evaluation during the tendering process. All local and foreign companies that meet the basic requirements, including companies owned and managed by members of previously-disadvantaged communities, are eligible for accreditation. The accreditation of companies will be administered by Armscor and jointly approved by the Secretary for Defence and Armscor. Only companies registered as accredited defence suppliers will be allowed to compete for defence contracts.
Assistance to New Entrants
61. Armscor will assist new companies, including companies owned or managed by members of previously-disadvantaged communities, in planning the development of their competence to meet the criteria for accreditation. The Secretary for Defence will be responsible for monitoring and guiding this process to ensure that adequate representation in the defence industry is achieved.
No Preference to Public Sector Suppliers
62. There will be no preference for the public sector industry versus the private sector industry in the allocation of tenders.
Foreign Procurement
Logistic Support
63. Foreign procurement will be considered when a requirement for a new product or system is at issue or when follow-up requirements for commodities can be satisfied from abroad. This would require the foreign commodity to be fully interchangeable with the local equivalent, e.g. ammunition. The logistic support implications of acquiring imported equipment will be considered in detail.
Industrial Participation
64. In the case of the import of defence equipment and related items, all contracts with a value of greater than US$2m and less than US$10m will be subject to a counter-trade requirement of at least 50%. This counter- trade obligation will be jointly monitored and implemented by Armscor and the Secretary for Defence (MoD Acquisition Division). All contracts with a value of greater than $10m will be subject to National Industrial Participation Policy, which is administered jointly by the Department of Trade and Industry and the Department of Defence. There is a DoD Industrial Participation policy (DIP) and a national Industrial Participation policy (IP) that will affect foreign procurement greater than $10 million. The IP programme will be managed and administered by the Department of Trade and Industry (DTI), while the DIP obligations will be jointly managed and administered by Armscor and the MoD Acquisition Division.
65. Government has drawn up a national industrial participation policy, while the DoD, with the DTI, has established a DoD policy.
66. Offshore companies supplying armaments to the SANDF will be encouraged, through a Local Industrial Participation Programme (counter-trade/offset), to involve local industry, thereby ensuring maximum local content and support of the Government's macro economic growth plan.
Procurement Programmes
67. The Joint Standing Committee on Defence will have an oversight function to assist the DoD in its acquisition programmes. This oversight function will include guidance to the Department of Defence with respect to timing of tenders, submission of Requests for Proposals (RFP), counter-trade obligations, value-system, affirmative procurement, acquisition prioritisation, and the acquisition master-plan. The DoD will submit bi-annual and ad-hoc reports to the JPSCD on all acquisition activities. The DoD will keep the JSCD abreast of developments in all its Cardinal acquisition programmes, and will inform the JSCD at all relevant stages of such acquisition.
Confidentiality Requirements
68. The primary sources of reference for determining a transparency policy in respect of acquisition programmes and exports of armaments are the 1996 Constitution, the proposed Open Democracy Bill and the White Paper on Defence. A balanced approach between the right of access to information versus the limitation of rights must be respected. The Open Democracy Act makes provision for grounds for refusing access to a record or information in the following circumstances:
68.1 The protection of third party commercial information.
68.2 Defence and security of the Republic.
68.3 Harm to South Africa's ability to conduct international relations.
68.4 Protection of the economic interests of the Republic and commercial activities of government bodies.
69. The Constitutional obligation with regard to the right of access to information will be enforced via the Secretary for Defence.
Contracting
70. Contracting will take place at the highest level in the system hierarchy, not excluding the possibility that contracting can be conducted on lower systems level, thus allowing for the promotion of previously-disadvantaged contractors. System suppliers will be contracted for the development, production and maintenance of defence systems. This will not, however, prevent Armscor and the DoD from contracting suppliers of sub-systems, components or materials directly if this proves to be more cost-effective. The same applies to commercially available equipment, spares and consumable items. Contracting will always ensure that the best value for money is obtained.
Tender Adjudication
Value Analysis
71. All tender adjudication for armaments will be based on a value analysis methodology and procedures. This value analysis methodology and procedures will be formulated jointly by the members of the DoD (DoD Acquisition Division), including Armscor and organised industry. The value analysis system per project must be approved and supported by the Secretary for Defence (DAPD). The value analysis system should not be used to exclude previously-disadvantaged contractors 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.
Acquisition Support
72. On request of the Minister of Defence, Armscor will assist other Government Departments, the Reconstruction and Development Programme, the United Nations Organisation, or any other public body, in the acquisition of equipment.
DEFENCE TECHNOLOGY DEVELOPMENT POLICY
The Defence Industry
Process to Determine the Required Industrial Capability
73. Local industry development will be promoted where practical and economically justifiable. Where required by strategic considerations (technical, economic, political), special organisational solutions will be pursued. It is neither affordable nor necessary to strive for complete self-sufficiency in armaments production. In certain areas the policy is to procure overseas, in other areas it is to procure on a competitive basis, while in certain strategic areas limited self sufficiency is maintained.
Needs Analysis
74. The need for retaining the appropriate capabilities at the appropriate level to support the above-mentioned policy is justified from the vantage points described below.
75. Military-strategic importance. From a military-strategic point of view, the defence industry is a strategic asset. The aim of the defence industry is to ensure the supply of armaments and services to the SANDF.
76. Military-operational importance. From a military-operational point of view, a local defence industry has important operational advantages for the SANDF. These fall into three categories:
76.1 Technological advantages. Having access to a local capability, which is able to implement unique solutions, ensures that a winning edge over adversaries is possible.
76.2 Tailor-made equipment. The RSA has unique climatic, geographic, demographic and doctrinal circumstances, requiring tailor-made equipment to operate in this unique environment.
76.3 Logistic support. All armaments, whether procured overseas or locally, require cost-effective logistic support throughout their operational life. A local capability is the only guarantee that this support will be available as required.
77. Socio-economic importance. From a socio-economic point of view, the defence industry contributes significantly to the general standard of technical sophistication of the local industry and therefore its ability to produce high value-added goods and services.
78. The above aspects are taken into consideration by the DoD and Armscor during the formal analysi process which determines the required industrial capabilities. The primary role-players in the process are the SANDF, the Secretary for Defence (DoD Acquisition Division) and Armscor within the DRDB and AASB structures. As circumstances change, this analysis is updated.
Defence Research
The Nature of Defence R&D
79. The high risk, advanced technology nature of defence equipment development programmes, coupled with the current world-wide decline in the production demand for such equipment, often results in very high development cost to production cost ratios, making such programmes unattractive for private funding by industry. As a consequence, the funding of defence research and development programmes by governments is a world-wide phenomenon.
80. The SANDF currently spends approximately 15 percent of its capital acquisition budget on local research and development programmes. A comparable figure for the UK (1994) is 28 percent.
81. Development times for major weapon systems are typically from four to eight years, after which follows production and commissioning for an operational life of a further 15 to 20 years, before replacement is required. Barring one or two mid-life upgrades, the supply of spare parts and scheduled maintenance support, the original supplier of the equipment might therefore have to wait 15 years or more for a major replacement contract (unless the supplier is able to provide other products or services in the meantime.)
82. These inherently long time-scales shape the long- term relationship between the DoD, Armscor and industry. On the one hand, the department must have the assurance that it can depend on the support of a mature and experienced indstry throughout its product life-cycle, while on the other hand, industry must have enough insight into and confidence in the long term plans of the department for it to commit the necessary resources and to co-invest in such future plans.
83. The DoD and Armscor's commitment to industry is furthermore based on the realisation that just as capital assets depreciate, skills and technology also age and become obsolete (often at a much faster rate than the wear and tear on machines), unless they are continuously and consciously renewed through specific technology development efforts. A co-operative effort between the department on the one hand, identifying future needs for technology (requirement pull) and industry on the other hand, identifying the future capabilities and opportunities (technology push) could satisfy the anticipated requirements. As a by-product, such technology development programmes should also enable industry to field technologically competitive products for export.
Core Programmes
84. The DoD and Armscor will support, direct and contract the defence industry to run a limited number of long-term core programmes to enable it to maintain the necessary width and depth of engineering and production skill to provide support and produce products for local use and export.
Technology Demonstrators
85. In selected areas, key technologies will be maintained at an advanced level through the concept of advanced concept technology demonstrators.
86. The concept requires the almost continuous development and upgrading of prototypes of new weapons systems with state-of-the-art technology, without necessarily going into full-scale development or production, unless there is a need for the replacement of equipment due to age or obsolescence, or for force expansion. This strategy has become one of the cornerstones of the strategies of major arms producing countries such as the UK and the USA and has been employed to good effect by South Africa, e.g. the Rooivalk helicopter, the Tank Technology Demonstrator and Advanced Artillery Demonstrator.
Defence Technology Acquisition Management
87. The aim of defence technology acquisition management is to identify technologies on a long-term prediction basis that will support the future needs of the SANDF and take into account South Africa's Foresight Initiatives for advanced technology equipment and services. This management system will take into account threat analyses and required operational capabilities arising from the force structure plan and will develop, obtain, establish and maintain technologies according to certain priorities, for employment during the acquisition and operation of user systems. Technology management is regarded as the activity of planning, approval, execution and assurance of technology establishment projects and plans.
88. The DoD remains committed to the development of new technology in South Africa and more specifically, to the application of science and technology in industry. The department is thought to be the largest source of state funding for R&D in the private sector.
89. To meet the standards of a technologically capable military force, funds need to be allocated for defence research and development programmes.
90. These programmes will be selected and managed so that a technology base is sustained within the armaments industry in areas that are of strategic and/or economic importance to South Africa and that will support the SANDF in:
90.1 The development of new equipment with superior performance.
90.2 Upgrades and life extension programmes for existing equipment.
90.3 Operational problem solving.
90.4 Specification, test and evaluation of sophisticated procured equipment.
90.5 Trend and impact analyses of technology development.
Management Structures for Technology Development
91. As regards equipment acquisition programmes, 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. At the next level, the Secretary for Defence (as chairperson of the AASB) is responsible for implementing national technology requirements, for political control over all projects, and for ensuring that spending in the R&D environment is in keeping with all Government policies.
92. The structure for the approval of technology development programmes is multi-layered (AAC, AASB, DRDB). 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 detail structure to all plans and budgets, as well as the management of the execution of technology development 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.
Technology Project Approval
93. The DRDB will provide an annual technology acquisition master plan to the Armaments Acquisition Steering Board (AASB) for approval and recommendation.
94. The Armaments Technology Acquisition Secretariat (ATAS) will screen all technology project proposals and make recommendations to the Defence Research and Development Board (DRDB). All policy, financial implications, and control will be factored into the decision at the ATAS meeting for project funding approval. The Secretary for Defence DoD Acquisition Division) is responsible for implementing national technology requirements and for political control over all projects.
95. Contract management and authorisation for contracting of technology development projects are exactly the same as for equipment acquisition projects.
96. The DoD and Armscor have a well-established structure and system for managing technology development programmes in accordance with current legislation:
96.1 The system focuses on addressing the future needs of the SANDF.
96.2 It endeavours to involve major R&D contractors in the planning process to ensure utilisation of expert knowledge.
96.3 It is managed on a payment-for-progress basis, ensuring focus on the end result, as well as continuous interaction between developer and user.
Technology Policy Considerations
National Technology Programmes
97. The DoD is committed to full co-operation with other Government structures for science and technology and to provide transparency of its technology development programmes within the bounds of military security.
98. The National Technology Foresight Initiative should be taken into account by Department of Defence technology planners when embarking on annual budgeting of projects. The National Technology Foresight indicators may influence technology drivers and technology funding to achieve national technology objectives. This exercise may necessitate mechanisms whereby greater technology spin-offs from the defence establishment to other Foresight sectors are achieved. Such initiatives are to be directed and coordinated by the Secretary for Defence.
99. The DoD and Armscor undertake to promote greater collaboration between members of the DoD and South African universities. Universities, technikons and other previously-disadvantaged R&D institutions will also be allowed to submit project proposals to ATAS for work to be contracted directly.
100. The national technology drivers which require the maximisation of spin-off technologies and greater university involvement in defence technologies spheres, will be taken into consideration at the annual defence technology planning sessions.
Strategic Capabilities
101. Technology development in the armaments industry tends to be driven by military considerations rather than profit motives, with the result that the maintenance of certain key capabilities becomes a financial burden to private companies. Such capabilities (which may include specialised test and evaluation facilities such as wind tunnels and chemical defence evaluation laboratories), which are of strategic importance to the SANDF and the defence industry, will be grouped in non-profit defence institute(s) funded by the DoD.
Centres of Expertise
102. The management of long-term strategic interests such as national defence technology development programmes, requires the selection of Apreferred suppliers@ and Acentres of expertise@ to achieve the necessary long-term commitment from both the state and industry to build up and maintain certain levels of expertise. This commitment will also be evident in the minimum level of funding that is made available for R&D to maintain the required levels of competence.
Annual Reviews
103. The Core Defence Technology Programmes will be reviewed annually by the Armaments Acquisition Council (AAC) under the chairmanship of the Minister of Defence.
Multi-year Budgets
104. Defence programmes will be budgeted for on a multi-year basis to ensure continuity and proper industrial development.
Research, Development, Test and Evaluation (RDTE) Facilities
105. Strategic non-profitable facilities with limited commercial application could be retained in the public sector. These include facilities such as specialised defence research and development facilities, test ranges and test laboratories.
Immaterial Rights
Ownership
106. The state will retain the immaterial rights to state-funded technology and will make such technology available to any of ts contractors in either the public or private sector, or sell it to foreign institutions at its discretion.
107. The sale of South African defence industries to foreign industries will require the approval of the Minister of Defence where such sales will result in the transfer of state-owned technology from the South African industry to the foreign purchaser.
Royalties
108. The state may invoke its rights to a certain percentage of the value of the contracts for the export of products or technology where the state paid for the technology or product development. This decision to invoke a royalty claim rests with the Secretary for Defence and the members of the AASB. In cases where companies contributed own funds to R&D projects, the Intellectual Property Rights should be shared between the company and the State in a pro rata ratio of their respective contributions. In the case of multi-purpose technology, the company may be required to pay royalties to the state if the technology is used in commercial applications.
International Alliances and Partnerships
Government Support
109. The Government will enter into agreements with other governments to enable the industries to co-operate and each government will financially support and maintain its own industry to enable it to participate in the partnership.
Foreign Participation Through Partnerships
110. Foreign companies wishing to enter the market will be encouraged to form partnerships or enter into joint ventures with local companies. Foreign companies are encouraged to engage with previously-disadvantaged communities or companies to ensure that all sectors of the community are empowered. The defence industry will form more alliances with local and foeign businesses to transfer technology and to market products. DoD consent must be obtained before companies, which have developed and/or possess technologies funded by SANDF research or development programmes, enter into any international alliance, partnership or change in ownership.
SOCIAL RESPONSIBILITY OF THE INDUSTRY
111. Affirmative Action is defined and used in the context of a deliberate and sustainable anti-discrimination strategy that owes its existence to the principle of compensatory justice, equity and fairness in order to redress inequalities and imbalances within the defence industry beyond simple moral considerations to the realm of reconstruction.
Economic Empowerment in the Defence Industry
112. DoD policy will give preference to those companies that have a strong element of progressive empowerment policies and practices within themselves.
113. Support should be given to capacity-building measures in disadvantaged communities by the defence-related industries.
114. The defence industry should be committed to affirmative action and in a broader context, to economic empowermentof previously-disadvantaged groups. This encompasses redressing the imbalances created by previous practices arising from all forms of discrimination to include race, gender and disability.
115. The industry should be committed to redressing previously-created imbalances in the working population of South Africa.
116. The industry should support Government initiatives to encourage previously- disadvantaged persons as entrepreneurs, owners and managers of productive assets and wealth.
117. For an affirmative action programme to succeed, an organisational climate conducive to effectively managing diversity must be created within the defence industry.
118. This affirmative procurement exercise will be guided, monitored and controlled by the Secretary for Defence (DoD Acquisition Division).
Environmental Conservation
119. Before any military industrial facilities for the manufacturing, demolition, test and evaluation of armaments are established, operated or closed down, a comprehensive environment management plan will be drawn up and published for public scrutiny. Companies will be obliged to take all necessary action, at own cost, to conserve the environment and control pollution of all kinds, inluding noise pollution, to comply with national legislation.
ARMS TRADE
120. The South African Government of National Unity has, since its inauguration in May 1994, committed itself to a policy of arms trade and transfer control which would reinforce and promote South Africa as a responsible producer, possessor and trader in this field.
121. South Africa is convinced that effective and responsible arms trade and transfer control practices will contribute to bringing about international peace and security, particularly for the states of the sub-region and the continent of Africa.
122. Conventional arms trade and transfer and the non-proliferation of weapons of mass destruction, control principles and criteria have consequently been established to ensure that South Africa's policy on this issue conforms to internationally accepted norms and practices. (Guide to the Terms of reference of Conventional Arms Control, dated 1 May 1996 and the Non- Proliferation of Weapons of Mass Destruction Act No 87 of 1993)
123. South Africa is committed to a policy of responsibility and accountability in the trade and transfer of all arms. This policy on transparency in armaments exports reflects, in particular, South Africa's commitment to promoting international peace and security, its adherence to international arms control and disarmament agreements and respect for fundamental human rights and freedoms.
124. Arms trade and transfer will be governed by foreign policy and national security interests, a system of permit adjudication, arms classification, and a specific code of conduct relating to the criteria applied when considering trade with and transfer to countries in this respect.
125. As South Africa is a signatory to various international arms control and non-proliferation agreements, it exercises a dual process for the purposes of control of the non-proliferation of weapons of mass destruction and of other arms and related dual-use capabilities that could be used in the development and production of weapons of mass destruction and/or conventional arms. This will require that in some cases, application will have to be made, by the industry, for a dual permit to be issued by the specific appointed authorities.
Appendix A: National Policy Issues
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