Audit flags LCS delay risk from incomplete supplementary contracts
The government paid EUR124.35 million for the Naval Strike Missile system before Norway permanently cancelled its export licence, the audit found.
Unresolved supplementary contract documentation could delay construction of LCS1 to LCS5, the 2026 Auditor-General’s Report Series 2 warned. The report was presented to the Dewan Rakyat on Oct 5.
The audit identified incomplete documents covering 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).
Documents for the RM535.37 million ILS-TA contract were not officially finalised by June 25, although the Letter of Acceptance (LOA) had been signed on Aug 5, 2025. The report said this did not comply with Treasury Circular (PK 4.2), which requires documentation to be completed within four months after signing the LOA.
Two progress payments amounted to RM100 million. The contractor qualified for a RM132.73 million claim based on progress recorded on June 25, 2026, but could not submit it because the contract remained unfinalised, according to the audit. ILS-TA physical progress was 30.49 per cent in June, below the 37.41 per cent target.
The audit linked the documentation delay to disagreements about warranties and minimum requirements for First Outfit of Stores (FOS) and Onboard Spares (OBS). The Ministry of Defence (MINDEF) said technical, commercial and legal reviews had been under way since October 2025. It said the contractor’s signing of the revised contract on Aug 11 resolved the issue.
The audit separately found that the Naval Strike Missile (NSM) supply contract remained unfinalised following Norway’s cancellation of the weapon’s export licence. Payments before the permanent cancellation amounted to EUR124.35 million, equivalent to 96.6 per cent of the EUR128.72 million contract value.
MINDEF said Malaysia’s government and the supplier negotiated in Türkiye on Aug 12 and 13. The ministry said the dispute would be referred to the Dispute Resolution Committee, followed by arbitration if the parties could not reach an amicable settlement.
