The Control Yuan yesterday censured the Ministry of National Defense, the Financial Supervisory Commission and the Fisheries Agency in connection with the Ching Fu Shipbuilding Co (慶富造船) scandal.
Ching Fu held the NT$350 billion (US$11.4 billion at the current exchange rate) contract to build six minesweepers for the navy until 2017, when the contract was terminated before any vessels were completed, following allegations that the company had insufficient capital and reports of financial irregularities.
The Kaohsiung District Prosecutors’ Office in February last year indicted five company officials on loan fraud charges, including chairman Chen Ching-nan (陳慶男) and his son, vice chairman Chen Wei-chi (陳偉志), who in June failed to appear in court. Trials in the case are ongoing.
Photo courtesy of Ching Fu Shipbuilding
Control Yuan members Chang Kuei-mei (仉桂美), Bau Tzong-ho (包宗和) and Lee Yueh-der (李月德) conducted an official enquiry and concluded that the ministry had failed to perform due diligence when it awarded the contract and in its control of the contractor, the Control Yuan said.
The Control Yuan members tasked with the inquiry interviewed 96 witnesses over 42 sessions and issued 36 requests for official documents, it added.
While the ministry’s mistakes did not result in direct losses to taxpayers, they saddled publicly owned banks that dealt with Ching Fu with bad loans, while the minesweeper scandal also harmed the ministry’s credibility, it said.
The Control Yuan believes that the ministry acted inappropriately when it reduced contractually required ratio of paid-in capital to contract value from 10 percent to 0.5 percent, allowing Ching Fu — a firm with little reported capital — to take part in the bid, it said.
The cited reasoning behind the decision — incentivizing the private sector — showed that the ministry was oblivious to financial risks, it said.
Defense officials repeatedly failed to verify whether Ching Fu had the capital, people or technical capabilities to build the ships and remain solvent over the 12-year span of the program, it said.
Notably, the ministry’s contract evaluation group awarded the contract at a meeting without its convener and deputy convener, while several evaluators ignored the official guidelines for contractor scoring, it said.
The contractual penalty of NT$5,822 per day for missing project milestones was inadequate for the purpose, it said, adding that the Executive Yuan should amend public contract regulations.
The Financial Supervisory Commission facilitated Ching Fu’s efforts to secure loans from the banks in 2016, the Control Yuan said, adding that it would be censured for exceeding its legal authority.
For its part, the Fisheries Agency held a bid to rent Kaohsiung’s Singda Harbor (興達港) to the private sector, ostensibly to promote the fishing industry, but it was actually a contract tailored to benefit Ching Fu, the Control Yuan said.
Agency officials also concealed their contacts with Ching Fu business representatives by requesting leave on the days they met with company personnel, the Control Yuan said, adding that the agency appeared to have knowingly granted the leave in collusion with the officials.
Government agencies in charge of contracting should consider themselves warned to avoid the behavior highlighted in the report, it said.
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