Why was Datasonic awarded RM318.75m passport chip contract despite unsatisfactory track record?

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Datasonic Awarded RM318.75 Million Passport Chip Contract Despite Unsatisfactory Track Record Due to Finance Ministry Approval and National Security Considerations

Datasonic Technologies Sdn Bhd (DTSB) secured a RM318.75 million directly negotiated contract from the Home Ministry (KDN) to supply 12.5 million polycarbonate passport chips over five years, even with a documented unsatisfactory performance history. The approval for this contract ultimately came from the Finance Ministry (MoF), which cited DTSB's successful "proof of concept" and endorsements from KDN and the Immigration Department as key factors. Furthermore, the nature of passport supply, being within the scope of national security, permits direct negotiation under special circumstances, a justification that played a role in the MoF's decision.
Home Ministry's Initial Concerns Over DTSB's Performance

Initially, the Home Ministry expressed significant reservations regarding DTSB's performance. A letter from KDN dated August 2014, in response to an inquiry from the Finance Ministry, explicitly stated that DTSB's track record was unsatisfactory. This was primarily due to frequent delays in the supply of polycarbonates, which adversely affected the Immigration Department's service delivery. Consequently, KDN indicated it did not intend to nominate DTSB for future procurement, signalling a clear dissatisfaction with the company's reliability.
Finance Ministry's Approval Amidst Cost-Saving Claims

Despite the Home Ministry's concerns, the Finance Ministry proceeded to approve DTSB's appointment through direct negotiation. During discussions in November 2014, DTSB presented a proposal to supply polycarbonate chips, claiming potential government savings of RM103.49 million over the five-year contract period. The MoF's approval was contingent on DTSB demonstrating a successful "proof of concept" and obtaining the endorsement of both the KDN and the Immigration Department.
National Security Justification for Direct Negotiation

The award of contracts through direct negotiation is permissible under specific conditions, particularly when dealing with matters of national security. Passports are considered a critical component of national security, a rationale that allowed for the direct negotiation process in this instance. The Finance Ministry, with Datuk Seri Najib Razak serving as the Finance Minister at the time, ultimately granted approval, with KDN's support for the direct negotiation process being a significant contributing factor.
Company's Direct Approach to Leadership

Prior to the MoF's approval, Datasonic Group Berhad (DGB) actively sought the contract through direct engagement with top leadership. In May 2014, the chairman of DGB, Tan Sri Mohamed Hashim Mohd Ali, signed a letter addressed to then-prime minister Datuk Seri Najib Razak, requesting an opportunity for DGB to supply the passport chips. A subsequent letter in August 2014 to the then Home Minister, Datuk Seri Ahmad Zahid Hamidi, reiterated DGB's proposal, highlighting potential cost savings of RM75 million over five years and asserting the company's capability to deliver high-quality, secure passport chips.

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Why was Datasonic awarded RM318.75m passport chip contract despite unsatisfactory track record?

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