The Australian Parliament’s Joint Committee of Public Accounts and Audit says the former Coalition Government breached the law by failing to undertake any value-for-money assessments before awarding an AUD35 billion defence contract.
The Committee tabled its final report last week concerning its Inquiry into the Defence Major Projects Report (MPR) 2020-21 and 2021-22 and Procurement of Hunter Class Frigates. It found that no value-for-money assessment was undertaken by Defence or the former Government on the Hunter Class Frigates’ tenders, despite that the National Security Committee of Cabinet decided to proceed with procuring a ship from BAE Systems that was not a mature design.
The Committee’s interim report for the Inquiry in June 2023 dealt with cost, schedule, and capability performance assessments in both MPRs and other common themes, including the impacts of Covid-19, defence projects of interest and concern, and issues around risk management and capability forecasting. This final report has considered the future of the MPR itself and highlighted key issues and concerns with the ongoing Hunter Class Frigate program. In a June 27, 2024, statement, Committee Chair Julian Hill MP said the procurement failings identified by the Australian National Audit Office (ANAO) were only belatedly accepted by Defence after the Committee initiated the Inquiry and Defence conducted its internal review.
“There are two possibilities for how this happened,” Hill said. “Either no one noticed that no value-for-money assessment was undertaken, or they did know but didn’t care and decided to proceed with the procurement anyway. Ultimately, as this was a Cabinet process via the National Security Committee, so no one will ever really know what happened – whether there was a conspiracy or predetermined decision that BAE win the prize or whether it was simply incompetence by this group of ministers in the then government.”
Further issues raised in the audit that were of significant concern to the Committee included:
- No explanation was given about why 10% was deducted from the price of all tenderers in the evaluation and advice to government;
- The Hunter Class Frigate itself was assessed by Defence experts as a mature design when it had never been built or even fully designed;
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Key documents regarding the decision-making process went and remain missing.
“Defence must reassess how it determines maturity in future large-scale acquisitions, particularly as foreign governments will always be keen to sell expensive military hardware to Australia,” said Hill. “A balance is needed between that approach and acquiring off-the-shelf military capability.”
The Committee made five recommendations concerning the frigate program. Four of these request updates from Defence on changes arising from its internal review, progress with the project, how it will assess design maturity in the future, and its new recordkeeping framework.
The Committee is also recommending that the Commonwealth Procurement Rules now explicitly require a value-for-money assessment in a tender evaluation plan as a default option, which must then be cleared by the Department of Finance.
The statement said the Committee regards the MPR as an important accountability mechanism that should continue for the foreseeable future, albeit with potential adjustments.
The Committee also noted the tension between national security considerations and the need for ANAO to provide transparency to the Parliament and is recommending that a confidential submission and related briefings with Defence, where information cannot be published, now be provided by ANAO as a supplement to the MPR.
