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The Parliament of Australia said earlier this week that the government under former Prime Minister Scott Morrison breached finance law by failing to undertake any value for money assessments before awarding a (then) AU$35 billion (US$23 billion) Department of Defence contract, its current value still unknown. The Joint Committee of Public Accounts and Audit has tabled its final report for its Inquiry into the Defence Major Projects Report (MPR) 2020-21 and 2021-22 and Procurement of Hunter-class frigates.
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.
The committee said it was deeply concerned that no value for money assessment was ever undertaken by Defence or the former government on the Hunter-class frigates’ tenders, despite which the National Security Committee of Cabinet decided to proceed with a (then) AU$35 billion procurement of a ship from BAE Systems that was not a mature design. Parliament said that, perplexingly, clear failings in the procurement identified by the Australian National Audit Office (ANAO) were only belatedly accepted by Defence after the committee initiated this inquiry and Defence conducted its own internal review.
Committee Chair Julian Hill MP stated that there are two possibilities as to how this happened: 1) either no one noticed that no value for money assessment was undertaken or 2) they did know but did not care and blithely decided to proceed with a (then) AU$35 billion procurement. Mr Hill added that as this was a Cabinet process via the National Security Committee of Cabinet, no one will ever really know what happened, whether there was a conspiracy or predetermined decision that BAE be awarded the contract, or whether it was “simply shocking 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 the following:
There was no explanation why 10 per cent was mysteriously knocked off the price from 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 in fact never been built or even fully designed.
Key documents regarding the decision-making process went and remain missing.
Mr Hill commented that 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. A balance is needed between that approach and acquiring “off-the-shelf” military capability.
The committee makes five recommendations in relation to the Hunter-class 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 that must then be cleared by the Department of Finance.
The committee regards the MPR as an important accountability mechanism that should continue for the foreseeable future, albeit with potential adjustments. Mr Hill stated that although other external accountability and assurance mechanisms for scrutinising Defence activities exist, the MPR provides a structured level of scrutiny across major capability projects that would not be provided through other processes.
The committee noted the tension between national security considerations and need for ANAO to provide transparency to the parliament. The committee is therefore 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.
