So, let’s get this straight, because it’s so hard to believe. It has to be the worst Commonwealth purchasing exercise ever.
The Commonwealth owns some factories that make munitions for the Australian Defence Force: one factory makes propellants and explosives, at Mulwala, on the NSW-Victorian border. The other makes the munitions themselves, at Benalla, down the road in Victoria. Defence contractor Thales was hired to operate the factories until 2015.
In 2009, according to the Australian National Audit Office (ANAO)’s latest report, Defence began thinking about what would happen after 2015. It decided it would go to the market and run a competitive tender to see who might succeed Thales. It sent a request for proposal to six companies, including Thales, ahead of a formal request for render (RFT). That’s the way you do procurement properly.
When Defence bureaucrats got the responses, they decided three were worth pursuing — with the one from Thales ranked third. The proposal from Thales involved “significantly higher risk to the Commonwealth” and required “significantly more capital investment”.
What happened with the RFT? After the Abbott government was elected, and with consideration being given to whether to keep the factories at all, Defence decided to skip the whole RFT thing and just go straight to Thales and ask it to keep running the plants for five years. An “interim” contract was duly signed to cover 2015-20.
So far, so stupid. That’s the kind of dumb rubbish that lazy bureaucrats in large departments do. But it gets better. Soooo much better.
One of the arguments for the interim contract was that the government now had time to work out what it really wanted to do with the factories, and Defence had time to run a proper process to implement it. So it decided to keep the factories and go to the market to see who wanted to run them… again. In the meantime, ANAO had come in and told Defence that it was a good idea to go to market, and Defence agreed.
But even as that ANAO report in 2016 is coming out, Defence is deciding that it won’t go to the market, and will simply stick with Thales from 2020 — even though the privately owned global munitions company NIOA made an unsolicited offer to help operate the factories in 2017.
Defence needs to have some sort of process for giving this contract to Thales, so it decides to conduct an RFT process with Thales as the sole bidder. Beginning in August 2018, Defence starts developing its RFT documents. It does so with the help of Thales.
“Between October 2018 and August 2019, Defence and Thales participated in 28 collaborative workshops to support development of the RFT,” the ANAO found.
So, Thales is getting to help write the documents it will have to respond to in this one-entrant race. It gets given exposure drafts of the RFT to comment on beforehand. Then finally, in August 2019, the RFT is formally sent and Thales has to prepare a response. Throughout the entire process, Defence is constantly talking to Thales, despite warnings about dealing with a potential vendor before finalising a procurement.
But despite getting to help write the RFT, Thales’ response is absolutely awful.
By October 2019, Defence had determined that Thales’ tender response was not value for money due to assessing the proposal as ‘deficient — significant’ with ‘high’ risk against all five evaluation criteria and identifying 199 non-compliances against the RFT. Defence considered the number of non-compliances to be ‘unprecedented’ and initially agreed, internally, to extend the interim contract with Thales to allow sufficient time to negotiate the non-compliances with the RFT.
So, in a one-horse race, in which it had a hand in actually writing the criteria against which it would be judged, Thales came stone, motherless last, failing every single critera and having nearly 200 problems in its response.
What does Defence do?
The auditor-general is fairly unhappy with the result. “Defence’s management of probity was not effective and there was evidence of unethical conduct,” is one of its conclusions. One of Defence’s staff in the area overseeing the process was especially close to Thales.
You, dear reader, know already, don’t you. Defence just gave the contract to Thales anyway. The final cost to taxpayers: $1.2 billion at the time; now above $1.3 billion. Those factories are now part of our sovereign munitions production capability. Rarely was the dreaded word “sovereign” so closely associated with the trashing of taxpayer money.
Defence records indicate that in May 2017, this Defence official also solicited a bottle of champagne from a Thales representative. In a response on the same day, the Thales representative acknowledged that they had previously offered the gift to the Defence official. The email exchange indicated that the initial offer had been conditional on the Mulwala Redevelopment Project being removed from the projects of concern list. The initial offer of a gift was not recorded in Defence’s gifts and benefits register. Both email exchanges evidenced unethical conduct. The Defence official subsequently commenced employment with Thales Australia (Australian Munitions) in April 2019.
The whole thing, from top to bottom and start to finish, is an example of the utter contempt with which Defence holds taxpayer money and the basic requirements of the public service. The Department of Defence, showered with money by gormless politicians eager to wrap themselves in the flag and cuddle up to the khaki, treats taxpayers as a joke.
Let’s raise a glass of bubbly to the bureaucrats at Russell Hill who couldn’t care less about wasting billions. No one ever holds them to account anyway — before or after they head off to their new jobs at defence contractors.
