I don’t think that there is a systemic issue within Defence in relation to the way in which defence contracts are managed.
Defence Minister Richard Marles, June 30, 2024
The scandal around the Department of Defence’s $1.3 billion munitions factory contract with Thales gained an extra dimension late last week. French television reported the French arms company was raided by police in France, the Netherlands and Spain over two investigations: one into bribery concerning submarines and a naval base in Brazil; the other into “similar offences linked to the sale of military and civilian equipment abroad”.
Beyond the unethical conduct of a defence official soliciting a bottle of champagne, there’s as yet no suggestion of bribery over any Thales contract in Australia. According to AusTender, there have been more than 3,000 defence contracts with Thales since 2020 alone, to the value of more than $3.3 billion, including $920 million in 2023-24.
But it seems bribery might be a tool in Thales’ arsenal for dealing with defence officials around the world, along with stringing out negotiations for its own ends and refusing to comply with request for tender requirements, as happened during the munitions factory scandal here.
None of that seems to matter to Defence Minister Richard Marles, who when asked about the scandal on the weekend declared, “Thales are a very important company in terms of the contribution that they provide to the Australian Defence Force.” He then went on to offer, “Thales is a very important company for Australian defence capability.”
But it was his statements about his own department and the fact there are no systemic problems with the way it handles contracts that caught the eye. For the edification of Marles and his advisers, here’s a list of most of the Australian National Audit Office reports on defence contracts from the past few years.
- Health services — One of Defence’s most important contracts, which involves looking after the health and welfare of Australian Defence Force personnel. The verdict? “Defence’s contract management demonstrated shortcomings in ensuring the implementation of all contracted requirements … Defence has not managed the contract to ensure that: all plans required under the contract have been put in place … Defence is not well placed to provide assurance that services are being delivered effectively.”
- Hunter-class frigate procurement contract — The verdict? “Defence’s procurement process and related advisory processes lacked a value for money focus, and key records, including the rationale for the procurement approach, were not retained. Contract expenditure to date has not been effective in delivering on project milestones … the contract management plan was established 44 months (3.6 years) after contract execution.”
- Defence industry security program — The verdict? “Defence’s administration of contractual obligations relating to DISP is partially effective. While Defence has established a framework and communication arrangements for DISP, the administration of the DISP does not enable Defence to gain assurance that the program is effective … Defence has not established fit for purpose arrangements to monitor compliance”.
- LAND 200 combat management and comms system procurement — The verdict? “Defence did not conduct fully effective acquisition processes for Land 200 Tranche 2 Work Packages B–D, but may ultimately achieve value-for-money outcomes if the contracted quality and quantity of goods and services are delivered …” Spoiler: the ANAO later learns Defence’s documentation on the management project is “inconsistent with evidence obtained during the course of the review. The material inconsistencies relate to the degree of confidence that materiel capability will be met …”
- Contracts for keeping the ANZAC class frigates operating — The verdict? “Defence cannot demonstrate the efficiency or outcomes of its sustainment arrangements, as the necessary performance information has not been captured … Defence entered into a sole-sourced alliance contract with its existing industry partners, without a competitive process.”
- Contracts for managing and servicing Defence’s 100+ bases around Australia — The verdict? “Defence adopted seven key guiding principles, most of which relate to its objective of optimising value for money, but is unable to demonstrate that the new base services model has achieved that objective. Actual expenditures have been higher than estimated, and expenditure forecasts indicate that the new base services contracts model is not likely to achieve Defence’s original savings goals.”
- Contracts for fuels, petroleum, oils, lubricants — The verdict? “Defence designed and implemented an effective competitive tender process but did not develop a negotiation strategy to maximise value for money and there remains scope to improve the effectiveness of contract management, purchasing and assurance arrangements …”.
- How Defence manages its thousands of private contractors — The verdict? “Defence has established fit-for-purpose policies and processes for the management of contractors. However, Defence cannot demonstrate the effectiveness of its arrangements …”.
- How Defence manages its inventories, for which it relies on contracts with the private sector — The verdict? “Defence cannot demonstrate that it is achieving efficiency and economy in its management of general stores inventory.”
Even the few audits that show Defence successfully managing large projects come with caveats, such as in the case of the Cape-class patrol boats contract, probably the most positive audit of Defence in the past decade. It noted:
Defence did not assess potential probity risks on receipt of the unsolicited proposal from Austal in September 2019 or introduce additional arrangements to manage procurement probity risk until it commenced exclusive negotiations with Austal in February 2020. This was five months after receipt of the proposal.
So when the defence minister declares that all is well with Defence’s management of contracts — despite report after report after report criticising the most basic facets of defence contract administration — does that mean he hasn’t bothered checking and is ignorant, or is he simply lying in the hope the focus on Defence’s incompetence will go away?
It’s not just about large amounts of taxpayers’ money. Does Richard Marles not care that ADF personnel might be receiving poor healthcare? Does he not care about the poor management around the security vetting of companies?
Defence can’t be trusted with taxpayer money. It seems Marles can’t be trusted to do anything about it.
