A performance audit into the Department of Defence’s procurement of Hunter class frigates has found its procurement process and related advisory processes lacked a value for ‘money focus’.
In his report Department of Defence’s Procurement of Hunter Class Frigates, Auditor-General Grant Hehir said the acquisition of nine Hunter class frigates was a key part of the Australian Government’s substantial planned expenditure on naval shipbuilding and maritime capability and contributed to the ongoing capability of the Australian Defence Force.
Mr Hehir said the estimated acquisition cost of the Hunter class project was $45.6 billion – as publicly reported in July 2020.
“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,” Mr Hehir said.
“Contract expenditure to date has not been effective in delivering on project milestones, and the project is experiencing an 18-month delay and additional costs due in large part to design immaturity,” he said.
“Defence did not conduct an effective limited tender process for the ship design.
“The value for money of the three competing designs was not assessed by officials, as the Tender Evaluation Plan (TEP) proposed that Government would do so.”
Mr Hehir said Defence’s expenditure to date had not been effective in delivering on project milestones, and the cost of the head contract had increased.
He said lack of design maturity had resulted in an 18-month delay to the project and extension of the design and productionisation phase, at an additional cost to Defence of $422.8 million.
“At January 2023 the project was forecast to exceed the whole of project budget approved by Government by a significant amount,” the Auditor-General said.
“Defence has established largely fit-for-purpose contracting arrangements for the design and productionisation stage, and largely effective contract monitoring and reporting arrangements to ensure adequate visibility of performance and emerging risks and issues,” he said.
“However, the contract management plan was established 44 months (3.6 years) after contract execution.”
Mr Hehir made two recommendations to Defence, to improve its compliance with record keeping requirements, and improve its advice to Government on whole-of-life costs and value for money.
The Auditor-General’s report can be accessed at this PS News link and a 114-page pdf version at this link.
The audit team was Mark Rodrigues, James Woodward, David Willis, Helen Sellers, Emily Hill, Jude Lynch, Corne Labuschagne, Danielle Page, Sally Ramsey and Amy Willmott.
