Critical Audit on Australia’s Frigate Procurement

The Australian National Audit Office (ANAO) has recently released its findings into a review of the Department of Defence (Defence) 2018 procurement of Hunter class frigates. The acquisition of nine frigates was a key part of the Australian Government’s planned expenditure on naval shipbuilding and maritime capability.

The ANAO review builds on previous Auditor-General work on Department of Defence’s acquisition of Navy ships and the implementation of the Australian Government’s 2017 Naval Shipbuilding Plan.

Overall, the ANAO review found the procurement process was only partly effective, and that the process and related advisory processes lacked  value for money.

Most critically, ANAO found Defence did not conduct an effective 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. The Commonwealth Procurement Rules (CPRs) and the Defence Procurement Policy Manual require those responsible for procurement to be satisfied that the procurement achieved value for money. The report finds Defence did not document the rationale for the TEP not requiring a value for money assessment or comparative evaluation of the tenders.

The report also found Defence’s expenditure to date had not been effective in delivering on project milestones, and the cost of the head contract increased. The report found a lack of design maturity  resulted in the 18-month delay to the project, at an additional cost of $422.8 million. As at January 2023, the project was forecast to exceed the whole of project budget approved by government by a significant amount.

Following the review, the  ANAO made two recommendations. Firstly, that Defence ensures compliance with the Defence Records Management Policy and statutory record keeping requirements over the life of the Hunter class frigates project, including documenting the rationale for key decisions, maintaining records, and ensuring that records remain accessible. Secondly, that Defence ensures its procurement advice to the Government on major projects documents the basis and rationale for proposed selection decisions. This documentation should include information on the department’s whole-of-life cost estimates and assessment of value for money.

The ANAO is currently reviewing the Defence’s procurement and implementation of the myClearance system, and will be open for contribution shortly.

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