• It is unclear what Thales’ legal injunction means for subsequent ANAO reports into Defence programs.
    It is unclear what Thales’ legal injunction means for subsequent ANAO reports into Defence programs. Defence
  • ANAO

The Australian National Audit Office (ANAO) has released a report into the Land 121 Phase 4 project to acquire the Thales Hawkei.

The report acknowledges that all the material it drew upon cannot be released publically. In formal language, the ‘Disclaimer of Conclusion’ essentially means that the ANAO has blacked out many parts of their supporting evidence and is not able to “express a clear conclusion on the audit objective” in light of that measure. The redacting of material is formed on the basis that “it would prejudice the security, defence or international relations of the Commonwealth; it would unfairly prejudice the commercial interests of any body or person”.

Nevertheless, the report is bluntly brutal in its assessment of the management methodology during the decision making process leading up to First and Second Pass. In October 2015 the Commonwealth entered into contract with Thales Australia for the acquisition and support of 1,100 Hawkei PMV-L and 1,058 companion trailers.


“Defence did not provide robust benchmarking of the Hawkei and the Joint Light Tactical Vehicle (JLTV) option to the government at Second Pass, to inform the government’s decision in the context of a sole source procurement,” according to the report. “At Second Pass, Defence advised the government that the Hawkei would be approximately 23 per cent more expensive to acquire than the JLTV but would also be more capable. Without robust benchmarking of cost and capability, Defence was also unable to apply competitive pressure in its negotiations with Thales. Defence did not inform the minister appropriately when material circumstances changed immediately after Second Pass.”

The report explores the timeline of the project, from the examination of the US JLTV program involvement and comparative benchmarking from 2009, the Manufactured and Supported (MSA) campaign for the project in 2011, through to the contract negotiations for the Hawkei which are still ongoing with change proposals commonplace. Defence gave formal approval for the Hawkei to enter Low-Rate Initial Production on 11 August, 2017.

Thales provided design approval for the Hawkei in March this year, with a number of known deficiencies and a plan for rework, according to the report.

“At a meeting of the Defence–Thales Strategic Relationship Board in March 2018, Defence stressed that ‘the ongoing Hawkei reliability problems were a concern’,” according to the ANAO report. “The schedule pressures built into the project, together with the recent reliability issues, have resulted in contract schedule changes during 2017–18. Defence has observed, in the context of the 10 July 2018 Gate Review, that:

Over the past 18 months the schedule ‘float’ between the contract and MAA [Materiel Acquisition Agreement] schedules has reduced from approximately six months, to one and two months for IOC [Initial Operational Capability] and FOC [Final Operational Capability], respectively. The critical path to IOC remains primarily dependent upon the successful completion of PRAT [Production Reliability Acceptance Test].”

In order to respond to these delays, the next period of testing under PRAT will now involve eight vehicles rather than four and will be undertaken over eight months rather than 14 in order to make up lost time.

However, a Gate Review in July this year noted that “the vehicles are now in their sixth cycle of reliability failure–redesign–retest but the results to date remain well below the requirement. Despite more than seven years of development Army’s Protected Mobility Vehicle — Light has not yet achieved the required level of reliability which has been significantly reduced during the period.”

ADM Comment: The fact that Thales sought a legal injunction over the matter in May via the Federal court and later received a letter from the Attorney General telling the ANAO to back off essentially (available in the appendices of the report) sets a precedent. What this means for subsequent ANAO reports into Defence programs remains to be seen.

As to whether Defence conducted ‘effective procurement processes between 2011-2014’ the ANAO is not convinced and is outright sceptical of their ability to keep government decision makers informed. Box 1 on P38 is particularly enlightening reading on this point. A letter (P76 for those reading the report at home) co-signed by Defence Secretary Moriarty and Chief of the Defence Force General Angus Campbell disagrees with the ANAO assessment that the LRIP contract was signed with a ‘lack of appropriate scrutiny’. 

The back and forth contractually that a developmental program consists of is no surprise to those experienced in this space. Good planning only covers so much when you have unknown unknowns to account for. Looking at any other ANAO report into developmental programs, like Thales’ own Bushmaster (which is a frequent character in this report), is testament to this.

Hindsight is a wonderful thing but not available in the moment when key decisions are being made.

A response letter from Thales Australia CEO Chris Jenkins is also illuminating, highlighting the fact that the ANAO didn’t much like Bushmaster either. Selective comparisons with the JLTV program are unhelpful given that programs performance issues as well, according to his statement available in the appendices. Jenkins rightly points out that the policy settings surrounding Australian industry content and sovereignty have also changed significantly over the life of the Hawkei program.

While that last point might be true, once again hindsight is a valuable thing. The change in policy settings could not have been predicted at the time of contract signature that saw Hawkei effectively used as a support base for Thales’ Bushmaster production capability and the not insignificant R&D efforts from Thales to bring Hawkei off the page and onto a test track.

“Hawkei delivers life-saving capability to the ADF, designed and manufactured in Australia,” Thales said in the wake of the report. “The Bushmaster program demonstrated beyond question that maintaining a sovereign capability in protected vehicle design, engineering and manufacture saved Australian soldiers’ lives.

“It is disappointing that the ANAO places zero value on maintaining this life-saving industrial capability; zero value on Australian content and zero value on Australian jobs.

“Thales Australia welcomes the engagement with industry during the preparation of the ANAO report, resulting in the exclusion from the final report of sensitive details that might have endangered soldiers’ lives or unfairly prejudiced commercial interests if published,” the statement concludes.

ADM’s questions to the ANAO about the frequency of use of the Disclaimer of Conclusion were not answered in time to make publication.

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