The national audit office has found Defence has failed to maximise Australian industry participation in its vast procurement program and its arrangements to achieve industry participation were at best only partly fit for purpose.
In yet another report critical of defence procurement, the Australian National Audit Office (ANAO) outlined a range of problems with acquisition of capabilities and infrastructure.
ANAO’s investigation included examination of eight sample contracts, with each featuring one or more important shortcomings, resulting from limitations in Defence’s advice to potential suppliers, weaknesses in contracting of industry participation commitments and ineffective monitoring of supplier compliance.
“Defence has not maximised Australian industry participation through the administration of its contracts,” it concluded.
“Defence industry policy and contracting requirements were not applied to all relevant procurements, and - where supplier commitments have been contracted - Defence has not effectively monitored or ensured the delivery of those obligations.
“Defence’s administrative arrangements for maximising Australian industry participation through its procurement and contracting activities are partly fit for purpose.”
The study focused on defence procurement in 2022-23, with 83,625 Australian Government contracts valued at $74.82 billion notified on AusTender.
Defence contracts accounted for 51.7 per cent, with a value $38.69 billion.
Defence, along with successive governments, have sought to maximise involvement of domestic industry in acquisition, with a series of policy statements, such as the 2016 Defence Industry Policy Statement (DIPS), She 2016 Integrated Investment Program and 2016 Defence White Paper.
Then there was the 2018 Defence Industrial Capability Plan (DICP) and the Defence Policy for Industry Participation (DPIP) to give effect to the DICP. Defence’s administration of DPIP primarily resides within the Capability Acquisition and Sustainment Group (CASG).
Through DPIP, Defence requires tenderers to demonstrate appropriate formal consideration of Australian industry, locally and nationally, through a schedule or plan that forms part of their tender response.
That would be assessed by Defence as part of its overall value for money assessment. Following completion of decision-making, the plan or schedule was to become a contracted deliverable for the selected supplier.
DPIP requirements were to be implemented by Defence from 2019 and apply to new projects and new phases of existing projects. Implementation was to be supported by the development and roll out of guidance and reference materials.
However, the 2023 Defence Strategic Review found Australian industry engagement needed to be balanced against timely capability acquisition.
“Previous government direction to meet mandated Australian industry content skewed the capability acquisition process so that capability outcomes were secondary to creating opportunities for Australian industry – even when a clear rationale was lacking,” it said.
The 2024 Defence Industry Development Strategy (DIDS) committed Defence to 39 actions including simplifying the contracting framework, implementing a new approach to engaging with industry and updating the DPIP by the end of 2024.
ANAO made nine recommendations, acknowledging that Defence was seeking to improve its procedures.
In its formal response to the report, Defence Department Secretary Greg Moriarty and Chief of the Defence Force Admiral David Johnston said Defence acknowledged and accepted the key findings and recommendations aimed at improving governance, assurance and reporting arrangements to maximise Australian industry participation.
“Defence is committed to improvements that allow easier, faster and more cost-effective solutions for industry to work with Defence,” they said.