More serious governance failures in Defence contracting

The pattern of poor governance by Defence has been further exposed following disturbing revelations in yet another contract.

It was revealed this week that Defence Department officials congratulated themselves for not recording minutes of a critical meeting in which the work of consultants it had hired was being checked against the contract.

Incredibly, the failure to record minutes was noted as a positive in a post-implementation review of the project, with the only negative point listed being that the donuts arrived too early in the meeting.

This serious accountability failure is a breach of Defence’s contracting rules and the Commonwealth Procurement Rules, adherence to which is fundamental to good governance.

The failure to keep minutes of the key meeting means there’s no official record of who attended the meeting, in what capacity, and what contribution they made.

It was just one of a raft of irregularities found in a $100 million contract between the Defence Department and KPMG, which is part of the One Defence Data program, following a damning review by external consultants, Anchoram Consulting.

Some of the irregularities described in the review bear striking similarities to those found in Defence’s controversial Hunter Class frigate procurement from BAE Systems, Australia’s largest ever surface warship acquisition, which has been referred to the National Anti-Corruption Commission following a scathing report by the auditor general.

BAE frigate deal referred to anti-corruption commission

One of the grounds for the corruption referral was the absence of a number of important accountability documents, including minutes of key decision making meetings, related to the Hunter Class frigate procurement process. (Read full story on the $46 billion frigate procurement here and here.)

The Australian National Audit Office report on the frigates noted that the Defence Department was a serial offender when it came to deficient record-keeping. The auditors footnoted a comment from the Commissioner for Law Enforcement Integrity that a “lack of record keeping can create corruption vulnerabilities within an Agency”.

Another revelation in the Anchoram review was that Defence had made “a six-figure payment” to KPMG “for work the government knew had not been delivered”.

Similarly, as the audit office revealed in May, during the frigate procurement process the Defence Department made milestone payments to BAE Systems even though BAE had missed the milestones.

Anchoram revealed that the KPMG project was plagued by a “lack of accountability” and “real and perceived conflicts of interest”. Core governance documents were not signed off and key requirements of KPMG’s contract were diluted from “mandatory” to “desirable”, sometimes in consultation with KPMG itself, despite Defence requirements stating explicitly that mandatory items cannot be changed.

Furthermore, Anchoram concluded that “the Commonwealth has a significant risk that it absolved [KPMG] from its commercial obligations and consequently transferred delivery risk from [KPMG] to the Commonwealth.”

The review said the Commonwealth’s ability to govern the One Defence Data program’s financials and ensure value for money had been “significantly compromised”.

Similarly, with the frigate procurement process, Defence sidelined the central procurement rule of achieving value for money. Numerous conflicts of interest and revolving door appointments, including the secretive involvement in the frigate tender evaluation process of people formerly employed by BAE Systems (as I reported exclusively in July) prefigure the serious governance issues exposed by Anchoram in Defence’s cosy arrangement with KPMG.

Sinking billions: Revolving doors

The Anchoram Consulting report, dated April 2022, has been released publicly this week following an order from independent senator David Pocock to the Defence Department.

Meanwhile, the Parliamentary Joint Committee of Public Accounts and Audit is conducting an inquiry into Defence’s frigate procurement process.

Labor MP Julian Hill, the chair of the committee, has stated: ‘It does feel like someone has back-engineered a decision and gone, “we want to go with BAE”…’.

The Anchoram Consulting report on the One Defence Data program can be downloaded here.