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The Australian National Audit Office has recently found that “Defence has not maximised Australian industry participation through the administration of its contracts” or “effectively implement relevant industry contracting requirements”.
The damning findings were unveiled in a report to Parliament, entitled Maximising Australian Industry Participation through Defence Contracting, and released on 20 May this week.
The Department of Defence is required to maximise Australian industry participation through contracted plans and schedules with its suppliers, and these requirements have been conveyed through the Defence Policy for Industry Participation since 2019.
The total value of Defence procurements in 2022–23 was recorded as $38.7 billion, and $10.6 billion is estimated by the Australian Bureau of Statistics as the Australian defence industry’s contribution to the broader Australian economy in 2022–23.
Approximately 79 per cent of Defence spending occurs in Australia, according to the report.
“Defence has not maximised Australian industry participation through the administration of its contracts. Defence’s administrative arrangements for maximising Australian industry participation through its procurement and contracting activities are partly fit for purpose,” according to the report findings.
“Defence did not effectively implement relevant industry contracting requirements with respect to the eight executed contracts examined. Defence has established partly appropriate governance, assurance and reporting arrangements to oversee the implementation of its contracting requirements.
“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. Defence’s procurement framework has not been updated in a timely manner, and as at August 2024, did not fully reflect the requirements of the March 2019 DPIP.
“Guidance for Defence personnel in relevant tendering and contracting templates is incomplete, and in some cases outdated. Defence engages with industry through forums and other activities as well as through individual procurement processes to support the intent of government’s industry contracting policy.
“Defence has not implemented applicable contracting requirements effectively. Of the eight contracts examined, each had one or more important shortcomings resulting from limitations in Defence’s advice to potential suppliers, weaknesses in Defence’s contracting of industry participation commitments, and ineffective monitoring of supplier compliance with those commitments.
“Defence’s governance, assurance and reporting arrangements for industry participation are partly appropriate. Senior Defence committees have received reports on activities to support Australian industry policy objectives. Defence did not establish the Industry Policy Division working group to periodically review the policy in accordance with the DPIP.
“The AIC Plan assurance framework does not align with a professional standard-setting framework and activities conducted under that framework do not provide reasonable assurance over the matters examined. Defence reports on Australian industry expenditure and has undertaken to further develop its reporting as part of the 2024 Defence Industry Development Strategy.”
Materiel and non-materiel procurements valued at or above $4 million are to include Australian industry schedules or plans, according to government guidelines. In addition, construction services procurements valued at or above $7.5 million are also to include Local Industry Capability Plans.
The report also put forward nine recommendations to Defence aimed at improving governance, assurance and reporting arrangements. Defence has reportedly agreed to all nine recommendations.
The recommendations include that the Department of Defence establish arrangements to ensure its contract template and guidance documents are up to date and aligned with defence industry contracting and policy requirements.
In addition, that the Department of Defence implement controls within relevant systems for its procurement, financial, and contract management activities as well as establishing measures to inform senior leadership regarding incorporating requirements for Defence policies into mandatory training.
