Multibillion-dollar blowouts hidden in Defence reporting

MRH-90 helicopter. Image via Commonwealth of Australia, Department of Defence.

NXT senator Rex Patrick has made explosive claims Defence is intentionally cooking the books to hide billion-dollar project cost blowouts, calling for the introduction of a new project reporting system.

The $21.5 billion figure is listed under 'Total budget variation from second pass approval' in the latest ANAO Major Projects Report, which examined 27 projects.

In a speech to the Senate, Patrick, a former submariner and defence industry project manager, said massive overspend on projects is being hidden behind the department's phrase 'approved budget', and its process of first and second pass approval.

First pass approval is when the department is considering options for a particular capability and then fully costs these options. The next stage in the process, known as second pass approval, is when options are presented to government and the winning solution is decided on, along with the final total cost for the complete capability, and the budget is formally approved.

Senator Patrick said the trouble with budgets comes after the stage when projects slip or suffer currency variation or "they realise they forgot to include something" and Defence seek a change in the 'approved budget'.

"Defence, in a tactic that appears to have tacit approval from the ANAO, then reports project status against the new ‘approved budget’, not against the total cost the government committed to at second pass," Senator Patrick said.

The MRH-90 Taipan Multi Role Helicopter project, referred to in the latest ANAO report, is a prime example of this, according to the senator.

The 60-month-late project's budget at second pass approval in 2004 was $953 million. $3 billion has been spent on the helicopters so far and, according to Defence, they are still $705 million under their approved budget of $3.7 billion.

"Along the way they've had a number of ‘scope changes’, including a line item to ‘upgrade’ the current Blackhawk helicopters, which they had to do because the Multi-Role Helicopter capability is so late getting into service," Senator Patrick said.

"The entire defence project budget is like this ... The ANAO, thankfully, provides one number in its report: the total budget variation since second pass approval. In 2011-12 it was $5.9 billion. In the years that followed it jumped to $6.5 billion, then to $16.8 billion and then to $18.5 billion. This year, across the 27 major defence acquisitions in the ANAO report, it's the number I just talked about: $21.5 billion. That's a $21.5 billion blowout compared to what the government approved when it committed to the projects. Just lock that figure in the mind: $21.5 billion. But according to Defence there is no problem," the NXT senator told the Senate.

Senator Patrick is calling on Defence to change its reporting process to where the financial status is reported against its original budgets.

"This has to change. We must report the project financial status against the original budget. It’s a matter I will be taking up with the auditor-general and Defence at estimates," he said.

"Once we get the reporting right, we can move to addressing the blowouts themselves."

Multibillion-dollar blowouts hidden in Defence reporting
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