Incompetent, deceptive or both: why did defence hide the real cost of its submarines and ships?

The Defence Department hid from the public the real cost of the now-abandoned submarine program, and a frigate-building program, and can’t — or won’t — explain why, a damning report by the auditor-general shows.

The Australian National Audit Office (ANAO) examined the department’s massive internal Integrated Investment Program (IIP), which tracks the costs of all major defence projects, and the public versions of the document, which were released in 2016 and 2020. The public version was initially going to be made available annually but now will only be released every four years. One of its purposes is to assist industry with planning, as well as provide public accountability.

The 2016 public version, the ANAO found, used cost bands — or cost maxima, or exact costs — for every one of the 150-odd programs listed, except two. One was the Future Submarines project, which was listed as “>$50bn”, and the Future Frigate program, which was listed as “>$30bn”.

In fact, according to the underlying internal “broadsheet” IIP document, the cost of the Future Submarines project was already assessed at $79.8 billion, and the Future Frigates program was assessed at $36.4 billion.

The result was that the public and industry were misled to believe the cost of the two programs would be $36 billion less than defence knew they would cost.

Why were those two projects singled out for different reporting that misled everyone outside defence?

Astonishingly, defence claims not to know. “Defence records do not document the decision or rationale to adopt a public reporting approach, for these particular programs, with a substantially lower possible cost than the provision in the broadsheet or for the top of the band to be unbounded,” the ANAO reports. “Defence advised the ANAO in August 2022 that ‘the banding was set in place by the 2016 White Paper leads and defence has been unable to identify any official record of the decision’.”

Initially defence told the ANAO that “a more conservative banding was published to mitigate commercial and foreign affairs sensitivities for those active tenderers engaging with the Commonwealth”. But apart from the fact there was no banding at all, that explanation holds no water (sorry). As the ANAO says, that still doesn’t explain why defence didn’t “place the cost within a bounded range, to more accurately and transparently reflect the cost known to government … or hold the figure as confidential until a later time”.

The $80 billion cost was only officially confirmed in 2020, when defence officials admitted they’d known of the higher cost around the time of the start of the program.

Was there political interference, perhaps by the office of then defence minister Marise Payne, out of concerns that the subs program was already blowing out its massive cost? The ANAO report also details changes made to the 2016 public report between the draft version sent to Payne’s office and the final public version. But all of those changes were to increase the reported cost of projects. The submarine weapons system cost went from $4-5 billion to $5-6 billion; the frigate weapons system went from $2-3 billion to $3-4 billion. The changes in total added $5 billion to the cost bands and, given the long history of cost blowouts in defence, were probably justified. But who made the changes?

The ANAO has not identified any documentary source or authority for these changes among defence’s records. Defence has not been able to explain these differences.

In any other department, being unable to explain a $5 billion shift in costs would be a major scandal. In defence, it’s business as usual. The defence bureaucracy appears totally indifferent to the basic idea of accountability for the hundreds of billions of taxpayer dollars it spends, thinking nothing of misleading the public, failing to keep even the most basic of records about 10-digit cost shifts, insisting it has no idea what has happened within its own systems.

And yet, politicians continue to throw money at the department, rewarding its supreme indifference to accountability.