Defence faces $18bn in cost overruns, three times higher than what Labor feared

The total cost blowout for current major defence projects is nearly three times higher than that flagged by Labor last year, according to the auditor-general, with the projects’ combined cost nearly $18 billion over the original approved budget.

In October, Defence Minister Richard Marles accused the former Coalition government of financial mismanagement and a failure of leadership, seizing on defence department advice that suggested project overruns in the order of at least $6.5 billion.

But that figure is at odds with the auditor-general’s 2021–22 report on the country’s major defence projects, released Thursday, which found the approved budget for active major defence projects has swelled by some $17.5 billion as of June 30 last year.

Notably, the $17.5 billion in total cost overruns comes before either the recent $2.8 billion purchase of 40 Black Hawk helicopters or the plans to acquire eight nuclear-powered submarines under the Aukus agreement – which some analysts have predicted will attract costs within the vicinity of $80 billion – have been factored into the budget.

While the auditor-general’s report makes plain external pandemic-related pressures and exchange rate fluctuations explain a portion of the cost blowouts, it suggests the overruns are mainly due to delays associated with the defence department’s apparent indifference to accountability and transparency.

The report notes, for example, that the original budget for the joint strike fighter project has blown out by a net $13 billion, with more than $10 billion of that figure spent on acquiring additional aircraft with little apparent oversight. Similarly, the original 2005-06 budget for the now abandoned MRH90 helicopters increased by nearly $3 billion, with most of those costs tied to the purchase of extra and now redundant aircraft.

Against this backdrop, the report emphasises the department’s failure to act on a suite of parliamentary and auditor-general recommendations dating from 2014, all of which were focused on improving the lack of transparency and rigour that has long presided over defence equipment acquisition.

In the result, the report concludes that the long-standing governance issues and difficulties encountered in delivering “major projects on schedule” remain a challenge for defence.

“Defence’s management of platform availability has contributed to [delays] in some projects [while] projects with developmental content have also experienced significant delays,” it says.

“Defence has yet to implement a consistent measure of capability performance with a robust methodology applicable to material acquisition.”

In a much-publicised move last October, Marles pledged greater transparency over defence acquisitions, including monthly reports on delayed projects of concern, remediation plans and the creation of an independent regulator within the department.

Notwithstanding that, however, Thursday’s report said the government had, for the first time in the report’s 15-year history, failed to supply the auditor-general with all relevant forecast data for the purposes of the report.

Not only did the unprecedented move prevent the auditor-general from detailing the extent of delay attending current defence projects, it also undermined the purpose of the review, which is to afford some level of parliamentary scrutiny over defence spending.

According to the report, some of the data wasn’t supplied on account of certain projects not having a settled forecast date, while defence simply decided against publishing data with respect to three other projects, including the $3.6 billion offshore patrol vessel project.

It’s not immediately clear why defence declined to provide this data, given Marles himself conceded last year that several major defence projects were facing considerable schedule delays.

Beyond this, the report also sounded alarm around the management of underperforming projects, including the MRH90 helicopters, noting at least two auditor general recommendations to improve the way in which defence handles these problems were yet to be implemented.

“There was no evidence that defence [has] established a clear basis or criteria to ensure a consistent approach to entry to and exit from the projects of concern or projects of interests lists, and no evidence of an evaluation was provided to the ANAO,” the report said.

The report indicated the next annual review would assess the extent to which the government implements its flagged transparency and accountability reforms around expenditure.