The auditor-general has revealed a Defence employee gave confidential information to a foreign-owned defence contractor and solicited a bottle of champagne ahead of a billion-dollar munitions deal, and then joined the business after it was awarded the lucrative contract.
In a scathing report, the Australian National Audit Office (ANAO) has detailed evidence of “unethical conduct” involving a 10-year contract for French company Thales to run two Commonwealth-owned munitions facilities considered crucial for future domestic missile production.
Acting Auditor-General Rona Mellor has found the defence giant received the $1.2 billion contract to run the Mulwala and Benalla ventures in 2020, despite an assessment finding its bid was “deficient”, “high risk” and did not offer value for money.
“Defence’s management of probity was not effective and there was evidence of unethical conduct,” the ANAO report tabled on Tuesday concluded.
Domestically, the Australian military relies on supplies produced at the Mulwala Explosives Factory on the NSW-Victoria border as well as the Benalla Munitions Facility north-east of Melbourne, both of which have been run by Thales since 1999.
In 2016, negotiations began for a long-term contract to ensure “surety of supply of key munitions and components”, and involved what the ANAO described as a “complex multi-year” non-competitive procurement.
According to the ANAO, “probity risks” emerged almost immediately when, that same year, “Defence personnel provided Thales with confidential information relating to its Investment Committee (IC) proposal”.
A November 2016 email exchange revealed a Defence official “sought assistance from and provided information to Thales” on the development of “internal advice to the IC, Defence’s committee processes, and internal Defence thinking and positioning”.
“Defence records indicate that in May 2017, this Defence official also solicited a bottle of champagne from a Thales representative,” the ANAO report states.
“In a response on the same day, the Thales representative acknowledged that they had previously offered the gift to the Defence official. The email exchange indicated that the initial offer had been conditional on the Mulwala Redevelopment Project being removed from the Projects of Concern list.
“After assessing Thales’ tender response as not being value for money in October 2019, Defence proceeded to contract negotiations in December 2019 notwithstanding internal advice that Defence was at a disadvantage in such negotiations due to timing pressures.”
According to Defence, the Mulwala and Benalla facilities will be “key assets” within the future Guided Weapons and Explosive Ordinance Enterprise (GWEO), and will “play a role in the expansion of domestic GWEO manufacturing”.