ANAO Report No. 6 (2018–19), Army’s Protected Mobility Vehicle – Light
Disclaimer of Conclusion (pp. 8–9)
Because of the significance of the matter described in the Basis for Disclaimer of Conclusion section of my report, I have not been able to prepare a report that expresses a clear conclusion on the audit objective in accordance with the ANAO Auditing Standards. Accordingly, I am unable to express a conclusion on whether the Department of Defence’s acquisition of light protected vehicles under Defence project Land 121 Phase 4 was effective and achieved value for money.
Basis for Disclaimer of Conclusion
On 29 June 2018 I received correspondence from the Attorney-General which constituted his certificate under paragraph 37(1)(b) of the Auditor-General Act 1997 (the Act). The Attorney-General advised that in his opinion disclosure of certain information in my proposed performance audit report would be contrary to the public interest for one or both of the following reasons set out in subsection 37(2) of the Act:
it would prejudice the security, defence or international relations of the Commonwealth;
it would unfairly prejudice the commercial interests of any body or person.
Under paragraph 37(1)(b) of the Act, I am thereby prevented from including particular information in this report. The information to be omitted included part of my overall conclusion in respect of the objective of the audit.
The overall conclusion included in my proposed performance audit report stated:
Defence has invested significant effort into developing a capable light protected vehicle, including through an extensive test and evaluation program, and is procuring a design (Hawkei) that meets the majority of the requirements. Omitted—certificate—s 37(2)(a)and s 37(2)(e);see paragraph 6. Defence has established appropriate arrangements for project governance, but has accepted additional risk by entering Low-Rate Initial Production while reliability issues are still being remediated.
The conclusion that I included in my proposed performance audit report was formed on the basis of sufficient appropriate audit evidence. The ANAO Auditing Standards require my audit report to contain a clear expression of the conclusion against the objectives of the audit. If I were to include the conclusion from the proposed performance audit report after omission of the information required by the certificate, I would not be expressing such a conclusion, and therefore it would not be in compliance with the ANAO Auditing Standards.
As the certificate amounts to a limitation on the scope of my audit, because I am unable to table a report in the Parliament that contains a clear expression of my conclusion against the audit objective, there are two options available to me under the ANAO Auditing Standards: to withdraw from, or reduce the scope of, my audit; or publish a report including a Disclaimer of Conclusion. I decided to publish a report containing a Disclaimer of Conclusion because it is in the public interest for me to present information to the Parliament, in accordance with the Act and the ANAO Auditing Standards, to the largest extent possible in the circumstances.
Key findings (pp. 9–10)
Defence developed six fundamental requirements for the Protected Mobility Vehicle — Light by 2009, and these have remained relatively stable. The Hawkei is a developmental vehicle, and Defence has conducted a large amount of test and evaluation covering its technical performance and useability.
At First Pass in 2008, a financial partnership with the United States in its JLTV Program was adopted as the primary acquisition strategy, at a cost of $43 million. In 2009, Defence sought approval to commence a parallel investment in Australian-based options that it had previously decided to be high-risk and high-cost. At Interim Pass in December 2011, Defence recommended and received approval for further development of the Thales Hawkei, because Defence considered it had the best prospect of meeting future needs, despite assessing it as the least developed Australian option. At the same time, Australia’s financial partnership in the JLTV Program was discontinued amidst uncertainty as to the program’s future, but it was retained as a possible alternative option for Second Pass. Within days of the Interim Pass decision, the United States decided to continue the JLTV Program. Defence did not reconsider its Interim Pass recommendations in the light of this significant change. The 2011 decision to discontinue Australian financial participation in the JLTV Program eroded Defence’s ability to benchmark its procurement of the Hawkei against a comparable vehicle. In the absence of reliable benchmark information, there was a reduction in Defence’s ability to evaluate whether procurement of the Hawkei clearly represented value for money.
Defence did not provide robust benchmarking of the Hawkei and Joint Light Tactical Vehicle options to the Government at Second Pass, to inform the Government’s decision in the context of a sole-source procurement. At Second Pass, Defence advised the Government that the Hawkei would be approximately 23 per cent more expensive to acquire than the Joint Light Tactical Vehicle but would also be more capable. Without robust benchmarking of cost and capability, Defence was also unable to apply competitive pressure in its negotiations with Thales. Defence did not inform the Minister appropriately when material circumstances changed immediately after Second Pass and before contract signature. Omitted—certificate—s 37(2)(a)and s 37(2)(e);see paragraph 6.
Defence has established appropriate oversight arrangements for the project. However, Defence postponed the May 2017 Gate Review, with the result that the project passed the major milestone of entry into Low-Rate Initial Production without the scrutiny offered by these reviews. Test and evaluation activity remains ongoing, as Defence entered Low-Rate Initial Production without retiring risk to the extent that it had planned. Defence has amended its contract with Thales to manage the related delays and cost increases. The project remains within the government-approved and contracted budget and scope, but reliability issues have led to schedule delays.