Hunter Class frigate was chosen without ‘value for money’ analysis and in breach of finance laws

The controversial $45b Hunter Class frigate selected for the Australian navy was approved without taxpayer “value-for-money” analysis, and is in breach of finance laws.

Australia’s new warship was approved by successive Coalition governments without “value for money” analysis and in breach of finance laws, an inquiry into the $45 billion Hunter class frigate project has found.

In a stunning rebuke, the parliamentary Joint Committee of Public Accounts and Audit has concluded the Coalition signed off on the risky project, inexcusably either “by conspiracy or incompetence”, with ministers acting like “daleks” (from Dr Who) to push it through.

It was Malcolm Turnbull’s government in 2018 that announced the UK’s BAE Systems had beaten rival bids from Spain and Italy for the Royal Australian Navy’s new flagship frigate to be built in Adelaide.

Defence Minister Richard Marles and SA Premier Peter Malinauskas hold the first cut piece of steel to be used on the first Hunter class frigate to be constructed at the Osborne Naval Shipyard in Adelaide. Picture: NewsWire / Brenton Edwards

Steel for the first of six of the prototype Hunter frigates was cut with much fanfare only last week with the vessel to be in the water in 2034.

But the committee found the perceived urgency for a modern warfare surface fleet overrode tender compliance including a standard requirement to provide a value tax payer dollar assessment which was “mysteriously” removed from the process.

“Ultimately as this was a Cabinet process via the National Security Committee of Cabinet no one will ever really know what happened; whether there was a conspiracy or predetermined decision that BAE win the prize, or whether it was simply shocking incompetence by this group of Ministers in the then Government,” committee chair Julian Hill concluded in the report tabled in parliament Wednesday.

Evolved Hunter Class design for guided missile frigate. Picture: Supplied by BAE Systems Australia

Neither Defence nor the Australian National Audit Office could identify any other military project in history that went to the government for decision without a value for money assessment.

This should have been particularly acute, as BAE’s design – while based on a British Type 26 vessel – was an untested prototype with immature designs which had since been found to have size, displacement and capability flaws.

Its design was still only being refined last year.

Labor member for Bruce Julian Hill during Question Time. Picture: AAP

The committee also found puzzling “the seemingly unprecedented decision” to knock 10 per cent off the price from all the tenderers since there has never been an Australian ship building project that has ever run close to under budget.

This called into question “the judgement and competence of the officials involved”.

“The Committee understands the significant pressure and risks that resulted from the then Government’s sudden decision to accelerate the project and subsequent supply chain issues,” the joint party committee concluded.

Malcolm Turnbull, with Christopher Pyne and Marise Payne, when they announced the Hunter Class frigates were to be to built at Osborne Naval Shipyard in Adelaide, in 2018. Picture: AAP/Mark Brake

“Demonstrating value for money and compliance with the Commonwealth Procurement Rules (CPRs) are nevertheless non-negotiable requirements, particularly when expending tens of billions of dollars of taxpayer money. It is simply inexcusable that no value for money assessment was ever conducted before the former Government selected BAE for the then $35 billion project.”

The ANAO first identified issues with the frigate selection but its findings were dismissed by Defence which said it would conduct its own review.

The committee now reported key documents that would have gone to the core concerns of the tender process were subsequently lost.

The Defence Department has already come under significant criticism over the handling of the frigate project as well as other major procurement projects, prompting sweeping recommendations to how it does business.

Originally published as Hunter Class frigate was chosen without ‘value for money’ analysis and in breach of finance laws