Champagne bid pops Defence official in $1.2bn contract process

A Defence official handed confidential information to a French-owned defence giant and solicited a bottle of champagne from the company before it was awarded a $1.2bn munitions contract.

Thales high explosives plant in Mulwala, NSW.

A Defence official handed confidential tender information to a French-owned defence giant and solicited a bottle of champagne from the company before it was awarded a $1.2bn munitions contract, the Australian National Audit Office has found.

The Australian National Audit Office uncovered the “unethical conduct” in Defence’s decision to award Thales Australia a ten-year contract to run two commonwealth-owned munitions facilities that are at the heart of the government’s plan for domestic missile production.

Thales was awarded the contract to run the Benalla and Mulwala facilities in July 2020, despite an assessment that the company’s bid was “deficient”, “high risk”, and did not offer value for money, Acting Auditor-General Rona Mellor said in a report tabled on Tuesday.

The contract followed a four-year non-competitive procurement process in which a Defence official – who went on to work for Thales – provided the company with “confidential information”.

The audit said a November 2016 email exchange revealed the official gave the company information on “the development of internal advice to the (investment committee); Defence 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,” Ms Mellor’s report said.

“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.

“The initial offer of a gift was not recorded in Defence’s gifts and benefits register. Both email exchanges evidenced unethical conduct. The Defence official subsequently commenced employment with Thales Australia (Australian Munitions) in April 2019.”

The Hawkei Protected Mobility Vehicle, manufactured by French-owned defence giant Thales in Bendigo, Victoria. Picture: Thales

The audit found Defence did not establish appropriate probity arrangements until July 2016 – two years into the procurement process, and the department did not maintain records on its probity management.

Defence’s October 2019 tender assessment found Thales’ proposal failed to meet all five tender evaluation criteria, and identified 199 areas of noncompliance.

The department commenced contract negotiations in December that year, “notwithstanding internal advice that Defence was at a disadvantage in negotiations due to timing pressures”.

The audit found Defence’s advice to decision-makers “did not address how value for money would be achieved and commercial leverage maintained in the context of a sole source procurement”.

Defence failed to advise its ministers on the extent of Thales’ noncompliance with the tender guidelines, or the “very high risk” negotiation schedule, Ms Mellor’s report found.

The Mulwala facility in rural New South Wales is Australia’s sole manufacturing operation producing rocket propellants and high explosives.

The nearby munitions facility at Benalla, in Victoria, uses the explosive material produced at Mulwala to manufacture ammunition for military and civilian users.

Defence has said the facilities, which have been operated by Thales since 1999, will be “key assets” in the government’s plan to develop a sovereign guided weapons and explosive ordnance enterprise.

The so-called GWEO enterprise is central to the government’s plan to improve its self-sufficiency from international munitions supply chains which could break down in the event of a conflict.