Defence delay ‘may cost taxpayers $2bn’

Delays in selecting a next-­generation armoured vehicle for the army could cost taxpayers an extra $2bn, with the tenders provided by the bidders due to expire before a decision is made.

Bids by Germany‘s Rheinmetall and South Korea’s Hanwha Defence for a next­generation armoured vehicle for the army are valid only until March 1, amid intense inflationary pressures on supply chain firms.

Delays in selecting a next-­generation armoured vehicle for the army could cost taxpayers an extra $2bn, with the tenders provided by the bidders due to expire before a decision is made.

Defence Industry Minister Pat Conroy confirmed last week that the infantry fighting vehicle procurement known as “Land 400 Phase 3” is now being ­considered as part of the government’s defence strategic review, due to be completed in March.

The Australian can reveal that the bids by Germany‘s Rheinmetall and South Korea’s Hanwha Defence are valid only until March 1, amid intense inflationary pressures on supply chain firms.

Defence industry sources said the bidders faced having to go back to suppliers to reprice their offers in a process that could take several months and add at least 10 per cent to their bids.

“The pricing schedule provided by the supply chain is valid until March 1, 2023, on the instructions of Defence,” one said.

“Now a decision has been delayed, both companies face having to go back to their supply chains to reprice their entire bids.”

In the case of Rheinmetall, the delay could place a cloud over the future of 1000 of its Queensland workers, which the company had hoped would transition seamlessly to the new project if it won the new contract.

The issue is the latest in the $18bn to $27bn procurement, which critics have said is a waste of money but which the army sees as vital to its role as a modern fighting force.

The original tender said Defence would purchase 450 of the hi-tech vehicles, but cost concerns and the need to purchase new ­missiles and drones prompted a request for revised bids based on 300 vehicles.

The new warning over the project came as Defence’s management of its $270bn investment program was called into question by the Australian National Audit Office, which found the classified version of the spending plan could not be verified as accurate.

In a report released on Tuesday, Auditor-General Grant Hehir said Defence had been only “partly” effective in running the massive spending program, highlighting a lack of confidence over the accuracy of a classified project master list.

It said the management of the program was “weakened” when the classified list “did not consistently encompass whole-of-life costs” for projects such as the now-cancelled $90bn Attack-class submarines and the $45bn British-designed Hunter-class frigates.

“Defence did not establish effective systems for reconciling information in the (classified) and the public editions of the program, and did not seek arm’s length verification that the costings included in the public editions accurately reflected the (classified) costings,” the report said. It said the costs of the submarine and frigate programs had initially included “substantially lower minimum costs than those provisioned for in the underlying confidential (plan)”.

The winner of the Land 400 Phase 3 tender was due to be announced in September but was repeatedly pushed back as Defence searched for spare funds to pour into new long-range capabilities.

Mr Conroy told The Australian: “This is the army’s largest project, worth between $18bn and $27bn, and the only responsible thing for the government to do is to make this major decision in the context of the defence strategic review, due early next year. This is a live tender so any ­further comment would be ­inappropriate.”