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Thursday, 25 August 2011
Page: 5538


Senator JOHNSTON (Western Australia) (12:44): On behalf of the Chair of the Foreign Affairs, Defence and Trade References Committee, I present the final report of the committee, Defence's request for tender for aviation contracts, together with the Hansard record of proceedings and documents presented to the committee.

Ordered that the report be printed.

Senator JOHNSTON: I move:

That the Senate take note of the report.

Firstly, I thank the staff and secretariat of the Senate Foreign Affairs, Defence and Trade References Committee, particularly Dr Kathleen Dermody, for the 150 pages of this report. It is a very thorough and good report. MEAO is the contract by which we insert Australian combat troops into the Middle East and ultimately into Afghanistan and by which we repatriate them. It is an important contract. There were a number of issues in the media and elsewhere surrounding the retendering of this contract. The report states:

They identified a raft of serious deficiencies in the process but, overall, concluded that the flaws were not sufficiently material to render the process unsound.

While not fully convinced, the committee agrees with all of the findings of the some half-a-dozen investigators, auditors, professionals, lawyers and accountants who reviewed the tender process. I will say some more about that in a moment. The report continues:

It could find no compelling evidence of … fraud; of the use of insider knowledge; of designing the tender to unfairly favour a preferred tenderer; or of the successful tenderer's inability to deliver services as specified under the contract … there was no concrete evidence to suggest that the successful tenderer was not fit and proper for the purposes of contracting with the Commonwealth.

Ultimately the Commonwealth did demand, quite uniquely, a performance bond of $2 million and inserted novate clauses and terms into the agreement such that the ultimate supplier of the aircraft could be contracted directly by the Commonwealth to avoid the preferred tenderer were that tenderer to have some issues. The report continues:

The committee is strongly of the view, however, that Defence should not take comfort from these findings … Aspects of the tender process were … sloppy and, in light of the nature of the industry and the behaviour of people in the industry, Defence was notably inattentive when it came to identifying and managing probity risks, especially conflicts of interests.

A very thick black cloud of uncertainty lingers over the integrity of this tender. The report continues:

The reviews and the committee also uncovered weaknesses in the procedures for preparing and evaluating the tender. For example, inadequate documentation, poor consultation and lack of certification gave rise to confusion, inconsistency and a failure to correct an error in calculations during the evaluation. Although the Source Evaluation Report was re-validated and confir­med the successful tender as top ranked, the problems identified in the process cannot help but undermine the committee's confidence in the robustness of the decision-making processes.

Undoubtedly, the circumstances which prompted the significant parliamentary and public scrutiny of the 2010 tender process have damaged Defence's image and reputation. … While the lessons emerging from this incident need not have been learned at such significant cost, the committee welcomes the reforms announced by Defence …

Having said that, this contract is worth $120 million. There were significant concerns with the process by which the contract was tendered. The Audit and Fraud Control Division of Defence conducted an inquiry; Pricewaterhouse conducted a review of their inquiry; Deloitte Touche Tohmatsu conduct­ed a review of the whole process; the Austra­lian Government Solicitor reviewed the whole process; Clayton Utz, the consulting solicitors, provided legal advice to all of the players throughout the process; and then there was the Senate Foreign Affairs, Defence and Trade References Committee's review.

This contract was notorious. It was mishandled. There were no probity auditors and no probity plan. Whilst I underline and say there was no smoking gun of fraud, there is the very strong aroma of something wrong in this process.

We have made some nine recommend­ations. It is a very timely and focused report on a matter which gave me and I think members of the committee no comfort in reviewing because of the conflicts of interest. The 2005 initial contract was passed to the Australian Federal Police for investigation. An officer in the ADF, having sat as the non-voting chair of the tender evaluation board in 2005, then obtained employment with the successful tenderer. Then, having left that employment, they proceeded to work for the ultimate successful tenderer in 2010. The whole sorry business has an aroma to it but, as I say, we have no smoking gun of fraud.

Having said all of that, I commend this report to the Senate. I think it is a living and breathing example of the Senate's parliamen­tary system working effectively and well to set out the issues so that the public can have some confidence that when we send our men and women into battle we do so with due care and attention as to the airline and the transport services we provide for them. I seek leave to continue my remarks later.

Leave granted; debate adjourned.