National auditor whacks Defence on C-27J

“Overall, Defence’s processes to select the US variant C‐27J met relevant Commonwealth legislative and procurement requirements applicable at the time,” the audit found.

“Defence conducted a direct source procurement process in compliance with the Commonwealth Procurement Guidelines. Based on Defence’s assessments, there was a reasonable basis for government to select the US variant C‐27J as a better value for money option than the commercial version of the C‐27J and the Airbus C‐295.

“Nevertheless, the department’s advice to government during the earlier phases of the procurement did not cogently establish the case for undertaking a direct-source FMS procurement, and there were also shortcomings in Defence’s handling of relations with industry during the course of the procurement.”

The ANAO report found that Defence’s approach to industry did not adequately and transparently “communicate the status of the procurement process” leading them to believe the government had initiated an open procurement process, “rather than collecting additional information for government decision making in the pursuit of a direct source procurement.”

“In that respect, Defence’s approach did not have sufficient regard to the expectation in government procurement that suppliers will be treated in a fair and transparent manner. Defence has acknowledged the lack of clarity attending its approach to industry and has amended its processes so as to improve communication with industry in the future.”

Responding to the report’s release, Senator Johnston said concerns on the part of industry and the opposition had been vindicated and the process undertaken by Defence to purchase the aircraft was fundamentally flawed.

“Not only was there was nothing more than a desk-top analysis of the competing bids for this $1.4 billion contract, but there was no competitive tender process and Defence applied different standards for the competing tenders,” Senator Johnston said.

Johnston said the ANAO report found Defence had applied a ‘contingency cost’ on the other two bids but not on the FMS variant of the C-27J, the aircraft Defence eventually purchased. However, the other two bidders were never asked by Defence to provide second-pass estimates that would have removed the need for the contingency cost.

“When comparing each of the three bids at the second pass level it is clear that the US C-27J aircraft FMS purchase was the most expensive of the three competing tenders,” Senator Johnston said.

Johnston said of most concern was the little attention paid to the through-life operating costs of the three bids. “There’s no point in basing a procurement decision on the initial purchase cost when the through-life support costs are not considered.”

Minister for Defence Materiel Kelly said Johnston had completely ignored the key findings of the independent audit undertaken by the ANAO into the tender process for the aircraft.

Kelly referred to the audit reports findings as broadly supporting the government’s choice, particularly the value for money, fitness for purpose, the performance history of prospective suppliers, the relative risk of proposals, and flexibility to adapt to change over the life cycle of the acquisition.

Given the direct source procurement process was in line with the procurement guidelines and there was a reasonable basis for government to select the US variant C‐27J as a better value for money option than the competing bids, Kelly said: “In this regard, the ANAO observed that the sole source acquisition of the US variant C‐27J:

Allowed Defence to secure a discounted price for the aircraft, contributing to the value for money of the acquisition;

Not only offered interoperability with the US variant C‐27J fleet, but also with Air Force’s existing C‐17 and C‐130J fleets;

Provided ballistic protection, electronic warfare protection, and communications systems that enhanced battlefield survivability and interoperability with other ADF platforms and the US;

Removed the risk of Defence having to integrate flight control and electronic warfare systems into the aircraft, decreasing the risk of the acquisition;

Provided a relatively short timeframe to achieve Initial Operating Capability, allowing Air Force to retire its ageing C‐130H fleet of aircraft earlier and achieve savings, contributing to the efficiency of the acquisition.”

Quoting the ANAO report, Kelly added: “Taken together, these considerations provided a reasonable basis to select the US variant C‐27J as the value for money option.”

The RAAF’s first C-27J Spartan entered final assembly at Alenia Aermacchi’s Turin plant in late 2012 and is expected to arrive in Australia in early 2015, with Initial Operating Capability for the platform slated for late 2016.