6 years ago
$21.5 BILLION BUDGET BLOWOUT No Defence for it
Senator Rex Patrick
In a speech delivered in the Senate last night NXT Senator Rex Patrick revealed how Defence has been ‘cooking the books’ to hide a $21.5 billion blowout in Defence Project costs.
Here's how it's done:
- When Defence first decide they want a particular capability they scour the market for anything out there that’s suitable to meet their needs.
- At a point in their process called ‘first pass’ they whittle the options down to one or two solutions. They then fully cost those options.
- At the next point in their process, which is called ‘second pass’, they present the options to the Government who then decides on the ‘winning’ capability solution. It’s at this moment that the Government commits the taxpayer to what is supposed to be the final total cost for the complete capability. Government then formally approves the budget.
- Defence then commence acquisition or development of the chosen capability solution. However, as time passes by and the project slips, or they suffer a ‘currency variation’, or they realise they forgot to include something, Defence seek a change in the ‘approved budget'.
- Defence, in a tactic that appears to have tacit approval from the ANAO, then reports project status against the new ‘approved budget’, not against the total cost the Government committed to at first pass.
Defence’s 60 month late MHR90 Multi-Role Helicopter project (see page 159 of the ANAO Major Projects Report) provides a good example. Its budget at second pass approval in 2004 was $953 million. Instead, $3 billion has been spent on the helicopters so far and, according to Defence, they are still $705 million under their approved budget of $3.7 billion. Along the way they've had a number of ‘scope changes’, including a line item to ‘upgrade’ the current Blackhawk helicopters, which they had to do because the Multi-Role Helicopter capability is so late getting into service.
"One could be forgiven for thinking the Defence Department is one of the last bastions of old Soviet economics - perverse state socialism in which, no matter what the delays and cost blowouts, projects are always declared to be a success, everyone gets a medal and no one takes responsibility. Perhaps the spirit of Leonid Brezhnev still lives on," said Rex.
The ANAO reports the $21.5 billion blowout in one line under ‘Total budget variation from second pass approval’ across the 27 projects (see page 10 of the report).
"This is so totally unacceptable. On one hand the Government is cutting health, education, welfare and other important programs, while slipping through the fingers on the other hand are billions of dollars of Defence overspend - and no one even seems to notice," said Rex.
"This has to change. We must report the project financial status against the original budget. It’s a matter I will be taking up with the Auditor-General and Defence at Estimates.
"Once we get the reporting right, we can move to addressing the blowouts themselves."