The Billion-Dollar Blunder: How Defence and Thales Turned Public Procurement into Private Farce

In an era defined by security rhetoric and “sovereign capability” buzzwords, the Australian Department of Defence has managed to stage what might be the most egregious display of procurement malpractice in recent Commonwealth history. According to a scathing report last year by the Australian National Audit Office (ANAO), what began as a straightforward exercise in outsourcing has devolved into a case study in cronyism, incompetence, and institutionalised contempt for transparency and accountability.

This isn’t merely about bungled paperwork or bureaucratic oversight. It is about a public institution—entrusted with the security and defence of the nation—repeatedly bending the rules, ignoring advice, and prioritising corporate relationships over public interest. And the result? A $1.3 billion contract handed to French arms multinational Thales, despite its own bid failing almost every benchmark of suitability.

The Illusion of Competition

At the heart of this debacle are two government-owned factories: the Mulwala facility near the NSW–Victoria border, which produces propellants and explosives, and the Benalla plant further south, where the munitions themselves are manufactured. For years, Thales has been contracted to operate both sites, with the arrangement initially slated to end in 2015.

In 2009—years ahead of schedule—Defence began laying the groundwork for a competitive tender process, as it should. Six potential operators were invited to submit proposals. Thales, notably, ranked third among the respondents. Its bid was flagged as posing “significantly higher risk to the Commonwealth” and requiring “significantly more capital investment” than its competitors.

So what did Defence do with this valuable information? It discarded the competitive process entirely.

When the Abbott government came to power in 2013, amid rumblings about the long-term viability of the munitions factories, Defence chose the path of least resistance: it shelved the formal Request for Tender (RFT) process and awarded Thales an “interim” five-year contract. The logic? More time to think. More time to plan. More time, in theory, to do things properly.

The Process That Wasn’t

But what followed wasn’t due diligence. It was duplicity. Despite a recommendation by the ANAO in 2016 to reintroduce competition into the procurement process, Defence doubled down on its original mistake. A new player—NIOA, an Australian-owned munitions firm—had even submitted an unsolicited proposal in 2017. It was ignored.

Instead, Defence constructed a shell of a tender process—this time with Thales as the only participant. Worse still, Thales was allowed to help write the rules it would be judged by.

From October 2018 to August 2019, Defence and Thales held 28 so-called “collaborative workshops” to develop the RFT. Exposure drafts were shared, feedback was invited, and procurement guidelines—specifically those governing probity and vendor involvement—were wilfully trampled.

Let’s be clear: this was not an open tender. It was a closed conversation, choreographed to ensure a predetermined outcome.

A Failure by Every Metric

Even with its unparalleled insider access, Thales failed to submit a competent bid.

In October 2019, Defence’s own internal assessment found the Thales submission to be “deficient — significant” across all five evaluation criteria. It identified 199 non-compliances—an “unprecedented” number, by Defence’s own admission. The response was deemed not value for money. In a one-bidder race—rigged in its favour—Thales still came last.

A rational system would have pulled the plug. Opened the process. Explored alternatives. Instead, Defence extended the interim contract once more and entered into “negotiations” with Thales, the very company that had failed to meet even the most basic criteria.

Corruption by Champagne

While public money was bleeding into a black hole of defence mismanagement, behind the scenes, relationships were being forged over flutes of champagne.

In 2017, internal Defence correspondence reveals a senior official solicited a bottle of bubbly from a Thales representative. The timing? Suspicious. The quid pro quo? Clear. The gift was allegedly offered on the condition that a key Thales project be removed from the Department’s “projects of concern” list. It was never recorded in the official gifts register.

The same official, having overseen the contracting process, later secured employment with Thales Australia’s munitions division. This is not just poor governance. It is a textbook example of regulatory capture—the revolving door through which public officials quietly become private profiteers.

The ANAO didn’t mince words: “Defence’s management of probity was not effective and there was evidence of unethical conduct.”

Sovereign Capability or Sovereign Scam?

The factories in question have now been enshrined under the banner of “sovereign munitions production capability”—a phrase repeated ad nauseam by politicians eager to justify massive military outlays to an unquestioning public.

But let’s be honest: what sovereignty is preserved when critical national infrastructure is handed to a foreign multinational through a process riddled with impropriety? What security is gained when the same defence officials responsible for oversight end up on the payrolls of the corporations they were meant to regulate?

This is not a defence policy. It is a racket.

Systemic Rot, Not Isolated Failure

The tragedy here is not simply the $1.3 billion wasted—or the fact that no one has been held accountable. It is the broader reality that this story is not an aberration. It is emblematic of how Australia’s defence procurement has come to operate: behind closed doors, devoid of competition, and drunk on its own impunity.

In the shadow of AUKUS and ever-expanding defence budgets, scrutiny is desperately needed. The myth of efficiency, the illusion of “sovereign capability,” and the fetish for militarisation have created fertile ground for corruption and corporate enrichment. Thales is not the problem—it’s a symptom.

Until we break the culture of secrecy, end the incestuous ties between Defence and industry, and restore genuine accountability to public spending, these kinds of “deals” will continue. All the while, the taxpayer foots the bill—and the champagne flows freely in Canberra’s khaki-lined corridors of power.

So raise a glass. Just know who you’re toasting. Not the soldier. Not the public. But the system that confuses loyalty with corruption—and calls it national security.

Addendum: Strategic Partner or Strategic Blindness?

In June 2024, the Department of Defence referred the awarding of a $1.2 billion munitions contract to Thales Australia to the National Anti-Corruption Commission (NACC) following the scathing report by the Australian National Audit Office (ANAO). Upon receiving the referral, the NACC instructed the Department of Defence to conduct a preliminary investigation. Defence reported that it was "unable to substantiate the allegation" . However, the NACC clarified that the matter remains under consideration and has not been closed or referred back to Defence, countering misinformation suggesting otherwise .

Despite the damning findings of the Australian National Audit Office (ANAO), the unresolved questions of probity, and a still-open investigation by the National Anti-Corruption Commission (NACC), the Albanese government made a stunning decision in October 2024: it formally anointed Thales as a “strategic partner” in the $22 billion Guided Weapons and Explosive Ordnance (GWEO) enterprise—arguably the most significant and sensitive defence industrial program in Australia’s modern history.

At the same time, Thales remains the subject of multiple international corruption investigations. From South Africa to Malaysia, France to Brazil, the company has faced accusations ranging from bribery and kickbacks to opaque arms deals and influence-peddling. These allegations are not historic footnotes—they are part of a pattern of conduct that raises profound questions about the company’s ethical fitness to handle Australian national security assets, let alone be elevated to the status of a privileged partner in weapons manufacturing.

That the Albanese government chose this moment—amid intense domestic scrutiny and active corruption inquiries—to elevate Thales further into the core of Australia’s defence apparatus is both baffling and alarming. The GWEO enterprise is central to Australia’s efforts to develop a sovereign missile production capability, a pillar of national defence policy in an increasingly unstable Indo-Pacific region. This makes the integrity, transparency, and trustworthiness of its industrial partners not just desirable, but essential.

The government insists that its selection of Thales was based on capability, track record, and alignment with Australia’s defence objectives. But “track record,” in this case, includes a billion-dollar procurement disaster; hundreds of contract non-compliances; and documented unethical conduct between Defence officials and Thales representatives. It also includes a complete breakdown in probity, procurement integrity, and public confidence.

What message does it send—to Australian taxpayers, to potential whistle-blowers, to allies and adversaries alike—when a company under multiple corruption clouds is not only shielded from consequence, but promoted?

What signal is sent to the rest of the defence industry, including local firms which offered alternative models of sovereign capability but were ignored or excluded?

And what precedent does it set when the strategic direction of the nation’s defence posture is shaped not by a transparent, competitive process, but by long-standing corporate relationships and unchecked institutional loyalty?

This appointment is not just a lapse in judgment. It is a warning. A warning that the bipartisan defence-industrial consensus in Canberra—built on secrecy, access, and a revolving door of officials—is increasingly divorced from accountability. It confirms that, even amid growing public scrutiny and formal investigations, the same corporate players can retain their seat at the table and expand their influence—so long as they speak the language of "sovereignty" and "capability."

In the GWEO enterprise, Thales has been handed a vast mandate and a staggering amount of taxpayer money, all while many questions remain unanswered. Until the NACC concludes its investigation—and until the Australian government begins to treat defence procurement with the seriousness it demands—this appointment will remain a symbol not of strategy, but of systemic failure.

The NACC's investigation into the Thales contract continues, with no public updates on its progress as of May 2025. The situation underscores ongoing concerns about accountability and transparency in Australia's defence procurement processes.

After the Champagne: Defence Hawks Cry Poor While Billions Bleed into the Wrong Hands

Even as the dust refuses to settle on the scandal-plagued Thales munitions contract—and while the National Anti-Corruption Commission remains actively investigating—Australia's defence establishment has pivoted to its next chorus of alarm: that the country is falling behind.

In a report released Thursday 29 May 2025, the Australian Strategic Policy Institute (ASPI)—a think tank with deep ties to the defence industry—warns that current spending levels in the 2025–26 federal budget are “insufficient” given the scale of military build-up underway across the Indo-Pacific. The budget, the report claims, “misses a crucial opportunity” to equip Australia’s military and defence industrial base for what it characterises as an increasingly perilous regional environment.

What ASPI doesn’t mention, however, is how billions already allocated are being mismanaged, siphoned, or quietly handed to multinational contractors with troubling track records—Thales being the most prominent recent example.

The suggestion that Australia is falling behind militarily would be more compelling if there were evidence that its existing spending—already among the highest per capita in the region—was being deployed with integrity and strategic clarity. Instead, what we’ve seen is a defence bureaucracy that presides over opaque procurement processes, repeats failed partnerships, and treats accountability as an inconvenience.

Despite committing to a $368 billion nuclear submarine program, over $22 billion for the Guided Weapons and Explosive Ordnance enterprise, and ballooning investment in interoperability with U.S. forces under AUKUS, ASPI insists that the current budget still falls short. Left unexamined is whether more money is the answer—or whether the rot lies in how the money is spent, who benefits, and whose interests are actually being served.

The timing of ASPI’s report is politically useful. Coming just as public scrutiny intensifies over the Defence–Thales relationship, the report diverts attention from procurement dysfunction and reframes the issue as a matter of national urgency. It casts the defence establishment not as financially irresponsible, but as starved. The narrative is simple and perennial: we are under threat, and only more funding—funnelled through the same structures that enabled the Thales debacle—can save us.

But before accepting this as gospel, Australians deserve transparency. What mechanisms exist to ensure future contracts aren’t just rubber-stamped gifts to legacy contractors? What independent oversight will be imposed on the expanding GWEO enterprise, which now includes Thales as a “strategic partner” despite ongoing corruption investigations in multiple jurisdictions? And when will there be a reckoning with the failures exposed by the Auditor-General—failures that, to date, have not resulted in a single public sanction or resignation?

A mature national security posture is not built on fear or flag-waving alone. It demands institutional integrity, sober reflection on past mistakes, and a willingness to build trust through accountability. Until then, the endless push for more defence spending is not a solution. It's a distraction—one that risks perpetuating the very weaknesses it claims to solve.

In a country where defence contractors write their own rules, and where public money flows unimpeded into corporate hands without competitive scrutiny, the real threat may not lie on the horizon, but within our own walls.