A recent report by the Australian National Audit Office (ANAO) has uncovered significant shortcomings in the Department of Defence's management of over $3.5 billion in contracts related to the Royal Australian Navy's Canberra-class amphibious assault ships, HMAS Canberra and HMAS Adelaide. The audit highlights failures in addressing bribery allegations and managing conflicts of interest, raising concerns about the department's procurement and oversight processes.
Bribery Allegations Overlooked
In September 2022, two anonymous whistle-blowers accused Naval Ship Management (NSM), the maintenance contractor for the ships, of engaging in bribery and kickbacks involving potential subcontractors. These allegations pertained to maintenance activities preceding the deployment of one of the ships for humanitarian aid to Tonga in January 2022. The whistle-blowers also reported substandard work and premature invoicing for incomplete tasks.
Despite the seriousness of these claims, the ANAO found that Defence did not initiate a formal investigation, citing insufficient information. A meeting between Defence officials and NSM in October 2022 revealed that a similar complaint in 2021 had led to an internal investigation by NSM, which confirmed poor procurement practices and favouritism but did not address the bribery allegations. Defence accepted NSM's internal report as satisfactory and did not pursue further action or reassess contract risks.
Conflict of Interest in Procurement
The audit also identified a conflict of interest during the 2018 procurement process for a $700 million maintenance contract. A senior Defence official involved in the tender process disclosed on September 24, 2018, that they were in active negotiations for employment with NSM, a company bidding for the contract. Despite this disclosure, Defence did not consider it a conflict of interest at the time. The official was removed from the process two days later but was subsequently listed as key personnel for NSM in the tender submission and began negotiating with Defence on behalf of NSM by November 2018. Defence did not take action upon learning of the official's new role, and NSM did not seek the required written approval for the official's involvement, contravening contracting rules.
Operational Failures and Reputational Impact
The audit revealed that both HMAS Canberra and HMAS Adelaide were delivered with over 1,000 defects, including issues with communication, radar, combat management, and sewerage systems. Although a remediation program was established in 2017, and the ships were accepted into full service in 2019, they continued to experience significant problems. Power failures and urgent defects hindered their deployment for humanitarian missions to Tonga in 2022 and Vanuatu in 2023. Senior Navy officials expressed concerns that these "catastrophic failures" damaged the Navy's reputation and raised doubts about its capability to operate nuclear submarines.
Defence and Contractor Responses
In response to the audit, Defence acknowledged the findings and agreed to implement all nine of the ANAO's recommendations aimed at improving planning, documentation, and contract management. A Defence spokesperson stated that the department takes all allegations of fraud and unethical conduct seriously and maintains a zero-tolerance policy. They emphasized the complexity of shipbuilding and sustainment activities and the importance of managing conflicts of interest to uphold ethical procurement standards.
Babcock, which fully acquired NSM in 2022, acknowledged the audit's findings and affirmed its commitment to transparency and compliance through its global procurement framework. BAE Systems, the original builder of the ships, stated that it had fulfilled its contractual obligations and resolved all concerns raised by the Commonwealth by 2021.
Conclusion
The ANAO's report underscores the need for stringent oversight and ethical practices in Defence procurement processes. The identified failures not only compromised operational readiness during critical humanitarian missions but also highlighted systemic issues in managing conflicts of interest and responding to serious allegations. As Defence moves to implement the recommended reforms, restoring confidence in its procurement and oversight mechanisms remains paramount.
Implications for AUKUS and the Future of Defence Oversight
The revelations detailed in the ANAO audit do more than highlight failures in oversight—they cast a long shadow over Australia’s broader defence ambitions, particularly those bound up in the high-stakes, high-cost AUKUS partnership with the United States and the United Kingdom. If the Department of Defence struggled to manage $3.5 billion in contracts for two surface vessels over a decade, the question naturally follows: how can it credibly oversee the $368 billion AUKUS submarine enterprise—arguably the most complex, secretive and politically sensitive defence procurement in Australian history?
The AUKUS plan, especially its first pillar—the acquisition of nuclear-powered submarines—is not just technically demanding. It requires airtight governance, world-class contract management, and absolute public confidence in Defence's ability to deliver. The audit, by exposing systemic failings in accountability and risk management, suggests these foundational conditions are not yet in place.
For instance, the lack of adequate responses to bribery allegations and failures to enforce conflict-of-interest protocols raise concerns about Defence’s ability to supervise major contractors—some of whom, like BAE Systems, are already deeply embedded in the AUKUS program. The audit’s findings echo long-standing warnings from anti-corruption experts and former defence insiders: without a robust, independent integrity regime, AUKUS risks becoming not only a strategic gamble but also a vast financial sinkhole vulnerable to cost overruns, poor performance, and opaque decision-making.
To proceed with AUKUS responsibly, Defence must urgently enact deep structural reforms. These should include:
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Establishing an independent Defence procurement watchdog with investigative and audit powers beyond internal departments;
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Mandating real-time public reporting of major AUKUS-related expenditure, milestones, and setbacks;
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Introducing statutory protections and clear reporting channels for whistle-blowers in defence contracting;
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Strengthening the enforcement of conflict-of-interest rules, including automatic cooling-off periods for officials moving into defence industry roles;
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Embedding external, cross-agency oversight over nuclear capability planning, given its profound implications for sovereignty, safety, and non-proliferation obligations.
The stakes are immense. With AUKUS poised to reshape Australia’s defence posture for generations, trust and transparency are not optional—they are strategic imperatives. The ANAO audit should not be viewed merely as an indictment of past failures, but as a clarion call to reform the systems before they are scaled up beyond repair. If the AUKUS pact is to serve the national interest rather than corporate or foreign priorities, Australia must prove it can manage its defence institutions with the integrity, rigour and public accountability such a project demands.
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