Defence has referred a $1.2 Billion Thales contract to the National Anti-Corruption Commission (NACC).

The Department of Defence has referred the contract awarded to the French-owned weapons manufacturer Thales following the release of a report by the National Audit Office (ANAO) highlighting potential unethical conduct in the awarding of the contract.

The lucrative 10-year contract, granted to Thales in 2020, involves the management of two Commonwealth-owned munitions facilities at Mulwala, New South Wales, and Benalla, Victoria. 

These facilities are integral to the government's new Guided Weapons and Explosive Ordnance Enterprise.

Defence Secretary Greg Moriarty has confirmed the department's referral to the NACC, which will now assess whether to launch a formal investigation.

The ANAO's report revealed troubling details about the tender process. According to the report, a Defence official provided confidential information to Thales during the tender process and solicited a bottle of champagne from the company in 2017. 

The official later joined Thales after the contract was awarded, despite Thales' bid being assessed as deficient and not representing value for money.

Acting auditor-general Rona Mellor says “probity risks” emerged immediately when the Defence employee provided confidential information to Thales. 

“The email exchange indicated that the initial offer [of champagne] had been conditional on the Mulwala Redevelopment Project being removed from the Projects of Concern list,” the report says. 

In response, a Thales Australia spokesperson has told the ABC that the company was “considering these matters as appropriate”.

The contract's history reveals a series of questionable decisions. 

Defence initially planned a competitive tender process but ultimately bypassed this process and awarded the contract directly to Thales. 

This decision was made despite a private offer from another global munitions company, NIOA, in 2017, and despite the ANAO's recommendation to conduct a proper tender.

Between October 2018 and August 2019, Defence and Thales held 28 workshops to develop the request for tender (RFT) documents. 

Despite Thales' involvement in crafting the criteria, its proposal was found to be significantly deficient, with Defence identifying 199 non-compliances against the RFT. The ANAO described the number of non-compliances as "unprecedented."

Ultimately, the contract was awarded to Thales, raising concerns about Defence's procurement practices. 

The final cost to taxpayers was $1.2 billion, now exceeding $1.3 billion. 

“Defence's management of probity was not effective and there was evidence of unethical conduct,” the ANAO concluded.