Background

1. The purpose of the Department of Foreign Affairs and Trade (DFAT) is to make Australia stronger, safer and more prosperous, to provide timely and responsive consular and passport services, and to ensure a secure Australian Government presence overseas. In 115 posts across 86 countries, DFAT is responsible for ensuring a consistent and efficient use of government resources overseas, including managing properties, staff and conditions of service, health and safety, security, information and communications technology, and finance.

2. An overseas Australian Government presence has been identified as fundamental to Australia’s ability to meet strategic challenges, protect Australians overseas and advance Australia’s interests abroad. Reflecting this, managing the Australian Government’s overseas network is one of six key activity areas for the department.

3. The Auditor-General has previously examined the protection of missions and staff overseas in two audits.¹ DFAT received $394.3 million ($338.8 million in 2018–19 and $55.5 million 2020–21) to deliver the Security Enhancement Program (SEP). The SEP objectives were to satisfy the Government’s duty of care to provide a safe and secure environment for staff and visitors to Australia’s overseas missions. The SEP was described by DFAT as the ‘vehicle’ through which DFAT implemented the ANAO’s recommendations.

Rationale for undertaking the audit

4. The audit was undertaken because of the importance of the Australian Government’s overseas network. Implementation of the SEP involved significant procurement and contract management activity.

5. The audit provides independent assurance to the Parliament about whether DFAT obtained value for money in its procurement and contract management activities associated with the Security Enhancement Program, including by conducting procurement processes consistent with the principles and requirements set out in the Commonwealth Procurement Rules (CPRs).

Audit objective and criteria

6. The objective of the audit was to determine whether DFAT effectively conducted procurements for the SEP, achieving value for money and complying with the CPRs.

7. To form a conclusion against this objective, the following high-level criteria were applied:

• Were open and competitive procurement processes employed?
• Did the procurement processes demonstrate the achievement of value for money?
• Were the contracts managed appropriately to achieve the objectives of the procurement?

Conclusion

8. Procurements conducted by the Department of Foreign Affairs and Trade for the Security Enhancement Program (SEP) were partly effective in achieving value for money and partly complied with the Commonwealth Procurement Rules. Shortcomings in procurement and contract management affect the department’s ability to realise the intended program benefits.

9. DFAT largely conducted procurements for the SEP through approaches that involved competition. Of the 14 procurements examined by the ANAO, 64 per cent involved competition, including a number conducted via open tender. The remaining 36 per cent did not involve competition.

10. Procurement processes for the SEP have not consistently demonstrated the achievement of value for money. Two shortcomings were the department not including evaluation criteria in request documentation and procurement records not demonstrating that contracts had been awarded to the candidate assessed against evaluation criteria as representing value for money. DFAT did not conduct procurements to the ethical behaviour standards required under the CPRs.

11. Contract management by the department was partly appropriate. In four of the 14 engagements examined in detail by the ANAO, the department obtained the full scope of the contracted works/services, in the originally agreed timeframe and consistent with the cost estimated at the time the contract was signed. Effective management of contracts contributed to the department realising the expected benefits from the Security Enhancement Program. The management of other contracts where contractual outcomes varied in terms of scope, cost and/or timeframe detracted from the department’s ability to realise the expected benefits from the Program.

Supporting findings

Open and competitive procurement

12. Of the 14 arrangements examined in detail as part of the audit, five (36 per cent) originated through an open procurement approach. The absence of open competition did not place DFAT in a strong position to obtain, and demonstrate, the achievement of value for money. The extent of open competition employed by the department is not consistent with the principle of open competition espoused by the Commonwealth Procurement Rules. (See paragraphs 2.2 to 2.5)

13. Competitive procurement approaches were employed for nine of the 14 engagements (64 per cent). In addition to the five procurements that involved an open approach to the market, there were four procurements where DFAT offered the opportunity to more than one candidate. For five procurements (36 per cent) there was no competition. (See paragraphs 2.6 to 2.10)

Value for money

14. DFAT’s approach to evaluation criteria was not consistently in accordance with the CPRs as it did not include evaluation criteria in request documentation for four of the 14 procurements examined (29 per cent). This related to two procurements where there was no competition, and two procurements where there was limited competition. The department consistently included evaluation criteria in the approach to market where it undertook an open tender process.

15. Where evaluation criteria were advised to candidates, they were applied to evaluate the responses received. (See paragraphs 3.3 to 3.7)

16. For nine of the 14 engagements (64 per cent), the department’s procurement records demonstrated that contracts had been awarded to the candidate assessed against evaluation criteria as representing value for money. (See paragraphs 3.8 to 3.13)

17. DFAT did not demonstrate a consistent practice of maintaining records commensurate with the scale, scope and risk of the procurement. Shortcomings were most common in relation to the request documentation issued by the department to candidates (for example, for 29 per cent of engagements the request documentation did not identify the evaluation criteria that would be applied) and the records of the planning for, and conduct of, evaluation of candidates (there was no evaluation plan and no evaluation report for 86 per cent of engagements). ( See paragraphs 3.14 to 3.24)

18. DFAT did not conduct procurements to the ethical behaviour standards required under the CPRs. Probity plans did not exist for 13 of the 14 engagements (93 per cent) examined in detail by the ANAO. A probity adviser was appointed for five of those engagements (36 per cent). For eight of the 14 engagements (57 per cent), Conflict of Interest declarations were completed by all evaluation panel members and for one of the 14 engagements Conflict of Interest declarations were completed by all persons involved with tender evaluation. This meant that there were insufficient declarations covering evaluation processes for 13 of 14 engagements (93 per cent). There were also instances where persons had declared a Conflict of Interest with departmental records not evidencing any steps having been taken to manage the related risks. Completing and acting on declarations is not solely about recordkeeping; it enables possible threats to independence and potential actual bias to be identified and strategies put in place to manage the resulting risks. (See paragraphs 3.25 to 3.52)

Contract management

19. Of the 14 engagements examined in detail by the ANAO, there were four (29 per cent) where the contractual outcomes were fully effective in delivery having regard to the scope or works/services, cost and timeframe expected at the time the contracts were entered into. (See paragraphs 4.3 to 4.39)

20. DFAT did not meet the AusTender reporting requirements specified in the Commonwealth Procurement Rules in 26 of 62 instances (42 per cent) examined by the ANAO. Deficiencies related to both not meeting the timeframes specified in the Rules, as well as inaccurate/incomplete reporting. (See paragraphs 4.40 to 4.45)

Recommendations

Summary of entity response

21. The proposed audit report was provided to DFAT. The letter of response that was received for inclusion in the audit report is at Appendix 1. DFAT’s summary response is provided below.

The Department of Foreign Affairs and Trade appreciates the ANAO’s independent review of its procurement and contract management practices. The department remains committed to refining these processes, so they ensure value for money, proper handling of probity risks, and successful completion of contracted projects or services. As part of a larger compliance uplift program, the department has already taken steps to address issues, including those identified through this audit.

Background

1. Department of Defence’s (Defence) Land Combat Vehicle System comprises 211 Boxer combat reconnaissance vehicles (Land 400 Phase 2) and 129 Redback infantry fighting vehicles (Land 400 Phase 3). They replace now obsolete vehicles and reflect the 2023 Defence Strategic Review’s call for Army to be transformed for littoral manoeuvre operations from Australia.

Rationale for undertaking the audit

2. With approved project expenditure (at 30 June 2025) of $7.3 billion, the Land 400 Phase 3 project is one of the largest capability acquisition projects in the history of the Army. This audit has been undertaken to provide the Parliament with independent assurance of the effectiveness to date of Defence’s acquisition and contract management of the project.

Audit objective and criteria

3. The objective of the audit was to assess the effectiveness to date of Defence’s procurement of infantry fighting vehicles (Land 400 Phase 3).

4. To form a conclusion against the audit objective, the following high-level criteria were adopted:

• Did Defence conduct an effective tender process?
• Have effective contracting arrangements been established with the contractor to support the achievement of value for money outcomes?

Conclusion

5. Defence’s procurement of infantry fighting vehicles (IFVs) through Land 400 Phase 3 has been partly effective, reflecting trade-offs made between delivery timeframes, future upgrade potential and risk. Defence moved away from its original intent to address an identified capability gap by pursuing a platform with high technical readiness, instead progressing a more developmental acquisition approach that increased exposure to integration and schedule risk. These risks were not clearly communicated to government, nor consistently reflected in tender evaluation and contracting decisions. Defence-mandated integration requirements and moving to design solutions that were not mature and proven in a vehicle of this nature and size have had implications for Defence’s ability to deliver the capability as planned. Consequently, as at February 2026, very high technical risks related to the vehicle’s mobility and lethality capabilities require resolution.

6. Defence’s management of the tender process was partly effective. The process demonstrated broad compliance with procurement requirements and probity controls were adequate at the project level. Defence did not clearly document or communicate to government how its acquisition approach evolved over time, including in response to the developmental nature of the tendered solutions, nor did it provide advice on the presence of vehicle models and components already available on the market.

7. The tender evaluation process was weakened by inconsistent treatment of risk and price adjustments, as well as the absence of clearly articulated weighting or prioritisation of evaluation criteria in the tender documentation. While Defence documented its rationale for certain cost treatments during evaluation, these approaches were not applied consistently or transparently across tenders. Collectively, these factors reduced the transparency and defensibility of the value for money assessment and limited the extent to which the tender process supported fully informed decision-making.

8. Defence established partly effective contracting arrangements with Hanwha Defence Australia (HDA) to support the delivery of intended contract outcomes. However, there are a number of very high risks to core elements of the vehicle, the impact of which on the long-term project schedule, cost and overall capability are unknown at this stage.

9. The contract includes appropriate arrangements for Defence to assess contractor performance and monitor project progress. Notwithstanding this, Defence has waived certain contractual requirements and is managing contract progress through remediation actions, which overstates the extent to which the project is on schedule. Defence has also not made timely payments to HDA, resulting in a total of $483,929.39 in penalty interest payable by Defence to HDA.

Supporting findings

Land 400 Phase 3 tender

10. Defence complied with process requirements for the development and issuing of the request for tender (RFT) documentation, and the initial screening of tenders. However, the RFT did not provide potential tenderers with a clear and consistent basis for responding to Defence’s documented risk posture and acquisition strategy. Defence’s planning documents consistently indicated a preference to avoid bespoke or developmental outcomes. (See paragraphs 2.4 to 2.18, and paragraphs 2.24 to 2.30)

11. While the RFT stated that Defence was pursuing a ‘mature, proven technology’, it did not define this term, specify minimum system maturity thresholds, or include evaluation criteria addressing system readiness, integration risk or design maturity. Instead, the structure of the RFT — including requirements for non-recurring engineering, system integration and future growth activities — was consistent with outcomes involving material design development. Defence did not document how this approach aligned with its earlier acquisition planning or explain the implications for risk, schedule and cost. As a result, all tender submissions involved varying levels of development and integration risk. (See paragraphs 2.19 to 2.23)

12. Defence’s evaluation criteria were not weighted or prioritised in the published tender documents, reducing transparency and limiting the extent to which Defence’s priorities were communicated to potential tenderers. Although Defence placed greater emphasis on price and capability during the evaluation, this was not documented in the RFT — as required by the Commonwealth Procurement Rules (CPRs). This limited tenderers’ ability to effectively tailor their responses and represented a shortcoming in the procurement process. Defence did not assess tenders more favourably for being non-developmental, nor did it adjust its overall risk posture when all tendered platforms were assessed as developmental to varying extents. (See paragraphs 2.40 to 2.63)

13. Inconsistent application of pricing adjustments between tenderers introduced uncertainty into value-for-money assessments, understating HDA’s cost at Stage 3 by $852.6 million. These factors impacted the reliability of the value for money assessment and the cost per unit of capability, which was a key factor in the final recommendation. By not specifying explicit system-maturity requirements, including the extent to which a non-developmental outcome was sought, Defence did not clearly signal its expectations to the market and was subsequently limited in its ability to adjust risk settings when only developmental solutions were received. (See paragraphs 2.64 to 2.91)

14. Defence established a probity framework for Land 400 Phase 3, requiring personnel to declare any potential conflicts of interest arising from association with potential tenderers and adhere to strict confidentiality obligations. In 13 instances, declarations were reviewed by the probity adviser and additional measures taken (such as statutory declarations to reinforce confidentiality obligations). At the project level, all but one of 174 relevant personnel completed a declaration. In signing declarations, personnel acknowledged a continuing obligation to declare any potential conflicts of interest that might arise in the future. (See paragraphs 2.92 to 2.101)

15. SES/Star ranked personnel were additionally required to complete annual declarations of personal and financial interests. Where a potential conflict of interest existed, personnel were required to outline a strategy to manage it and have this endorsed by their supervisor. Across the six-year period examined by the ANAO, just over half (51.2 per cent) of SES/Star ranked officers fully complied with the requirement to complete an annual declaration. (See paragraphs 2.102 to 2.113)

16. The ANAO did not identify any serious breaches of the policy prohibiting hospitality, gifts or benefits. (See paragraphs 2.114 to 2.117)

17. Contrary to successive Defence procurement reviews, Defence did not provide government with advice on potential mature and proven options for Land 400 Phase 3, even though it possessed this information. Submissions to government omitted reference to the earlier acquisition strategy for a military-off-the-shelf (MOTS) solution and did not discuss the existence or potential cost advantages of MOTS options, nor that all tenders received were developmental. Advice to the Minister for Defence Industry (the Minister) similarly did not address these options, with only limited updates noting the developmental status of prototype vehicles. Progress reporting to the Minister was limited. Progress reporting to senior Defence leadership was regular, but quarterly reports and monthly narratives were limited to project milestones. (See paragraphs 2.118 to 2.127)

Contracting arrangements

18. Defence’s governance arrangements with HDA provide a clear path for escalation and direction on the management of risks and issues to the Land 400 Phase 3 project. There are two very high risks related to the core elements of the vehicle, of which Defence was aware during the Risk Mitigation Activity (RMA). These risks are impacting the project schedule and cost. (See paragraphs 3.5 to 3.33)

19. Defence was advised by independent reviewers that (see paragraphs 3.34 to 3.40):

• delivering the capability within the required compressed schedule is extremely challenging, given there is limited time for issue remediation; and
• it will be a significant, if not impossible, challenge to deliver 129 fully capable IFVs by the end of 2028.

20. Defence’s lack of implementation of recommendations from independent reviews to mitigate technical risks has resulted in delays to the schedule that are yet to be defined. The Land 400 Phase 3 project has also recently been included on the Capability Acquisition and Sustainment Group’s Watch List.¹ (See paragraphs 3.41 and 3.42)

21. The contract includes adequate provisions that allow Defence to monitor and assess HDA’s performance and project progress. Defence has waived certain contractual requirements in order to keep the project on schedule, despite independent advice against this approach. This has resulted in a large number of action items that remain open and remediation action, which has caused delays to the completion of several milestones by agreed dates. Defence has instructed HDA to proceed with contract milestones despite issues with the quality and accuracy of contract deliverables and HDA’s advice to Defence of challenges and risks. Defence is managing contract progress through remediation actions, which obscures underlying schedule slippage. (See paragraphs 3.43 to 3.76)

22. The payment terms included in the December 2023 contract with HDA were noncompliant with government policy. In March 2024, Defence updated the contract to align with the government policy payment terms. Between contract execution and 30 June 2025, 19 (of 83) invoices were paid late, resulting in a total of $483,929.39 in interest penalties payable by Defence to HDA. As at 31 October 2025, Defence had paid HDA a total of $148,129.37, leaving $335,889.48 outstanding for penalties on invoices that were not paid in accordance with the government policy. (See paragraphs 3.77 to 3.93)

Recommendations

Summary of entity response

23. The proposed audit report was provided to Defence. Defence’s summary response is provided below. The full response is reproduced at Appendix 1.

Department of Defence

Defence acknowledges the findings contained in the Auditor General’s report.

Following a rigorous tender evaluation process, the Hanwha Redback Infantry Fighting Vehicle was selected. In 2023, following the Defence Strategic Review, the project was accelerated to deliver the vehicles two years ahead of the original schedule. This required a risk-based delivery approach in partnership with Australian industry.

The acquisition strategy articulated an open approach to market. Military-Off-The-Shelf options were not the agreed acquisition strategy, nor Defence policy at the time.

Defence acknowledges the ‘very high’ risks identified in the report and notes that these risk are subject to mitigation action by the project.

The preferred tenderer offered the best capability to meet Defence’s requirements and the best Value for Money.

Background

1. The Royal Australian Navy (Navy) operates a fleet of six Collins class submarines. These submarines are among the Australian Government’s key strategic military assets, providing anti-submarine warfare, anti-surface warfare, intelligence, surveillance and reconnaissance, mine warfare capabilities and support to special operations. The Collins class fleet entered service between 1996 and 2003. Each submarine has a design life (life of type) of 28 years and, without an extension, was scheduled to be withdrawn from service between 2026 and 2036.

2. The Collins Life of Type Extension (LOTE) project was established to avoid a submarine capability gap by extending the service life of the Collins class during Defence’s transition to a larger and more capable submarine fleet. At the time the LOTE was initiated, the program to replace the Collins class submarines — the Future Submarine Program — envisaged a conventionally powered replacement fleet. The program was announced in April 2016 and later designated the Attack class in December 2018. That program has since been superseded by the nuclear-powered submarines to be delivered under the AUKUS agreement.

3. Work to determine the scope of the Collins class LOTE commenced in June 2016, initially focused on extending the service life of three submarines — HMAS Farncomb, HMAS Collins and HMAS Waller. The LOTE project formally commenced in September 2018. In September 2021, the Australian Government announced that the service life of all six Collins class submarines would be extended by a further 12 years.¹ The original planned withdrawal dates and the amended planned withdrawal dates for each submarine are set out in Table S.1.

Table S.1. Original and amended planned withdrawal dates for the Collins class

Note: Defence’s initial LOTE planning was to extend the service life of the three oldest Collins submarines by an extra 12 years (10 years’ operating plus a two-year Full Cycle Docking). This was to avoid a capability gap until the new Attack class submarines entered service in the early-to-mid 2030s. Withdrawal dates are shown as calendar years, consistent with Defence planning documentation.

Source: Defence documentation.

Rationale for undertaking the audit

4. The Collins class submarines are a key strategic asset for Australia. Successful execution of the LOTE project is critical to maintaining Australia’s submarine capability during the transition to a future fleet of nuclear-powered submarines under the AUKUS partnership.² The LOTE project has an approved budget of $1.56 billion (2021–22 to 2031–32) and has been assessed by Defence as a ‘high’ risk project. Given ongoing parliamentary interest in the project, this audit provides independent assurance to Parliament on the effectiveness of Defence’s planning and implementation of the Life of Type Extension, including progress achieved to date.

Audit objective and criteria

5. The audit objective was to examine the effectiveness of Defence’s planning and implementation of the Life of Type Extension for the Collins class submarine fleet.

6. To form a conclusion against the objective the following high-level criteria were adopted.

• Did Defence effectively identify requirements and assess options?
• Has Defence established effective governance, oversight and risk management arrangements?
• Has Defence effectively undertaken the planning and implementation activities required to commence the life of type extension?

7. The audit examined Defence’s planning, governance, risk management and project management arrangements for the Collins class submarines Life of Type Extension, including implementation against agreed project plans and milestones, and the monitoring and reporting of progress. The audit did not examine Collins class submarines operations, the effectiveness of sustainment arrangements, or the management of capability upgrades.

Conclusion

8. Defence’s planning and implementation of the Collins class Life of Type Extension (LOTE) project was partly effective, with the project not managed in a way that was commensurate with its complexity, risk profile and strategic purpose. The project was intended to sustain Collins class capability and availability through the transition to the future submarine fleet. Against that strategic purpose, Defence’s approach to defining the scope, assessing options and advising government did not adequately adapt following the cancellation of the Attack class submarine program. As a result, substantial further expenditure has been incurred, delays have accumulated and capability risks have remained. This means that Defence is not well-placed, as at May 2026, to demonstrate that the project will achieve its intended capability outcomes or represent value for money.

9. Defence’s arrangements to identify requirements and assess options for the Collins class LOTE were partly effective. Defence identified a business need to avoid a capability gap by extending the service life of the Collins class submarines. The LOTE project was originally positioned to mitigate risks with Defence’s transition from the Collins class submarines to the Attack class. Defence did not ensure that emerging risks to the Attack class program, or the fact that alternative submarine capability options were being examined, were disclosed to the personnel making key LOTE scope, procurement and design decisions. Following the cancellation of the Attack class program, the LOTE became critical as the bridging capability to support the transition to the nuclear-powered submarines under the AUKUS trilateral partnership. This heightened the importance of robust option-setting and clear, timely advice to government when key assumptions changed.

10. From 2019, Defence shaped the scope and delivery approach for the LOTE around an explicit decision to align the LOTE with the Attack class submarine program. This alignment involved a major redesign of the Collins class submarines that required the replacement of key equipment and systems. This decision was driven by an expectation of cost and schedule benefits, from having common systems and as a method to mitigate risks in the Attack class program. Alignment of the Collins LOTE with the Attack class program was adopted without robust options analysis or a comprehensive risk assessment. This effectively foreclosed consideration of alternative delivery strategies and constrained advice to government at key decision points. Subsequent reviews found the decision to align the LOTE with the Attack class program transferred significant design, schedule and integration risks to the project.

11. When the Attack class program was cancelled in 2021, the rationale for the alignment strategy no longer held. Defence did not systematically reassess the scope, delivery strategy or available options for the LOTE, nor did it present alternatives or advise government of the risks in a timely way. In May 2026, Defence proposed, and the government agreed, to a revised delivery approach for the LOTE. This revised approach is centred on refurbishing and retaining existing systems and equipment to maintain availability of the Collins class submarines out to 2048.

12. Governance, oversight and risk management arrangements were partly effective. Defence had oversight mechanisms that supported senior visibility of project status and emerging risks. The governance and risk management settings did not provide commensurate assurance that key risks were being managed in line with the project’s complexity and risk profile. Capability development framework requirements supporting disciplined risk-based decision-making were not consistently met, including articulation of the risk tolerance and evaluation of whether controls and mitigation measures were operating effectively.

13. Oversight arrangements provided multiple avenues for risk reporting and senior visibility, supported by independent assurance activity and advisory scrutiny. These arrangements did not provide clear, centralised assurance that risk treatments and controls were effective, and several strategic risks remained above tolerance levels during the period examined. Weaknesses in the mandated risk reporting system also affected the reliability of risk information, requiring project personnel to implement workarounds to support data integrity.

14. Planning and implementation of the LOTE project has not been effective. Defence was slow to establish project and contract management arrangements commensurate with the scale, complexity and risks of the project. Key management artefacts were absent or delayed, and baseline controls were not established when design work was initiated and progressed, reducing Defence’s ability to manage delivery in a disciplined way during critical early phases.

15. Defence has committed substantial funding without demonstrating commensurate progress against contracted milestones. The system and detailed design contract, awarded in February 2022, has been amended 53 times and increased from $125 million to $813 million. By February 2026, Defence had spent $693 million on project definition and design activities, and related equipment procurements to replace key systems and extend the service life of the Collins class submarines. While the project was under its approved budget as at March 2026, this reflects missed milestones and scope reductions rather than delivery efficiencies.

16. Delays have accumulated and Defence has adjusted the delivery strategy and scope of the project to manage emerging risks. As at May 2026, Defence was not on track to install the LOTE updates on the first submarine in June 2026 as originally planned. Ten years after the initial decision to establish the LOTE project, Defence was also not well-placed to demonstrate that the project will achieve its objective to maintain Collins class capability and availability to 2048. In May 2026, Defence proposed, and government agreed to, an alternative service life extension strategy, changing the direction of the project after ten years of planning and design activity.

Supporting findings

Identify requirements and assess options

17. Defence identified that the business need for the Collins class LOTE was to maintain submarine capability and availability through the transition to the future submarine fleet. From 2019, however, Defence shaped the project scope to align the LOTE with the Attack class submarine program, including the adoption of common designs, systems and equipment. This approach established a significant interdependency and materially increased the scope’s complexity by introducing major system replacement and integration activities on an ageing platform before feasibility, whole-of-platform impacts and workforce requirements were well understood.

18. Following the cancellation of the Attack class program, Defence did not adequately reassess the project scope to reflect the changed circumstances. Subsequent scope reviews, revisions and reductions indicate that this interdependency altered the project’s risk profile and reduced the stability and defensibility of the scope approved at key decision points. ( See paragraphs 2.2 to 2.27)

19. Defence’s approach to identifying, assessing and evaluating options for the LOTE was constrained by its decision to align the project with the Attack class submarine program. Once adopted, this approach effectively foreclosed consideration of alternative delivery strategies. Defence did not present government with alternative options to deliver the LOTE, including after the cancellation of the Attack class program in 2021, and this constraint persisted despite the changed circumstances.

20. Although Defence undertook a LOTE project scope review in 2022, the review did not examine alternative delivery approaches or test whether continuing with major system replacement remained justified. Work to identify possible alternative approaches to deliver a life of type extension for the Collins class submarines commenced in June 2024, however Defence continued to progress major system replacement as the preferred approach until October 2025, when risks were unable to be reduced to an acceptable level.

21. In March 2026, Defence proposed an alternative option to deliver a life of type extension for the Collins class submarines. The recommended option was presented to government in May 2026 and involves refurbishing and maintaining existing systems instead of redesigning and replacing them for five of the six Collins class submarines. This is a fundamental shift in the delivery strategy for the project. (See paragraphs 2.28 to 2.43)

22. Prior to the cancellation of the Attack class submarine program, Defence’s advice to government and senior Defence leadership emphasised the anticipated benefits and opportunities associated with aligning the Collins class LOTE with the Attack class submarine program.

23. Following the cancellation of the Attack class program, Defence did not clearly advise government of the implications of continuing the original LOTE delivery approach. Nor was government presented at that time with alternative delivery options or a reassessment of the Life of Type Extension strategy. In contrast, senior Defence leadership was progressively informed of the significance, challenges and risks that had been transferred to the LOTE project. (See paragraphs 2.47 to 2.70)

Governance, oversight and risk management

24. Defence was slow to establish governance arrangements that reflected the project needs and risk profile. Governance forums included overlapping membership of key decision-makers, which provided redundancy and supported visibility of the risks and issues, yet these arrangements were not efficient in practice. Governance bodies largely operated as information sharing forums and decisions were largely made by individual authorised delegates. Delays in reporting, escalating and addressing high and very high risks occurred. Decisions were not recorded in a centrally managed register or captured in Defence’s enterprise task and action tracking tool, limiting transparency and Defence’s ability to monitor the implementation of decisions.

25. In contrast, the oversight arrangements were fit for purpose, with Independent Assurance Reviews conducted and recommendations largely implemented. Capability Manager Gateway Reviews and reporting from the Submarine Advisory Committee provided ongoing scrutiny and visibility to senior leaders of emerging and persistent risks. (See paragraphs 3.3 to 3.30)

26. Risk management arrangements were not mature and did not operate effectively. The project risk management plan was not approved until October 2022 and did not include a project risk appetite or tolerance statement as required. Strategic risks exceeded tolerance levels, and the mandated risk reporting system often lacked documented controls and assessments of control effectiveness. Deficiencies in the risk reporting tool and data governance affected the reliability of risk information and required the development of workarounds, limiting assurance that risk controls and treatments were effective. (See paragraphs 3.31 to 3.52)

Planning and implementation

27. Defence’s project and contract management arrangements were not commensurate with the LOTE project’s complexity and risk profile during critical early phases. Key project and contract management documents were absent or delayed, including the late establishment of baseline schedule controls and delayed approval of the integrated project management plan in June 2024. The system and detailed design contract has been amended 53 times, since it was awarded in February 2022, increasing from $125 million to $813 million. This indicates that scope, complexity, cost and risks were not well understood when the contract was awarded. (See paragraphs 4.2 to 4.24)

28. Defence has not achieved planned milestones and delays have accumulated over the life of the project. Only one of five key design reviews (contract milestones) was achieved on schedule, and Defence has modified milestone approaches and baselines as design issues emerged. The accumulated delays contributed to the decision to reduce the scope planned for installation on HMAS Farncomb, with design work for the full core work package not complete as at early 2026. ( See paragraphs 4.25 to 4.41)

29. A separate performance management framework for the Life of Type Extension (LOTE) project was not established, and no project-specific performance measures were included in either the In-Service Support Contract or the system and detailed design contract. Defence advised that LOTE performance is managed through the projects’ governance arrangements and milestone-linked profit payments, and that overall outcomes would be assessed through the In-Service Support Contract performance management framework. (See paragraphs 4.44 to 4.54)

30. In practice, these arrangements provided limited leverage over performance. Key design milestones were amended or replaced as delays accumulated, reducing the effectiveness of milestone-linked payments as an incentive for delivery. Project reporting did not provide an effective basis for oversight during earlier phases of the project and, in October 2022, was not adequate to support proper governance. Reporting arrangements improved from late 2024 following the transition to acquisition-project reporting requirements, with regular scope, cost, schedule, workforce and risk updates provided to Defence senior leadership and relevant governance committees. (See paragraphs 4.55 to 4.61)

Recommendations

Summary of entity response

31. The proposed audit report was provided to the Department of Defence. Defence’s summary response is provided below. The full response is reproduced at Appendix 1.

Defence acknowledges the findings of the Auditor-General’s report on the planning and implementation of the Collins class Life of Type Extension (LOTE).

The LOTE was undertaken as a deliberate force design risk-mitigation measure to maintain Australia’s undersea warfare capability and avoid a submarine capability gap during the transition to future nuclear-powered submarines. The strategic necessity of sustaining Collins class availability remained constant, while the delivery environment evolved significantly following changes to Australia’s future submarine program. In the event of strategic shifts impacting programs, Defence’s primary focus has been to maintain continuity of capability and avoid a capability gap, which has, in practice constrained the extent to which comprehensive reassessment of underlying assumptions, risks and alternative options could be undertaken. Defence is strengthening its processes to ensure that future strategic shifts trigger more structured and timely reassessment alongside continued delivery.

Defence will continue to engage industry through approaches consistent with Commonwealth and departmental legislative and policy frameworks and guidance.