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A report from the Australian National Audit Office (ANAO) has found the Department of Defence failed in getting value for money in its bulk fuel procurement process in 2015.
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Fuel is Defence's largest single commodity expenditure, equating to an annual spend of $423 million in 2016-17. But one of the latest reports from the ANAO said the department did not negotiate for lower prices for some components during its open tender exercise in 2015.
The scope of the latest audit focused on the 2015 procurement of bulk fuel, petrol, oil and lubricants, and fuel card services, as well as Defence's contract management arrangements and the controls framework for Defence's fuel inventory.
The report said Defence "designed and implemented an effective competitive tender process" but failed to develop a negotiation strategy that would maximise value for money.
"There remains scope to improve the effectiveness of contract management, purchasing and assurance arrangements to demonstrate that value for money is being achieved," the ANAO said.
The ANAO found that the fuel pricing formula applied by defence was "industry standard" but the department "was unable to demonstrate that value for money was maximised as Defence did not seek to negotiate lower prices for some components of the pricing formula before supply contracts were signed".
The report suggests that Defence's contract management would benefit with improved integration of key information systems and reduced manual intervention, including in the calculation of fuel prices.
The national audit office suggested that Defence should conduct an independent evaluation of the 2015 fuel procurement process for any future procurements within the Fuels Services Branch.
The ANAO also took aim at Defence's ability to provide assurance over the management of its fuel supply chain, saying it "is limited by infrastructure and information technology deficiencies and insufficient central data analysis".
While Defence is currently implementing some short-term initiatives to improve central oversight, the ANAO said, "Significant systems-level improvement regarding assurance controls is not scheduled to commence until 2022."
The audit office also found Defence did not appropriately manage a declared potential conflict of interest in relation to a key person on the tender evaluation team. The ANAO report found a contractor who worked on developing statements of work for the bulk fuel tender declared a potential conflict of interest, raising the fact they had once been employed by a major supplier to Defence on other fuel contacts.
Despite it being declared by the contractor, the form was never provided to the probity adviser and therefore no advice on managing the potential conflict was given.
In response to this finding of the report, Defence Secretary Greg Moriarty and Vice Admiral Ray Griggs as acting Chief of the Defence Force said the matter has been referred to Defence's Fraud Control and Investigations Branch.
