🇦🇺Australia

Defence Procurement Cost-Plus Contract Exploitation Risk

2 verified sources

Definition

Historical and contemporary cost-plus contracts enable contractors to manipulate labour/overhead rates on government contracts and shift pension costs between government and non-government work. Without automated cost controls, Defence cannot detect rate inflation or cost-shifting schemes in personnel deployment activities.

Key Findings

  • Financial Impact: Estimated AUD 500M-1B annually based on typical defence contractor profitability patterns; individual contract exposure: 5-15% cost overruns
  • Frequency: Per contract lifecycle, ongoing across active personnel deployment contracts
  • Root Cause: Cost-plus contract structure; manual invoice verification by 600-person Finance function; inadequate real-time cost transparency; contractor incentive misalignment

Why This Matters

The Pitch: Australian Defence wastes AUD 500M+ annually through cost-shifting in personnel deployment contracts. Automated cost validation and rate standardization eliminate contractor gaming.

Affected Stakeholders

Defence Procurement Officers, Contract Managers, Finance Group

Deep Analysis (Premium)

Financial Impact

Financial data and detailed analysis available with full access. Unlock to see exact figures, evidence sources, and actionable insights.

Unlock to reveal

Current Workarounds

Financial data and detailed analysis available with full access. Unlock to see exact figures, evidence sources, and actionable insights.

Unlock to reveal

Get Solutions for This Problem

Full report with actionable solutions

$99$39
  • Solutions for this specific pain
  • Solutions for all 15 industry pains
  • Where to find first clients
  • Pricing & launch costs
Get Solutions Report

Methodology & Sources

Data collected via OSINT from regulatory filings, industry audits, and verified case studies.

Evidence Sources:

Related Business Risks

Lifecycle Cost Accounting Deficiency

AUD 400 million confirmed savings identified; typical LCC gaps of 2-3x capital cost impact on unbudgeted in-service support

NATO vs. Accrual Accounting Reconciliation Gap

AUD 2.5-3.5 billion annual reporting gap; represents 0.7-0.8% GDP misstatement

Audit and Cost Verification Failure Risk

Estimated audit exposure: AUD 100M-500M in unsubstantiated personnel deployment charges; remediation cost per ANAO finding: AUD 2-5M

Revenue Leakage – Military Equipment Destruction Instead of Sale

Opportunity cost: Estimated AUD 10–50 million+ annually based on typical military helicopter unit values (MRH-90 ~AUD 100–200M per airframe; F-111 fuselages ~AUD 5–15M per unit). Defence manages AUD $88.6 billion assets; even 0.5% improvement in disposal efficiency recovery yields AUD 443 million potential recovery.

Decision Errors – Lack of Visibility in Asset Lifecycle & Disposal Planning

Estimated AUD 20–100 million annually in lost strategic options (redeployment, allied support, civilian conversion) plus opportunity cost of irreversible decisions. Typical military asset lifecycle planning can identify 2–5% of retiring equipment for alternative uses, generating AUD 1.8–4.4 billion in value recovery from the AUD $88.6 billion asset base.

Compliance & Audit Risk – Inadequate Asset Disposal Records & Governance

Audit remediation cost: Estimated AUD 2–10 million to implement compliant asset disposal governance, plus reputational risk and potential Commonwealth budget review implications for AUD $88.6 billion asset portfolio.

Request Deep Analysis

🇦🇺 Be first to access this market's intelligence