Auditor-General finds NZDF broke its own conflict of interest rules in lifejacket contract

Friday 19th February 2016

The Auditor-General has found the New Zealand Defence Force broke its own rules in handing out a $114,000 interim contract for lifejacket servicing to a serving member of the air force.

NZDF did not follow its own procedures when it engaged Miltech, a company owned and run by an acting air force flight sergeant, to take over the contract servicing SOS Marine life jackets for the navy, Auditor-General Lyn Provost said in a letter to Defence Minister Gerry Brownlee.

The defence force's rules around personnel having to formally declare secondary employment were not followed for three years despite air force command being aware of the flight sergeant's involvement as a shareholder and director of Miltech. However Provost concluded the NZDF had not acted illegally.

The contract lasted from February 2014 to September that year, and was initially estimated at $85,000, below the defence force's $100,000 threshold requiring a formal tender process. The navy ran an "inappropriate and inadequate" procurement process which breached NZDF's own rules in allowing Miltech the contract, the auditor general said.

The flight sergeant was also one of 32 people spoken to by consultants contracted by the defence force to conduct an independent study in November 2013, which recommended outsourcing navy life jacket servicing to a single provider, and noted Miltech as a potential contractor.

The flight sergeant relinquished his interest in Miltech after concerns about the defence force's relationship with the company were raised in Parliament in June 2014.

The auditor general criticised the defence force's handling of the issue, saying it "did not meet the standards expected in the public sector," and the behaviour of those involved raised ethical and probity concerns about fairness and transparency.

"A poorly managed process from a relatively small value procurement has resulted in several investigations and reviews," Provost said. This could have been avoided if NZDF followed its own rules, she said.

An internal investigation by the defence force's director of risk and assurance found that, despite naval supply depot personnel telling the director that Miltech "met all the criteria" for the work, the company was not on the list of approved vendors, was not on a preferred supplier list, and was not approved or certified by SOS Marine to service their life jackets.

Defence force chief Tim Keating said he was disappointed with the organisation's handling of the issue, with the contract a clear conflict of interest. NZDF had introduced a training programme for staff to help them recognise and avoid conflicts of interest, and has rewritten its rules to make its expectations clearer, he said.

NZDF force received $264 million over four years in new operating funding in 2015's budget.

BusinessDesk.co.nz

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