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Value for money is not secured at contract signature. Signature establishes scope, risk allocation and mechanisms. Delivery outcomes depend on how those mechanisms are used.
Finance’s August 2025 Australian Government Contract Management Guide promotes a lifecycle approach, including planning, defined roles, documented decisions, risk and supplier management, performance monitoring, and ensuring variations and extensions continue to deliver value for money.
Recent ANAO audits concern different Defence projects and periods. They do not support conclusions about every project, supplier or contract. Read together, they identify recurring control questions worth testing.
The contract-management system must exist before it is needed
In its 22 May 2026 Collins Class Life of Type Extension audit, the ANAO found that scope, complexity, cost and risk were not well understood at award. The integrated project-management plan was not approved until June 2024, after design activity had progressed, and only one of five reviews was on schedule.
Control settings established after delivery pressure emerges describe recovery, not control. Before substantive work begins, a project should be able to demonstrate:
- a named contract owner and authorised representatives;
- an approved baseline and configuration hierarchy;
- a deliverable, acceptance and payment map;
- a defined performance and reporting specification;
- a risk and issue process linked to escalation thresholds;
- a variation and waiver process; and
- an assurance calendar tied to decisions.
These settings must reflect the signed contract, delivery team and available evidence systems.
Performance measures must support decisions
The ANAO’s 8 July 2026 audit of Defence’s management of contracts for the supply of munitions—Part 2 assessed Defence’s management as partly effective and found that Defence had limited assurance that value for money had been achieved to date.
The strongest performance incentives and commercial levers applied to baseline operations and mature products, while domestic manufacturing-uplift activities delivered through work orders had less effective incentives and levers. An agreed total-cost-of-ownership model meeting Defence requirements was not in place as at April 2026.
A performance framework can be active without informing the decisions that matter. Test each measure:
- Does it indicate emerging failure or only record it?
- Is the outcome within the control of the supplier, the Commonwealth or both?
- What evidence demonstrates achievement?
- What decision or contractual consequence follows?
A useful framework combines leading indicators, lagging indicators and outcome measures. Every material measure needs an owner, evidence, threshold and response.
Variations need an aggregate view
The Collins system and detailed-design contract was amended 53 times, increasing from $125 million to $813 million (AUD equivalent, GST exclusive). Individually authorised variations can change the character of an arrangement when viewed together.
Each variation should record:
- the reason for change;
- scope added, removed or deferred;
- impact on technical, cost and schedule baselines;
- affected interfaces and dependencies;
- risk transferred, retired or created;
- price basis and supporting evidence;
- effect on incentives, liability, insurance, data, intellectual property and acceptance;
- cumulative change since signature; and
- whether the revised position continues to represent value for money.
Finance’s Contract Variations guidance cautions against variations that significantly change the underlying contract or scope where other suppliers may have responded differently or value for money may be compromised; a significant scope change may require a new procurement. The page records guidance being updated and should be checked before use.
Projects should define a reset trigger: the point at which cumulative change requires re-approval, re-baselining or a different commercial approach.
Commercial levers must be usable
Payment hold points, acceptance rights, service credits, incentive fees, liquidated damages, securities, audit rights and termination provisions only have value if they can be exercised.
A commercial-levers matrix should identify:
- purpose;
- trigger and evidentiary threshold;
- notice and timing requirements;
- approving authority; and
- action required to preserve the right.
The 2026 Defence Industry Development Strategy says Defence will develop more relational contract frameworks to support agile delivery and risk sharing. This is a direction for future development, not evidence of universal adoption or improved outcomes. Relational contracting still requires baselines, usable data and retained rights to act.
Governance should move evidence to authority
In its 17 December 2025 Major Projects Report, the ANAO noted that key deficiency areas generally reported in Defence procurement performance audits included the need to improve focus on value for money, completeness of advice, records management and probity management. The Major Projects Report is a limited-assurance review, not a performance audit.
Governance should change the trajectory of delivery:
- operational forums resolve delivery and evidence;
- contract forums address obligations, performance and change;
- executive forums decide reserved or strategic matters; and
- assurance tests evidence and tracks remediation.
Papers should identify the decision sought, options, recommendation, evidence, risks and consequences of delay. Minutes should record the decision and rationale. Actions should close only when the required evidence is accepted.
Decision tool: a focused control review
A focused control review can:
- identify the obligations or dependencies most likely to affect capability;
- trace each to an owner, evidence source, forum and decision authority;
- reconcile contractual, technical, cost and schedule baselines;
- review cumulative variations, waivers and deferred decisions;
- test whether performance measures address key failure modes;
- identify commercial levers that cannot yet be exercised; and
- prioritise actions that would most improve delivery confidence.
The aim is to identify where the written contract, approved baseline and actual delivery have begun to diverge.