Mike Pezzullo dismisses Home Affairs' 'endemic underperformance' over $2.6b contract

The troubled $2.6 billion surveillance contract, which sees an ageing fleet of fixed-wing aircrafts patrol Australia's coastlines and maritime territory for people smugglers and illegal fishing activities, was described by Labor committee chair Julian Hill as "flying old Corollas with a new paint job".

Mr Pezzullo admitted the contract, which will have run uncompetitively for 21 years when it expires at the end of 2027, was "not best practice" but a bureaucratic loop had left his hands tied.

The Auditor-General's report released in October 2021 found the department had been poorly managing the underdelivering contract for more than a decade.

It had also continued to pay the full monthly rate of the contract despite the supplier not providing enough aircrew to fulfil the requirements, and at least $17 million had been spent without supporting invoices.

Mr Hill and deputy chair Linda Reynolds questioned why the department secretary hadn't stepped in to resolve the issues during the parliamentary joint committee hearing on Friday.

Around 49 per cent of the total value of the department contracts came from amendments during the 2021-22 financial year, audit office data showed.

The surveillance contract, first signed in 2008, was increased nearly 30 per cent to $1.54 billion from $1.19 billion, according to the audit report in 2021.

But the contract has since been extended to the end of December 2027 and will now cost a total of $2.64 billion.

Mr Pezzullo defended his role in the debacle, pointing out the troubles couldn't be resolved without the federal government switching to back a long-term capital investment program into maritime surveillance.

The Home Affairs secretary said his department should be afforded the same funding model that applies to the Department of Defence, which provides long-term projects with funding certainty.

"The funding model [for Home Affairs] is fundamentally deficient," Mr Pezzullo said.

"I either go to government and say, 'I actually am going to terminate this contract because I'm concerned about value for money' and all the other things that you quite rightly are focused on, to which the government then says, 'OK, but we don't have a detention capability' or 'we don't have a coastal vessel fleet capability. We don't have a maritime surveillance capability. That is not acceptable, Mr Pezzullo, get your act together.

"Well, then I'm only left with one tool, which is contract variations and extensions. It's a devil's choice."

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Mr Pezzullo said the limitation meant his department was unable to improve services and achieve value for money with the same flexibility as Defence, adding the concerning figures were unlikely to be improved with policy changes.

"Just like if you've got a fleet of 10 [Toyota] Corollas, but you decide that the proper capability is 15 BMWs, you can't do like for like without a recapitalisation," he said.

Mr Hill suggested it sounded like taxpayers were forking out for "flying old Corollas" with new paint jobs.

Australian Border Force commissioner Michael Outram responded the aircraft, as part of contract amendments, had been fitted out with more modern technology to do the required job.

"What I would say to you, chair, is it's not just a paint job," he said.

"We've got ... radars, electro-optic infrared turrets, mission management systems, radios, direction finders, automatic identification systems ... so it is more than a paint job."

Surveillance Australia's contract required the company to provide 10 fixed-wing aircrafts, a crew of nearly 30 and 15,000 flying hours each year in order to monitor maritime borders in the country's northern reaches.

However, the audit report revealed aircrew requirements had never once been met over the 12 years of the contract with the average shortfall of staff reaching 33 per cent, the report revealed.

The probe also revealed the department's record keeping of contract changes, invoices issued and payment processes had often not been up to standard.

A total of $17 million in expenditure could not be supported by any invoices.

ANAO's analysis also showed 43 per cent of invoices, totalling $452 million, lacked any evidence of having delegate approval ahead of payment.

Despite ongoing failings, the contract had been adjusted 40 times and extended beyond its initial 2019 deadline for an additional two years.

Mr Pezzullo on Friday confirmed he had extended the contract until the end of 2027, meaning it will have been in operation for 21 years.