Watchdog critical of Navy deal

The Defence Ministry has been criticised for the way it eliminated one of the world's biggest ship-building companies from a $500 million Navy contract.

Ombudsman Mel Smith has upheld a complaint about how the ministry knocked back Hyundai Heavy Industries' initial bid for the ship-building contract.

Hyundai was one of 21 companies that responded to the ministry's invitation to register for the Project Protector ship-building contract.

It was among the 15 eliminated at the first stage. Six were short-listed and the contract to build six patrol craft and a new multi-role ship was awarded to Australian shipbuilder Tenix.

Hyundai was eliminated because part of its bid was deficient. That was on the question of through-life support.

In a report made public yesterday, the Ombudsman said the ministry's failure to seek further information from Hyundai on its financial position and its ability to provide through-life support for its ships was unreasonable. Mr Smith said that, given the ministry's duty to seek best value for its funding, it should have sought relevant information from Hyundai before completing its evaluation process.

Hyundai's former agent in New Zealand, Bill Rathbun, who laid the complaint, said the Ombudsman's report demonstrated that the selection process was not done fairly and in good faith. "The Ombudsman's report's findings lead me to question whether the Government has obtained the best price in the contract it has now entered."

Hyundai repeatedly stated it would not be beaten on price.

"This issue should echo in the mind of every taxpayer in the country," Mr Rathbun said.

Defence Minister Mark Burton said in a statement that the report would in no way affect Project Protector.

The ministry had followed the Auditor-General's guidelines for tendering and "it is appropriate the ministry has now sought advice from the Auditor-General and the Solicitor-General on this matter".

Defence Secretary Graham Fortune said he had accepted the Ombudsman's findings and had referred them to the Auditor-General.

However, he challenged the claim that Hyundai would not be beaten on price - "How could they say that? It was a closed tender.

"What is in dispute is whether we should have gone back to Hyundai and said 'your bid is deficient - come back and do better'.

"Our lawyers tell us if we did that, we would have been breaking the law. We didn't break the law, we didn't go back to them.

"The Ombudsman said we should have, and since that puts us in conflict with the Controller and Auditor-General's recommendations, we are going back to the Auditor-General and saying 'you tell us what we should do'."

National Party state services spokesman Murray McCully yesterday called for a select committee inquiry into the procurement process for awarding the project.

- NZPA, STAFF REPORTER