​The Ministry of Defence is copping the blame and defending the previous Government for a $148 million budget blowout on the upgrade of two Anzac frigates.

Secretary of Defence Helene Quilter today told the foreign affairs, defence and trade select committee that the fault lay with the ministry, stepping into the war of words between Defence Minister Ron Mark and former minister Gerry Brownlee.

"It is the Ministry of Defence who got the cost estimates wrong in the early stages. It is the ministry that has accountability for the set of project failures," she told the committee in response to Labour MP Willie Jackson's attempt to blame the previous Government.

Quilter said the blowout from $491m to $639m was a "huge amount of public money" and the ministry had dropped the ball.


She regretted the ministry's failure to have early, robust cost estimates, and said the ministry had changed its processes and beefed up relevant staff numbers from eight to 27, as well as brought in new leadership with commercial experience.

Mark said yesterday during question time that the previous Government was aware of the issue in September last year, and saw a contract offer in June this year.

"And, to my absolute disbelief, they did nothing — nothing, nothing. Because the previous Government did not act on the fixed, firm price, the contract offer had to be renegotiated."

But Quilter said that the offer in June still contained uncertainty and risks that were not addressed until October.

"That's just the way these things fall. You have to do the work to understand the work you're going to commit to."

Brownlee said Mark was grandstanding and said the new Government's quick approval of the contract with Lockheed Martin Canada was "extraordinary" without trying to shop around first.

But under questioning from Brownlee, Quilter said options other than Lockheed Martin were considered, but an independent assessor said Lockheed was the best value and was experienced in the necessary work.

The frigate installations will now be paid for from money in the navy's Littoral Operations Support Capability (LOSC) project, meaning a commercial diving vessel will be procured instead of a more advanced, military vessel.


Quilter said the cost estimate in April 2014 was $446m but this ballooned to $491m in October 2015 because of fluctuations in foreign exchange.

Meanwhile, Defence Force chief Lieutenant General Tim Keating told the committee that discussions were under way for a deal with Singapore to use the airspace above the Ohakea Air Force base for military exercises.

He said there was central and local government support, "but really the ball's in the Singaporean's court".

He updated the committee on operations in the Middle East, saying that the Defence Force had now trained 28,000 Iraqis in security skills and the laws of armed conflict.

He said he was often asked what "100 little New Zealanders" could do in Iraq. "New Zealand should be proud of its Defence Force and its efforts there."

He further added that he was proud of the youth work that the Defence Force did with the 10,000 youths that had been through the Limited Service Volunteer programmes, and the service academies that take students struggling with NCEA.

He acknowledged the death of Sergeant Wayne Taylor in October, who was killed in a training exercise in the Hauraki Gulf and is the subject of a court inquiry, which will be made public.

"Another great young New Zealander working for his country has passed."