The Defence department doesn't want to fork out for compensation to aggrieved contractors using its own money, saying the government should share the burden.
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Defence fears that plans to make it easier for businesses to complain about departments breaking Commonwealth procurement rules could sap money from its budget, which it says should be spent on the department's projects.
It reported by far the largest yearly spend on contracts in 2015-16, dialling up a bill of $30.5 billion or 54 per cent of the total value of the government contractor spending, far ahead of the second-placed National Blood Authority on $9.3 billion.
Defence told a Senate inquiry into the legislation that paying claims for covered procurement cases on its own could harm the department's "capability", and suggested whole-of-government funding for payment instead.
But the inquiry's report released this month recommended the Senate pass the laws, and urged the Finance Department to consult with the broader public service about fears for how complaints will affect departments.
Finance believes the number of compensation cases would be low.
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The government would have to fund compensation for businesses, but Defence says departments will have to pay from their budgets, an idea it rejects in light of high costs for suppliers preparing tenders for its projects.
"Defence notes that courts will determine the amount of compensation payable based on the reasonable expenditure incurred by a supplier in preparing a tender, in making the complaint and in connection with a reasonable attempt to resolve such a complaint," the department told senators.
"Given the scale and complexity of Defence procurements, these costs could be substantial."
The report by the Senate committee, chaired by Liberal senator James Paterson, tried to calm business advocates and unions fearing that plans to give the Federal Circuit Court powers to judge claims would bar small and medium enterprises from compensation due to costs of legal action.
"The mechanism is cost effective compared to existing avenues for redress, and therefore to the benefit of SMEs in respect of accessibility, cost and timeliness," the inquiry found.
About 20 per cent of Defence's contractor spending went to small to medium businesses in 2015-16.
The government will introduce the legislation in the Senate later this year.
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