The federal department tasked with evaluating American firm PsiQuantum’s unsolicited proposal to build a quantum computer in Australia carried out an “appropriate” process despite minor issues with record-keeping and planning for market testing, an internal audit has found.
PsiQuantum proposed the build in November 2022, and its ultimately successful Brisbane plan — backed by around $1 billion in combined funding from the federal and Queensland governments — was announced in April 2024 after Information Age exclusively reported a deal with a US company was in the works.
The agreement courted controversy as the Liberal-National opposition questioned the US firm's deal and members of Australia’s quantum industry voiced their concerns.
Documents released under Freedom of Information laws later confirmed the government had already been in high-level talks with PsiQuantum when it used an Expression of Interest (EOI) process to test “the maturity of the market” with 21 other unnamed quantum firms.
This was again confirmed in the 18-page internal audit by consultancy firm McGrathNicol, released on Friday by the Department of Industry, Science, and Resources (DISR).
The department’s “confidential and limited” EOI approach with the 21 companies “was undertaken in parallel with due diligence activities and commercial negotiations with PsiQuantum”, the audit stated.
“… This approach was selected as it would meet necessary requirements whilst minimising risks of impacting PsiQuantum negotiations."
DISR had also “considered early whether it should conduct a competitive process”, which led it to consult with the 21 firms, the audit found.
A co-departmental taskforce told to carry out the market testing faced “time pressure”, according to the audit, as learnings from the testing were “to be complete in time to form part of further advice to government in October 2023”.
The opposition heavily criticised the eventual PsiQuantum deal, and its former shadow minister for science, Paul Fletcher, called for an investigation by the Australian National Audit Office (ANAO) in August 2024, which did not go ahead.
Fletcher's successor, Senator Claire Chandler, was not available for comment.
A 3D rendering of PsiQuantum’s planned quantum computing site adjacent to Brisbane Airport. Image: PsiQuantum / Supplied
Market testing 'could have been more explicit’
While the McGrathNicol audit found DISR’s overall “approach and processes were appropriate”, its planning for market testing “could have been improved”.
The department was aware of “the risk that a market testing process could be subject to criticism”, found the audit, which concluded that, “DISR’s approach to undertaking market testing met the requirements of government and was appropriate.”
The audit cited the department’s seeking of expert advice on policy, finance, and technical issues, as well as the testing criteria having “focused on matters being considered as part of PsiQuantum’s proposal, including key technical requirements and the timeline”.
However, the market testing was found to have not defined “in any detail” the four ratings the department used to rate quantum companies: “Not Competitive”, “Borderline”, “Competitive”, and “Highly Competitive”.
“This approach risks creating ambiguity about what each rating meant and the implications for being rated as such (particularly the ‘Borderline’ category),” the audit stated.
“Broad definitions” of each rating were confirmed later “in response to a recommendation” from an external probity advisor, the audit said.
The department allegedly told auditors that officials had discussed what the ratings meant, but they were not documented in their EOI Plan.
“This would be expected as part of good practice,” the audit stated.
PsiQuantum is working to build the world’s first utility-scale quantum computer in Brisbane. Image: PsiQuantum / LinkedIn
DISR also had not decided how it would inform the 21 firms about the final outcome before debriefings took place in May 2024, after the PsiQuantum deal had already been announced.
The department “could have been more explicit in its proposed course of action” after assessing the companies and could have kept better records, but had engaged with stakeholders “while also balancing the sensitivity and confidentiality requirements of the project”, the audit found.
DISR had been mindful of supporting then Minister for Science and Industry, Ed Husic, during meetings with PsiQuantum “in a way that did not incorrectly create the perception of Commonwealth support ahead of due diligence and a decision by government”, the audit stated.
“This occurred whilst also requiring PsiQuantum to provide substantial commercial and additional information to support DISR’s consideration,” it said.
Ed Husic and his successor — the current Minister for Industry, Innovation, and Science, Tim Ayres — were both contacted for comment.
Risks were made clear to government, audit finds
DISR had “engaged appropriate technical, legal and commercial assistance” to inform the government of the benefits and risks of the PsiQuantum proposal, the audit found.
These risks included the department finding that although PsiQuantum's proposal was “innovative and offering significant potential economic and financial benefits, [it] also involved high financial risk”.
While the department’s statements to Husic and the Labor Cabinet in the early stages of PsiQuantum’s proposal were “appropriately cautious and focused on the uncertainty”, the audit found “as the project progressed, there was increasing focus on the benefits of the proposal, while also acknowledging ongoing risks and uncertainties”.
A key lesson observed by the audit was the importance of record keeping, as it identified that “high-risk, high-profile initiatives can be expected to bring with them external scrutiny”.
DISR engaged McGrathNicol to complete the audit in October 2024, and while its report was initially expected to be handed to the government as early as April 2025, it was not finalised until early August, Information Age understands.
