South Korean defence company Hanwha is manufacturing 129 Redback vehicles for the Australian Army at its facility in Geelong.
The Australian National Audit Office found Defence has not made timely payments to Hanwha, meaning taxpayers will need to fork out $483,929 in penalties.
Defence had paid Hanwha a total of $148,129 in interest penalties as at October 2025, with $335,889 in payments remaining, according to the audit office report released on Monday.
The project also faces a "significant, if not impossible, challenge" to deliver all vehicle deemed "fully capable" by the 2028 deadline.
Defence moved away from its original intent to address a capability gap by pursuing an acquisition that "increased exposure to integration and schedule risk".
"These risks were not clearly communicated to government, nor consistently reflected in tender evaluation and contracting decisions," the report reads.
There were two "very high risks" to vehicle mobility and lethality that were unresolved as at February.
Defence agreed to the two recommendations made by the auditor-general, which include strengthening advice to government and improving the timeliness of payments.
"The acquisition strategy articulated an open approach to market. Military-off-the-shelf options were not the agreed acquisition strategy, nor Defence policy at the time," the response reads.
"The preferred tenderer offered the best capability to meet Defence's requirements and the best value for money."
The Albanese government announced the biggest shake up to Defence in 50 years in 2025, to ensure billions of dollars were being spent well and major projects were delivered on time.
An independent Defence delivery agency will be established, with a director to be appointed in 2026.
But Labor also cancelled an annual audit of Defence major projects, with a previous report finding acquisitions were running a cumulative decades behind schedule.
Greens defence spokesman David Shoebridge questioned if anyone would be held to account for "such monumental incompetence".
"This is a shocking waste of public funds, half a million dollars wasted because of Defence's incompetence and late invoicing," he said.
"Billions of public funds have been poured into defence, with next to no oversight."
Senator Shoebridge is trying to reinstate the major projects report, saying it provided a degree of transparency.
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