The half-billion-dollar Australian government contract to run refugee services on Manus Island has become embroiled in a dispute among local landowners in Papua New Guinea, after a new – and supposedly exclusive – legal agreement was struck last month with a rival to the current controversial contractor, Paladin Holdings.

Key local Lorengau landowners, whose co-operation is important to the smooth operation of the Manus facilities, have abandoned support for Paladin, the company Australia’s Home Affairs Department appointed without a tender process two years ago, just as its contract comes up for renewal. But others in the group are pushing to retain links with the Singapore-based Paladin.

On Sunday, Home Affairs Minister Peter Dutton suggested Paladin’s contract will likely be extended when it expires on June 30. But The Saturday Paper has confirmed the landowners’ company, Peren Investment Ltd, struck a formal agreement in May with an alternative company, the PNG-based Controlled Outcomes.

Controlled Outcomes is expected to be a bidder if an open tender is called for the ongoing garrison services contract.

The agreement is for the two companies to operate as a joint venture in providing security, welfare and other garrison services on Manus Island and is understood to prevent Peren from working with any other company in that endeavour. It is also understood to supersede any such agreements it has with other parties.

The Australian Financial Review reported on Wednesday that new shares were issued to Peren Investment in a company named Pomwan Paladin Security, which is 70 per cent controlled by Paladin and 30 per cent by Rodney Pokapin, a director of Peren.

The newspaper said the share issue had been doubled last month and the ownership of the shares split 40 per cent to Paladin and 60 per cent to Peren, effectively creating a joint venture between the two. That appears to leave the landowners’ main incorporated body in potentially conflicting relationships with both Paladin and Controlled Outcomes.

In response to questions, Controlled Outcomes director Ty Clark said confidentiality obligations precluded him from identifying any joint venture partners. “We will say that we hold strong formal joint venture agreements with significant local landowner groups,” said Clark. “Controlled Outcomes, as a PNG company, are proud of the fact that PNG landowner joint ventures are the product of trusted longstanding relationships based on sustainability, innovation and ensuring benefits remain within local communities and PNG.”

Peren Investment did not respond to an emailed request for comment.

Home Affairs deputy secretary Cheryl-anne Moy told a senate estimates committee hearing that some international companies had backed away, saying “there was too much noise for their organisations … around regional processing”.

The massive contract for supplying what is known as garrison services for the refugee and asylum-seeker facilities on Manus Island has become particularly controversial since Paladin took over the contract in 2017.

Paladin was appointed in a rush after the former contractors pulled out and the PNG government was unable to fulfil a commitment to take over.

To date, the contract has been worth $423 million over 21 months.

Initially, Home Affairs reached an in-principle agreement with Paladin’s PNG-based subsidiary, Paladin Solutions PNG Limited, and provided $5.5 million in funds – rising to $89 million – to cover urgent services, based on issuing four letters of intent before a contract was formally signed.

During negotiations towards the final agreement, Paladin requested the Australian government sign the contract with its parent company, Paladin Holdings Pte Ltd, instead. The company, through its subsidiaries, has been embroiled in several controversies since its appointment.

One director of the PNG subsidiary, former military officer Kisokau Powaseu, was arrested in January on 106 fraud and money-laundering charges related to the PNG Defence Force Commercial Support Program trust account.

The Australian Financial Review revealed in February that the Australian subsidiary, Paladin Group Pty Ltd, was registered to a beach shack on South Australia’s Kangaroo Island.

The newspaper also reported Paladin Holdings’ managing director, Craig Thrupp, was removed from his duties in relation to the contract after the company failed to comply with a direction from Home Affairs.

After its 2017 appointment, Paladin signed a memorandum of understanding with Peren Investment, which Home Affairs officials have described as “a subcontract”.

But now its new arrangement with Controlled Outcomes – run by directors Ty Clark, who is a former Australian Federal Police agent, and PNG national Chris Carroll – appears to cut across that.

The situation further complicates the controversial arrangements Australia has in place to operate its refugee facilities. The PNG government this week called for an open tender for the contract beyond June 30 and for local companies to be more involved. The arrangement also offers a glimpse into the complicated relationships that underpin business arrangements in PNG.

Peren Investment is linked to the powerful local member of parliament for Manus, Job Pomat, who is also the parliamentary speaker and has been a vital ally of former prime minister Peter O’Neill.

The shift within the company from supporting Paladin to forging new ties with Controlled Outcomes – which is incorporated in PNG but describes itself as “a leading Australian regional provider of strategic security risk, emergency management and technology based solutions” – came 10 days before O’Neill resigned as prime minister and was replaced by former finance minister James Marape, also an O’Neill ally.

It was Marape’s resignation as finance minister that sparked the events that led to O’Neill being forced out.

Job Pomat’s influence was seen as crucial to the former prime minister’s political fate. Pomat’s three brothers are 60 per cent owners of Peren Investment.

Controlled Outcomes’ agreement with Peren Investment follows another it signed in November last year with the other key local group, Pehi-koko, which controls land covering the Manus Lombrum naval base and surrounds.

Australia and the United States have agreed to jointly upgrade the dilapidated naval base, a move seen as an attempt to head off approaches from China.

Foreign Minister Marise Payne visited PNG this week and had talks with Prime Minister Marape on Thursday. Her office declined to say what was discussed.

The Saturday Paper has been told the joint-venture agreement between Pehi-koko and Controlled Outcomes also has the support of the Manus Island provincial governor and regional MP Charlie Benjamin.

This week, Benjamin called for Australia to end Paladin’s contract, telling The Australian newspaper: “It doesn’t look good. There is a lot of suspicion.”

In February, Job Pomat praised the Singapore-based Paladin for its engagement with local landowners.

“I don’t know the deals that were done there, or how Paladin got the deal with the Australian government. I’m not privy to it,” Pomat told The Australian. “But when they came here, and got involved with the local landowner company – is that a bad thing? No. That’s the Papua New Guinea way. It’s happening in Papua New Guinea so let it be the Papua New Guinea way. If it’s happening in Australia, then let it be the Australian way. But on our soil, on our land, it must be done our way.”

The Saturday Paper understands that revelations in The Australian Financial Review in February this year about the total value of the Paladin contract, equal to about $20 million a month, prompted questions from locals on Manus Island who could not see where all that money was being spent.

Controlled Outcomes is itself a joint venture involving two other companies – C5, owned by Ty Clark, and Tactical Solutions International, owned by Chris Carroll.

It has retained as its lobbyist Greg Rudd, the older brother of former prime minister Kevin Rudd.

The Department of Home Affairs declined to clarify what Minister Dutton had said about the future contract.

A spokesperson said the department had a performance management framework to ensure Paladin was accountable and delivered services “as per the contractual requirements”.

“The Australian government is committed to ongoing co-operation with the PNG Government to ensure that services are in place to support the health and safety of refugees and non-refugees,” the spokesperson said in response to written questions.

“The department will not provide ongoing commentary on future contract negotiations.”

An audit it has commissioned through EY (formerly Ernst & Young) is still under way.

Home Affairs officials told senate estimates hearings that departmental secretary Michael Pezzullo authorised the Paladin contract and that Minister Dutton was not directly involved. The contract did not go to cabinet or its national security committee.

Paladin was appointed after the previous contractor, Broadspectrum, formerly known as Transfield, no longer wanted to be associated with running the contentious detention facilities.

The PNG government had been earmarked to take over but then also pulled out, saying its pre-election caretaker provisions precluded it from taking on the responsibility.

Home Affairs deputy secretary Cheryl-anne Moy told a senate estimates committee hearing in February this year that some big previously interested international companies had also backed away, saying “there was too much noise for their organisations … around regional processing” of refugees and asylum seekers.

Moy said that although there were five potential contenders, the department “only went to Paladin”, which had done work for other contracted companies. It was appointed under a special provision of the Commonwealth Procurement Rules that bypassed normal tender processes.

Secretary Pezzullo told the estimates committee his “very strong preference would have been to have a long lead time, an open tender, [and] a global search assisted by specialised consultants and advisers”. But he said urgency dictated it be truncated.

During the February estimates hearing, Pezzullo asked his own senior official, first assistant secretary David Nockels, whether any media reports about Paladin caused him concern.

Nockels replied: “None whatsoever.”

Under questioning from Labor and Greens senators, Nockels said the department’s commercial adviser, KPMG, had examined Paladin “over the last 12 months or so prior to us looking to engage them under contract and didn’t identify any significant issues that were drawn to our notice that we would question”.

It had, however, identified some risks, including whether Paladin had “sufficient funds” to start and deliver the project and the fact that it had never had a contract that large.

The AFR said this week the confidential KPMG report had questioned Paladin’s ability to pay ongoing expenses, noted its financial statements were unaudited and said the little-known company had experienced losses and fluctuating revenue.

On ABC TV’s Insiders program on Sunday, Peter Dutton said that in deciding how to proceed beyond June 30, his department would “look at the history of the people who are applying, the suitability for them to provide services”.

“The department will work with the PNG authorities,” he said. “We’ve got to make sure we’re getting value for money.”

Dutton said the “likely arrangement is that there will be a continuation” of Paladin’s contract.

“I’m not going to comment when the department is in the process of contract discussions, negotiations et cetera.”

The Australian National Audit Office (ANAO) is investigating the procurement process and the question of value for money.

A previous audit published in January 2017 into the management of the contracts prompted the parliamentary joint committee of public accounts and audit to recommend that a more extensive version be conducted.

That ANAO report is due to be published next January.