The Defence Department has confirmed a senior official personally awarded an almost $400,000 contract to an IT company where his son worked, bypassing the usual practice of putting the work out to a competitive tender.

Key points: Defence admits to giving a contract to a company where a senior official's relative worked

Defence admits to giving a contract to a company where a senior official's relative worked The department completed a "limited tender" rather than advertising for a competitive tender

The department completed a "limited tender" rather than advertising for a competitive tender It insists it followed procurement rules in awarding the almost $400,000 contract

Victorian-based consultancy firm Sinapse Pty Ltd was selected in January by a "limited tender" to complete a so-called technical change review for Defence, due to an "absence of competition for technical reasons".

Defence insiders have told the ABC they believe the company was selected for the work because a senior departmental figure had a close relationship with the company, and his son worked there.

In a statement, Defence insisted the "limited tender procurement approach was undertaken in accordance with the Commonwealth procurement rules and Defence procurement policy".

"Defence undertook a market review and found that the capability sought was not available on existing Defence panels that were put in place through open tender procurement processes," a Department spokesperson told the ABC.

"Sinapse was identified as having the necessary technical expertise, independence and organisational change management experience to undertake the activity."

The Department confirmed "a relative" of the senior bureaucrat who signed the $371,800 contract had "undertaken casual, technical work with Sinapse at a junior level", but it was "in an area unrelated to this contract and has not had any involvement in or received any benefit from this arrangement".

"Specialist procurement officials within Defence's commercial division provided procurement advice in support of this process," the department added.

However, a Defence official with close knowledge of the contract said the arrangement appeared to be a clear case of nepotism and in breach of the department's procurement guidelines.

"They're admitting the bureaucrat's son works at a firm that got a no-bid contract over panel providers — that's the very definition of a conflict of interest," the official said, speaking only on the condition of anonymity.

"If he'd declared the conflict of interest prior, he would not have been allowed to be the financial delegate and approve the contract," the official added.

Sinapse describes itself as an "Australian-based management consulting, technology and systems integration company" that helps clients "improve their business effectiveness through the development and implementation of business strategy and the delivery of business and technology projects".

Defence confirms IT problems continue to hamper organisation

Controversy over the Sinapse contract comes just weeks after the ABC revealed computer outages were hampering Defence's protected-level internal network as ageing IT infrastructure is upgraded.

In its annual report released last week, Defence confirmed the problems were continuing to be addressed by the department's chief information officer (CIO).

"Defence is part-way through a major ICT infrastructure transformation program, encompassing the modernisation of desktop, network and data centre services," the report stated.

"While individually these programs have delivered a significant upgrade to Defence's ageing infrastructure and systems, the complexity and scale of this work with multiple programs being undertaken concurrently, has resulted in some recent unplanned service disruptions within the Defence network.

"These disruptions have not undermined the performance of ADF operations.

"A comprehensive action plan under the direction of the CIO is underway to remediate these deficiencies."

Defence's protected internal network supports around 80,000 uniformed and civilian staff across the department and is used for information deemed sensitive enough to damage the national interest.