The $8.5 billion project to build three advanced warships is facing a cost blowout of at least $300 million
7th Mar 2014
The $8.5 billion project to build three advanced warships is facing a cost blowout of at least $300 million and potentially much more, a new report warns. There has been a range of problems, with substantially lower than expected productivity at Australian shipyards, the Australian National Audit Office says.
The project, launched in 2007, is well behind schedule with the first vessel, to be named HMAS Hobart, set for delivery in March 2016 rather than December 2014.
Last year, the air warfare destroyer alliance - comprising government-owned shipbuilder ASC, the Defence Materiel Organisation and US firm Raytheon - advised that construction would be completed at an estimated $302 million over the target.
ANAO now says that figure is likely to be 'significantly' greater thanks to a continuing decline in construction productivity. By November 2013, it was costing ASC $1.60 to produce work originally estimated to cost $1.
It is a complex project with ships assembled at ASC in Adelaide from hull sections made in Adelaide and at sub-contractor yards at BAE Systems in Melbourne and Forgacs in Newcastle.
Problems at the outset were blamed on lack of recent work. ASC had only ever built submarines. BAE had constructed no ships since the last of the Anzac frigates was launched in 2004. Forgacs had no worked on ships since completing modifications to landing ships Manoora and Kanimbla in 1999. ANAO said that, plus regular changes to design documentation, required costly and time-consuming rectification of problems in hull blocks.
For example, design changes required a number of doorways to be relocated by 150 millimetres so they would open 90 degrees in line with Australian safety regulations.
A supply chain failure meant below-standard pipework was installed in some sections, with 570 sections having to be replaced. ANAO made three recommendations for improvement including monitoring performance on future projects. Defence agreed. It said the report accurately covered current status and challenges faced by the project.
It said it had engaged international marine consultant First Marine International to conduct annual assessments of performance on the AWD project.
Defence Minister David Johnston said the government was aware of emerging problems last year and launched a review, led by Don Winter, a former US Secretary of Navy, and John White, a naval procurement expert, to get this program back on track.
He said the government was committed to managing the highly complex project to ensure it delivered maximum national security benefits for taxpayers and other long term benefits for Australia's shipbuilding industry.
DMO chief executive Warren King said the ANAO report acknowledged it was a complex project initiated after a downturn in the naval shipbuilding industry.
'The report also provides significant background information for the independent AWD Review Team and will assist government considerations for future shipbuilding projects,' he said in a statement.