Defence has warned the government that the country’s naval shipbuilding plan for submarines, frigates and offshore patrol vessels carries high to extreme risk, the Australian National Audit Office (ANAO) disclosed in a review released on 10 May.
“Key risks relate to the delivery of expected capability, program cost, ability to meet program schedules, and management of the industrial base,” the audit states.
“The Naval Shipbuilding Plan did not address the management of these risks in any detail. However, Defence advised the ANAO that these risks will be managed by the individual shipbuilding programs.”
Defence’s planning and mobilisation activities relating to the four key enablers of the Plan – infrastructure, workforce, the industrial base and a national approach – remain a work in progress, although scheduled construction milestones are currently being met, the ANAO says.
“Over time, Defence has warned the government of the high to extreme risk the shipbuilding program present. Certain risks are now being realised, including the progress of the Offshore Patrol Vessel through second gate approval without detailed sustainment costs and finalised commercial arrangements,” the audit states.
This was contrary to the findings and recommendations of numerous external reviews and audits undertaken in Defence over the past two decades.
“The history of Defence acquisitions in Australia demonstrates that inadequate sustainment cost estimates at project approval have led to cost implications once the platform is in service,” the audit states.
“By the time the Government is provided with reliable sustainment cost estimates for the Offshore Patrol Vessel, the first vessel will be under construction, with no option to consider alternative platforms if the sustainment costs of the vessels are above expectations.”
In March 2018, Defence had advised that not providing reliable sustainment cost estimates to the government was not uncommon in shipbuilding programs: where tender quality prices were not available, reasonable estimates were provided. Approval for proposed sustainment costs would be sought in the final quarter of 2018.
The audit also discloses that an internal Defence review in 2016 warned that accelerating the start of Future Frigate construction by three years to 2020 “presented such extreme risk that cost and schedule over-run was likely, and that to proceed “had the potential for severe reputational damage to Defence and the Government.”
Defence subsequently advised the Minister for Defence Industry that the Future Frigate could commence construction in 2020 with ‘prototyping activities’ that would test the shipyard’s tools and procedures, and train and qualify the shipyard workers.
Although the intended prototyping activities had not been included in the Integrated Investment Program, Defence advised the Minister that the costs would be recovered in the efficiencies gained during the Future Frigate build.
“Defence did not conduct any supporting analysis for this advice,” the audit states.