A silver proof $1 coin from the Royal Australian Mint was securely hammered under the keel of NUSHIP Brisbane on 3 February amid plaudits for the capability the three future Air Warfare Destroyers (AWDs) will deliver to the RAN, and growing concern about the extent of cost overruns in their construction.
The traditional keel-laying ceremony at Adelaide’s Techport attracted an impressive array of politicians, senior officers and officials (Chief of Navy Ray Griggs wielded the mallet), industry executives, and most of the on-site personnel from AWD Alliance partners ASC, Raytheon Australia and the Defence Materiel Organisation (DMO).
The first four keel blocks are in the process of consolidation. Gearboxes, gas turbines, diesel engines and generators will be installed later this year, with tent-like structures keeping out the weather until the blocks are capped with what will become a lower deck.
Large though they are, the blocks were dwarfed by the looming presence on the hardstand of first of class NUSHIP Hobart, its superstructure covered in scaffolding but with all 31 blocks consolidated and the vessel clearly well on the way to being launched later this year
But while work proceeds apace to deliver the 7,000-tonne AWDs to Navy on the (rebaselined) schedule of Ship One in March 2016, Ship Two in September 2017 and Ship Three in March 2019, questions are being asked about budgets.
Media speculation on rising costs gained currency in December when an Australian National Audit Office (ANAO) report into major defence projects disclosed that 2012-2013 expenditure on the AWD program was $106 million or roughly 17 per cent above the year’s budget of $618 million.
Total expenditure from 2007 to the end of June 2013 was $4.565 billion, leaving $3.304 billion from the budgeted figure of $7.869 billion to cover the remainder of the program, including relevant Defence costs.
Last year’s blowout was attributed to industry participants exceeding both the nominated expenditure for labour, materials and sub-contracts, and some budgets. The budget overruns will be met from project contingency funds and the ANAO noted that as of 30 June 2013, the DMO considered there was “sufficient budget remaining for the project to complete against the agreed scope”.
ANAO concerns
However, reporting on significant events post that date, the ANAO sounded a warning note when it referred to increasing concerns in the AWD Alliance “around cost overruns and associated delays in shipbuilding aspects of the AWD program”.
The same day that the ANAO report was released - and in the wake of what was described as detailed briefings from key stakeholders – Defence Minister Senator David Johnston and Finance Minister Mathias Cormann announced that an independent review of the AWD program would be established, with the terms of reference being finalised in early 2014.
Six weeks later, Johnston said in Adelaide that he was working on the inquiry and an announcement might be made in the near future. However, this seems unlikely to eventuate until the publication, anticipated in late February or March, of a further, in-depth ANAO report focusing exclusively on AWD construction whose contents could influence the scope and direction of the inquiry’s work.
Adverse assessments of project management, budgeting and cost containment capabilities in what is currently Australia’s largest defence project could be expected to have a significant impact on the government’s confidence in the ability of the Australian shipbuilding industry to cost-effectively undertake the massive Future Submarine and Future Frigate programs.
The report could also call into question the effectiveness – in this instance at least – of the alliance approach in which the three core participants in the AWD program provide people, capability and processes to perform the work within a central management structure. The DMO is both the customer on behalf of the RAN and a participant in the Alliance.
Under the alliance contract, the two commercial participants (ASC and Raytheon) are paid a fee based on collective performance and a pain-share/gain-share against a fixed Target Cost Estimate (TCE).
Speaking in Adelaide, Johnston was supportive of the program and apparently ready to take a long-term view, citing the ups and downs in construction of the 10 Anzac frigates.
“I’m not going to support any of those derogatory (media) comments about this program. As you can see I have an almost completed AWD behind me, and I believe the program is going to deliver a fabulous capability for the Navy,” the Minister stated.
“The project overall won’t have an overrun until we have finished the project, if there is one. Things come and go with ships …. there is a whole lot of flexibility in the program, there is a whole lot of contingency. We won’t know the final figure until the last boat is in the water”.
Alliance perspective
Speaking separately, Rod Equid, CEO of the AWD Alliance, told ADM the program had been under cost and schedule pressure for some time, as noted in successive ANAO Major Projects reports.
“We’ve drawn down a considerable amount of our management reserve, but certainly not all of it,” Equid said to ADM. “A number of our budgets have been overrun and when you collect up the amount of remaining management reserve, risk looking forward and overrun to date - when you net that all out it predicts we’re going to overrun the TCE.
“The consequences of that in this contract are that the Commonwealth pays 50 per cent out of their contingency, and the fee paid to Raytheon and ASC gets reduced by 50 per cent of the over-run amount shared between the two industry participants.
“That’s what the pain share is, and the predictions for some time have been that we’re operating in pain share.”
In a thoughtful and highly relevant speech last October, Equid suggested that a traditional Defence contracting model, faced with the challenges of the AWD program, would have led to a project swamped by commercial positioning and related distractions.
But he warned that the more difficult issues in the Alliance model emerge in relation to the accuracy and achievability of the TCE.
“That’s not to say that omissions in the TCE are a direct cause for adjustment, but in concert with consumption of Management Reserve may lead to pressure that ultimately impacts the well-established culture of cooperation”.
Schedule had been a major driver of cost, Equid said on 3 February. Although the target was still to deliver the project within Defence’s budget, he preferred not to comment on how achievable this was.
“We are a group that hasn’t built a surface combatant before coming together as a team and bringing in a design from another country.
“There’s been a lot of disruption to the first ship and a lot of learning potential that may not be fully realised with Ships Two and Three – this is very normal in a shipbuilding program. First ship a lot of problems, very rapid improvement, then less improvement ship to ship but over time you have a learning curve.”
While many of the industry teams had performed well, obtaining the necessary productivity in the shipbuilding sector had proved very difficult, influenced to some extent by the churn in the detailed design that invariably occurred in an environment where the designer was separated from the producer.
Some limited CAD modelling had been useful for planning sequences but it was the two-dimensional PDF design drawings supplied by Spanish ship designer Navantia that were necessary to construct the ships.
These had to take into account Australian standards for construction and for combat system equipment. Equid commended Navantia for the expertise and support provided by the Spanish company at each step of the way to work through these changes and guide the production team.
A more robust comment on what he described as disruptive design revisions came last September from ASC CEO Steve Ludlam.
“We get the drawings, we start building to the drawings …. and then we get the next update to the drawings and there is a lot of change. There is an enormous amount of change in that. It is way beyond anybody’s expectations. It has been very difficult to manage.”
Ship One
Meanwhile the high tempo of work on Ship One in the runup to launch includes installation of the twin propeller shafts, in this case complying with Australian lifting and handling regulations by pulling the shafts in from the stern rather than following the Navantia system of hoisting them into the hull before the block is capped.
Checks are made progressively on bearing and shaft alignments but final alignments will be carried out after launch, when it can be ascertained how much the ship has “set” after floating off.
Preparation for the launch itself include completion of blasting and painting the hull and rigorous checks on the integrity of various openings and hull penetrations, including repair of openings cut recently to allow cooled air to be piped into confined work spaces during Adelaide’s extended spell of 40 degree temperatures.
With productivity reduced once the ship is in the water, the focus is on completing the installation of some 400 kilometres of cabling and loading out as much equipment as possible even if final positioning will take place later.
A number of the largest elements of the ship’s combat system, including the chilled water plant for the Aegis combat management system and the winch for the towed array sonar have already been integrated into blocks, making combat system cabinets and ancillary equipment a load out priority.
Post-launch, a key milestone will be activation of the combat system following integration trials – presumably successful - at Raytheon’s land-based test facilities.
“We’ll run it up in sequence; shore power through main switchboards which means we can use internal wiring and shore power to light up the combat system, and then startup of main engines and diesel generators etc so we can use ship’s power,” Equid said.
Australianisation
In what was mandated to be a largely military-off-the shelf (MOTS) AWD acquisition, the Hobart class combat system stands out for the extent of its Australianisation.
This is driven to some extent by the multi-purpose tasking of RAN ships; thus the deployment on the AWDs of a SPQ-9B (Spook) horizon search radar in addition to the SPY 1D (V) multi-function phased array radar. This is the same configuration employed on US Navy cruisers.
Other modifications include the integration of Australian-specific communications; short-range defence capabilities; and the Kongsberg-developed Australian Tactical Interface (ATI) that links the Australian-specific sonar and electronic warfare (EW) systems to the Aegis combat system.
System selections take in the Raytheon Phalanx 1B 20mm close-in weapons system, Raphael Typhoon 25mm remotely-controlled gun system with associated Toplite director, BAE Systems Nulka active missile decoy system, Ultra Electronics hull-mounted and variable depth sonars, and an Exelis EW suite that is an open architecture version of the system aboard Collins submarines.
ATI shares tracking information with Aegis, meaning threat data becomes part of an integrated tactical picture without any significant change to Aegis software having been necessary.
