Audit: Australian multi-billion shipbuilding plan carries extreme risk

Australian government’s $89 billion program to develop new ships and submarines carries a high to extreme level of risk, the Australian National Audit Office (ANAO) warned in its recent audit.

The shipbuilding program for the Royal Australian Navy (RAN) encompasses new submarines, major surface combatants and Offshore Patrol Vessels. The program seeks to generate economic growth and sustain Australian jobs.

The design and build milestones for the Offshore Patrol Vessel were brought forward to help maintain the shipbuilding workforce from the end of the Hobart Class Destroyer build to commencement of the Future Frigate build. As a consequence of the compressed schedule, Defence has carried several risks into the OPV acquisition.

As explained, the exact costs of the Royal Australian Navy’s (RAN) new OPV were not presented to the government at second gate approval. In addition, commercial arrangements between the selected shipbuilder and Australian shipbuilding firms had not been settled when the tender outcome was announced.

“Over time, Defence has advised the Government of the high to extreme risks the shipbuilding programs 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 says.

The ANAO said that Defence is currently meeting scheduled milestones to deliver the abovementioned construction program, although each program is still at an early stage.

However, the audit identified issues that could occur in the future:

“Key risks relate to the delivery of expected capability, program cost, ability to meet program schedules, and management of the industrial base. The Naval Shipbuilding Plan did not address the management of these risks in any detail.”

In case these risks are not managed appropriately, this could lead to the extension of service of the Armidale and ANZAC class ships, and the Collins Class submarines, and the associated costs and effects on naval capability, according to the audit.

What is more, the audit also mentioned the accelerated schedule to enable a 2020 construction start of the Future Frigate program.

The audit warns that “schedule compression presented such extreme risk that cost and schedule overrun was likely” and that proceeding with the current schedule “had the potential for severe reputational damage to Defence and the Government.”