Air Warfare Destroyer Alliance project at Osborne heading for cost blowout
THE cost to taxpayers of building three air warfare destroyers is $302 million above budget and likely to blowout by considerably more, a federal audit report has found.
THE cost to taxpayers of building three air warfare destroyers is $302 million above budget and likely to blowout by considerably more, a federal audit report has found.
The destroyers, which are being built at Techport in Osborne, have been put behind schedule as well as blown the $8.5 billion budget because of systemic failures in the project.
Working from inadequate blueprints supplied by the Spanish ship designers, under the leadership of a poorly constructed partnership and with a workforce that did not have adequate skills, the project was destined to run into trouble, the Australian National Audit Office report published yesterday says.
In comments with deep significance to the South Australian economy and the state’s claim to be the nation’s shipbuilding heartland, the Auditor-General warns about the dangers of skills and experience being lost.
The comments highlight the “valley of death” feared by the industry between the end of the air warfare destroyer program and the start of the next big contract.
“Looking forward, for programs such as the Future Frigate (SEA 5000) and the Future Submarine (SEA 1000), the design process, and subsequent design and production reviews need to be effective in working through a range of fundamental issues,” the Auditor-General says.
Design work must be thorough and detailed and shipyards must be fully prepared for the work.
“Construction should commence only when the infrastructure, resources and construction data are stable,” the report says.
On the destroyers, the report says the AWD Alliance has revealed the $302 million blowout but adds “the cost increase is likely to be significantly greater” because “the program is approaching the complex stage of systems integration when, historically, cost and schedule risks tend to rise”.
It says that already some elements budgeted at $1 had ended up costing $1.60.
Flaws in the design from Spanish company Navantia included watertight doors having to be rebuilt because they did not meet Australian standards and procurement blunders such as buying and installing cheap Chinese-made pipes in the Hobart destroyer that had to be stripped out and replaced.
The AWD Alliance of government-owned shipbuilder ASC, weapons maker Raytheon and the Defence Materiel Organisation should have included Navantia, the report said.
Partners had squabbled over responsibility for design changes and costs.
Defence Teaming Centre chief executive Chris Burns said the chief problem was a lack of continuity of work.
“In the 1990s Australia built-up a massive naval shipbuilding capability that constructed ten Anzac frigates, six Collins submarines and six Huon minehunters almost simultaneously,” he said.
Each program had problems but these were fixed and now the “Anzacs and Collins are globally regarded as the most capable in their classes”.
However, that skilled workforce dissipated before the destroyer contracts landed on shipbuilder desks.
The audit report notes, as an example, that Newcastle company Forgacs — which is building huge block components for the destroyers — had stopped making ships and was making bodies for mining trucks before it won AWD work.
“(Victorian shipyard) BAE Systems and Forgacs, emphasised the significant challenge they faced in re-establishing shipbuilding facilities and skills after a gap in naval shipbuilding,” the report said.
South Australian Opposition Defence Industries spokesman Martin Hamilton-Smith said governments needed to learn from the report.
“There needs to be continuity, not a stop-start approach requiring the enormous expense of tooling, gearing and training up after gaps in production,” he said.
The report was an indictment of Labor federally and in SA for allowing problems to fester, he said.
Some Defence commentators say the report will put pressure on the Federal Government to sell shipbuilder ASC and buy submarines from abroad.
However, Mr Hamilton-Smith said with $250 billion to be spent on Defence procurement over the next 30 years it would be better for the money to stay in Australia.
“But we need to get it right,” he said.
Defence Industries Minister Jack Snelling wrote yesterday to his federal counterpart David Johnston saying SA “stands firm in its partnership and is ready to appropriately support any efforts required to ensure the (AWD) program’s success”.
“Our investment in Techport Australia continues to grow,” Mr Snelling said.
This included expansion of the site and a commitment to establishing a testing laboratory for the submarines.
These initiatives would help “improve productivity and reduce costs”.
ASC chief executive Steve Ludlam acknowledged there was room for improvement.
The structure of the alliance had made it hard to resolve issues and get the root of a problem and its solution — particularly when it came to design changes.
“Notwithstanding past challenges and those that remain ahead, ASC reaffirms its commitment as the AWD Alliance shipbuilder to safely deliver three ships as efficiently as possible together with our alliance partners,’’ he said.
Senator Johnston said he would follow the audit’s recommendation to appoint a new chairman of the AWD Alliance.
For future projects, Defence agreed with recommendations to have a better review process for designs and better systems to monitor performance.
KEY POINTS
* Air Warfare Destroyer two years late and $300 million over budget
* $1 billion premium for Australian build
* Risks under estimated
* ASC likely to be sold
* Naval shipbuilding under a cloud
