A report from the Australian National Audit Office has raised serious concerns over the economic value of Australia’s shipbuilding plans in Adelaide and Perth.
An audit of the $89 billion program found the government failed to provide sufficient risk assessment of the plans, and in some cases failed to provide a cost-benefit analysis of projects before approval, despite Defence warning of “extreme” risk in building some of the ships locally.
The report warns the projects could result in significant cost over-runs and inflict major reputational damage on the Defence department and the federal government.
The government’s Naval Shipbuilding Plan, released in May last year, outlines the government’s vision for the Australian naval shipbuilding enterprise and the significant investment required in coming decades, and has been touted by the Turnbull government as a significant boost for jobs and growth in Australia.
The audit, written by Auditor-General Grant Hehir, says: “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.”
Defence has not updated its cost assumptions for its naval construction programs to reflect the earlier design and build milestones for its surface ships and the decision to build the Future Submarine in Australia.
Defence has identified the broad industrial issues that need to be addressed to achieve productive and cost-effective naval construction programs. There has been no government decision on how these reforms might be achieved. The government had planned to consider industrial-base reforms in late 2017, but these reforms had not progressed as at 26 March 2018.
Defence analysed the cost of implementing its program of naval construction for the 2016 Defence White Paper. Since the publication of the White Paper, key assumptions informing the cost of the naval construction programs have changed: the Future Submarine will be built in Australia and the design and build schedule for surface ships has been brought forward (bringing forward expenditure). The potential addition of the Aegis Ballistic Missile Defense capability is a further relevant consideration. Defence has not revisited the White Paper cost assumptions.
The office also expressed concerns that in not managing the program risk, Defence was facing “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”.
Among a number of different projects in the plan, the report specifically points to the government’s decision to accelerate the schedule of the Future Frigate program to enable a 2020 construction start, saying the “schedule compression presented such extreme risk that cost and schedule overrun was likely, and that to proceed on the current schedule had the potential for severe reputational damage to Defence and the government“.
Defence industry minister Christopher Pyne has defended the government’s actions and told the AFR: “We make no apologies for deciding to invest in Australian-built ships, creating Australian jobs and using Australian steel rather than buying foreign ships off the shelf and using Australian tax dollars to strengthen the defence industries and increase employment and wealth in other countries.”
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