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Audit Finds Fault With Tender Process for Australia's Frigate Program

Hunter

Published May 9, 2023 11:31 PM by The Maritime Executive

The Australian National Audit Office (ANAO) has released a much-anticipated report on flaws in the country’s ambitious program to invest US$30.8 billion in a fleet of new frigates, which will be at the center of its future naval capabilities.

In an audit report of the Hunter-class frigate procurement processes, ANAO contends that Australia might not get value for money due to failure by the Department of Defence (DoD) to conduct an effective tender process for the frigate’s design.

The audit also found that the program has not been effective in delivering on project milestones. The first-in-class vessel is currently running 18 months behind and has been incurring additional costs, due in large part to design immaturity.

“DoD did not conduct an effective limited tender process for the ship design. The value for money of the three competing designs was not assessed by officials, as the Tender Evaluation Plan (TEP) proposed that the government would do so,” found the auditors.

The audit brings to light the challenges that Australia is encountering in its quest to build new frigates for its navy, which currently depends on eight Anzac class warships that are nearing the end of their lifespan. The first-in-class ship, HMAS Anzac, was commissioned in 1996.

Under the new shipbuilding plan, the Australian government is investing US$30.8 billion in a fleet of nine new future frigates, which will be larger than the Anzac class vessels. The Hunter-class frigates will be designed and equipped with a strong emphasis on antisubmarine warfare, including active towed-array sonar. 

The government contends that the new warships offer a maritime combat capability that will underpin the country’s security for decades to come. The ships will be designed by BAE Systems and built by ASC Shipbuilding, part of the government's goal to support the domestic shipbuilding industry and create local jobs.

The Hunter class are projected to begin entering service in the late 2020s, replacing the Anzac frigates. Delivery of the final ship is planned in 2044 but is subject to BAE Systems recovering the schedule delay over the life of the project.

Australia's Department of Defence has admitted that the program is running into problems with cost growth.

“As of March 2023, while DoD had advised portfolio ministers that the program is under extreme cost pressure, it had not advised the government of its revised acquisition cost estimate, on the basis that it is still refining and validating the estimate,” the report said.

A case in point is a decision by the Australian government in June 2021 to grant DoD and BAE Systems more time to improve design maturity and develop a contractable offer for the first batch of ships, which increased the contract price by US$286 million.

“Design immaturity has affected DoD’s planning for the construction phase, led to an extension of the design and productionization phase at additional cost to DoD, and diverted approved government funding for long lead time items to pay for the extension and other remediation activities,” stated the report.

DoD has also come under criticism for making milestone payments without all exit criteria being met and extending milestone due dates in response to project delays.