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Independent News For The Australian Public Service
Edition Number 400. Updated Tuesday, 11 March 2014

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Cost overruns, delays mar destroyer project
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An audit into a naval shipbuilding program being managed by the Department of Defence has found cost overruns, delays in delivery estimates and tensions between building partners.

Conducted by the Australian National Audit Office, the investigation into Defence's Air Warfare Destroyer (AWD) Program, which is building three Hobart-class guided missile destroyers for the Royal Australian Navy (RAN) at a cost of $8.5 billion, concludes that management will need to be sharply focused if it is to keep the project under control.

"The continuing detailed design, construction and productivity issues present a significant risk of further overruns in the cost of the project, as well as in the delivery schedule, and will require an ongoing management focus," the report says.

In November 2013, it was reported that construction costs would overrun by about $302 million, or 6.8 per cent, but the report warns it could be higher.

"In the light of these concerns about cost overruns, the current estimated cost of $302 million in excess of the Target Cost Estimate should be treated with caution; the cost increase is likely to be significantly greater," the report says.

"The cost overrun is attributable to the shipbuilding elements of the project," it says.

Audit's shot across bows

The three destroyers will replace the RAN's four remaining Adelaide-class Guided Missile Frigates (FFGs).

The program's governance and construction arrangements are complex, but the report says the alliance contract imposes a 'fundamental obligation' to deliver on time.

It says the decision to build locally was based on wanting to retain a naval shipbuilding industry, jobs and facilities.

"Despite the contractual arrangements put in place to manage the project, the AWD Program has experienced a range of delivery issues,'' the report says.

"The design and construction issues have led to extensive, time-consuming and costly rework." An independent review will identify contributing factors.

Delivery of the destroyers is also now 15 to 21 months behind, the report says.

"The continuing detailed design, construction and productivity issues present a significant risk of further overruns in the cost of the project, as well as in the delivery schedule, and will require an ongoing management focus," the report says.

The report also says that "experience shows that assessments about the quality of design supplies were overoptimistic".

"Defence has also taken steps to examine the construction productivity issues and promote shipbuilding productivity improvements," the report says.

It also says there has been no independent chairman of the AWD Principals Council since August 2011 and recommends reinvigorating the Council to provide leadership.

The report can be accessed at this PS News link and the audit team was Dr Raymond McNally, Dr Patrick N. O'Neill, Dr Jordan Bastoni and Stuart Turnbull.

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