Mark Bishop (WA, Australian Labor Party, Shadow Minister for Defence Industry, Procurement and Personnel) Share this | Link to this | Hansard source

I rise this evening to address the problems surrounding the current refit of four FFGs, down from six. These Adelaide class frigates are the backbone of our Navy. Their refit should have been straightforward, making them the most capable in their class in the world. But just one of the original six frigates has received its refit, and it still does not meet its full capability. This, we are told, will not happen until later on this year. It seems the Minister for Defence is incapable of getting a major procurement project correct at the outset. We are still waiting for the refit of the other three frigates, and of that original project of six, as we know, two have been scrapped.

These frigates are meant to aid Australia’s presence in key operational areas. But a fortnight ago at Senate estimates we were advised that the frigates have failed weapons and software systems and they cannot protect themselves. This is because, firstly, the frigates’ underwater sonar system does not meet all test requirements and their electronic support measures are not fully developed. Finally, their combat management system does not meet all contract requirements.

In spite of all this, the project contractor, ADI, has been paid most of the $1.4 billion contract price. Effectively, the government has paid something for nothing. After nearly six years, it has accepted delivery of a refitted frigate that still has no more capacity than when it was put in for the refitting-out job. At estimates, trying to find out how these payments stacked up with the project’s milestones proved nearly impossible. I was told that that information was commercial-in-confidence. There is no public way of measuring whether the down payments on these refits are value for money at all. Defence also conceded capping liquidated damages for the refits at $10 million—and that on a project that has cost $1.4 billion to date!

So once again we have a major Defence procurement project which is running behind schedule by some four years and facing a cost blow-out of nearly half a billion dollars and which leaves our Navy with no increased capability for at least another three years. The numbers obviously do not stack up in this equation. Here is the sum of things: an order for six frigate refits is reduced to four; costs are spiralling, to date by half a billion dollars; and the refit for the first frigate is, to date, some four years late. It is all a far cry from the launch of this project seven years ago. Then, we were told, six of the Navy’s best would be re-fitted at a total cost of $897 million.

As I mentioned earlier, these frigates are said to be the backbone of the Australian Navy. They are multipurpose warships. They are designed to counter threats from the air, sea and underwater. I accept they have to be shipshape, so I agree with the necessity of them being refitted. That is because the frigates’ combat system has hardly changed from its original specs back in the seventies.

I applaud Defence’s decision all those years ago to refit the six frigates with better command and control systems, air surveillance radars capable of picking up fast-moving targets, launching systems for surface-to-air missiles and the latest obstacle avoidance sonar. But that has not happened, for these refits have run aground. Part of the problem is that Defence requested 174 project changes to the refits. By the way, the legal bill for that dithering, that constant change, has cost an extra $348,000 to date excluding GST.

The first frigate was supposed to be HMAS Adelaide. Its upgrade should have been completed some four years ago. The sixth and final frigate should have been ready earlier this year. Instead, three years late, HMAS Sydney was relaunched just a few weeks ago, minus the essential items that will upgrade the ship.

Now we are being told by the government the refits will be finished by 2009. But can we trust this brave new promise? We know Defence admitted back in 2003 to project cost blow-outs to the tune of nearly half a billion dollars. One must wonder how much this latest delay will cost. We know the government originally ordered refits to six frigates. Then it changed its mind, reducing the order to just four refits. We know the government is concerned about value for money, yet refit costs to each frigate have blown out from $253 million to $350 million.

We also know this project has drawn the eye—and the ire—of the Auditor-General. His report into the frigates’ upgrades said that the project was ‘not proceeding satisfactorily’, Defence executives need to keep a tighter rein on the project and proper process was flouted when it came to more than three-quarters of the contracted payments. What was Defence’s response to this damning report? It saw the report as a ‘good performance benchmark’ against which reforms ‘can be assessed at a later date’.

That later date came at Senate estimates. Judging by Defence’s answers, one could be forgiven for thinking this project was full-steam backwards. The good news, if there is any, is this: finally, after a four-year delay, the first frigate was handed back to the Navy just two months ago. But Defence unfortunately still does not have it right. This must surely shipwreck the government’s reputation as capable project managers. Defence procurement is a complex and demanding business, as we all know. But if the government continues to mismanage this it is going to result in inordinate cost. Let this speech be a warning shot across the government’s bow. If there is another failure in Defence acquisitions, it will not just be the taxpayers left high and dry; it will be the government marooned by its own Defence minister, a minister we know is quick to review but slow to reform.