Nick Minchin (SA, Liberal Party, Minister for Finance and Administration) Share this | Link to this | Hansard source

On Thursday, 1 March, in a question from Senator Faulkner, I undertook to obtain further information on the force guided missile frigates. I table additional information provided by the Minister for Defence and seek leave to have it incorporated in Hansard.

Leave granted.

The document read as follows—

Senator Faulkner asked the Minister representing the Prime Minister, without notice, on 1 March 2007:

(1)

I refer the minister to the project to upgrade the Navy’s guided missile frigates, originally intended to deliver six fully upgraded, mission capable warships. Is the minister aware that the government canned the upgrade of the two oldest ships in November 2003 because of the massive delays that were already being experienced.

(2)

Can the minister confirm that former minister Robert Hill said at the time that the contract would be renegotiated to account for the fact that only four ships would be upgraded, instead of the planned six.

(3)

Can the minister confirm that, as a result of those so-called ‘negotiations’, taxpayers will still pay the full price of the upgrade.

(4)

Can the minister now explain why he thinks it is a good deal to get four upgraded ships for the price of six.

Senator Minchin—The Minister for Defence has provided the following answer to the honourable senator’s question:

(1)

The Government did not “can the upgrade of the two oldest ships in November 2003 because of the massive delays that were already being experienced.” That is an incorrect assertion. What is correct is that the FFG Upgrade now seeks to regain the original relative capability of four guided missile frigates. On 7 November 2003, the Government announced it had made a number of decisions which would lead to some rebalancing of the Defence Capability Plan as a result of the Defence Capability Review just completed. One of those key decisions was to strengthen the Navy’s defensive air warfare capability. The anti-ship missile defence projects then being implemented were to be complemented by the introduction of SM2 missiles to four of the FFGs and the acquisition of three air warfare destroyers. To provide offsets, the two oldest FFGs were to be decommissioned and removed from service from 2006. This was to address the total operating costs, including maintenance and personnel, for the existing FFG class of six ships. HMAS Canberra was subsequently removed from service in late 2005. On 16 January 2006, the Minister for Defence agreed to defer the decommissioning of HMAS Adelaide until no later than the end of 2007. This has subsequently been extended to January 2008 to accommodate operational needs and provide more flexibility in managing the relocation of HMAS Adelaide’s crew. Disposal of the ships will be through a transfer of HMA Ships Canberra and Adelaide to the Victorian and NSW governments respectively to be sunk as dive wrecks to provide opportunities for tourism and revenue.

(2)

Yes.

(3)

No. The FFG Upgrade prime contract has been renegotiated and a Deed of Settlement and Release signed 29 May 2006. This has formalised the Government’s decision (of November 2003) to reduce the FFG Upgrade project from six to four ships; settled a number of outstanding commercial and contractual issues on this project; agreed a revised viable contract master schedule with a Contract Final Acceptance of December 2009 but within the fixed price which was reduced by approximately $40 million dollars (Feb 98 Contract base date price) or $54 million dollars (May 06 Price). This reduction included savings from the lower installation costs for four ships.

(4)

As explained previously, the renegotiated contract includes a price reduction for four ships. The upgrade of the four FFGs is an important capability for the Navy, in conjunction with our eight ANZAC frigates, in maintaining the required total number of air warfare capable ships to support our operational commitments. The FFG Upgrade contract is a fixed price contract and the contract scope reduction was initiated through the contract provisions of termination for convenience. The reduced contract price requires the contractor to deliver all the contracted supplies except the installation of equipment into the two ships not now being upgraded. The ‘ship sets 5 and 6’ equipment remain as contractual deliverables and it is likely that this equipment will now be used for a variety of applications. These include provision of in-country training for both operators and maintainers in Sydney and Perth, in some cases replacing training previously provided in the United States; risk reduction activities for the FFG SM-1 replacement project (one set of radar and onboard training system equipment retained in the United States for system development and test activities); additional integration and support assets at the FFG Upgrade Warfare Systems Support Centre in Garden Island, Sydney; and major support spares for the four upgraded FFGs.