Pearls and Irritations

When Australia’s Defence Minister, Richard Marles, talks imploringly in support of avoiding the “valley of death” scenario, Australians should listen. That is, until they realise he is not talking about avoiding the horrors of a modern war, but rather supporting the Hunter Class Frigate, a project in such difficulty that the picture of incompetence and mismanagement in the Australian National Audit Office’ report on the Department of Defence’s Procurement of Hunter Class Frigates (Report No.21 2022-23) and evidence presented during Parliamentary scrutiny is probably a kind interpretation of the reality.

But the Minister’s concern goes beyond the issue of jobs in South Australia, because the rot evident in the Frigate program infects the very heart of AUKUS. The Frigate program not only demonstrates serious, systemic problems with the ability of the Department of Defence to manage complex capital acquisitions, it also involves the same key players, including the contractors, BAE Systems and ASC Shipbuilding, that will be central to the development of the all-new submarines.

The ANAO report makes sobering reading. Even with its measured tone, it is damning of the Frigate program, and includes findings that the project is already over budget, expected timelines will not be met, and the final product will be less capable than required.

In summary, the Frigate project is an example of more money for inadequate performance, delivered later than required.

A disappointing result at any cost, but this project is now expected to come in well over $46 billion.

At the heart of this unfortunate outcome is the Department of Defence’s decision to go with the British design, despite other designs being assessed as better suited. Inexplicably and additionally, there is the absence of a contractual commitment by either BAE Systems or the Department of Defence, to seek ‘value for money’ in the execution of the contract. Defence confirmed in the Parliament’s Joint Committee of Public Accounts and Audit, that the Hunter Class Frigate program is alone among projects to have this omission. The Department of Defence described it as “an oversight”.

It would be reasonable to expect that with such an important defence capability on the line, and the expenditure of so much money, that some dramatic action would be taken in relation to the participants and the process.

But unfortunately, rather than pausing to ensure processes are in place to minimise the risk of this mismanagement being repeated, the government has more than doubled down. In fact, it has tasked the same participants with delivering an even more complex project at eight times the budget of the Frigates.

It is not clear that there is any project management guide that would support such an approach. Certainly, the Chair of the parliamentary Joint Committee, Julian Hill was exasperated and concerned, declaring of the Frigate program:

“It is up to Scott Morrison, Marise Payne, Peter Dutton, and those sitting who made the decision to explain why they picked an immature design with extreme risk and no value from money assessment.”

A sensible, even if partisan, comment. ‘Shocking’ is not an overstatement of the expenditure of $46 billion on a project with an immature design, extreme risk and no value for money assessment.

How then, can one describe the government’s decision to spend $368 billion on a submarine project with the same unfortunate characteristics? Indeed, the submarine project’s design is even less mature, being just a general expectation that it be cutting edge.

And if the Frigate project presented ‘extreme risk’, what could possibly describe a project as complex as Australia developing a new workforce with the required decades of experience in nuclear technology, more than three times the number of submariners Australia currently struggles to attract to the service, infrastructure that is currently just an aspiration, and a budget that is stated to be as much as is required, even though the actual cost is far from certain?

Add to that risk profile the track record of the participants, as evident in the Frigate program, and the government’s submarine decision becomes unfathomable.

The lesson from the Frigate program is that the Department of Defence and BAE Systems have failed to deliver an important maritime capability, and that furthermore, they were not even focused on providing value for money for the Australian taxpayer.

The government’s consequent commitment to spend $368 billion on the nuclear-powered submarine project is truly a marvel of marketing over substance, and Julian Hill’s scorn may well be played back to this government in years to come, albeit with a different cast of alleged culprits.

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