An audit of Defence’s future frigates program has a found a $423 million cost blowout, delays, and a lack of focus on value for money during the tender process.

The government announced in June 2018 that it planned to build nine new BAE-designed Hunter Class frigates in South Australia to replace its ageing Anzac Class fleet under the future frigates program.

The competitive tender process had assessed designs by three shipbuilders.

A report by the national audit office found Defence didn’t conduct an effective limited tender process for the ships’ design, and officials failed to assess the value for money of the three competing designs before awarding the contract.

“Defence’s procurement process and related advisory processes lacked a value for money focus, and key records, including the rationale for the procurement approach, were not retained,” it said.

The report also says an 18-month delay to the $45.6 billion project had cost Defence almost $423 million.

“Lack of design maturity has resulted in an 18-month delay to the project and extension of the design and production phase, at an additional cost to Defence of $422.8 million,” Auditor General Grant Hehir says.

“At January 2023 the project was forecast to exceed the whole of project budget approved by government by a significant amount.”

Eighteen month delay

The ANAO report said expenditure to date “has not been effective in delivering on project milestones, and the project is experiencing an 18-month delay and additional costs due in large part to design immaturity.”

The auditor found Defence breached its tender evaluation plan which required competing designs to be tested against eachother for value for money, and then failed to inform the government.

“The value for money of the three competing designs was not assessed by officials,” the report says.

“Defence did not advise (the Australian Government) that a value for money assessment had not been conducted by Defence officials.”

Greens MP David Shoebridge said the report had uncovered a litany of failures behind the cost overruns.

“These deep and systemic failures in Defence’s procurement process place even more question marks around the capacity of Defence to deliver the half trillion dollar AUKUS SSN nuclear submarine programs,” he said.

“If Defence can’t build a frigate without scandal and cost blowouts, how on earth do they think they can build a nuclear submarine without bankrupting the place?”