Pyne rejects OPV cost blowout claims

Claims of a $900 million cost blowout on the government's SEA 1180 Offshore Patrol Vessel (OPV) project have been rejected by Defence Industry Minister Christopher Pyne.

Centre Alliance Senator and former submariner Rex Patrick has warned that costs have already gone up before construction of the first two vessels has even started.

A document released to Senator Patrick under Freedom of Information laws shows the price offered by German shipbuilder Lürssen to build 12 Offshore Patrol Vessels (OPVs) for the Royal Australian Navy was $1.96 billion. However, in the three months between when the federal government announced Lürssen as the winning tenderer and when they went to contract, the price went from $1.96 billion to $2.83 billion, an $870 million increase.

"The government needs to provide a detailed explanation of the variation in price," said Senator Patrick. "$870 million is a lot of taxpayer money."

However, Minister Pyne has rejected the claims, arguing the $3.6 billion in program cost is in out-turn dollars, which includes inflation and exchange rate variations, and includes not only the acquisition cost of the contract with Lürssen but also government furnished equipment, training equipment required for the Offshore Patrol Vessel Capability Centre, extensions to the life of a number of Armidale Class Patrol Boats and Project Office costs.

"The government said the 12 OPVs would cost up to $4 billion and the current budgeted amount is well within this figure," Minister Pyne told Defence Connect.

"Senator Patrick’s attempt to suggest the OPVs are anything but within budget is wrong and desperate."

The tender requirements of the project were rewritten when the government announced Lürssen, which had teamed with ASC Shipbuilding and Civmec (Forgacs), as the successful bidder last November, telling the German company to include shipbuilder Austal in the project.

While government sources have suggested that the $2.8 billion contract with Lürssen is an out-turn dollar price, which includes inflation and exchange rate variations, Rear Admiral Dalton, the Navy's General Manager, Ships Division, testified to the Senate that the out-turn price is actually $3.6 billion.

"The out-turn contract value is $3.6 billion," RADM Dalton told Labor Senator Kim Carr at Senate Estimates in February this year, adding the cost includes the "acquisition of 12 offshore patrol vessels constructed in two sites in Australia, the first two in Osborne — the first one commencing construction on the contracted date of 15 November 2018 — and the construction of 10 ships in Henderson from 2020."

RADM Dalton said at the time the through-life support costs were not at "tender quality data" yet.

The Department of Defence also told Defence Connect there was no change in price to Lürssen's tendered offer when the German company was only partnered with ASC and Civmec.

"The final agreed contract value with Lürssen Australia matches Lürssen’s tendered offer," a spokesperson for the department told Defence Connect in February.

While Lürssen has now signed a contract with Civmec, Austal's role in the project still remains unclear after months of negotiations.

Senator Patrick said the eleventh hour intervention by the government to include Austal in the project has created unnecessary cost increases to the project.

"Last minute political intervention can cause serious trouble in major contracts. In this case, we've seen a forced marriage between Lürssen and Austal that remains unresolved and is now subject to mediation," the former submariner and defence contractor said.

"The federal government has managed to turn a relatively straightforward and inexpensive program into a complex and costly one."

Senator Patrick will be pursuing the cost variation at Senate Estimates next month.

The first two OPVs will be built at the Osborne Naval Shipyard in South Australia by ASC, with construction starting this year. The remaining 10 will be constructed at the Henderson Maritime Precinct in Western Australia from 2020.

The OPVs will have an important role protecting Australia’s borders and will provide greater range and endurance for the Navy than the existing patrol boat fleet.

Pyne rejects OPV cost blowout claims
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