MELBOURNE, Australia — Australia's long-troubled Air Warfare Destroyer (AWD) program received more blows May 22 with a government announcement that the program faces continuing delays and will need at least another AUS $1.2 billion (US $920 million) to complete — sending the overall price tag for the three ships to over AUS $9 billion.

The extra money, the government said in a statement, "will have to be funded at the expense of other Defence acquisitions."

Australian Defence Minister Kevin Andrews and Finance Minster Mathias Corrman, in the May 22 statement, announced they would begin a search to find either a "managing contractor" to insert into ASC Shipbuilding for the remainder of the program, "or further enhance ASC capability through a partnering agreement."

The "limited tender process" was to begin May 29, Andrews and Corman said in the statement, which was prompted by a forensic audit that quantified the latest cost and schedule overruns.

The AWD program is currently run by a Commonwealth-industry team known as the Air Warfare Destroyer Alliance, comprising lead shipbuilder ASC, Raytheon Australia, the Department of Defence and the Royal Australian Navy. BAE Systems, Lockheed Martin and Spanish shipbuilders Navantia also have significant roles.

Ironically, the destroyer program marked a happier event only hours after the audit's release when, on May 23, the first ship was launched at the ASC shipyard in Adelaide.

But that ship, the Hobart, is now scheduled for delivery in June 2017, 30 months beyond the original December 2014 date.

The government also announced further delays with the second ship, Brisbane, now set for delivery in September 2018 after originally scheduled for March 2016, and the Sydney, due now in March 2020 after first being scheduled for June 2017.

All three ships already have suffered delays before the latest revisions, and technically challenging combat systems integration work has yet to get under way in earnest.

The current Australian federal government commissioned a report into the program after it gained office in 2013. and this The report was delivered, but not released to the public, in June 2014, but was not released to the public. Known as the White-Winter report after its authors, one of its key recommendations was the insertion of an experienced shipbuilding management team into the project.

"The government has initiated a series of interim reforms recommended by that review to put the Air Warfare Destroyer back on track, pending the completion of this forensic audit," the ministers said.

"So far the government has made improvements to the senior management of ASC Shipbuilding and inserted additional shipbuilding and related capability from Navantia, BAE Systems and Raytheon Australia," Corman and Andrews said in the statement.

They noted that "the Air Warfare Destroyer project was in very bad shape when we came into government," and ticked off several changes that already have been made, including the appointment of Mark Lamarre from US shipbuilder Bath Iron Works as interim chief executive officer of ASC.

"We will now be entering into a limited tender process, where we will be seeking to either engage a managing contractor through the ASC for the project, or a management partnership agreement to enhance capability at the ASC further," Mathias Corrman said after the launch of the first vessel.

"What we are looking at doing is to strengthen the way ASC can perform into the future," Corman said after the Hobart's launch." What we are working on is to ensure that those three ships can be delivered at the lowest possible cost from here."

The minister also foreshadowed the release of a strategic naval shipbuilding plan later this in the year that would strive to maintain Australian naval capabilities , which will consider the retention of the capability in Australia, through strategies such as a rolling build plan for future surface ships. But he warned that the cost of building ships in Australia hasd to come down.

"The government recognizes the significant value to our nation of a skilled naval shipbuilding workforce," Corman said. "The government is prepared to invest in the skills and knowledge base of the Australian naval shipbuilding industry, and is prepared to commit to a long-term investment to make sure this important industry enjoys a future in Australia and these critical skills are maintained," he continued.

"There is no sense putting our head in the sand," Corman added. "We can't ignore the fact that these ships are costing $3 billion a ship, when equivalent ships in other parts of the world would have cost us just $1 billion a ship."

However, Dr Mark Thomson, a senior analyst with the Australian Strategic Policy Institute, warns that the Air Warfare Destroyer remediation efforts may be too little, too late.

In his "The Strategist" blog on May 27, Thomson said that if the government chose to embrace the partnership option, a single firm would work alongside ASC.

"Nonetheless, with no skin in the game it would be a case of 'all care and no responsibility' for the partner," he said.

With regard to the managing contractor option, Thomson warns that the contractor would work "within" ASC and "with" the AWD Alliance partners, with the potential to further complicate the already intricate workings.

"Assuming the new managing contractor works under an incentive scheme [rather than a cost-plus contract], we'll have four parties — ASC, Raytheon, Defence and a managing contractor — working under two layers of contractual incentives," he said.

"Perverse incentives can't be ruled out," Thomson added. "Moreover, capable firms may be hesitant to risk their reputation by tying their fate to the performance of the parties that got us to where we are today."

Christopher P. Cavas in Washington contributed to this report.


Nigel Pittaway is the Australia correspondent for Defense News.

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