The Australian National Audit office (ANAO) has given a big tick to the $3.58 billion project to select and build the Navy’s Project SEA 1180 Offshore Patrol Vessels (OPVs), now under construction in South Australia and Western Australia.

In a new report released on October, the ANAO said the processes for procurement and contract management had been largely effective and had supported the delivery of value for money. It added that Defence had surveyed the market for an appropriate OPV design, and had implemented a well-documented process to select three designs for detailed evaluation.

“The competitive evaluation process was supported by appropriate governance, assurance, and probity arrangements and a tender evaluation plan that was applied consistently across the three invited tenders, to provide a basis for assessing value for money,” it said.

Construction of the first two Arafura class vessels by ASC started in Adelaide last year, while work on the first of the subsequent 10 vessels by Civmec began at Henderson, WA, this year.

The proposed split build initially raised some eyebrows when announced – why relocate construction to a new site and a new shipbuilder just when the SA workforce and management had made acquired the necessary skills?

But the Commonwealth justified that decision as mitigating risks to workforce continuity at the Osborne shipyard, between the end of the SEA 1000 Hobart class air warfare destroyer program, and start of construction of the SEA 5000 Hunter class frigates.

ANAO acknowledged the government’s requirement to conduct construction across two yards on an accelerated production schedule posed challenges to Defence in managing program risks. Yet it seems to have worked. ANAO said as at July 2020 that all but three program milestones have been met on time, with Defence withholding payments for these three missed review milestones.

“As the foundation program for the Government’s continuous naval shipbuilding program, there is evidence that the OPV program is contributing to the delivery of the wider naval shipbuilding enterprise, including through the transfer of shipbuilding expertise to Australia,” it said.

The new vessels are based on the OPV80 design by German shipbuilder Lürssen. Under project SEA 1180, the Navy is acquiring 12 1,640 tonnes and 80 metres long steel-hulled vessels, substantially larger than the 13 aluminium Armidale class vessels they will replace, at just 56 metres and 300 tonnes.

The requirement for a larger patrol vessel dates back to the 2009 Defence White Paper which proposed a fleet of 20 vessels of up to 2,000 tonnes. The 2016 White Paper settled on a dozen, with construction to start in 2018 and the last to be delivered by 2030.

This project was to form one element of the government’s trifecta of shipbuilding projects, along with new frigates and submarines. Being smaller and cheaper and with the greatest operational need, the OPV was to go first. But early on, the project appeared problematic. In May 2017 Defence advised the Government that it assessed the schedule risk as high.

In its search for a suitable OPV, Defence searched far and wide. It conducted screening and risk-based assessment of 129 potential designs against the requirement. It settled on a shortlist of three – Damen of the Netherlands, and Fassmer and Lürssen of Germany. Navy personnel undertook sea rides on the Fassmer vessel operated by the Columbian and Chilean Navies, and the Lürssen vessel operated by the Royal Brunei Navy.

Alas for Damen, the UAE Coast Guard wouldn’t authorise a sea ride on its Damen patrol vessel, although inspection was permitted.

Defence assessed all three as affordable, but the Lürssen design reportedly presented less risk and better performance, and therefore, better value.

Defence concluded that the Damen design was not a viable option and, while the Fassmer vessel was the cheapest, it reportedly offered less capability that the Lürssen OPV80 which was chosen as the winner in November 2017.

To coincide with the announcement, the Commonwealth said construction in WA would be conducted using the capabilities of Civmec and Austal, even though Austal had no arrangement with Lürssen and would have constructed the Fassmer vessels had they won.

Defence advised the ANAO that the Austal option was developed to mitigate the risk in relation to workforce availability in WA. But negotiations between Lürssen and Austal failed to reach agreement, and Austal is playing no part in OPV construction.