A summary of the 2020-21 ANAO Major Projects Report.
The Australian National Audit Office (ANAO) annual major projects report (MPR) provides a useful and detailed snapshot of progress of the Australian Defence Force’s top procurements.
As well as detailed information on individual projects, the report also considers the big picture; how well is defence acquisition working overall, cumulative lateness, over-budget, and where full contracted capability isn’t delivered.
As of 30 June 2021, the Capability Acquisition and Sustainment Group (CASG) was managing 174 major and minor capital equipment projects worth a combined $121.6 billion, while the 21 major projects featured in MPR were valued at $58 billion.
Five of those 21 major projects have experienced schedule slippage, while some elements of capability on six of the projects under threat or unlikely to be met. Cumulatively, the 21 projects are running 405 months late – some not at all, but other a lot. For example, the Project AIR 9000 Phase 2/4/6 MRH-90 Taipan helicopter is running 95 months late on its own, six months of which were incurred in just in the past year.
Sounds dire? Well, actually it’s not. While some projects look like falling short of delivering anticipated capability, the ANAO says 97 per cent will fully deliver.
The cumulative schedule slippage is also a nearly 20 per cent improvement over the 507 months slippage reported in 2019-20. That reduction is mainly attributable to several large projects achieving a full operational capability (FOC) and exiting the MPR – the SEA 4000 Hobart class DDGs, AIR 9000 Phase 2 P-8A Poseidon, AIR 5439 EA-18G Growler, and the Collins submarine sustainment – thus removing 175 months of slippage.
But conversely, that means those projects remaining in the MPR have added 73 months of slippage.
In the popular media, big defence projects are routinely accused of cost blowouts, but that’s seldom the case. Contract arrangements simply don’t permit open ended charging of the Commonwealth. In fact, just two projects – the MRH-90 helicopters and the LAND 200 Battlefield Command System (BCS) – drew on contingency funding to complete project activities. Everything else has been managed within existing budgets.
Following are some details of projects in the MPR:
LAND 19 Phase 7B
Making its debut in MPR is the Raytheon-KONGSBERG Improved National Advanced Surface to Air Missile System (I-NASAMS), approved in February 2019 and being acquired through a contract with prime contractor, Raytheon Australia. The approved budget at second pass was $1.274 billion.
NASAMS employs the usually air-launched AMRAAM missile from fixed and mobile cannisters. Two batteries are being acquired, each comprising three fire units, with additional sub-systems for training purposes. A single fire unit consists of missile launchers, sensors, and a command and control centre capable of protecting a specified area from a range of airborne threats. IOC is scheduled for June 2023 and FOC for June 2026.
NASAMS is in service with a number of countries. However, Australia has sought significant variations including radars from CEA Technologies. There are also Australia-unique systems for Army vehicles and radios, and interfacing with existing land and joint information networks.
ANAO found no major issues with this project but, as with other projects, the ongoing COVID pandemic has the potential to delay some milestones.
As the MPR only reports on project progress up to 30 June 2021, the decision to abandon the Attack class submarines and cancel the contract with Naval Group and go nuclear which was announced on 16 September remains in the report
In his comments in MPR, Defence Department Secretary Greg Moriarty said as a result of that decision, activities were now focussed on supporting closure of the program. “This decision does not reflect on the progress made by the two prime contractors – Naval Group and Lockheed Martin Australia – in delivering against the contract,” he said.
So how was it going up until then? First thing, Defence wasn’t even close to contracting with Naval Group or Lockheed Martin for an actual submarine. The project was still in design phase, with Defence continuing to seek high-levels of design maturity.
“Design work has continued to progress to the required level of maturity under the Submarine Design Contract,” the MPR notes. “The extended period for the design work has not impacted the scheduled delivery date of the first or follow-on submarines.”
That first submarine was still a long way away. ANAO said delivery of boat number one was expected, “from the early 2030s as it is delivered to the Royal Australian Navy to commence initial Operational Test and Evaluation.” So, the program was proceeding according to the agreed schedule, which various commentators said was simply too far away in an era of rising strategic uncertainty and an increasingly belligerent China.
That doesn’t mean all had been going well. ANAO said the Commonwealth and Naval Group had been unable to agree on the Core Work Scope 2 (CWS2) and Additional Work Scope 1 (AWS1) offers by 31 January 2021, and that that was being managed.
SEA 5000 Phase 1
Under the Future Frigate project, Australia is acquiring nine Hunter class warships based on the UK Type 26 Global Combat Ship, of which the first three are now under construction for the British Royal Navy.
This project has attracted some commentary during the year, with claims that a significant component of the ship’s margins has been absorbed by capabilities added during the design phase.
The MPR noted there had been delays in the UK on the first RN ship which had flowed on to Australia. It said, while there were significant risks and challenges as would be expected for a project of this complexity, it remained on track to begin construction of the first ship on schedule.
“The risk to commencement of Ship 1 cut steel remains high, but is still considered achievable at this stage,” it says. “The production by design zone methodology should allow construction of low risk blocks to commence in December 2022 as planned, which will enable the design for higher risk and more complex blocks to mature.”
Like the submarines, the government hasn’t yet approved actual acquisition of any vessels – just for detailed design, ‘productionisation’, prototyping, and procurement of long lead-time Items.
“Capability requirements continue to be refined and assessed against the Second Pass approved scope, cost and schedule,” the MPR reads. “SEA 5000 Phase 1 is expected to return to Government in Q4 2021 to seek approval of the scope and funding required for Batch 1 Build”, but it remains unclear if that occurred on schedule.
ANAO noted a number of possible risks, among them that increased weight means the vessels may not meet intended service-life expectations. “There is a risk that, when production commences the design may not be sufficiently mature necessitating design changes, causing rework and resulting in additional costs and possible schedule overruns,” it said.
To that end, BAE Systems UK was taking on more designers to ensure the Type 26 design was mature prior to design separation for the Hunter class. It also noted that there are workforce and supply-chain shortcomings and potential for delays in integration of the Australian CEA radar, Saab combat system, and US Aegis combat system to a UK ship design.
To minimise that risk, a Land Based Testing System is being developed.
AIR 6000 Phase 2A/2B
The New Air Combat Capability acquisition of the Lockheed Martin F-35A Lightning II is the 2020/21 MPR’s largest project. The overall budget is $15.63 billion, and $2.252 billion was allocated just for 2020-21.
The RAAF declared Initial Operating Capability (IOC) in December 2020. Aircraft deliveries are continuing close to schedule, with three more arriving in late November taking the fleet to 44 of the required 72 aircraft.
The MPR said the primary issue this project was addressing was the impact of COVID-19 to schedule, and potentially to cost. “It is affecting the supply chains and production efforts of the F-35 prime contractors, Lockheed Martin and Pratt & Whitney, resulting in delays to delivery of aircraft and support elements.” it said.
The F-35 Capability Manager declared IOC on schedule, but has acknowledged a number of known acceptable deficiencies with the aircraft and support systems. The MPR said this was not unusual for new capabilities, and the F-35A is continuing to track toward FOC in 2023.
“Delivery of aircraft remains largely in line with the capability manager’s expectation,” it says. “Aircraft availability remains a concern, however, the fleet is currently able to generate sufficient flying hours to achieve all essential tasking.”
LAND 400 Phase 2
Under the Combat Reconnaissance Vehicle (CRV) project, the Australian Army is acquiring 211 Rheinmetall Boxer CRVs. The first 25 (Block I) CRVs were manufactured in Germany and have been delivered, with the remaining 186 (Block II) CRVs to be made in Australia. The total budget is $5.6 billion.
Manufacturing at the Rheinmetall Military Vehicle Centre of Excellence (MILVEHCOE) in Queensland will start this year, although the MPR said some fabrication of some vehicle sub-systems in Australia would not be cost-effective, and thus would continue in Germany. That includes welded drive module hulls and 30mm cannons. Some low-volume specialised variants will also continue to be made in Germany.
LAND 400 Phase 2 looks like being delayed by about six months, thanks largely to COVID – IOC is CURRENTLY scheduled for mid-2022, and FOC in mid-2027.
The process by which Boxer was chosen for LAND 400 Phase 2 was novel, involving a downselect to two contenders, followed by very comprehensive vehicle trials. MPR cites a long list of lessons learned from this process, particularly for the follow-on LAND 400 Phase 3 process for the selection of a new Infantry Fighting Vehicle (IFV).
AIR 2025 Phase 6
JORN is a uniquely-Australian capability, an over-the-horizon radar capable of observing ships and aircraft far out into the Indian Ocean, the southwest Pacific, up into the Indonesian Archipelago.
The Jindalee Operational Radar Network (JORN) mid-life upgrade is complex, aiming to address obsolescence issues, improve system performance and create a more contemporary system architecture. Project second pass was in late 2017 with total budget of $1.1 billion, and BAE Systems Australia is the prime contractor.
This project has proved difficult. ANAO said the project had experienced significant schedule challenges, particularly in systems engineering. Other key streams of activity including hardware and software development remain on track.
As a result of delays, this was deemed a Project of Interest in September 2019 – not quite a Project of Concern yet. ANAO said a bottom-up re-baseline of the schedule in late 2019 indicated a potential significant delay to IOC.
Defence and BAE agreed to collaboratively undertake an analysis to understand the cause of additional effort estimates and identify a new delivery approach. A contract change proposal (CCP) reflecting an alternative delivery strategy – including an updated schedule – was delivered by BAE in April 2021, and is being evaluated by Defence. IOC was initially planned for mid-2024 and FOC for late 2028, but the project now looks like running “several years” late.
Other nations have over-the-horizon radar but Australia’s JORN is regarded as the world’s most sophisticated and capable, the product of research by Australian defence scientists which began more than half a century ago. But the original project proved challenging, also running years late.
In its lessons learned section, ANAO suggested that an aggressive schedule developed under competitive pressure proved far too optimistic. Further, subject matter experts in Defence and industry were not optimally used to supplement and advise inexperienced program personnel and leadership.
Project LAND 200 Tranche 2
Under the Battlefield Command System project, Army is a acquiring a modern Battlefield Management System (BMS) delivered by Israeli company Elbit, and L3Harris. In mid-2021 Army pulled the plug on the project when it became clear BMS software would not achieve the required certification, including for security, but the MPR added that the Commonwealth had been unable to provide some items of Government Furnished Materials (GFM). That would appear to relate to sensitive communications equipment sourced from the US.
“In June 2021, Elbit advised that completion of the BMS contract’s Final Acceptance milestone would occur no earlier than February 2024, due to a number of issues including availability of GFM and the inability to meet milestone exit criteria,” the MPR said. “The Commonwealth is assessing the impact of this delay, and continues to work with Elbit to progress delivery of capability.”
The ANAO acknowledged that this was a highly complex project, partly due to the integration of new advanced technologies. It’s also because of “programmatic interdependencies” associated with integration of the BMS into all Army’s deployable headquarters, from platoon to division, most of its vehicles, plus several Naval amphibious capabilities.
One very desirable feature of BMS is weapons integration – referred to as WINBMS – which allows different nodes to hand-off targeting information to other effectors, such as tanks and artillery. But integration of WINBMS to the Army’s M1A1 Abrams tanks has been put on hold, “due to the non-availability of Government Furnished interface data.”
Instead, Army plans to transfer the integration of the full WINBMS to another platform and, while it hasn’t said what platform, the new LAND 8116 Phase 1 Huntsman self-propelled howitzer would appear to be a good candidate. It also may not matter that the Army’s 59 M1A1 tanks won’t receive this upgrade, as they are set to be replaced by the 75 newer M1A2 SEPv3 tanks from 2024.
SEA 1439 Phase 5B2
The Navy’s six Collins class submarines have been progressively upgraded throughout their service lives, with the Collins submarine communications and electronic warfare improvement program delivering significant enhancements to communications and electronic warfare systems, and therefore, to warfighting capabilities.
The Collins boats are also gaining a sonar update – another significant enhancement – under project SEA 1439 Phase 6. SEA 1439 5B2 was launched in mid-2015, with a budget at second pass of $599 million.
But the need for better communications had been recognised a decade earlier. What was termed the Modernised Submarine Communications System (MSMCS) Stage 1 replaced obsolete communications centre (COMCEN) equipment aboard the six Collins boats.
The follow-on MSMCS Stage 2 has delivered major upgrades including wideband satellite communications, with equipment acquired through a US Foreign Military Sales (FMS) deal.
Funded under stage one was the Microwave Electronic Support (MWES) system will enable submarines to improve their ability to detect, identify and locate intercepted signals, and Raytheon has been selected as prime system integrator for this complex project.
The MPR said this new and upgraded capability would enable new levels of operability and interoperability never before seen on Collins class submarines.
There have been some delays to the project, not helped by the COVID pandemic. IOC was originally scheduled for mid-2021, and now looks likely to at the end of 2022, while FOC which had been planned for late 2024 and is now looking like mid-2027.
LAND 121 Phase 3B
Under this project, Defence is acquiring a fleet of modern medium and heavy vehicles and trailers. This is a long-running and diverse project – the government approved first pass in 2004 – to acquire protected and unprotected vehicles of nine different variants, including cargo, tractor, recovery, and tanker functions. Ten trailer variants for general cargo, equipment transport and tanker capability will also be acquired.
A total of 2,536 MHC (medium and heavy capability) vehicles and 3,054 modules are being supplied by Rheinmetall MAN Military Vehicles Australia (RMMVA), while Haulmark Trailers Australia (HTA) will supply 1,582 trailers.
The total budget is $3.397 billion, and the project achieved IOC on schedule in December 2019 – albeit with caveats for air transport certification. FOC is planned for early 2024.
As of June 2021, RMMVA had delivered all 2,536 vehicles and 2,999 of the 3,054 modules, while HTA has delivered 1,565 of 1,582 of the matched trailers.
On the face of it, this was basically an acquisition of military-off-the-shelf (MOTS) equipment, although some modifications were required for the vehicles to comply with Australian vehicle design rules and with particular requirements for integration of communications.
The project didn’t proceed entirely without some issues. There were delays in finalising contracts. ANAO noted that stop payments have previously been invoked on RMMVA.
One issue which hasn’t completely been resolved relates to the interface between new and legacy vehicles and trailers – for, example, the hydraulic and parking brake connections.