Future Submarine Project - Transition to Design
Entities audited: Department of Defence
Introduction
3.1
The Department of Defence (Defence) is currently undertaking a procurement process involving the acquisition of 12 submarines, known as the ‘Future Submarine’ fleet or the ‘Attack class’. These submarines are intended to supplant six Collins Class submarines, which are currently utilised by the Royal Australian Navy (Navy). The current Collins Class submarines are due to be withdrawn from operation by 2036 unless they have an extension to their service life.
3.2
The contractual arrangements and responsibilities between Defence and Naval Group Australia (Naval Group) are governed by the Future Submarine Program Strategic Partnering Agreement (the Agreement), signed on 11 February 2019. Defence began its commercial relationship with Naval Group with the signing of the Future Submarine Program Design and Mobilisation Contract (Design and Mobilisation Contract) on 30 September 2016. The Design and Mobilisation Contract stipulated that the Agreement was to be in place by 17 October 2017. Subsequent contracts have been signed under the Agreement, including the Submarine Design Contract (signed on 1 March 2019) and the Tripartite Co-operative Agreement (signed by Defence, Naval Group and Lockheed Martin on 3 May 2017). The Agreement and the Submarine Design Contract have now superseded the Design and Mobilisation Contract.
3.3
Prior to the Commonwealth making a decision on the Future Submarine Program, the former Secretary of Defence, Mr Dennis Richardson AO, advised Senate Estimates in October 2015 that the acquisition would be $50 billion out-turned. However, this figure was provided subject to the competitive evaluation process set out in the 2016 Defence White Paper which, at the time of the October 2015 hearing, had not been released.
3.4
The cost of the Future Submarine Program was stated by Defence in 2016 to be in excess of $50 billion out-turned. In November 2019, Defence reported to the Senate that the cost would be approximately $80 billion out-turned, and that the expected sustainment cost was stated to be $145 billion out-turned to 2080. As of 31 January 2020, $1.184 billion in cash expenditure had been attributed to the Future Submarine Program, across multiple areas of Defence with responsibility for its delivery.
3.5
The Capability Acquisition and Sustainment Group (CASG) within Defence is responsible for the contractual arrangements with the Future Submarine fleet’s designer, Naval Group, and the combat systems integrator, Lockheed Martin.
Overview of audit findings
3.6
The ANAO found that Defence had implemented a strategic arrangement and related formal arrangements to ensure the Future Submarine Program was administered effectively. The Agreement established by Defence was determined by the ANAO to be ‘a fit-for-purpose strategic partnership framework that addresses the Government’s objectives’ for the project’s administration. The Agreement was identified to have included 11 of the 12 goals as set under the related contracts, and ‘provide a basis for establishing a successful strategic partnership and delivering shared program objectives’. The twelfth goal was stated by Defence to be ‘addressed’.
3.7
The audit identified that ‘the two key mandated design milestones were extended’. The ANAO reported that, due to the program’s nine-month delay in the design phase which had resulted in the design milestones being extended:
As a result, Defence cannot demonstrate that its expenditure of $396 million on design of the Future Submarine has been fully effective in achieving the program’s two major design milestones to date.
3.8
The ANAO observed that the overall risk assessment for the Future Submarine Program had been identified by Defence as ‘high’. Defence explained references to ‘high’ or ‘extreme’ risk during the public hearings:
Clearly military acquisitions in support of our troops is exceptionally complex and it carries a high inherent level of risk because we’re trying to do it fast to provide the highest level of capability so that we are overmatched on our adversaries and able to continue to operate in the combat environment, which evolves very fast. So what we’re seeking to do is put in a risk management framework and articulate to government and the public the raw risk, the initial risk, what the treatments are and then what the residual risk is.
3.9
Defence was found to have implemented risk mitigation strategies to address potential issues. The ANAO stated that the relationship with Naval Group in particular was at:
…a relatively early stage and the parties’ active management of both specific issues and the partnership is essential for effective risk management and program success.
3.10
Defence acknowledged the findings of the ANAO, stating that they remained focused on the ‘thorough execution of the design phase of the [Future Submarine] Program and preparations for construction’. Defence noted that the lessons taken from the report highlighted ‘the need to allow additional time for Naval Group to meet Defence’s requirements for a high level of design maturity before progressing to subsequent design phases’. Defence also stated that ‘the commencement of construction activities in Australia, and the delivery of the Future Submarines has not been delayed’.
Scope and conduct of the audit
3.11
The ANAO explained that the Future Submarine Program is considered one of Australia’s most significant Defence acquisition projects historically:
At a reported cost in the order of $80 billion, the design and construction of the Future Submarine represents the largest Defence procurement in Australia’s history. Defence has described it as a ‘megaproject’ by all international standards and the most challenging acquisition program it has undertaken, the success of which will be driven by preparations during the design phase.
3.12
Risks were identified by the ANAO as cause to examine the project’s progress, such as the decision not to acquire a Military-Off-the-Shelf (MOTS) equipment, and to ‘engage a ‘strategic partner’ to design and deliver the submarines with a significant Australian industry input’. Parliamentary and community interest was also cited by the ANAO as a rationale for conducting the audit, particularly in relation to issues such as: cost; negotiations between Naval Group and the French Government; a potential capability gap; and the proposed life-of-type extension of the Collins class.
3.13
Due to these reasons, the ANAO has been monitoring the Future Submarine’s progress over the course of numerous audits, examining different points of the project’s development. A summary of the ANAO’s earlier audit findings was included in the report. The Joint Committee of Public Accounts and Audit (JCPAA, the Committee) has previously examined earlier stages of the Future Submarine Program’s project development and administration.
3.14
The audit objective was to ‘examine the effectiveness of Defence’s administration of the Future Submarine Program to date’. The ANAO assessed Defence’s administration against the three following criteria:
Whether Defence implemented a strategic partnership that was fit-for-purpose and in line with government requirements;
Whether Defence was achieving the mandated design milestones for the Future Submarine; and
Whether Defence’s expenditure so far on design has been ‘effective in achieving the Future Submarine Program’s milestones’.
3.15
In conducting the audit, the ANAO’s scope incorporated Defence’s actions in relation to the Design and Mobilisation Contract, the Agreement, and the Submarine Design Contract. Aspects that were not examined by the audit included: program activities or expenditure that were not related to design; the contract with Lockheed Martin; or the life-of-type extension relating to the Collins class. The ANAO methodology included: review of records in Defence; site visits of the Future Submarine Program Office; discussions with Defence personnel and stakeholders.
3.16
The audit was conducted in compliance with the ANAO Audit Standards, costing approximately $395 000, and utilised six ANAO officers.
Formal arrangements for administration of program
3.17
The ANAO found that Defence had ‘established the formal arrangements necessary for the effective administration of the Future Submarine Program, through the Agreement’. The audit identified that the Agreement set out the Government’s objectives for the project, and was suitable for the purposes of managing the strategic partnership between Defence and the Future Submarine Program partners.
3.18
The Agreement was found to create a ‘contractual basis to meet the Commonwealth’s objectives for the Future Submarine Program’. The ANAO stated that, when establishing the Agreement, Defence set key negotiating objectives in accordance with the Australian Government’s objectives, in addition to putting in place governance and oversight mechanisms. The Agreement was designed to ensure that its provisions were to be applied to all subsequent contracts that Defence and Naval Group adopted during the project’s life.
3.19
The ANAO stated that the Agreement:
addresses 11 out of 12 documented contract goals, which relate to: governance; collaboration; the allocation of risk and reward; incentives and remedies; knowledge transfer; cost control; and industry objectives.
3.20
Goal 1, the remaining contract goal, related to the contractual framework’s reflection of the responsibilities of Naval Group made during the competitive selection process. The ANAO found that Defence had advised Government that these considerations had been included in forming the Agreement.
3.21
The Agreement also provided ‘mandated system reviews based on defined exit and entry criteria, and contractual off-ramps and break payments’. Examples of such terms included:
Under Goal 4, which refers to the strategic relationship between all parties to the Agreement, the ANAO reported that the Agreement contained provisions in relation to dispute resolution mechanisms;
Break payments for early termination of program contracts under Goal 3 (allowing the Program to operate on a commercial basis with incentives and remedies as appropriate) were identified; and
Accountability measures provided for under Goal 4, which included mechanisms such as contractual obligations regarding quality and performance requirements, mandatory review points, and regular formal reviews of the performance of Naval Group, with associated remedies in the event of non-performance.
3.22
Appropriate record-keeping practices were maintained by Defence representatives working on the Agreement negotiations. The ANAO reported that minutes were kept of negotiations proceedings, and were certified by both Defence and Naval Group representatives. The proceedings’ minutes were found to contain information about issues discussed, outcomes reached during negotiations, and planning for future negotiation sessions.
3.23
The audit also identified that Defence:
escalated key issues for ministerial consideration during the negotiation process, and provided frank advice to government on areas requiring active management by the parties to mitigate program risk and achieve program objectives.
3.24
Evidence for this finding included:
Updates of negotiations being regularly provided on a fortnightly or monthly basis to a Negotiation Reference Committee (NRC) by the lead negotiator;
Records of the internal advice provided to the NRC, indicating that the information was provided frankly and delivered relevant details such as timing and risks regarding negotiations; and
Evidence of Defence escalating certain issues to the Minister for Defence and/or the Prime Minister on matters such as: negotiations, contractual terms, and liability caps.
3.25
Defence was also found to have sought Australian Government approval to enter into the Agreement, and included in its advice to Government on this occasion a range of areas which would require ‘active management’ by both parties to manage risk and achieve objectives. Areas discussed included: engagement between the parties and with industry, appropriate staffing, technological expertise, procurement practices, and project management.
3.26
The ANAO identified that, as part of the Design and Mobilisation Contract, one objective was for the parties to sign the Agreement by 17 October 2017, which was not signed until 11 February 2019. Defence explained to the ANAO that this was due to preliminary discussions taking place in 2017, which raised issues in relation to differing expectations from Defence and Naval Group. These issues took longer than expected to resolve in preliminary stages, which delayed negotiations. The ANAO found that Defence’s approach indicated ‘an acceptance that delays in the negotiation process were a cost of achieving acceptable terms and conditions in the Agreement’.
Meeting milestones
3.27
In conducting the audit, the ANAO sought to examine progress made against the relevant milestones for the design phase, and the ‘effectiveness of Defence’s expenditure to achieve these milestones’. Milestones were recorded in the 2017 Integrated Master Schedule, attached to the Design and Mobilisation Contract, and were subsequently updated in the Submarine Design Contract.
3.28
The Design and Mobilisation Contract, in effect since 30 September 2016, was designed to ‘conduct early mobilisation activities and commence preliminary design studies for the delivery of the Future Submarine Program’. It was intended to be the primary contract in relation to project milestones until the Agreement was finalised and the subsequent Submarine Design Contract was in effect.
3.29
The relevant deliverables under the Design and Mobilisation Contract were intended to be completed via seven streams of specific types of work, which would cover three steps. The seven streams comprised of:
1
Executable Agreements, containing issues such as the Agreement and the Design and Mobilisation Contract;
2
Design Activities, including technical and functional issues;
3
Management Processes and Plans, encompassing matters such as scheduling, planning and reviews;
4
Build, Test & Integration Facilities and Infrastructure, including design of the Submarine Construction Yard and testing facilities;
5
Australian Industry Involvement, encompassing aspects such as the Australian Industry Content Strategy and its plan for the Submarine Design Contract, and the build strategy;
6
Project Office Facilities & Information Communications Technology, including project offices in Australia and Cherbourg; and
7
Transfer of Technology, which encompasses issues such as the Transfer of Technology Strategy and Master Training Plan, the Technical Data Management Place and the Data Management Plan.
3.30
Streams 2 to 7 were intended to be ongoing beyond the life of the Design and Mobilisation Contract, with new deliverables to be added in future contractual agreements.
3.31
The three steps were:
1
Mobilisation and Preliminary Design Studies;
2
Mobilisation and Functional Analysis; and
3
Feasibility and Definition Studies.
Schedule slippage
3.32
The audit found that schedule slippage was a significant issue for the Future Submarine Program. The ANAO reported that the project was ‘currently experiencing a nine-month delay in the design phase against Defence’s pre-design contract estimates, and two major milestones were extended’.
3.33
The ANAO stated that in February 2019, Defence reported to the Australian Government that Naval Group had sought to:
extend the completion date for Future Submarine design work from July 2022 to September 2023 – some 15 months later than planned by Defence in its pre-design contract planning.
3.34
According to Defence advice, this was considered acceptable as additional time may assist in completing a firm design, which would lower risks during the construction phase in relation to significant schedule delays and increased costs. The ANAO observed that Defence did not examine the effects of this proposal on the total program schedule when providing advice to government. In advice provided in February 2019, however, Defence stated that the extension would require an additional preliminary design stage to the project, which was endorsed by the Naval Shipbuilding Advisory Board (NSAB).
3.35
Defence subsequently advised the ANAO that the project was now nine months delayed in schedule, as opposed to the 15 months proposed by Naval Group. Defence further acknowledged the concerns regarding schedule delays, stating:
This delay is intended to ensure the Commonwealth’s requirements for a high level of design maturity before progressing to subsequent phases of design, thereby reducing uncertainties during the build phase [and] the need for larger construction contingencies. Accordingly, Defence has not altered the planned delivery date for the first Attack class submarine.
3.36
Defence explained that these delays did not change the delivery date for the first vessel of 2034 as:
[A]llowing the extra time, as we have, as pointed out in the ANAO report, to complete design to a high level of maturity offers us the means by which we can reduce the contingency we have to put into the build phase of the program. By having a high level of maturity, we can avoid delays during the build process and ensure that the build is conducted as efficiently and as effectively as we can achieve for a first of class.
3.37
The ANAO focussed on the first two design milestone deliverables which had not been met on time: the Concept Studies Review, and the System Requirements Review.
Concept Studies Review Milestone
3.38
The Concept Studies Review was a major design milestone of the Design and Mobilisation Contract, and was intended to commence in September 2018. In September 2018, however, Defence elected not to begin activities related to the Concept Studies Review ‘on the grounds that the work provided to Defence by Naval Group did not meet Defence’s requirements’.
3.39
The ANAO stated that Naval Group had provided Defence with documents including proposed improvements to the design in July 2018. Defence stated, however, that these changes did not adequately reflect on potential impacts to ‘operational requirements, design risk, costings or other transverse engineering consequences’. The proposal was also considered by Defence to lack sufficient detailed information in order for the government to ‘assure design decision making’. Defence also stated that 63 studies required to complete the Preliminary Design: Feasibility Phase had not been completed by Naval Group.
3.40
Defence explained that the 63 incomplete feasibility studies:
[W]ill be completed by the system functional review in 2020-21, with the exception of one study that will extend into the next phase. That one study that’s going to be conducted in the next phase of the program after the systems functional review is not part of the entry criteria, which is documented and is within our contract with Naval Group to enter the systems functional review.
3.41
Following tripartite discussions between Defence, Naval Group, and Lockheed Martin in November 2018, Concept Studies Review activities were ultimately conducted and completed by 12 February 2019. A number of work items related to the Concept Studies Review were identified by Defence as incomplete; it was determined, however, that these items were not necessary in transitioning from the Feasibility Phase to the Definition Phase. These work items included: 44 feasibility studies, a work performance plan incorporating key performance indicators, and a master schedule for the project’s design and build. The delay in meeting the milestone also caused in a number of contractual changes to the Design and Mobilisation Contract to ensure work could continue.
3.42
The audit found that Defence attributed the issues in meeting this milestone as a ‘disconnect’ between Defence and the contractors in achieving a ‘balanced design’. A progress report prepared by Defence in March 2019 stated that:
Naval Group acknowledged the disconnect between the level of maturity they would expect at this stage of the design process and what the CoA [Commonwealth of Australia] was expecting. Through clear dialogue between the parties, Naval Group will now account for the more advanced design maturity expected of the CoA in the scope of planned work and in the delivery of milestone review documentation.
System Requirements Review Milestone
3.43
The Systems Requirements Review was the first major design milestone under the Preliminary Design: Definition Phase. It was the first platform design review stipulated in the Submarine Design Contract, and was identified in the Agreement as an important milestone.
3.44
The ANAO reported that under the amended schedule in the Submarine Design Contract, the Systems Requirements Review’s completion date was changed to 31 October 2019. This was raised by Defence with Naval Group in light of the delays experienced with the Design and Mobilisation Contract. Defence wrote to Naval Group confirming the Commonwealth’s agreement to extend the project by nine months in recognition of the ‘need for a realistic and achievable schedule’. Defence also raised issues regarding Naval Group’s preparedness for entry into the System Requirements Review, and a broader concern regarding the partnership’s state and the risk this posed to the project. Defence sought a ‘high-level discussion’ with Naval Group regarding these issues prior to 2 October 2019.
3.45
Defence advised the ANAO that the Systems Requirements Review was started on 5 December 2019, which was five weeks behind schedule. However, the milestone for exiting the Systems Requirements Review had a completion date, according to the Design and Mobilisation Contract, of 31 October 2019. As of 20 May 2020, the Systems Requirements Review had not yet been exited, although corrective actions resulting from the review had been completed. Defence clarified, however, that the delay in exiting from the Systems Requirements Review was not causing any suspensions in other work such as the next phase, the Systems Functional Review.
3.46
The ANAO noted that the negotiation process highlighted some differences in approach between Defence and Naval Group, which Defence considered as requiring ongoing attention and active management. The ANAO identified that Defence had been proactive in contract management, communicating frankly and promptly, and escalating issues where necessary. The audit also found that both parties were addressing issues as raised, and were mindful of the need to establish a strong partnership and a united understanding of specific matters. In reporting these findings, however, the ANAO stated the following caution:
While this is to be expected at this relatively early stage of a long-term partnership, the parties’ active management of both specific issues and the relationship is essential, to ensure that avoidable risks to an already ambitious program schedule (which may also have cost and capability implications) do not arise.
3.47
The ANAO was unable to conclude whether the Agreement or the partnership between Defence and Naval Group were successful, due to the early state of the partnership.
Effectiveness of expenditure
3.48
In considering Defence’s performance in this stage of the project, the ANAO examined whether the department’s expenditure on design work to date has been effective in achieving milestones.
3.49
The ANAO stated that the design phase of the project had so far represented 47 per cent of total expenditure on the project as at September 2019. Defence was found to have spent $834 million on the Future Submarine Program as of 30 September 2019, of which $396 million had been spent in relation to design work. Seventy-two per cent of expenditure was in relation to payments made to the primary contractors, Naval Group and Lockheed Martin, while the remainder of expenditure was directed to other contractors. ANAO analysis also identified that the main categories of costs regarding the project were in relation to feasibility studies, combat system integration mobilisation and functional analysis.
3.50
The ANAO concluded that, due to the extended milestones in relation to the Concept Studies Review and the Systems Requirements Review, that:
Defence cannot demonstrate that its expenditure of $396 million on design of the Future Submarine has been fully effective in achieving the program’s two major design milestones to date.
3.51
It was explained further by the ANAO that:
The reason you have milestones and manage against them is to keep track of things to make sure that you can have an opportunity to get back on track. The response that Defence gave us with respect to the milestones primarily related to their view that they were investing more time in the design phase in order to lower risks later on.
3.52
The ANAO also commented that, while missed milestones could be considered as ‘warnings’ that a project may be subject to issues further into development, it could not make a judgement on this particular project due to its early state of development. It was also stated that risk mitigation in the design phase in order to enable maturity of the project was highly desirable for all involved parties.
3.53
No recommendations were issued by the ANAO, which was stated to be because any possible recommendations made would be too imprecise for implementation. The ANAO stated that it had instead focussed on particular issues for future consideration in its ‘Key Messages’ section of the audit report.
3.54
In response to the ANAO’s finding, Defence stated that it was working to recover schedule in 2021 with the Systems Functional Review, supported by a work plan with Naval Group. Defence stated that the work plan had significant oversight, including the responsible ministers in Australia and France, to ensure that schedule was recovered and progress achieved. It was observed, however, that the impact of COVID-19 on the international defence industry may present challenges in recovering schedule, but that officials had a ‘medium level of confidence that we can recover schedule by January 2021’. It was further put by Defence that the department had ‘not overspent in terms of our budget as we have reached any milestone’.
Risk mitigation strategies
3.55
In advice provided to government in July 2015 and again in May 2017, the Future Submarine Program had been categorised by Defence as being ‘high to extreme’ risk. Current advice suggests that the risk remains ‘high’.
3.56
The audit found that, on 8 February 2019, Defence provided advice to the Australian Government outlining the areas which posed significant risk which would require active management to ensure successful outcomes. These risks included:
effective engagement by the parties to build a partnership based on transparency, collaboration and leadership commitment to program objectives;
staffing the program with the right number of suitably qualified and experienced personnel;
appropriate skills development in the new subsidiary, Naval Group Australia, to undertake progressively more engineering and procurement activities;
the effective procurement of equipment to meet Australia’s capability needs;
effective program planning;
embracing methods and processes reflecting a best-for-program approach; and
effective engagement with Australian industry.
3.57
The ANAO identified that the advice provided information in relation to risks to the Commonwealth, which included: ensuring that a ‘competent and sustainable workforce’ was maintained in Defence to lead the project’s progress, and developing an industry workforce capable of executing the program efficiently and with improved productivity as time progressed.
3.58
In managing these risks, the audit found that:
Defence has identified a range of specific program risks for the Future Submarine Program. Defence utilises a risk management tool, which includes a program risk register and risk schedules for each business unit within the Program.
3.59
Further, Defence was found to have provided an outline of risk mitigation strategies to Government in February 2019, detailing methods such as:
The inclusion of mandatory design and review points in the Submarine Design Contract, each incorporating entry and exit criteria which Naval Group must demonstrate before a Mandated System Review can be conducted or proceeding to the next phase;
Establishing arrangements regarding partnerships and governance, including a governance framework established in the Agreement;
Ensuring detailed design processes were moved from France to Australia, demonstrated to be necessary due to differing systems engineering and industrial engineering practices between the two countries, which was considered by Defence to be an ‘extreme’ risk to the project;
Fabricating certain hull parts in France, due to the requirement for highly trained personnel and advanced technology;
Establishing control measures for productivity and costings for the build phase of the project; and
Providing for the NSAB and Submarine Advisory Committee to ensure ongoing oversight and review of the project, which both provide reports to Defence and/or the Minister for Defence.
3.60
Overall, the ANAO found that ‘Defence has adopted risk management methodologies to identify and assess program risk, and has adopted relevant risk mitigation strategies’.
Capability gap risk
3.61
The ANAO stated that one of the critical risks in relation to the project is the potential for a delay to cause a capability gap for the Navy. The audit identified that one mitigation strategy directed at this issue was the Collins class life-of-type-extension program (SEA 1450), but that this program was not sufficiently developed and needed first gate approval clearance prior to its being further implemented. Further, the costs regarding the upgrades to the Collins class submarines and the sustainment of the extended life-of-type ‘had not yet been determined’. An acceleration of the life-of-type-extension program was recommended by the NSAB in December 2018, given the delays evident in the Future Submarine Program.
3.62
In order to manage risks in relation to the transition between the previous Collins class to the Attack class submarines, Defence is ‘considering installing sub-systems and components in the upgraded Collins class that will be common to the Attack class’. This approach would enable testing of sub-systems and training of Defence personnel prior to the transition. The NSAB endorsed this strategy as of November 2018.
Engagement with partners
3.63
The audit found that Defence has established frameworks and agreements to facilitate key strategic partnerships and mitigate risk. The audit reported that the creation of an effective working partnership between Defence and Naval Group, in particular, was a critical risk to the success of the project.
3.64
A key component of Defence’s attempt to promote a successful partnership was identified by the audit in the Agreement, which stipulates that both parties should cooperate in achieving mutual objectives:
…through a culture of mutual respect and cooperation and in an environment that fosters innovation, continuous improvement, cost efficiency, transparency and open, honest and timely communication.
3.65
The ANAO commented that the issues evident in the delays to key contractual milestones were indicative of the importance of fostering an effective working partnership, particularly in relation to differences in approach regarding commercial and technical matters. The ANAO stated that ongoing monitoring and active administration of issues, both specific and generally relating to the partnership between the parties, was essential to addressing the project’s risks and determining outcomes.
3.66
The audit, however, observed that the relationship between the parties was at a ‘relatively early stage’ of the project, and that the parties were in the process of addressing and managing issues that may arise during the project’s life. The partnership between Defence and Naval Group is therefore critical to the success of the program, and should be prioritised and monitored carefully by senior Defence officers and ministers in future phases of the project.
Concluding comment
3.67
The Future Submarine Program represents a significant investment of Commonwealth funds in Australia’s future naval capability. It is thus imperative to the success of the project that it be administrated effectively and with appropriate controls for risk.
3.68
The audit indicated that Defence has established a fit for purpose partnership framework. The framework appears to the Committee to address issues such as risk management, oversight, partnership arrangements, performance indicators, and contracted milestone points. The Committee is pleased to observe that this framework has been implemented by Defence, and believes it will establish the parameters for the project’s future success.
3.69
The Committee recognises the concerns of the ANAO in relation to the strategic partnership between Defence and Naval Group, and agrees with its statements regarding the importance of a strong relationship between the parties. The role that effective communication and mutual understanding of critical issues plays cannot be understated, particularly at this early point of the project’s development. The Committee encourages Defence to continue its pursuit of an effective working partnership with all parties involved in the Future Submarine Program.
3.70
The delayed milestones reported by the ANAO found that the program is operating nine months behind Defence’s original planned scheduled for Definition Design. The Committee acknowledges Defence’s explanation that the milestones were delayed due to negotiations with Naval Group and the importance of establishing a mutual understanding on a number of important design aspects. The Committee concurs with the view of the ANAO that a united understanding and approach is to the mutual benefit of all parties in this scenario. The Committee acknowledges Defence’s claim that the delayed milestones have not impacted the delivery date for the Future Submarine Program.
3.71
With respect to actual delivery dates against the baseline schedule:
The Design and Mobilisation Contract between Defence and Naval Group identified that the Strategic Partnering Agreement was to be in place by 17 October 2017. The Strategic Partnering Agreement was signed by Defence and Naval Group on 11 February 2019;
The System Requirements Review was to be completed in March 2019 in accordance with Defence’s original milestone plan. It was subsequently contracted for October 2019 and, as at May 2020, had not yet been closed out;
The Preliminary Design Review was originally scheduled for March 2020 but has been rescheduled to January 2021;
No baseline cost or actual cost information has been made available to the Committee.
3.72
The Committee acknowledges Defence’s statement that these preliminary delays were a consequence of ensuring that the design met the necessary requirements, and give Defence (and the general public more broadly) confidence that when the Future Submarines are delivered, they will perform as required. Defence have repeatedly stated that this has not impact on the date for the commencement of construction activities in Australia and the delivery of the Future Submarines.
3.73
Some Committee members remain concerned about the progress of the project. The Committee acknowledges that this is one of the most substantial defence acquisition programs and would warrant ongoing parliamentary oversight. It is the Committee’s view that the JCPAA should continue to provide this oversight through the MPR process for the benefit of the public and relevant stakeholders.
3.74
The Committee notes that the Future Submarine Project will be included in future MPRs and recommends that Defence provide advice to the Committee as to what thresholds are required for any Defence Major Project to be listed as a Project of Concern.
Ms Lucy Wicks MP
Chair
2 December 2020