Introduction
2.1
This chapter will review the status of the Offshore Patrol Vessel (OPV) project.
Background
2.2
Australia’s current Armidale-class and Cape-class Patrol Boats are planned to be replaced with a single class of OPV, under Project SEA 1180 Phase 1. The boats are to be built in Australia by German shipbuilder, Lürssen's subsidiary, Luerssen Australia partnering with Australian Submarine Corporation (ASC) OPV Shipbuilder for construction of the first two OPVs in South Australia and Civmec Construction for the remaining ten in Western Australia.
2.3
A competitive evaluation process (CEP) commenced in late 2015 and concluded with the signing of a contract with Lürssen Australia on
31 January 2018. Defence Connect describes Lürssen as a global leader in designing and building ships of the highest quality for demanding customers all over the world.
2.4
The German company’s bid was successful against those of the Dutch company Damen, which was also partnered with ASC and Civmec, as well as German company Fassmer, which was in a joint venture with Austal, for the SEA 1180 project.
2.5
Civmec is an integrated, multi-disciplinary construction and engineering services provider to the oil and gas, metals and minerals, infrastructure, and marine and defence sectors and is headquartered in Henderson, WA. Civmec has regional offices in Broome (WA), Darwin (Northern Territory), Newcastle and Sydney (NSW), and Gladstone (Queensland).
2.6
The primary role of the OPV will be to undertake constabulary missions and the OPV will be the primary ADF asset for maritime patrol and response duties. State-of-the-art sensors as well as command and communication systems will allow the OPVs to operate alongside Australian Border Force (ABF) vessels, other Australian Defence Force (ADF) units and other regional partners.
2.7
The OPV design will support specialist mission packages, such as a maritime tactical unmanned aerial system, and into the future, rapid environmental assessment and deployable mine counter measure capabilities.
2.8
On 15 November 2018, the Chief of Navy, Vice Admiral Mike Noonan, announced that the OPV will be known as the Arafura-class named after the Arafura Sea in northern Australia with construction commencing at the Osborne shipyard.
2.9
The twelve Australian vessels are based on the PV80 design with the first two vessels to be built at ASC's Osborne shipyard in South Australia before production moves to Civmec's Henderson shipyard in Western Australia where ten OPVs will be built by Civmec in partnership with Lürssen Australia. Defence Connect reported that it is estimated the $3.6 billion SEA 1180 project will create around 1,000 direct and indirect jobs.
2.10
During the ceremonial keel laying for the second Arafura-class OPV held at the Osborne Naval Shipyard in Adelaide on 9 April 2020, the Chief of Navy, Vice Admiral Michael Noonan, announced the names of the next five vessels. Upon commissioning, OPV2 will be HMAS Eyre, OPV3 will be HMAS Pilbara, OPV4 will be HMAS Gippsland, OPV5 will be HMAS Illawarra, and OPV6 will be HMAS Carpentaria. The names of the other OPV vessels will be announced at a later date.
Current status
2.11
The ANAO reported that the project achieved Second Pass Government approval on 24 November 2017 and contract signature with Luerssen Australia on schedule on 31 January 2018. An intensive design review program was conducted and the project commenced construction of the first OPV in South Australia in November 2018 on schedule. A Whole of Ship Design Review was added to the program and conducted in late October 2019. The Support System Detailed Design Review was delayed to September 2021 to allow a Logistic Support Analysis program to be established effectively in November 2020.
2.12
The construction of the first OPV commenced on schedule in November 2018 in South Australia. The contracted keel laying milestone for OPV 1 (Arafura) was achieved in February 2019 and the keel laying ceremony for Nuship Arafura occurred on 10 May 2019. Production of the second OPV commenced in June 2019, two months ahead of schedule. The keel laying for OPV 2 (Eyre) was achieved on 9 April 2020. OPV 3 (Pilbara) commenced construction in Western Australia ahead of schedule on 27 March 2020. OPV 4 (Gippsland) also commenced construction on schedule on 4 January 2021, with the keel laying ceremony held on 30 July 2021.
2.13
Construction of the fifth Arafura-class offshore patrol vessel (Illawarra) commenced at Henderson in Western Australia on 1 November 2021. The first of class—the HMAS Arafura itself—was launched at Osborne in South Australia on 16 December 2021.
2.14
As a result of delays created by COVID-19, Nuship Arafura is expected to be delivered by Luerssen six months later than planned in June 2022 after which Navy will commence its Naval Operational Test and Evaluation (NOTE). Initial Operational Capability (IOC) is still planned for December 2022. The ANAO noted that the Project is on track to achieve the Final Materiel Release (FMR) milestone.
Armament issues
2.15
Apart from the pandemic induced delays, media reporting from July 2021 indicted that there were issues with the vessels’ guns:
In response to Labor questions on notice, Defence said the German-designed ship, to be designated HMAS Eyre, would now be delivered in March 2023.
The Defence Department did not provide a reason for the delay. Nor did it answer The Australian Financial Review’s question about it, instead referring back to testimony given by officials at estimates in June.
The department’s First Assistant Secretary for ships, Sheryl Lutz, told the hearing the COVID-19 pandemic had caused the first two ships to miss construction milestones.
Defence industry sources have claimed there are issues with integrating the gun with the combat system but Ms Lutz denied this.
2.16
ANAO reported in December 2021 that:
In June 2021, due to technical certification concerns by Navy, a revised threat assessment and a requirement for commonality, Luerssen Australia was directed to terminate the main gun contract with Leonardo Australia. An interim gun solution is being investigated for the Arafura OPVs using the existing Navy, 25mm Typhoon Mod 0 until a replacement gun is identified.
2.17
The May 2022 edition of the Asia Pacific Defence Reporter provided a useful summary as to the status of the Arafura-class’s gun:
One of the notable features from the official photos of the launch of the first Arafura was the absence of the 40mm main gun, which was to have been supplied by Italian company Leonardo. Asked for an explanation, Defence said:
“Defence is currently considering options for the procurement of a new gun for the Arafura-class offshore patrol vessels and expects to release a Request for Tender in 2022.
“An interim gun solution for the first Arafura comprising existing Navy 25mm Typhoon Mod 0 is being implemented until the replacement gun is procured. This will ensure the early Arafura-class vessels have an equivalent armament to earlier patrol vessels, but in a bigger, more capable platform, supported by a situational awareness system and sensors superior to previous vessels.
“Once an alternative gun is identified, the interim gun will be replaced with the new gun at the first available opportunity in order to meet all mission requirements.”
…according to Defence… the selection of the Leonardo gun was made by Luerssen, who as prime contractor was doing their job using performance specifications from the RAN. On this basis the 40mm cannon was assessed as preferable to the more powerful Bofors 57mm [Mk 3] found on the parent ships for the navy of Brunei—which presumably would have been the lowest risk, proven, in service solution…
Another problem is that the Leonardo gun doesn’t exist. Or rather, it doesn’t exist as a complete, proven system but nevertheless the company was awarded $41 million to supply them for the OPVs—a contract that was terminated in July 2021. Legally, it was terminated ‘for convenience’ but the background is that Defence became concerned that Leonardo would not be able to meet the delivery timetable—and on top of that would not be able to meet various certification requirements needed before the gun entered service. Negotiations are ongoing, but Defence estimates that Leonardo will be paid a cancellation fee of $10 million—which is not bad work for a non-existent product that has not been delivered. The first of the interim solution Typhoons will be installed before the end of the year. Whatever new gun is chosen—one would like to think that the 57/Mk 3 would be a strong contender—the intention is for it to be installed on ship four onwards. They will also then be retrofitted to the first three ships at a later point.
It is not known why the RAN developed a specification that managed to rule out the Mk57/3…
Australian content: rigid-hull-inflatable-boats (RHIBs) purchase
2.18
In October 2019, it was announced that the Finland-based Boomeranger Boats Oy (Ltd) had been awarded a contract by the Australian Department of Defence to supply the rigid-hull-inflatable-boats (RHIBs) for the OPVs.
2.19
The contract will see Boomeranger supply 41 RHIBs over a period of ten years, with the first delivery of seaboats arriving for the first OPV in 2021.
2.20
Boomeranger will deliver two davit-launched fast rescue boats and one ramp-launched special operations boat for each of the OPVs. Both vessels are RHIB with inboard engines, with the fast rescue boats measuring 8.5 metres long and the special operations boat measuring 10.5 metres.
2.21
A press release from Boomeranger said:
As the primary role of the OPV will be to undertake constabulary missions, maritime patrol and response duties, the seaboats are a significant weapon system for the capability.
Both of the seaboats models are existing designs from earlier projects delivered by Boomeranger. The 10.5-metre seaboat is an enhanced variant of the ramp-launched RHIB of the original Lürssen OPV delivered to the Royal Brunei Navy.
Concerns
Acquisition process
2.22
Media reporting indicates that the Royal Australian Navy's contract with Finland's Boomeranger Boats Oy (Ltd) was finalised without a competitive tender during October's PACIFIC 2019 military trade show in Sydney.
2.23
These reports also indicate that Defence sources acknowledged the RHIB contract had caused 'considerable' consternation within the Defence Department and within the Federal Government.
2.24
The Department of Defence is reported to be standing by its purchase of the Finnish military boats. In a statement to the Australian Broadcasting Corporation (ABC), Defence insisted its decision was based on “design, cost, risk and schedule considerations”.
2.25
Defence said the RHIB program would include "opportunities to improve Australian industry content". Moreover:
Opportunities exist for Australian industry in relation to managing delivery and acceptance of the seaboats, as well as provision of training, warranty, and in-service support.”
Local manufacturers overlooked
2.26
The same media report indicated that several Australian companies were capable of building similar vessels including one business in the Prime Minister's Sydney electorate of Cook – Britton Marine Systems (BMS). Moreover, BMS has previously supplied tactical watercraft to defence and law enforcement agencies.
Activities of parent company, International Golden Group (IGG)
2.27
Established in 1991 in Finland, Boomeranger Boats Oy (Ltd) (Boomeranger) was acquired by International Golden Group (IGG) in 2015 to be a new subsidiary specialising in the production of RHIBs.
2.28
IGG is, according to Defence Aeropsace, one of the United Arab Emirates’ (UAE) leading companies specialised in the business of marketing, importing, exporting, purchasing and resale of military and special products and related services including development and modernization of those products.
2.29
The IGG website reports that the Boomranger RHIBs are designed and built in-house and meet the requirements of military and defence clients and are produced according to international quality standards. It also reports that all manufacturing is done in Loviisa, Finland.
2.30
There have been questions raised about the IGG’s arms sales. The Australian Financial Review (AFR) reported:
In a 2013 article, website Intelligence Online reported IGG served as cover for “secret operations” carried out by the UAE beyond its borders.
“In 2011, it sent large quantities of light arms to the rebel forces attacking the Gaddafi regime in Libya via Albanian state arms manufacturer Meico and Armenia's DG Arms Corporation,” the article said.
“In 2012 and 2013, a similar arrangement is thought to have been set up to help Syrian rebels fighting the regime of Bashar al-Assad.”
…
Amnesty International has also examined IGG’s activities. In a 2017 report, Amnesty said IGG was involved in a US$46 million deal to supply arms to government of South Sudan, which has been engaged in a brutal civil war.
Documents obtained by Amnesty showed IGG entered an agreement to obtain weapons from a Ukrainian company.
A UK registered firm acted as an intermediary, which Amnesty says may be a breach of UK exports controls. The involvement of a UK registered firm may make the deal seem more reputable to regulators, Amnesty says.
2.31
The AFR also reported in December 2019 that the purchase had inspired an audit over the amount of Australian involvement in major projects, and that the Department of Defence was reviewing the contract with Boomeranger and “conducting further due diligence as a result” of the claims. There has been no further open source reporting on that review.
Further developments
Collaboration with Australian companies
2.32
On 7 April 2020, it was announced that Boomeranger had signed a Memorandum of Understanding (MoU) with Birdon—a wholly Australian owned and headquartered in Port Macquarie, NSW—to collaborate on RHIB capabilities in Australia:
Boomeranger and Birdon have agreed to collaborate on the assembly, RHIB fit-out as well as trials and acceptance for the OPV RHIBs in Australia. The companies are exploring the transfer of more work to Birdon for the OPV RHIBs in the future.
The MoU further specifies that Boomeranger and Birdon will work together on other RHIB and Seaboat opportunities in the Australian region. This agreement concludes almost a year of discussions between Boomeranger and Birdon.
“One of the key benefits of the arrangement,” Miika Tammi, CEO of Boomeranger Boats said, “is the ability of Boomeranger to leverage Birdon’s Australia-wide capability to deliver and support the RHIBs according to the RAN’s specifications and requirements.
"We are looking to establish a RHIB Centre of Excellence (RCOE) which will provide support for the supply-chain management, assembly, testing, commissioning, and ongoing sustainment and maintenance of RHIBs."
“Birdon is keen to support Boomeranger in this key program and bring Birdon’s expertise developed through our current work with the ADF, the US Army, US Navy and US Coast Guard," Jamie Bruce, CEO of Birdon, said. "We look forward to building and delivering real capability in the RCOE to provide and support RHIBs in the Australasian region.”
Request for Information
2.33
Also in April 2020, Defence issued a Request for Information (RFI) on AusTender “to gain an appreciation of Australian industry capabilities to design, manufacture and sustain seaboats.”
2.34
Capability Acquisition and Sustainment Group’s (CASG) First Assistant Secretary Ships, Ms Sheryl Lutz, said the four-week RFI would help inform procurement options for Australian-manufactured seaboats:
The RFI will help CASG determine a baseline level of Australian Industry Content to inform future seaboat procurements across the Royal Australian Navy.
Australian National Audit Office audit of the Offshore Patrol Vessels
2.35
On Monday, 12 October 2020, the Australian National Audit Office (ANAO) published its report into the audit of the OPVs –Defence’s Procurement of Offshore Patrol Vessels — SEA 1180 Phase 1. The report makes little mention of the Boomeranger RHIBs, stating only:
During negotiations, Defence and Lürssen agreed to make the Boomeranger seaboats—one of the capability sub-systems included in Lürssen’s tender offer—Government Furnished Equipment (GFE). Consequently, Defence contracted separately with Boomeranger Boats Oy (Ltd) for the procurement of the seaboats. The Boomeranger seaboats were procured in accordance with the specifications provided by Lürssen. Under the OPV acquisition contract, Lürssen is responsible for the performance of the seaboats and their integration into the OPV platform. The rationale for changing the seaboats to GFE was:
The Boomeranger seaboats have been changed from CFE [Contractor Furnished Equipment] to GFE, thus saving the Commonwealth overhead and profit that was previously included as part of the Lürssen bid price.
Review during Senate Estimates
2.36
Between 26–29 October 2020, the Senate Foreign Affairs Defence and Trade (FADT) committee held their Estimates hearings.
2.37
On 27 October 2020, the committee questioned the then Minister for Defence, Senator Linda Reynolds, and Defence officials on the Boomeranger acquisition and addressed some of the issues discussed above.
2.38
Officials confirmed that the acquisition had not gone out to tender as this had been part of the original offer from Lürssen and that the decision to go to a separate contract direct with the RHIB manufacturer was a cost saving measure. By going direct and cutting out ‘the middle-man’—i.e. Lürssen—the Commonwealth had saved $10 million.
2.39
Defence confirmed that no Australian tenderers were considered for the RHIB contract as it was part of the original design that was put forward at the time of the tender.
2.40
Defence officials and the Minister also explained that the decision not to pursue a separate Australian supplier for the RHIBs was made so as not to delay the construction program for the OPVs and thus the sequencing for the continuous shipbuilding program.
2.41
Defence was asked if they had received a brief that outlined potential Australian seaboat suppliers during the period when the decision was made to commission the Boomeranger company. Defence officials took the Question on Notice.
2.42
Officials stated that the RFI had been issued so that, in the future, Defence would have commonality of seaboats across the fleet. Defence also clarified that the RFI was not connected to the Boomeranger contract.
2.43
When questioned on the activities of Boomeranger’s parent company—IGG – and media reporting that Defence “is conducting further due diligence as a result”, the Department took the question of the status of that investigation on notice.
2.44
Through those Questions on Notice, the Department responded to the concerns raised. With regard to the activities of IGG, Defence was asked:
The Financial Review reported that this group, the UAE group, may have been involved in selling weapons to rebels in Syria and Libya. The comment that the defence department gave to the media at that time was that it was conducting further due diligence as a result. What is the status of those investigations and due diligence?
Defence responded with:
Defence has completed further enquiries.
Defence has measures in place to assess risks and adapt measures in response to changes in the risk profile of companies contracted to Defence and continually monitors reports of this nature in relation to its suppliers.
2.45
Regarding Australian manufacturers, when asked:
Have you received a brief or a document that outlined potential suppliers of the sea boats that included Australian boat designers and suppliers?
Defence responded:
No. In December 2019, Defence met with Britton Maritime Systems, an Australian sea boat manufacturer, and was advised that Britton Maritime Systems had registered on the Lürssen supply portal in March 2017. This did not generate an enquiry from Lürssen or create a contract or an offer of future work.
2.46
Similarly, when asked:
Were you aware of Australian companies that had been considered by Luerssen as part of the procurement process and assessed as capable of providing sea boats for the OPV program?
Defence responded:
In detail, no. Defence was aware that Lürssen conducted multiple industry sessions in the period between 2016 and 2017 in developing their bid to meet the capability, cost and, importantly, the challenging schedule requirements set by the Government at a manageable level of risk.
Lürssen’s bid was based on the Boomeranger seaboats already certified with the reference ship design; no alternatives were offered or required to achieve a competitive level of Australian industry involvement across the bid at a competitive price and a manageable level of risk to meet the schedule requirements.
Committee Comment
Overall comment
2.47
Notwithstanding the 6-month delay essentially caused by the pandemic, the Arafura-class OPVs appear to be essentially on track. The first vessel is in the water, if not yet commissioned and in service, with the next vessels in the series currently under construction. Defence noted:
…vessel 3 is under construction; that's the first one in Western Australia. Vessel 4 is under construction. And we anticipate that the fifth vessel, or the third one in Western Australia, will commence construction on schedule.
Armament issues
2.48
The issues regarding the Leonardo 40mm gun are disappointing, particularly as this was supposed to be a mature design package. If, as reported, Leonardo will receive $10 million for a weapons system never supplied, then this will then be yet another example of unnecessary waste in a Defence procurement.
2.49
As noted by the Asia Pacific Defence Reporter, there is logic in the suggestion that the Bofors gun already fitted to the Royal Brunei ships would have been suitable.
2.50
The Department of Defence provide to the committee an explanation suitable for publication:
as to why the Bofors 57mm Mk3 gun used by the Royal Brunei Navy was deemed unsuitable for the Australian OPVs; and
an estimate of the final contract cancellation cost for the Leonardo 40mm gun.
Australian content – RHIBs
2.51
The committee notes ANAO’s assessment that 59 per cent Australian Industry Content commitment, which it reports to have risen to 62.8 per cent and a value of $1.248 billion.
2.52
Nonetheless, the revelations discussed in this chapter regarding awarding a Finnish company the contract to build the RHIBs used on the OPV show that not all is being done to maximise Australian content.