Project

Explanation

Description

The $7,740 million Sea 4000 Phase 3 Air Warfare Destroyer Project will acquire three Hobart Class Air Warfare capable Destroyers (AWD) and their support system for the ADF. The capability provided by the AWDs will form a critical element of the ADF's joint air warfare defence capability and will contribute to a number of other joint warfare outcomes.

Background

Following the adoption by Government of the 2000 Defence White Paper, the Program began with an initial phase which assessed requirements and alternatives for an air warfare destroyer. In May 2005 the Government granted first pass approval to the Program, allowing commencement of Phase 2, the Design phase.

Phase 2 oversaw the development of two platform designs:

•  The 'Existing' design based upon a modified version of the Navantia designed and built F-100 warship as the Australianised military off-the-shelf option; and

•  The 'Evolved' design produced by Gibbs & Cox developed from an in-house design utilising design features of the US Navy class of Aegis Guided Missile Destroyers.

In May 2005, the Government selected ASC AWD Shipbuilder Pty Ltd as the shipbuilder for the AWD Program and determined that the ships should be built in Adelaide. Raytheon Australia Pty Ltd was chosen as the Combat System Systems Engineer.

In October 2005, Defence sought and received Government approval to acquire three Aegis Weapon Systems to provide the core air warfare capability of the AWD. The Commonwealth subsequently entered into a US FMS agreement for the acquisition of the Aegis weapons system comprising:

•  Three Aegis Weapon System sets, and

•  Associated engineering services and integrated logistic support.

In June 2007, at Second Pass, the Government granted approval to commence construction of the Hobart Class Air Warfare Destroyer utilising the existing design. This decision initiated the current phase of Project Sea 4000 Phase 3, the construction phase.

Phase 3 includes detailed design, procurement, ship construction, and set to work of the Aegis Combat System and the F-100 based Platform Systems. This culminates in the delivery of three Hobart Class AWDs together with the ships support systems including initial spares and ammunition outfits, and initial crew training.

Phase 3 concludes with the delivery to the Royal Australian Navy (RAN) of the third AWD, HMAS Sydney.

At Second Pass, the Government approved Defence's proposal to close Sea 4000 Program Phase 2, Design, and Phase 3.1, Aegis acquisition activities, and combine the remaining Phase 2 and Phase 3.1 scope and funding with Sea 4000 Program Phase 3.

Since July 2009 the following major events and activities have occurred:

•  The Alliance awarded contracts for the production of blocks to Forgacs in Newcastle (NSW) and BAE Systems Australia in Williamstown (Victoria).

•  The AWD system Critical Design Review was successfully completed on schedule in February 2010.

•  ASC's new shipyard was opened by the Prime Minister on 21 January 2010.The Government of South Australia's Common User Facility was opened by the Premier on 15 February 2010. The on time completion of these facilities represents an important step forward for the project by providing new state of the art facilities.

•  Following the successful completion of pilot production activities at the shipyards, full block production of the Air Warfare Destroyers was underway on 4 March 2010 at all three shipyards.

Uniqueness

The Sea 4000 Air Warfare Destroyer Program is currently one of Australia's largest and most technically complex Defence projects.

The AWDs will be the RAN's first Aegis equipped ships and will be the most modern version of Aegis installed in a non US Navy ship.

The AWDs are being delivered through an Alliance based contract arrangement involving ASC AWD Shipbuilder, Raytheon Australia and the Commonwealth, represented by the DMO. The Alliance based contract arrangement is described in greater detail in the "Contractual Framework" Section.

Contractual Framework

The Alliance based contract arrangement was signed in October 2007. The contract is aimed at delivering a highly successful outcome in a complex project and it incorporates terms and conditions designed to protect the Commonwealth's essential interests.

The key features of the AWD Alliance and the operations of the Alliance based contract arrangement include:

•  The Alliance Industry Participants (Raytheon Australia and ASC AWD Shipbuilder) are jointly and severally responsible for the delivery of the three ships and their support systems. Each party remains individually responsible for compliance with all statutory requirements.

•  The Alliance is neither a legal body, nor a joint venture.

•  All participants have a shared commercial interest in the outcome of the Program through pain share/gain share arrangements. The Industry Participants fee is at risk if performance is poor, however, they can benefit from delivery ahead of schedule and / or under budget.

•  The Industry Participants are expected to use their commercial expertise and business acumen in achieving the aims of the Program.

•  The Commonwealth retains "step in" rights to protect the national interest and the unilateral right to determine strategic issues relating to the Program.

•  Liquidated Damages apply in the event the ship is delivered later than specified dates.

•  To the greatest extent possible, the Alliance accommodates emerging issues to achieve a "best for Program" outcome which considers the interests of all parties.

•  Risk is managed through the allocation of management reserve.

•  Procurements are executed by the Participant best placed to do so; where this is one of the Industry Participants it is done in accordance with their processes and procedures.

•  All financial accounting is on an "open book" basis.

The Commonwealth entered into a Platform System Design contract with Navantia, the ship designer, in October 2007. This contract is managed by the AWD Alliance under the Alliance based contract arrangement.

The Aegis combat system is being procured by the Commonwealth under the FMS agreement with the US Navy. This agreement is also managed within the AWD Alliance project team.

While Navantia and the US Navy (and its equipment supplier, Lockheed Martin) are not part of the Alliance, they work closely with the Alliance and are treated in an alliance like manner.

Major Challenges

The major challenges the project faces are:

•  Ensuring that the Alliance participants and their sub contractors have access to appropriately skilled and experienced labour for effective management of the project, building and testing the ships.

•  Achieving timely delivery of items being manufactured by sub contractors for the Alliance participants, from multiple locations within Australia and around the world.

•  Delivering an appropriately structured support system to enable the ships to be properly sustained through life.

•  Ensuring that Navantia's production drawings are able to meet the requirements of the three shipyards in Australia while minimising the impact on production for the shipyards.

•  Managing expectations about changes to the existing platform design in order to avoid design changes which are not essential. Design changes can have significant cost and schedule implications.

Current Status

Cost Performance

Program expenditure in Financial Year 2009-10 was less than budgeted due to a combination of factors. Foreign Military Sales expenditure was high due to improved schedule performance. However, lower than planned expenditure by the Industry Partners together with savings made in Foreign Currency gains resulted in an overall under expenditure.

Schedule Performance

Progress towards achievement of planned in service dates for the three ships and their support system is as scheduled. Full production started on schedule at ASC and Forgacs. The commencement of BAE production was delayed as a result of delays in contract award. Full block production was underway at all shipyards on 4 March 2010. The three ships are contracted for delivery in December 2014, March 2016 and June 2017 respectively.

Capability Performance

All significant government specified capability is currently planned to be achieved and in some warfare areas, the capability will be exceeded. However, Electronic Warfare Radar - Electronic Attack sub-system procurement has been deferred as current technology does not meet the contracted and RAN's requirements. The budget has been preserved to support second generation technology being fielded in the AWD. It is expected that the capability will be available in the 2017-18 timeframe. Decisions made by the program in conjunction with the Capability Manager will ensure that AWD is delivered with the expected capability and affordable cost of ownership; and within the acquisition budget and schedule.