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Tuesday, 30 November 2004
Page: 110

Senator Chris Evans asked the Minister for Defence, upon notice, on 17 November 2004:

With reference to Project Sea 1390:

(1) Can an assessment be provided of how this project is proceeding.

(2) Have the problems that caused the project to be delayed by 2 years been overcome.

(3) Is there a chance that the project could be further delayed.

(4) When will the upgrade of the HMAS Sydney be completed.

(5) (a) When will the upgrade of the ships subsequent to the HMAS Sydney commence; and (b) for each ship, when will the upgrade be completed.

(6) (a) How much scope is there for Defence to absorb additional costs if there are further delays or design variations; and/or (b) will further delays or design variations lead to a budget blowout.

(7) Given that only 4 ships are being upgraded instead of the 6 planned, will the budget for this project be revised downwards; if not, why not.

(8) Can details be provided of all incentive payments or bonuses that could be payable to the contractor for this project.

(9) Given that the project is 2 years overdue, why is the Commonwealth still liable for incentive payments and/or bonuses.

Senator Hill (Minister for Defence) —The answer to the honourable senator's question is as follows:

(1) The project is progressing steadily and significant contractor effort is now being applied. HMAS Sydney completed its docking phase in late March 2004 and the installation and production work continues. The ADI current focus is to finish production activities, and then to commence the combat system integration. ADI has recently advised an estimated completion of contractor sea trials in mid-May 2005. This remains within the overall revised schedule.

(2) The schedule delay was attributed to a number of factors including the complexity of the command and control software design and integration. ADI made contractual changes to have greater autonomy over the combat system design and delivery and adopted a staged approach to delivering the combat system software. Steady progress has been made since these changes were implemented.

(3) The upgrade project is a significant and complex undertaking. As with all such projects, the level of uncertainty and risk is carefully monitored by the Commonwealth and managed by the prime contractor. At this time, delays are being managed within the revised schedule. However, future unforeseen delays can never be ruled out. The contract contains a delivery window to allow for such occurrences.

(4) Mid-May 2005, but with a contract delivery date of 17 June 2005.

(5) Commonwealth handover of the first follow-on FFG for upgrade is linked to successful completion of contractor sea trials of the lead ship. The commencement and completion dates of other two remaining ships are subject to negotiation with the Navy and ADI, cognisant of the Navy's operational requirements and ADI's industrial capacity to meet project completion by 2008. The exact timing for the reduced scope of four ships is currently being negotiated with ADI.

(6) (a) The project contingency remains adequate. (b) See above.

(7) As the prime contract is a fixed price arrangement, contract savings are still to be negotiated with the prime contractor.

(8) Specific details of incentive payments are commercial-in-confidence (see response to Question W7 part c from the Additional Estimates 2003-04 hearing in March 2004).

(9) The performance incentive provisions of the contract have been restructured so that ADI is focused on schedule performance and the incentives are weighted towards achievement of an 18-month target schedule with payments reducing to zero at 24-months delay. It is to both Defence and ADI's benefit to achieve earliest viable delivery of the required capability.