Construction of the Hunter class frigates is part of the Australian Government’s continuous naval shipbuilding program intended to develop sovereign Australian shipbuilding and sustainment. The objective of this audit was to assess the effectiveness of the Department of Defence’s procurement of Hunter class frigates and the achievement of value for money to date.

The audit builds on previous Auditor-General work on Defence’s acquisition and sustainment of Navy ships and implementation of the Australian Government’s 2017 Naval Shipbuilding Plan, to provide independent assurance to the Parliament on Defence’s planning, procurement, decision-making and advising, contracting and delivery of the Hunter class frigates to date.

Key findings

• The Department of Defence’s management to date of its procurement of Hunter class frigates has been partly effective. Defence’s procurement process and related advisory processes lacked a value for money focus, and key records, including the rationale for the procurement approach, were not retained.
• Defence did not conduct an effective limited tender process for the ship design. The value for money of the three competing designs was not assessed by officials, as the Tender Evaluation Plan (TEP) proposed that government would do so. The Commonwealth Procurement Rules (CPRs) and the Defence Procurement Policy Manual required officials responsible for procurement to be satisfied, after reasonable inquiries, that the procurement achieved a value for money outcome.
• Defence’s expenditure to date has not been effective in delivering on project milestones, and the cost of the head contract has increased. Lack of design maturity has resulted in an 18-month delay to the project and extension of the design and productionisation phase, at an additional cost to Defence of $422.8 million.7 At January 2023 the project was forecast to exceed the whole of project budget approved by government by a significant amount.