$870 MILLION OVERBOARD

A document released to Centre Alliance Senator Rex Patrick under Freedom of Information laws show the Federal Government paid well above the price offered by German shipbuilder Luerssen to build 12 Offshore Patrol Vessels (OPVs) for the Royal Australian Navy.

The document shows that in the three months between when the Federal Government announced Luerssen as the winning tenderer and when they went to contract, the price went from $1.96 billion to $2.83 billion. 

"The Government needs to provide a detailed explanation of the variation in price," said Senator Rex Patrick. "$870 million is a lot of taxpayer money."

In April 2016, three companies (Damen, Fassmer and Luerssen) were asked to tender to build 12 OPVs as part of the Government's $89 billion naval shipbuilding program. In conjunction with an experienced Australian shipyard, the first two OPVs were to be built in Adelaide and the following ten in Perth. Luerssen partnered with Adelaide's ASC and Perth's CIVMEC and submitted a compliant tender to Defence in March 2017 for a total price of $1.96 billion.

When Cabinet met on 21 November 2017, the Government accepted Defence's recommendation to award a design and build contract to Luerssen, but in a last minute twist, directed that WA's shipbuilder Austal also be used in the program. 

Senator Patrick queried the Government's directive at Senate Estimates in December 2017 suggesting that it invalidated Luerssen's price and complicated their work arrangements but was told by Defence that they would "be able to deliver a contractual price within the price that was offered by Lurssen." 

On 31 February 2018, Defence signed a contract with Luerssen for $2.8 billion - contrasting starkly with the total tendered price of only $1.96 billion. 

Government sources have suggested that the $2.8 billion is an out-turn dollar price (i.e. includes inflation and exchange rate variations) but Rear Admiral Dalton, the Navy's General Manager, Ships Division, has already testified to the Senate that the out-turn price is actually $3.6 billion. 

"The Government's sources are clearly wrong," said Rex. "They've managed to confuse themselves.

"Last minute political intervention can cause serious trouble in major contracts. In this case, we've seen a forced marriage between Luerssen and Austal that remains unresolved and is now subject to mediation.

"The Federal Government has managed to turn a relatively straightforward and inexpensive program into a complex and costly one."

Senator Patrick will be pursuing the cost variation at Senate Estimates next month.

A copy of the FOI and AusTender contract announcement can be provided on request.