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LPA Kanimbla - Cost

Phase 1 was for the purchase of the LPAs and related support package from the USN and their transfer to Australia. This was processed as a Foreign Military Sales (FMS) transaction. Phase 2 was for the modification of the ships from their previous USN configuration to LPA configuration. This is currently being done under a contract with Forgacs Dockyard in Newcastle and includes elements of standard repair and refit work, installation of approved capability packages, and other capability work undertaken to bring the vessels into line with RAN standards. Phase 3 was planned to be for further modification to install additional capability packages identified but not included under Phase 2, and any additional work arising from experience with the ships during test and evaluation. Phase 3 was listed for decision in 2002/03.

While the initial purchase of the ships was achieved at a cost below that originally estimated ($62.0m, compared to an estimated $76.3m), the cost of modification of the vessels has increased greatly. The original project cost for both modification/repair and refit was $41.5m ($8.7m for repair and refit). The estimated cost for this work is now $313.0m. This is an increase of over six times the original cost estimates. A large part of the increase is for repair and refit type work on the vessels. This work includes hull rectification and repair and overhaul of machinery and systems.

Originally it had been estimated that only $8.7m would be required to be expended on repair and refit of the LPAs to enable installation of approved capability packages. At this stage more general capability upgrade work to improve the habitability of the ships in RAN service had not been considered. The $8.7m figure was based on the USN's provision of US$5m for the next USN scheduled refit. This assumption did not take into account that: the USN had been running these ships down prior to future decommissioning; and the USN maintains its Tier 3 vessels, particularly those of that age, to a lower standard than the RAN standard.

Upon arrival in Australia the ships underwent considerable repair and refit work at ADI (mostly on HMAS MANOORA since HMAS KANIMBLA was deployed as a training vessel for a time), survey work, and preliminary modifications. Considerable emergent work was found as cladding was removed and previously inaccessible spaces were opened up for survey revealing areas of extensive corrosion. $31.5m was expended at ADI before the ships were towed to Newcastle where they were to undergo modification and further refit at Forgacs Dockyard.

In September 1997 Defence highlighted increasing priority for ADF amphibious capability in line with the strategic outlook and recommended to Government that the LPAs be further modified. Defence proposed that selected modification work occur during this refit with the remainder to be considered in a later period following operational sea trials. In December 1997 Government approved a further $36m towards Joint Project 2027 Phase 2 to refine already approved modification packages as well as providing for additional capability. Approved to be included in the modification package was a medical facility for the second ship, Army troops' accommodation upgrade, fendering arrangements for watercraft, improved aviation systems for helicopter operations and the installation of a solid waste disposal system.

Two other discrete areas of LPA related capability were considered by Defence during 1997 and approved by Government. To enable Army to effectively operate from the LPA, Government made provision of $15m to procure and enhance a range of Army equipment and activities specific to the ships. Included in this package was the permanent fit of Army communications equipment, refurbishing LCM8 landing craft to be carried on the LPA, Army responsibilities during operational test and evaluation, development of a cargo planning system and equipping of the permanently embarked ship's Army detachment.

Both Army Black Hawk and the Navy Sea King helicopters will operate from the LPAs. Government approved $20m of funding to allow for safe and effective helicopter operations from the ships. Allocation was provided for airframe cockpit instrumentation for first of class flight trials, the building of a Black Hawk flight deck procedural trainer in Townsville and installing ballistic matting protection for troops in both aircraft. Funding for this activity was attributed to Air Force, who is responsible for ADF aviation support.

Additionally during 1997 $2m of Capital funding was provided for the replacement of those systems and equipment that contravened international protocol for marine pollution standards including Halon gas firefighting suppressants, chloro fluoro carbon refrigerants and sewage treatment.

Due to the large amount of unbudgeted emergent work during 1997, estimates for the repair and refit package increased beyond the upper limit of $74m previously advised. In September 1997, when Defence considered additional LPA capability modification work Navy funding was assessed as insufficient to satisfactorily complete the project. Further funding was required for repair of selected auxiliary systems, superstructure cracking, essential relagging of pipe work, further configuration changes and set to work of inactive mechanical and electrical systems which would be idle for a considerable period of time. The experience gained whilst operating KANIMBLA prior to modification suggested defects could be expected in these systems and would probably arise during set to work and initial light off of machinery. Failure to provide additional funding would result in unacceptably high risk to ship reliability. In recognition of this shortcoming Defence, in December 1997, approved an additional $15m for Navy repair and refit work.

During 1998 and early 1999, further significant and unexpected amounts of emergent work arose, particularly with hull and electrical repairs. A pattern of discovery of repair work became evident as the modification process of the 30-year old ships enabled a more accurate condition assessment to be made. Failure to rectify these defects would seriously jeopardise the reliability of the ships when they return to service. Additionally, the cost of conducting these repairs would escalate if the work was not undertaken during this refit period due mainly to the opportunity cost of equipment access. Access to the defective equipment is possible as compartments are stripped down and, in some cases, temporary structural changes are undertaken. In consideration of the cost-benefit and reliability trade-offs, Defence, in January 1999 endorsed a further $22m for the repair and refit of the ships.

Given the 15-year Life Of Type (LOT) for both vessels and the life cycle costs, particularly for crewing and maintenance, the cost differential compared to one new vessel offering at least a 30-year LOT has narrowed. Although the LPAs will provide a much needed genuine amphibious capability for the ADF, the question of whether or not the acquisition represents value for money over the planned life of the ships in comparison with the construction of a new ship is problematical.

The contract for the modification/refit is a firm price type arrangement. That is, it is a Lump Sum payable by milestone achievements and is unalterable for variations in the cost of labour, materials, and exchange rate fluctuations. Notwithstanding this, the contract price Lump Sum has since been adjusted to take account of capability enhancements. Moreover, the contract allows for the payment of additional Emergent Work which is ordered under the contract. Due to the delivery period having been extended to over two years, variations for labour rate increases have now been allowed subject to verification.

Estimated Total Costs of LPA Project