On 27 June the Australian National Audit Office (ANAO) published its report, Department of Defence’s Sustainment of Canberra Class Amphibious Assault Ships (Landing Helicopter Dock). Its summary is published below.
Background
The Royal Australian Navy (Navy) amphibious warfare fleet includes two Canberra class amphibious assault ships, also known as landing helicopter docks (LHDs). These are HMAS Canberra, commissioned in November 2014, and HMAS Adelaide, commissioned in December 2015. The role of the LHDs is to provide capabilities in amphibious warfare, humanitarian assistance, disaster relief and sealift, and to contribute to broader naval activities. Effective sustainment of the LHDs, including maintenance and support, is essential for the effective delivery of these capabilities.
Defence’s Naval Shipbuilding and Sustainment Group has been responsible for the sustainment of the LHDs on behalf of the Navy (the capability manager) since October 2022. Since entry into service in 2014, Defence has contracted its core LHD sustainment delivery activities to industry. Defence’s contracting model has changed from time to time, with each of the arrangements established at the commencement of the following three phases: the transition from acquisition to sustainment (2014-2019); the asset class prime contractor model (2019-2024); and the Maritime Sustainment Model (as of 1 July 2024).
Rationale for undertaking the audit
In 2024–25, Defence’s sustainment activities for its fleet of two Canberra class amphibious assault ships, or LHDs, had a funding provision of $180 million (estimated at $1.9 billion to 2033-34). With service life-of-type until the mid-2050s, the LHDs provide Navy with amphibious capabilities which are to support the delivery of the Australian Government’s strategic intent through joint Australian Defence Force (ADF) deployments. This audit provides assurance to the Parliament on Defence’s sustainment of naval capability, building on Auditor-General Report No. 30 2018-19 ANZAC Class Frigates Sustainment.
Audit objective and criteria
The audit objective was to examine the effectiveness of Defence’s sustainment arrangements for Navy’s Canberra class fleet of amphibious assault ships (or LHDs).
To form a conclusion against the audit objective, the following high-level criteria were adopted.
- Has Defence implemented fit-for-purpose planning and value for money procurement arrangements to support its sustainment activities?
- Has Defence effectively managed its sustainment contracts?
- Has Defence established appropriate performance monitoring and reporting arrangements?
Conclusion
Defence’s sustainment arrangements for Navy’s LHDs have been partly effective. Risks arising from an accumulation of defects and maintenance backlogs over several years have materialised. The substandard condition of the vessels, and personnel workforce shortages, have resulted in instances of critical failure and impacts to the Navy’s delivery of operational outcomes.
Defence did not implement fit-for-purpose planning and value for money procurement arrangements to support LHD sustainment. Defence’s future sustainment requirements, including access to important intellectual property for the LHDs, were not sufficiently developed during the acquisition phase. Establishment of the sustainment arrangements was delayed, occurring during the transition to sustainment process and alongside remediation activities to address issues persisting from acquisition. Defence’s remediation activities did not achieve the required outcomes, resulting in additional work being transferred to the sustainment phase or managed as part of capability improvement projects.
Value for money and the intended sustainment outcomes were not achieved through Defence’s procurement processes. Early cost estimates for the sustainment of the LHDs were under developed and did not anticipate the impact of the protracted acquisition deficiencies extending into sustainment and continuing into 2025. Defence has regularly reviewed and adjusted its sustainment budget.
Sustainment of the LHDs was not managed effectively by Defence through its prime contractor arrangements. Governance arrangements, contract management guidance, and risk management practices were not implemented in a timely manner and contract-specific probity arrangements were not developed. Defence did not take reasonable steps, as required by the Public Governance, Performance and Accountability Act 2013 (PGPA Act), to manage systemic poor procurement practices by the prime contractor or investigate claims of fraudulent activity in sub-contracting arrangements in accordance with its own policies. Defence did not use the full range of contractual levers available to manage its primary sustainment contract. This approach impacted the quality of service delivery and undermined the achievement of value for money through the contract.
Defence has established partly appropriate performance monitoring and reporting arrangements for the LHDs. Sustainment outcomes have largely met Navy’s requirements for the operational use of the platforms. The long-term availability and reliability of the LHDs is at risk primarily due to the accumulation of urgent defects, maintenance backlogs and shortfalls in personnel to undertake organic level maintenance. As a result, the LHDs have experienced critical failures, impacting on Navy operations.
Defence’s transition to the new Maritime Sustainment Model lacked reliable and complete information on the expected performance of sustainment contractors. Value for money outcomes for the procurements under the new model were limited by poorly implemented probity arrangements and the procurements commencing later than planned, reducing the time available to resolve issues during contract negotiations.
SUPPORTING FINDINGS
Planning and procurement
Defence accepted delivery of the ships from BAE in 2014 and 2015 later than planned and with defects and deficiencies in both vessels, many of which remain unresolved.
- In 2017, Defence established a Transition and Remediation Program (TARP) to manage the transition into sustainment and conduct the remediation work required to achieve the full capability expected from the LHDs. The remediation activities did not achieve all the intended outcomes, and in November 2019, Defence accepted the LHDs into full service with six ‘significant residual deficiencies’.
- In 2021, Defence established a capability assurance program to address urgent operational and safety issues for the LHDs, including issues carried over from the TARP.
- In July 2024, one quarter of the way through the planned life of the ships, Defence closed the acquisition project with significant defects and deficiencies from acquisition remaining unresolved and to be managed during the sustainment phase (see paragraphs 2.2 to 2.21).
The integrity of Defence’s procurement processes for the LHD sustainment prime contractors was undermined by poor controls over probity risks.
- In 2014, the Capability Support Coordinator contract was awarded following an open tender process. The effectiveness of this procurement was limited by issues in the planning and evaluation processes. There were also shortcomings in the subsequent extension of the services with the incumbent provider under the Major Service Provider Panel following an unsolicited proposal in 2022.
- In 2014, the Transition In-Service Support Contract was awarded following a ‘collaborative’ sole source procurement process involving protracted engagement by Defence to improve an under-developed tender response. The procurement outcome did not demonstrate value for money.
- In 2018, the Asset Class Prime Contractor was awarded following a two-stage selection process which involved assessments against fit-for-purpose evaluation criteria. The integrity of the process was compromised by the departure of a senior Defence official with early involvement in the procurement who was then employed by, and negotiated with Defence on behalf of, the winning tenderer.
Defence’s forecast and management of sustainment costs have been impacted by deficiencies from acquisition extending into sustainment. Since final operating capability was declared in 2019, the LHD sustainment funding provision per financial year has not met in-year requirements, with some sustainment work deferred and future costs increasing. In 2024 senior Defence officials considered options to address Navy sustainment funding pressures. Following consultation with the Minister for Defence in 2024, Navy sustainment funding was increased by an additional $300 million over two years to June 2026, of which Defence allocated $36 million towards LHD sustainment funding for 2024-25.
Sustainment management
Defence established governance arrangements to support its management of LHD sustainment contracts. These arrangements were either not implemented effectively or not maintained by Defence, resulting in a number of shortcomings.
- Since 2012, updates to the Materiel Sustainment Agreement (head agreement) between Navy and the Naval Shipbuilding and Sustainment Group have not been timely, occurring several years after key changes in responsibilities or organisational restructures had taken effect.
- A contract management plan was not established for the first 17 months of the ACPC contract. Contract risks, including those identified during the procurement process, were not revisited as planned or covered in the contract management plan.
- Contract-specific probity arrangements were not established for the ACPC contract. Defence relied solely on its broader departmental arrangements instead, which require Defence personnel to proactively identify and declare any actual, potential or perceived conflicts of interest as and when they arise.
- LHD sustainment risks at the strategic level are managed separately and in isolation from risks at the operational and technical levels. There is no hierarchy or clear line of sight between the risks identified in the Materiel Sustainment Agreement and those being managed day-to-day.
Defence did not manage its primary LHD sustainment contracts as intended by its performance-based design. As a result, Defence cannot assure itself or ministers that sustainment services were delivered effectively and in accordance with the contracted requirements. Key deficiencies were that Defence did not:
- ensure that all mandatory reports were submitted in a timely manner by the contractor;
- undertake full or timely assessments of the contractor’s performance;
- ensure that all key sustainment deliverables had been completed in full prior to making payments to the contractor; or
- use the full range of levers available in the contract to drive satisfactory performance.
Between 2021 and 2023 there were at least three separate allegations of fraudulent activities or instances of poor sub-contracting practices related to the ACPC contract. Defence did not seek further information from the contractor on the 2023 allegations and did not change its approach to managing the contract after being notified of the various issues.
Performance monitoring and reporting
Defence has established a sustainment performance framework for the LHDs, with performance measures set out in a written agreement and reporting provided to senior Defence leadership. The performance measures adopted are relevant to the LHDs but are not fully reliable and do not provide a complete and clear picture of sustainment performance as some important areas of sustainment are not covered. For some performance measures, the nature of the targets selected has led to reporting that does not provide a fair presentation of performance results for the LHDs.
Navy’s operational requirements have been impacted by shortcomings in the management of LHD sustainment. Sustainment outcomes have included an accumulation of urgent defects, persistent maintenance backlogs, and the degradation of the condition of the platforms. The LHDs have fallen short of meeting availability targets since 2020-21 and sustainment-related deficiencies and workforce shortfalls have given rise to risks involving critical failures in the vessels, possible damage to Navy’s reputation and concerns for the sustainability of the LHDs over the long-term. Some of these risks have materialised, including:
- total power failures in 2022 and 2023, making the LHDs temporarily unavailable while providing humanitarian assistance and disaster relief support in Tonga and Vanuatu; and
- a reduction from three ships to two available for deployment in the amphibious force during 2025.
In July 2024, Defence transitioned LHD sustainment to the ‘Maritime Sustainment Model’, which involved the procurement and contracting of new commercial arrangements. Defence started the procurements later than planned, which limited the options available to Defence to manage issues and strengthen value for money outcomes during negotiations. Arrangements to manage probity were not robust and, in respect to the LHD Capability Life Cycle Manager procurement, probity was poorly managed. Defence has not benchmarked or established expected sustainment performance levels for the Maritime Sustainment Model.
Audit Recommendations
Number 1. The Department of Defence ensures that appropriate arrangements are in place for its transition and remediation programs to improve the rigour with which these activities are managed, and provide assurance that the relevant objectives have been achieved. Department of Defence response: Agreed.
Number 2. To support the future requirements for the LHDs, the Department of Defence develops and maintains class-specific life cycle sustainment plans for the Navy fleet, including funding requirements for the planned life of type, to ensure that the required capability is maintained across the classes’ whole of life, at a rate of agreed availability. Department of Defence response: Agreed.
Number 3. The Department of Defence promptly reviews and updates, Navy’s Materiel Sustainment Agreements with the Capability Acquisition and Sustainment Group and Naval Shipbuilding and Sustainment Group, following significant changes in organisational structures, or at least every three years. Department of Defence response:Agreed.
Number 4. The Department of Defence reviews and documents its LHD risk management arrangements, including the use of various ICT systems and oversight forums, with a view to identifying efficiencies, where possible, and ensuring that risks are appropriately identified, and actively managed with clear line of sight. Department of Defence response:Agreed.
Number 5. Where the Department of Defence is notified of incidents such as suspected fraud or unethical conduct, the Department of Defence ensures that its response is fully documented and conforms to Defence policies and the Commonwealth Fraud and Corruption Control Framework. Department of Defence response: Agreed.
Number 6. Where the Department of Defence’s contracts with industry include mechanisms to obtain assurance over the completion of activities under the contract and the performance of suppliers, the Department of Defence ensures that contractual mechanisms are implemented. Department of Defence response: Agreed.
Number 7. The Department of Defence review the performance measures for the sustainment of the LHDs to support a more reliable and complete assessment of sustainment performance. Department of Defence response: Agreed.
Number 8. The Department of Defence establishes arrangements to ensure that its internal policies for the establishment of appropriate probity processes commensurate with the size, scale and risk of its procurement activities are complied with. Department of Defence response: Agreed.
Number 9. The Department of Defence benchmarks and monitors sustainment performance under the Maritime Sustainment Model to enable an assessment of the achievement of its strategic objectives. Department of Defence response: Agreed.
The Full Report can be downloaded at:
https://www.anao.gov.au/sites/default/files/2025-06/Auditor-General_Report_2024-25_50.pdf
