Introduction

1. The Australian Defence Force’s (ADF’s) primary anti-submarine capability is provided by its maritime patrol aircraft, frigates and naval combat helicopters, and the lightweight torpedo is the main anti-submarine weapon deployed on these platforms.¹ The Department of Defence’s (Defence’s) Joint Project 2070 (JP2070) is replacing the ADF’s existing ship launched anti-submarine weapon (the Mk46 lightweight torpedo) with a new generation torpedo (the MU90 lightweight torpedo). The project currently has a budget of $639 million and involves the procurement of a number of MU90 lightweight torpedoes (the exact number is classified), associated support systems, and the integration of the torpedo with the Adelaide Class Guided Missile Frigates (FFGs) and the ANZAC Class Frigates (FFHs, more commonly referred to as ANZAC Ships).²

2. In light of the expansion and technological advancement of potential submarine threats, in July 1997 Defence determined that the ADF’s Mk46 torpedo had significant limitations, was not adequate for the ADF’s needs, and that a new torpedo should be acquired.

3. JP2070 was established in February 1998. The project originally planned to also integrate the new torpedo with the following aircraft: the AP-3C Orion maritime patrol aircraft, the Seahawk helicopters and the Super Seasprite helicopters. However, the Australian Government cancelled the failed project to acquire the Super Seasprites in March 2008, and removed the AP-3C Orion and Seahawk from the project’s scope in February 2009 because of cost and technical pressures.

4. Defence is acquiring four versions of the MU90: for combat (known as the warshot torpedo), exercise and practice firings, and training. The exercise version is created by substituting the warhead with an exercise section, which records the torpedo’s in-water performance. The practice version is not propelled, but can record weapon firing data, allowing lower cost training for personnel. A ‘dummy’ version is used to train personnel in handling and loading/unloading operations at minimal cost.

5. The project is managed by the Guided Weapons Branch within the Explosive Ordnance Division of the Defence Materiel Organisation (DMO). Early on in the project, Defence decided to adopt an alliance contracting model for the project. The Alliance, known as the ‘Djimindi Alliance’, comprises the Commonwealth of Australia, Thales Australia and the Eurotorp European Economic Interest Group (Eurotorp), which developed the MU90. While the project is still being delivered by the Djimindi Alliance, since 2005 it has operated within a revised contract, which includes features of a more traditional contract.

6. Given the importance of the anti-submarine warfare capability to the ADF, the ANAO has previously audited Defence’s progress in acquiring and introducing into service the replacement lightweight torpedo. Audit Report No.37 2009–10 Lightweight Torpedo Replacement Project was released in May 2010. That audit concluded that JP2070 was a complex project that needed appropriate risk management to address the project risks and effectively complete the project. However, at the time there were significant weaknesses in Defence’s risk management of the project. The key areas of risk that had emerged or gained increasing significance over the life of the project included:

• The initial costing of JP2070 was not sufficiently rigorous or subject to adequate scrutiny.
• Project planning and management was inadequate, and in some instances key project documents were either not developed or were not developed on a timely basis.
• The decision to use alliance contracting arrangements for JP2070 was not based on structured analysis of contractual options, and once implemented was not adequately supported.
• An inadequate understanding of the weapon and in particular its development status over the period 1999 to 2004 contributed to an underestimation of project risk.³
• The risk involved in integrating the weapon onto multiple platforms was acknowledged, but not fully appreciated at the outset, and was compounded by a range of factors as JP2070 progressed.
• The planning of testing and acceptance, and the resolution of testing and acceptance issues for JP2070, by DMO had been inadequate.

7. The previous audit assessed JP2070 against the fundamental purpose of a major capital acquisition—the provision of a new or enhanced capability to the ADF, to schedule and within the approved budget—and found that the project had not been managed effectively, as it:

• would not deliver the capability originally sought;
• had not achieved schedule; and
• had remained within budget only by removing from the project’s scope three of the five platforms that were originally intended to be integrated with the torpedo.⁴

8. At the time that audit report was released, substantial work was required to remediate the project and deliver the required capability. Subsequently, the then Minister for Defence, Senator Faulkner, wrote to the Auditor-General requesting that the ANAO undertake a follow-up audit of JP2070 within 12 to 18 months following the previous audit. The Auditor-General agreed to the Minister’s request and scheduled this audit, which commenced in late 2011. Additional time has been required to complete this audit in order to take proper account of the work Defence has been undertaking in this project over recent times and the progress achieved.

Current audit approach

9. The objective of the current audit was to assess the effectiveness of remediation arrangements put in place by Defence and DMO to resolve issues impacting on the achievement of the desired lightweight torpedo capability. The scope of the audit covers progress made in delivering the capability since the completion of the previous audit. It focuses on project management and contractual arrangements, and the progress made with platform integration and test and evaluation.

10. To assess the effectiveness of project remediation since the previous audit, the audit focussed on whether:

• remediation plans were appropriately documented, endorsed and followed;
• project progress is being effectively monitored, and key stakeholders are informed on progress, including the Government;
• platform integration has progressed according to plan;
• operational test and evaluation processes are ongoing, are based on validated plans, and there was a stakeholder endorsed transition from acceptance test and evaluation to operational test and evaluation; and
• progress has been made towards the achievement of an endorsed Initial Operational Capability (IOC), which at the time of the previous audit was planned to occur in mid 2011, with a clear path forward towards achieving Final Operational Capability (FOC) by mid 2013.⁵

11. Audit fieldwork involved interviewing personnel, site visits and examining documentation collected from various groups within Defence.

Overall conclusion

12. JP2070 is a complex project with a current budget of $639 million. After the project is completed, the MU90 is planned to remain in service until 2038. As a maritime nation, having an effective anti-submarine warfare capability is an important requirement for the defence of Australia. In the 2009 Defence White Paper, the Australian Government identified anti-submarine warfare as a key capability priority for modernising and enhancing the ADF.⁶

13. At the conclusion of the ANAO’s 2009–10 audit of JP2070, Defence was making significant effort to remediate and progress the project, with the intention of achieving IOC by mid 2011 and FOC by mid 2013. Further technical difficulties were encountered in 2010, which led to some additional schedule delay. Consequently, IOC was not achieved until November 2012. Defence expects to achieve FOC by mid 2013.

14. Over the last year in particular, several important milestones have been met. Defence has been effective in progressing JP2070 to the point where there is now a clear path to completion of the project’s current scope. In particular, a platform integration solution has been developed which can be rolled out across the FFG and ANZAC ship fleets as the platforms become available for fit-out, which is planned to be completed by mid 2013. Test and evaluation progressed from acceptance to operational test and evaluation (OT&E), with the planned OT&E firings almost complete (with the exception of a warshot firing planned for mid 2013).

15. Defence’s increased focus and effort on JP2070 was evident in the response to failed test firings in November 2010. These firings uncovered several defects with the torpedo system, which had not been identified previously because of limited test firings. Resolution of these issues was critical if the project was to proceed to IOC. Defence developed potential solutions, and developmental testing was subsequently undertaken in mid 2011 to test the solutions. These firings used a wharf-mounted torpedo tube that fired into a recovery device, allowing multiple firings in short succession without the need to utilise Navy resources or refurbish the practice torpedo. This was a cost-effective and practical approach which enabled DMO to gain confidence that defects had been largely overcome before undertaking testing aboard a Navy ship to confirm resolution of the issues.

16. Defence has made substantial progress in recent times towards the successful introduction into service of the MU90 capability for relevant Navy surface platforms. However, there are a range of issues which will impact on this capability over its life cycle:

• The Commonwealth has limited Intellectual Property access rights for torpedo components and support equipment (such as the simulator and torpedo test equipment). This will limit Defence’s options for future modifications and upgrade.
• The MU90 simulator acquired by Defence does not fully meet Defence’s formal requirements, and there are questions relating to its long term viability for supporting training, technical and tactical development, as the version procured cannot be networked with other Defence simulators and there are also uncertainties over its long-term support.⁷
• Defence was unable to obtain sufficient evidence to verify over two-thirds of the warshot torpedo’s performance requirements prior to the conduct of OT&E. This resulted in Defence approving deviations and waivers to specified requirements and the need for OT&E to also verify lower level acceptance testing. Waived requirements will not be verified.⁸
• Following the May 2011 decision to acquire the MH-60R Seahawk Romeo as the ADF’s new maritime helicopter, the ADF will be obliged to manage a mixed inventory of very different lightweight torpedoes into the long term.⁹ Defence is yet to fully define either the whole-of-life-cycle costs of maintaining the MU90 inventory or the costs and resource implications of maintaining this mixed inventory of lightweight torpedoes.

17. The root causes of most of these issues go back to Defence’s handling of this project in its early stages, which were highlighted in the previous audit (see paragraph 6 above). In particular, Defence’s mistaken understanding in 1999 that the MU90 was already in service with other navies, rather than a developmental torpedo, led to a situation where risk was significantly under-estimated from the outset. The result was substantial schedule slippage and ongoing implications for test and evaluation.

18. When examining the project across its life and comparing it to the original plans, it is clear that it will not deliver the full capability originally expected. In addition to a six year delay in delivery of this capability, nearly the whole of the original budget that had been provided for integration of the MU90 with three air and two surface platforms will now be required to deliver capability to the two surface platforms only. This amounts to a significant real cost increase given the reduced scope. While it is not unusual for delivery of a complex defence capability to take several years, the MU90 reached the IOC milestone in November 2012, over 15 years after the need for a replacement lightweight torpedo for the Mk46 was identified in July 1997.

19. Technical demands have meant that original firing and sustainment cost estimates have grown considerably, even taking inflation into account. For instance, 1999 estimates of turnaround costs for a torpedo exercise firing were $16 000.¹⁰ This grew to $419 000 in 2011, although recent estimates have reduced this to $317 000 as the exchange rate has improved and the estimated labour effort has reduced.

20. As discussed at paragraph 13, Defence and DMO are now close to completing the project and delivering a replacement lightweight torpedo capability, involving a reduced scope limited to Navy ships. In recent times, Defence has sought to avoid the potential costs and schedule risks associated with integrating the MU90 onto air platforms the ADF owns or is acquiring that already have a different lightweight torpedo integrated with them. Accordingly, going forward, the DMO will need to manage two very different inventories of lightweight torpedoes from different countries of origin. This will place significant cost and personnel pressures on Defence and DMO for years to come, in an environment where budgetary pressures are increasing. Given these circumstances, the ANAO has recommended that Defence analyse and plan for the whole-of-life costs for operating and sustaining the mixed fleet of lightweight torpedoes.

Key findings

Project Management (Chapter 2)

A remediation plan was developed in 2011

21. Following the release of the previous audit in May 2010, broad remediation objectives for JP2070 were set out in monthly Project of Concern reports provided to Defence Portfolio Ministers (see paragraph 28). It took some time for a standalone remediation plan to be developed for the project. In the event, in September 2011 the Minister for Defence Materiel directed that a remediation plan be developed for the project. The focus of the plan was to be removal of JP2070 from the Projects of Concern list, the criterion for which was the achievement of IOC. A formal remediation plan was not finalised until November 2011. Following declaration of IOC by the Chief of Navy in November 2012, in December 2012 the minister agreed to DMO’s recommendation that the project be removed from the Projects of Concern list.

22. The plan’s objectives were statements about the milestones and events to be achieved in order to progress the project, and there was no detailed discussion of the key issues delaying progress or future risks. The plan was DMO-focused, as the majority of the remediation objectives specified in the plan related to the DMO milestone of Initial Materiel Release (IMR—achieved in January 2012).¹¹ Notwithstanding the findings of the previous audit regarding a lack of progress with OT&E, there was no mention in the remediation plan of OT&E (except that it requires simulation support), its risks or how these would be managed.

Intellectual Property access is limited

23. Intellectual Property (IP) emerged as a problem early on in the project, and the management and exercise of IP rights were identified as an ongoing issue at the conclusion of the previous ANAO audit in 2010. The Further Revised Alliance Agreement (FRAA) provides Defence with access rights to use and maintain the torpedo (to intermediate level) and support equipment in their current configuration.¹² However, access to background IP required for any modification or upgrade to the torpedo and support equipment (and required to gain full insight into the functionality and capability of the torpedo) is not provided.¹³ This remains a potential source of risk given that two-thirds of the stock acquired under JP2070 is the MkI version of the MU90, and obsolescence issues have already been identified and addressed in the MkII version of the torpedo. Defence informed the ANAO in January 2013 that it does not foresee any requirement to negotiate expanded rights to manufacture, modify or enhance the weapon, as it is intended that this work will be undertaken within the international working group, which comprises nations that use the MU90.

24. Defence has obtained no ownership of foreground IP for development work undertaken under the FRAA¹⁴, specifically the development of the mobile Post Exercise Facility (see paragraph 59) and the torpedo trolley.¹⁵ These were paid for by the Commonwealth and as such some of the IP would normally belong to the Commonwealth. However, the IP schedule to the FRAA shows that ownership of any new IP developed during the contract vests with the Industrial Participants or third parties. Defence does however have full access rights under the FRAA to the foreground IP.

Adequate personnel an ongoing challenge

25. Against the backdrop of a prolonged period of economic growth, DMO’s ability to attract and retain an effective workforce has been problematic. JP2070 has also struggled to obtain and retain sufficient skilled personnel since its inception. While there has been some general improvement in filling positions following the previous ANAO audit, the JP2070 project office has had difficulty attracting and retaining sufficiently skilled staff to fill Integrated Logistics Support and engineering positions. One consequence of this has been slow review of project documentation. In addition, shortages of skilled DMO personnel at the Torpedo Maintenance Facility in Western Australia led to additional contractor support being engaged from October 2011 to support MU90 torpedo production and maintenance.

Performance Monitoring and Reporting (Chapter 3)

Project reporting was adequate, except for Acquisition Overview Reports

26. Given that the previous audit identified problems with the reporting mechanisms used for JP2070, the ANAO examined the key Defence performance reports on JP2070 since early 2010: Acquisition Overview Reports, Project of Concern reporting, and bi-monthly reporting to Defence Portfolio Ministers on the progress of JP2070.

27. Acquisition Overview Reports were intended to provide a snapshot of project schedule, cost and capability performance, by using a traffic light reporting system to summarise projected performance. Overall, the material provided in the JP2070 Acquisition Overview Reports between 2010 and 2011 did not consistently provide an accurate and reliable picture of project performance, with multiple flaws noted. These included changes across months in the risk ratings allocated to the project that were not explained, inconsistencies within reports, and a lack of explanation and follow-up of some risks and events. In 2012 Acquisition Overview Reports were replaced by Acquisition Performance Reports, which are essentially an abbreviated version of the Acquisition Overview Reports and contain less narrative description.

28. A requirement of being listed as a Project of Concern is monthly reporting on the project to government. The JP2070 reports provided a more detailed picture of the project compared to the Acquisition Overview Reports, with greater narrative and context provided to explain traffic light ratings (albeit resulting in larger reports). The Acquisition Overview Reports and the Project of Concern reports would frequently provide a different picture of progress for the same period. Generally, the Project of Concern reports provided a more realistic and cautious appraisal of progress and risks than the Acquisition Overview Reports.

29. After the previous audit was released in May 2010, the then Minister for Defence introduced a requirement that Defence provide bi-monthly reporting to Defence Portfolio Ministers on the progress of JP2070. The bi-monthly submissions generally provided adequate advice on progress from an acquisition/DMO perspective, although there were instances where advice was incorrect, incomplete or could have been made clearer.

Two project reviews were undertaken

30. In July 2011, two retired Navy officers led a review of JP2070 project performance, including a comparison of the MU90 to other lightweight torpedoes. The review expressed high confidence in the project’s ability to overcome remaining risks. However, it did not examine OT&E, which was a significant unknown at the time given that no agreed OT&E plan existed and developmental and acceptance testing was ongoing. The review noted that insufficient information existed on the Mk54 to make a comparison, yet concluded that the MU90 was the best solution for Navy’s surface platforms. The review team was only given 11 days to undertake the review, and expressed concerns at the ‘compressed timescales’ for conducting such a critical and important review.

31. A Gate Review held for JP2070 in September 2011 recommended that the project should continue, with the required actions resulting from the review closed off by DMO in January 2012.¹⁶ The review noted that access to foreign navies’ data for validation of torpedo performance would ‘significantly’ reduce the number of OT&E firings required. However, there is no evidence that the review board was aware that there were significant limits to the information available on the performance of the MU90, and the need for waivers of many performance requirements.

Government releases funding in December 2011 to complete the project

32. In March 2008 and February 2009, the Government removed from the project’s scope the three air platforms originally included. However, the total budget for JP2070 was not reduced. Instead, the funding originally dedicated to air platform integration that had not yet been spent ($111 million) was set aside to assist in meeting any future cost increases in JP2070. In February 2009, the Government released $29.5 million from the $111 million to allow Defence and DMO to fund MU90 related work (such as the procurement of test equipment and spares, and engaging DSTO assistance), and to develop more robust estimates for accessing additional funding to allow project completion.

33. In December 2011 Defence sought, and the Government granted, a further allocation of $70.5 million (of the $72.7 million remaining) of the quarantined air integration funding in order to complete the project. This allocation was more than double that estimated in 2009 as being required, primarily because of increased cost estimates for OT&E, spare parts, and contractor support.

Torpedo Testing and Acceptance (Chapter 4)

The project continued to experience delays, but progressed into OT&E

34. At the conclusion of the previous audit, Defence aimed to achieve IOC in mid 2011 and FOC in mid 2013. In the event, this planned IOC timeframe was not met. IOC was achieved in November 2012, over one year late. Delays in achieving IOC occurred primarily because of technical problems encountered during acceptance testing and evaluation of ship integration, which were identified in November 2010 but largely resolved by mid 2011 (see paragraph 39). The IMR milestone was reached in January 2012 and the project formally transitioned to OT&E in May 2012, when Initial Operational Release (IOR) was approved by Chief of Navy. Declaration of IOR completed the MU90 capability transition from acceptance testing and evaluation to Navy OT&E, although some initial OT&E firings were conducted in March 2012 prior to the declaration of IOR.

35. The conduct of OT&E for the MU90 is expected to cost $17.5 million in total, and has to date involved:

• two deep water firings conducted in Western Australia in March 2012; and
• eight shallow water firings conducted in Northern Australia in September 2012, three of which encountered problems during their runs.¹⁷

36. The Royal Australian Navy Test Evaluation and Acceptance Authority (RANTEAA)¹⁸ highlighted in its advice to Chief of Navy that the final results from the 11 OT&E firings were:

• the shipborne surface lightweight torpedo system (which primarily incorporates the combat system and torpedo tubes—see Figure 1.3 for more detail) had a 91 per cent success rate in launching the MU90 torpedo;
• the MU90 torpedo had an 80 per cent success rate of operating correctly once launched; and
• the MU90 torpedo had an 88 per cent success rate at engaging the target when launched and operating correctly.

37. RANTEAA’s final report on the OT&E firings (which formed the basis of the advice to the Chief of Navy) shows that, when measured from a whole of capability perspective (assessing all three criteria together), the overall MU90 lightweight torpedo system (both the MU90 torpedo and the shipborne surface lightweight torpedo system) had a 64 per cent probability of success. This is slightly below the probability requirement stated in the Detailed Operational Requirement (DOR) for JP2070, although this is defined as an important requirement rather that an essential requirement that must be met. Defence informed the ANAO that the probability requirement has been met as the torpedo that did not fire should be excluded, based on the fact that the testing was only concerned with in-water performance. The implication being that because the torpedo failed to fire and enter the water, it could therefore be excluded from the reliability calculation.

A ship integration solution has been developed, but some schedule risk remains

38. After the previous audit, problems continued with platform integration that culminated in failures during the November 2010 acceptance testing and evaluation firings. Since then, DMO has made good progress in addressing these problems, and the key integration issue is now completing final modifications to the entire ANZAC and FFG fleet by mid 2013. As at August 2012, half of both fleets (four ANZAC and two FFG ships) had received their torpedo tube modifications, and the schedule for the remaining integration was assessed by DMO as ‘extremely tight’.

The failures from the November 2010 firings were overcome

39. Acceptance test and evaluation firings during November 2010 encountered several problems. After undertaking analysis and identifying fixes, subsequent firings in mid 2011 were deemed as demonstrating the successful resolution of three of the four issues.¹⁹ Problems with the remaining issue (the torpedo trolley) were largely resolved by mid 2012, although some minor trolley requirements need to be resolved before unconditional operational use can be granted. Development problems with the trolley have continued throughout the project, and the final cost to the Commonwealth of $218 000 per trolley is almost 10 times the original cost of $24 000 specified in the FRAA.

Defence decided on an Australian warshot firing

40. At the time of preparation of this report, there has been no warshot firing of an MU90 torpedo by any user nation. In August 2012, Defence agreed to fund the development and construction of a warshot target so that Navy can conduct an Australian warshot firing in the second quarter of 2013. Pursuing a local warshot firing represents a sound decision and aligns with Navy’s doctrine. The decision also follows advice provided to the Government in December 2011, which stated that demonstrating complete effectiveness of the torpedo involves a test firing that includes detonation, given that this has not been done by any user nation.

The long term viability of the MU90 simulator is not certain

41. Simulation was recognised in the early stages of the project as critically important to reduce life-cycle costs and assist with OT&E. The previous audit noted that, while a number of options had been considered, limited progress towards the acquisition of a modelling and simulation tool had been achieved. A failed attempt in 1999 to acquire a suitable simulator resulted in a 12 year hiatus and it was only in March 2011 that DMO and DSTO renewed efforts towards selecting a simulator. DSTO ultimately recommended that the WASS ORACOM simulator be procured, although neither of the two simulators considered in a request for tender fully met the simulator Function and Performance Specification.

42. The version of the simulator acquired for the MU90 is a stand-alone solution with no means to contribute to Defence’s Federated (networked) simulation strategy. Defence is in effect also the first user of the MU90 ORACOM simulator, although the Italian navy has contracted the simulator supplier (WASS) to perform simulations using ORACOM. Further, as Defence has no background IP rights for the simulator, it cannot provide in-depth technical support by means of internal resources. In the circumstances, external support becomes critical, especially given the short lifetime cycles of computer hardware and software compared to the 30 year life of type of the MU90.

MU90 Weapon Performance (Chapter 5)

DMO had difficulty obtaining Objective Quality Evidence of weapon performance

43. Objective Quality Evidence (OQE) is qualitative or quantitative evidence relating to the performance of equipment, such as the MU90 torpedo or shipborne surface lightweight torpedo system, that Defence can use to form a judgement that a requirement has been met. This evidence may come from Defence’s own analysis or testing, data provided by original equipment manufacturers (OEMs), or data provided by other users.

44. DMO has made good progress in verifying requirements relating to the Torpedo Maintenance Facility (TMF), the mobile exercise facility, and the surface lightweight torpedo system.

45. All requirements for the performance of the MU90 warshot torpedo itself required OQE in the form of Prior Qualification (PQ—where a requirement has already been proven, for example by Eurotorp or other users of the torpedo) based on factory acceptance testing. Less than one-third of warshot performance requirements had passed prior to OT&E firings in Northern Australia, with another third subject to waivers.

46. In an attempt to prove certain capability requirements, Defence decided to undertake some acceptance test and evaluation testing during OT&E, and rely heavily on the MU90 simulator. The root causes of this situation were the mistaken belief at the time the MU90 was selected as the ADF’s replacement lightweight torpedo that the torpedo was off-the-shelf, the subsequent failure to budget for additional testing when this was revealed to be incorrect, and the inability to obtain certain classified data about the torpedo’s performance owned by the French Government.

47. As at February 2013, DMO expected that the results of OT&E, modelling and additional analysis would provide evidence to verify all but one of the outstanding requirements that had not been subject to waivers, however these findings were yet to be finalised. Waived requirements will not be verified, however DMO has collected evidence that goes part way towards demonstrating compliance with the waived requirements.

Range tracking remains problematic due to incompatibilities

48. The ADF’s underwater ranges, which are used to track and record weapon performance during testing trials, cannot track the MU90 and this will not be rectified during the life of the MU90. Workarounds have been developed to track the torpedo, but these are not ideal, only enable torpedo location, and carry some risk, particularly for locating a weapon if it does not run to its programmed endpoint. To accurately reconstruct the torpedo’s run path, Defence is largely reliant upon the torpedo’s recording data.

Upgradability of MU90 in doubt

49. In August 2009 the Chief of Navy, on advice from DMO, opted to accept two-thirds of the torpedoes to be delivered under Phase 3 (warstock) in MkI configuration, rather than in MkII configuration. The MkII had been developed in response to an obsolescence review of the torpedo, with modifications made to core components of the torpedo. As the MkII had not yet been fully certified in August 2009, the Chief of Navy agreed to take more MkI torpedoes to minimise schedule risk. Ultimately, Defence received limited schedule benefit from accepting MkI torpedoes in lieu of MkII torpedoes under Phase 3, as the majority of Phase 3 torpedoes will be delivered later than specified in the April 2010 Materiel Acquisition Agreement schedule (which was signed after Chief of Navy’s August 2009 decision).

50. While the MkI currently has the same capability as the MkII, there is no planned development path for the MkI. If future development occurs it will only apply to the MkII weapon. The MkI core software will not be further developed as it is incompatible with the MkII hardware. This means that the MkI will potentially become obsolete earlier than the MkII (if software development outstrips the MkI hardware limits).

There are gaps in Defence’s understanding of its new lightweight torpedoes

51. In May 2011, the Government approved the acquisition of 24 MH-60R Seahawk Romeo helicopters under AIR9000 Phase 8. These maritime combat helicopters are equipped with, among other weapons, the US Mk54 lightweight torpedo (an evolution of the Mk46 torpedo). Defence and DMO will therefore have to manage two very different lightweight torpedo inventories for many years to come.

52. In 2009, DSTO performed a qualitative (desktop) analysis comparing the Mk54 to the MU90. The main Mk54 data used in that evaluation originated from a 2004 US test report, which contains the most up-to-date evidence Defence possesses on the Mk54. The DSTO report considered that the Mk54 and MU90 had broadly similar capabilities. Relying on this dated information presented a significant limitation in understanding the status of the Mk54.

53. In late 2011, DMO sought assistance, firstly from DSTO then from Capability Development Group (CDG), to undertake a study of the Mk54, including its viability, suitability, sustainment costs, and a ‘side by side comparison of Mk46 [versus] Mk54 [versus] MU90’. This was to inform the then upcoming JP2070 submission to government. CDG considered that this task was a ‘low priority’ and not worth pursuing.

54. Given the lack of performance information on the Mk54, and the continuing gaps in Defence’s understanding of the MU90, there is limited documented evidence to support Defence’s advice to the Government at second pass for AIR9000 Phase 8 that the two torpedoes met the ADF’s requirements and ‘were considered comparable in capability’.

Sustainment of the MU90 (Chapter 6)

MU90 exercise firings are complex and expensive

55. Undertaking an exercise firing for an MU90 is a complex and expensive process, requiring coordination between multiple parties, both Defence and private contractors. After each exercise firing, the torpedo must be safely recovered, with the power source flushed and stabilised, before being transported back to the TMF for refurbishment.

56. The vessel used for MU90 OT&E recovery is significantly larger than the vessels able to be used for Mk46 firings, as the MU90 recovery vessel requires additional deck space to continue the torpedo flushing process for a further 16 hours, and requires a suitable crane to lift the torpedo aboard. The estimated cost to use this vessel for MU90 OT&E was $2.5 million.

57. Firing an MU90 exercise torpedo is considerably more involved and costly than for a Mk46 exercise torpedo for three main reasons:

• the use of a larger recovery vessel for the MU90;
• the cost to DMO per firing ($317 000 for the MU90 compared to $116 000 for the Mk46, with the difference due to additional labour and a more expensive refurbishment kit for the MU90); and
• the need for a portable exercise facility for MU90 firings outside of Western Australia.

58. The high cost and complexity of an MU90 exercise firing may well place pressure on Defence’s capacity to meet its annual exercise firing requirements in the future.

Defence developed a mobile exercise facility for the MU90

59. Specialised facilities are required close to exercise and trial firing sites to refurbish the MU90 after each firing. For this reason, a dedicated mobile exercise facility (the Post Exercise Facility Mobile) has been developed by Defence and Thales for firings undertaken away from Western Australia (the TMF services the torpedo for firings in Western Australia). The mobile facility is made up of two shipping containers: one is a workshop and the other stores equipment, allowing maintainers to handle and work on up to three exercise torpedoes at one time using appropriate procedures and support equipment.²⁰ The facility was successfully used for the September 2012 OT&E firings in Northern Australia (the first time it had been used at capacity outside of Western Australia) and successfully supported the eight exercise firings in a three week period. This included supporting five exercise firings on one day, more than originally anticipated.

60. The mobile facility provides more flexibility than having a fixed facility on the Eastern Seaboard (which was the original intention). The need to build, maintain and transport the mobile facility, however, is a result of the unique and demanding maintenance requirements of the MU90 (especially the flushing requirements), and will impose an additional cost for future exercise firings outside of Western Australia.

Personnel and operating costs have not been fully developed

61. Separate from the cost of procuring military equipment (covered by a project’s budget) are personnel and operating costs, which incorporate staff costs during a project’s acquisition (not provided for under a project’s budget), and the staff and equipment costs associated with the use of equipment over its life. Current MU90 estimates of personnel and operating costs are limited and have not been updated since 2008. Defence and DMO have recently gained a much more mature understanding of the torpedo, which will influence expected through-life costs. The ANAO has recommended (see page 33) that there would be benefit in Defence updating the estimated personnel and operating costs of the MU90 across its planned whole-of-life cycle.

Defence refines the cost of firing an MU90 exercise torpedo

62. As part of the July 2011 review of JP2070 (see paragraph 30), DMO developed a comparison of the cost to fire and maintain the ADF’s current and future torpedoes (DMO costs only, excluding Navy and other costs such as torpedo recovery). The MU90 estimates were 700 hours and $419 000 per firing, which were more than triple the figures for the ADF’s other lightweight torpedoes and were even greater than the ADF’s heavyweight torpedo (the Mk48) (see Table 6.3 for detailed estimates). However, based on a more mature understanding of the labour costs and positive exchange rate impacts on the costs of required parts, by June 2012 the estimated turnaround cost for an MU90 exercise weapon had reduced from $419 000 to approximately $317 000.

63. Similarly, DMO’s estimates as at August 2012 are that the cost to support one MU90 warshot torpedo as warstock inventory is almost double the cost for one Mk54 and is more than double the cost for one Mk46.

There are consequences of having a mixed inventory

64. Additional storage and personnel pressures will be placed on Defence because it will be supporting an inventory of three different lightweight torpedoes between late 2014 (when first deliveries of MH-60R helicopters and their Mk54 torpedoes are made) and up to mid 2021 (a possible retirement date for the AP-3C Orion, which uses the Mk46).

65. DMO is unable to fully leverage off its Mk46 staff, equipment and procedures with respect to the MU90 because of the different national origins and make-up of the torpedoes. The US International Traffic in Arms Regulations (ITAR) and IP restrictions require that the two torpedoes be stored and managed separately, with limited numbers of people having access to both torpedoes.²¹ In contrast, the Mk54 is an evolution of the Mk46 and will have a large degree of commonality in parts, equipment and procedures.

66. The need to sustain an inventory of three lightweight torpedoes will have personnel and sustainment cost impacts that Defence has yet to accurately assess. The ANAO has recommended that Defence analyse the full implications of operating its mixed inventory of lightweight torpedoes across their expected in-service life, so as to position itself appropriately to identify and manage the potential cost, technical workforce and facility implications.

Agency response

Defence welcomes the ANAO report on the Remediation of Lightweight Torpedo Replacement Project. Defence is committed to the continuous improvement of its project and contract management processes and recognises, and supports, the value of the recommendation suggested by the ANAO.

This is the second ANAO report on this project. Defence acknowledges that the Report provides an historical account of many of the challenges faced by the project from its inception, and identifies some weaknesses in aspects of Defence's management of alliance-style contracts, tendering arrangements and management of risk in complex projects.

Defence is pleased to note that following the initial ANAO audit, with appropriate allocation of resources, the project was able to make satisfactory progress towards Initial Operational Capability, which was achieved in November 2012. The project is on schedule to meet Final Operational Capability by mid 2013. The project has also been removed from the Government's Projects of Concern list and has been fielded for operational service.

The acquisition of a modem lightweight torpedo delivers an enhanced capability for Defence. The 2009 Defence White Paper stated the Government's intention to place greater emphasis on our capacity to detect and respond to submarines in the ADF's primary operational environment. The lightweight torpedo replacement project is an important element in this plan. This modern weapon has recently entered service, or is entering service, with five other navies and will provide a substantial improvement in the ADF's existing lightweight torpedo capability.

Recommendations

Footnotes

1. Anti-submarine warfare (operations conducted with the intention of denying the enemy the effective use of their submarines) is an important capability in the defence of a maritime nation such as Australia, and lightweight torpedoes are a critical element of anti-submarine warfare. Lightweight torpedoes are self-propelled, underwater projectiles that can be launched from ships and aircraft and are designed to detonate on contact or in close proximity to a target.
2. Under a separate project (SEA4000 Phase 3), Defence is currently acquiring three new Hobart Class Air Warfare Destroyers (AWDs). Defence plans to progressively withdraw the FFG fleet between 2014 and 2019, replacing them with the AWDs. The MU90 is being integrated onto the AWDs as a ship launched torpedo, although this is being managed by the AWD project.
3. During this time, Defence and DMO believed the MU90 to be an off‐the‐shelf torpedo that was already in‐service with the other navies. This was not the case: it was a developmental torpedo. Subsequently, issues identified through production testing of the torpedo contributed to schedule slippage and invalidated planning assumptions with ongoing implications for testing and evaluation.
   Throughout the proposal evaluation and selection process in 1999, the ‘off-the-shelf’ and ‘in-service’ nature of the MU90 was cited repeatedly as the most significant reason for it succeeding over the nearest contender. For example, the findings of the Operations and Engineering Proposal Evaluation Working Group and the Business and Finance Proposal Evaluation Working Group, as summarised in the October 1999 Source Evaluation Report, refer to the MU90 as proven, extensively tested, and the only off-the-shelf product offered in the four proposals received.
   The MU90 was first accepted into operational service by the French Navy in February 2008.
4. ANAO Audit Report No.37 2009–10 Lightweight Torpedo Replacement Project, pp. 15-17.
5. IOC is the point at which the Capability Manager declares that the first subset of a capability can be operationally employed. Defence defines IOC for the MU90 as the capability to fire MU90 torpedoes from one FFG and one FFH, including: all onboard weapon handling and storage systems; the delivery of all integrated logistics support requirements; and the ability to conduct OT&E anywhere on the Australian station.
   FOC is the point at which the Capability Manager declares that the final subset of a capability can be operationally employed.
6. Department of Defence, Defending Australia in the Asia Pacific Century: Force 2030, pp. 70 & 72.
7. Mainly concerning: future technical support, hardware obsolescence due to the rapid evolution of computer platforms, and the inability to modify the simulator due to a lack of access to background IP. The company that supplies the simulator and support, WASS, is an Italian company with no Australian presence.
8. Where DMO determines that requirements specified in capability definition documents are unable to be met or tested, DMO is required to obtain waivers from both Capability Development Group and the capability manager, which removes the requirements from testing.
9. The four Adelaide Class (FFG) and eight ANZAC Class (FFH) ships will operate the MU90. The AP-3C Orion aircraft that were originally to have the MU90 integrated onto them will continue to use the ADF’s existing Mk46 until they are eventually replaced by the Poseidon P-8A maritime patrol aircraft, currently planned to enter service between 2017 and 2020. Both the Poseidon and the MH-60R Seahawk Romeo helicopter (being acquired under AIR9000 Phase 8) will be equipped with the Mk54 torpedo as a fully integrated component, without the capacity to operate the MU90. As noted in footnote 2, Defence is currently acquiring three new Hobart Class AWDs to progressively replace the FFG fleet between 2014 and 2019. The MU90 is being integrated onto the AWDs as a ship launched torpedo, although this is being managed by the AWD project.
10. Turnaround costs are the costs associated with refurbishing an exercise torpedo after firing in order to return it to inventory in its original state, ready to be used as warstock.
11. IMR is a milestone that marks the completion of the delivery of products and services identified as the DMO’s contribution to Initial Operational Release (IOR). IOR is the milestone at which the Capability Manager is satisfied that the initial state of the capability system, including any deficiencies, is such that it is sufficiently safe, fit for service and environmentally compliant to proceed into OT&E.
12. Intermediate level maintenance involves warshot torpedo servicing every 3.5 years, and a major service involving a total strip-down and reassembly of each torpedo—including replacing some parts—every 10.5 years.
13. Background IP is created independently of the contract (and may include any such IP owned by third parties that a party makes available for performing the contract).
14. Foreground IP is developed in the course, and as a direct result, of carrying out the contract work. Access to foreground IP allows Defence to use the torpedo in its current configuration.
15. A torpedo trolley has been developed to safely move the MU90 torpedoes from an FFG’s weapons magazine to the torpedo tubes when at sea.
16. Gate Reviews form part of DMO’s internal assurance framework for major projects and are held at various stages of a project’s lifecycle. They are intended to assist DMO in providing high quality and reliable advice to Defence and government on a project’s health and outlook. For more information on Gate Reviews, see: ANAO Audit Report No.52 2011–12 Gate Reviews for Defence Capital Acquisition Projects, p. 13.
17. Another torpedo failed to launch, and this failure was caused by the umbilical cord connecting the weapon to the combat system being loose with salt contamination evident.
18. Navy’s OT&E is managed by RANTEAA, whose mission is to provide the Chief of Navy with reliable and independent advice on new capability being offered for acceptance into the Navy and through OT&E define the operational capability.
19. These issues were:

• communication errors between the shipborne torpedo system and the torpedo, caused by umbilical cables that connect the two;
• gouging of the torpedo in the torpedo tube, caused by the tube’s protruding temperature sensor; and
• the exercise torpedo’s flotation device cover was lifting upon firing, caused by a build-up of pressure underneath the cover.

1. In order to fully operate, the facility requires a hardstand and access to water and electricity. To date, these have only been provided in Western Australia (Perth) and Northern Territory (Darwin). The necessary facilities have yet to be completed for the Eastern Seaboard.
2. ITAR are US regulations established under Section 38 of the US Arms Export Control Act, which control the export and import of defence articles and services. See: ITAR Part 120 – Purpose and Definitions, <http://pmddtc.state.gov/regulations_laws/itar_official.html> [accessed 10 October 2012].