Battle over 'blowout' in Anzac frigate costs


Defence Minister Ron Mark has criticised the previous government for its failure to deal with overruns in the cost of the Anzac frigate systems upgrade project. Photo: Lynn Grieveson.

A blow-out in the cost of a major defence project has led to a war of words between the new government and its predecessor, with Defence Minister Ron Mark suggesting Navy crew lives were “compromised” as a result.

National MP and former Defence Minister Gerry Brownlee has hit back, accusing Mark of “grandstanding” and placing blame for the cost overruns at the feet of supplier Lockheed Martin.

Mark revealed the $148 million cost overrun for the Anzac frigate systems upgrade project during Question Time on Wednesday.

Issues with the upgrade to the frigates’ surveillance, combat and self-defence capabilities were first revealed in the briefing to the incoming minister from the NZ Defence Force and the Ministry of Defence, which was released to the public last week and noted the project was “currently facing significant cost pressure”.

Mark told Parliament the project, which had a budget of $491m in 2014, had blown out to $639m.

He said there had been “a series of inaccurate estimates and project management errors” by the Ministry of Defence which had been compounded by previous ministers’ failure to act.

“The delay has not only cost us money, it’s cost us time...if we had not moved as swiftly as we had, who knows when we would have got dry dock space, in which yard around the world to get the task underway.”

Mark said the previous Government was first made aware of the issue in September 2016, but failed to deal with it despite the growing costs and the fact the systems on board were “becoming of questionable value”.

“What does that mean? It means that given we’re talking about defensive systems and offensive systems and radar, it means the lives of men and women were now being compromised through the tardiness of the Government over the project.”

Mark said Cabinet had agreed to a revised contract with Lockheed Martin Canada and a “fiscally neutral transfer” with the Defence budget to fund the upgrade.

Money had been reallocated from funding for the littoral operations support capability project, with a commercial dive and hydrographic vessel purchased instead of a military-specific option.

While the change meant the vessel could not go into “medium-risk scenarios”, Mark said it would still be valuable while the frigates were in dry dock.

“What do we offer up in the case of a humanitarian disaster, a natural disaster within the Pacific? Well actually, being innovative and thinking forward...this gives us a vessel we can deploy.”

Brownlee blames 'excessive' price

Brownlee pushed back against Mark’s claims, pointing the finger at Lockheed Martin for the cost overruns.

“The New Zealand government owns that [systems hardware] right now, the question is how much does it cost to get fitted into the ships, and frankly the price of that has been far in excess of what would be reasonable.

“We’d given Lockheed Martin the opportunity to reprice, I don’t know they’ve done a lot about that - quite clearly they’ve managed to convince the new minister that they’re the only crowd in the world who can do this stuff.”

Brownlee said the previous government had been looking into whether another supplier could install the equipment, or whether it could be done locally.

Defence suppliers were “somewhat merciless” in the prices they applied to their services, he said.

Asked whether he saw the budget blowout as a sign of failure by the Ministry of Defence, Brownlee responded: “I’ll tell you what, I see this as a new minister coming in thinking he can grandstand over some past performance, but ending up costing the New Zealand taxpayer tens of millions of dollars by not being hard enough.”

It was “extraordinary” the new Government had moved so quickly to agree to Lockheed Martin’s price, given the frigates were due to be replaced within another decade or so, he said.

“You’ve got to be very certain that when you’re spending such large amounts of money on assets that actually have only got a relatively limited amount of life left in them… I think you have to be very prudent, and you have to be a bit hard about how much you’re prepared to pay, and you certainly don’t take the only price on the table.”

However, Mark said he had seen “absolutely no evidence” to support Brownlee’s claims, and said further delays had not been an option.

“Given the amount of time that’s been wasted...there was really no time to be out there trying to find another tenderer or going through the whole tender process again.

“That minister signed off on the purchase of all of the equipment that’s sitting in warehouses now with the warranty clocks ticking, waiting to be installed. Is he seriously suggesting...that I should sit on my hands [and] let all the warranties expire?”

Lockheed Martin did not respond to a request for comment.

Article updated at 7.15pm.