‘Overspend’ forces New Zealand to revise contract to upgrade frigates

13 December 2017
The cost of the upgrade of the Royal New Zealand Navy's ANZAC-class frigates, such as the HMNZS seen here, has increased. Source: IHS Markit/Ridzwan Rahmat

Key Points

  • Government says cost of revised contract represents a 30% increase over original deal
  • Defence minister blames cost rise on previous administration’s “procurement overspends”

The government of New Zealand has renegotiated its contract with Lockheed Martin Canada to undertake the Royal New Zealand Navy’s (RNZN’s) ANZAC-class Frigate Systems Upgrade (FSU) programme.

The revised contract reflects the programme’s rising costs, which the government said was the result of “procurement overspends” by the previous administration. The new government has been in office since October 2017.

The government statement said that the FSU programme had a budget of NZD491 million (USD341 million) after contract signature in 2014 but had since experienced a cost overrun of NZD148 million, around 30% of the budget. The revised project budget was now NZD639 million, it said.

Announcing the revised contract, New Zealand’s Defence Minister Ron Mark said that Lockheed Martin Canada provided the previous administration with a final fixed firm price for the FSU programme in June 2017 but that “this was not taken up in the run-up to the election”.

According to Mark, this caused additional costs to be incurred in the programme “and a significant delay to the point at which installation of this essential equipment on the frigates could begin”.

Under the FSU programme the combat systems fitted on board the RNZN’s two ANZAC-class frigates – HMNZS Te Kaha and HMNZS Te Mana – will be modernised to sustain capability through to end of life.

The programme includes the installation of an FSU Integrated Surveillance and Air Defence Solution combining new a combat management system, surveillance radar, identification friend-or-foe, and a local area air defence capability based on an active missile system.

Mark said that the required additional funds for the FSU programme would be sourced by downgrading the RNZN’s Littoral Operations Support Capability (LOSC) programme.

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