Critical AUKUS contract doubles in price and now a year late – Connor Pearce

A critical Defence contract to design Australia’s future naval nuclear regulator handed to consultancy Ernst & Young has blown out to more than double the original amount and is running a year late

Last year, EY was awarded an $8.4 million contract for Future Nuclear Regulatory Office Design.

In an amendment quietly published on AusTender earlier this month, the contract value increased by a whopping $9.6 million, a 114 per cent increase, to a total contract value of just over $18 million. The contract time frame also doubled, with the original 12 month contract now extended to June 30, 2025. It is unclear what this staggering cost increase will go towards, with the Department of Defence and Defence Minister Richard Marles not responding to questions before deadline.

United States Navy Virginia Class submarine USS Mississippi arrives at Fleet Base West,
Rockingham, Western Australia for a routine port visit. Picture by Department of Defence

In May 2023, Mr Marles announced the government would establish a new regulator, as part of the AUKUS nuclear-powered submarine program.“A specialised and dedicated regulator – which will be independent of Defence and the Australian Defence Force – will ensure we have the highest standards of nuclear safety and radiological protection across the lifecycle of Australia’s nuclear-powered submarines,” Mr Marles said at the time.

The regulator will fulfill a critical function, not only overseeing the safety of Australia’s future nuclear-powered submarine fleet, but also the Virginia-class submarines that Australia hopes to purchase from the United States.
Without a naval nuclear regulator in place, the delivery of these submarines could be delayed.

EY has been working on the design of the regulator since the contract was first awarded in July last year. The appointment of EY at the time raised eyebrows, given EY’s involvement as auditor of Tokyo Electric Power Company, the Japanese utility that operated the Fukushima nuclear power plant.

When the contract was revealed, Greens Senator David Shoebridge said the appointment of EY was “unbelievable”, but said the cost blow-out was no surprise. “This is unbelievable except it’s Defence, it’s tragically predictable,” he said.

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Legislation delayed

While this work has been happening behind closed doors, the government’s plans to legislate the new regulator have been delayed.

First introduced in the lower house in November 2023, the Australian Naval Nuclear Power Safety Bill has hit a roadblock in the Senate.

In his speech introducing the bill, Mr Marles made clear that the new regulator would oversee the country’s military nuclear activities.

“Zones will be designated so it is clear where the boundaries lie between the Commonwealth’s existing civil nuclear safety framework, established by the Australian Radiation Protection and Nuclear Safety Act 1998 and the new arrangements under this bill.”

However, in the meantime, the Australian government last week had to turn to the civilian regulator, the Australian Radiation Protection and Nuclear Safety Agency (ARPANSA), to approve a waste facility for US and UK nuclear submarines that will dock at HMAS Stirling on Garden Island in WA.

The bill was referred to a committee as well as sent to a scrutiny committee.

David Shoebridge during a Senate Committee hearing in July. Picture by Sitthixay Ditthavong

The committee report recommended the bill be passed, with amendments, including that the regulator report to the “soon-to-be-legislated” Parliamentary Joint Statutory Committee on Defence, which was blocked by the Coalition and the Greens in the first legislative defeat for the Labor government since coming to office.

There have also been concerns raised about the independence of the regulator from Defence and the activities it is regulating.

While Mr Marles said the regulator would be independent of Defence, the regulator will be a non-corporate Commonwealth entity within the Defence portfolio.

This stands in contrast to the regulation of Australia’s civilian nuclear activities.

ANSTO, the operator of the Lucas Heights reactor, sits within the Department of Industry, while ARPANSA sits within the Health Department.

In a dissenting report, Senator Shoebridge said the proposed structure for the naval regulator did not follow international best practice.

“This is widely out of step with international standards of legal and functional independence for nuclear safety and is contrary to current practice on civil nuclear regulation in Australia.”

Costs to climb

The cost blow out comes as the government seeks to crack down on spending on consultants.

On Thursday, the Albanese government released figures showing total government spending on the big four was down by nearly half in the first three quarters of the 2023-24 financial year, compared with the same period in 2021-22. Despite this, the amended contract with EY is the largest single contract published in the 2023-24 financial year.

Senator Shoebridge said Defence spending was the exception when it came to the overall reduction in spending on consultancies.

“There seems to be a special rule, any fiscal restriction, or reasonable moderation, there’s always an asterisk ‘except for Defence’,” he said.

The total headline cost for the AUKUS agreement, announced by Prime Minister Anthony Albanese in San Diego in March last year, is $368 billion.

But with cost blowouts a common feature of major defence acquisition projects, there is an unallocated 50 per cent contingency fund of $123 billion, which could see the total price tag approach half a trillion dollars.