Megaprojects: Taking Flyvberg’s ‘outside view’ on Australia’s nuclear submarine program
A submarine labelled "Too Big To Fail"

Megaprojects overpromise and underdeliver: AUKUS implementers can learn from others.

Written by

Marcus Hellyer

Will Australia’s AUKUS nuclear-powered submarine (SSN) program deliver as promised? The unavoidable answer is no.

That’s because megaprojects virtually never deliver. That’s the finding of the person who has probably studied more megaprojects than anybody else: Professor Bent Flyvberg, who has assembled a database of more than 16,000 megaprojects in 136 countries in over 20 fields ranging from energy to transport to the Olympic Games to defence (with a megaproject defined as costing over USD1 billion).

According to Flyvbjerg, 91.5% of megaprojects don’t deliver on time and budget. When you add in the third side of the iron triangle of project management, namely benefit—or capability to use the defence term—that number grows to 99.5%. Astonishingly, only 0.5% of megaprojects deliver against all three. This is what he terms the ‘iron law of megaprojects’; they are ‘over budget, over time, under benefits, over and over again.’

I’m going to spend a few posts exploring Flyvbjerg’s insights to see what we can learn for the SSN program.

Considering the SSN program is an interdependent conglomeration of megaprojects with Australia having to work with the AUKUS partners’ very different industrial bases and systems of government—building a shipyard, building submarines, building nuclear infrastructure, building a second submarine base, and building nuclear waste facilities (which, spoiler alert, have the worst track record of any type of megaproject in Flyvbjerg’s database), we can be highly confident it won’t deliver against all three.

Does that mean we shouldn’t continue with the SSN program? Not necessarily, after all the world is still building megaprojects despite their dismal record of delivering to plan. One of the worst performing megaprojects in terms of cost and schedule was the Sydney Opera House, yet it has exceeded all expectations in terms of delivering benefits. So I’ll dodge that question for now because the SSN program is a classic wicked problem, meaning different stakeholders can have very different views about it. Many advocates of SSNs consider it is worth getting the capability even it goes over budget and schedule. Similarly many opponents don’t think it’s worth it even if it does hit its cost, schedule, and capability goals.

But it does mean that many of the risks that numerous observers have already identified will be realised. Even the supporters need to acknowledge that. That means they not only need to reduce the likelihood of those risks occurring but also implement measures that address the consequences when they almost inevitably occur.

Before you object and suggest SSNs are fundamentally different from other megaprojects so lessons from other sectors, whether military or civil, are irrelevant, one of Flyvberg’s key messages is that megaprojects are plagued by ‘uniqueness bias’ among their managers who ‘tend to see their projects as singular, which impedes learning from other projects.’ Rather planners and managers should take what he calls the ‘outside view’, that is, resist the very strong temptation to see your project as unique. Instead, regard it as one of a large class of projects and learn from them because some of them will have already encountered the problems yours will.

So let’s start by taking the outside view. Granted there’s nothing quite like building an SSN enterprise from scratch in a country with a very limited nuclear industry. But there are lots of complex naval shipbuilding projects to look at. And a review of recent Australian naval shipbuilding programs shows they are consistent with Flyvbjerg’s general assessment about the outcomes of megaprojects.

Let’s take the three planks of the continuous naval shipbuilding enterprise launched by the previous government, namely major surface combatants, minor war vessels and submarines. All three have realised major risks, resulting in under-delivery against cost, schedule, and capability (with one exception, but even there it’s probably just a matter of time).

In the major surface combatant space, the previous government selected the Hunter-class frigate. As we have learned from the Australian National Audit Office, parliamentary inquiries, and an internal Department of Defence review, that outcome was based on based on extremely poor Defence decision-making and advice to Government that wished away the very pertinent fact that the Hunter was based on an immature design and would require fundamental redesign presenting major cost, schedule, and capability risks.

So it’s not a surprise that the program schedule has slid. It’s missed the Government’s original 2020 target to start construction by at least three years. More importantly, Defence’s own assessment of when the first ship will enter service has moved well into the future and is still close to a decade away. Of course, cost, schedule and capability are inter-related. So the delay has a capability impact—we won’t have new warships when we need them, a problem that looms larger as the limitations of the aging Anzac frigates become more apparent.

It will likely also have a cost impact; Flyvbjerg cites an average 4.64% cost overrun for every year of delay. The future frigate program’s cost estimate has grown from $30 billion to $35 billion to now around $45 billion. And the program itself has now identified an emergent risk that ‘the acquisition and sustainment of Hunter Class Frigate is not achievable with the allocated funding.’

One of Flyvbjerg’s observations about megaprojects is that they take so long they leave the window open for Black Swans to fly in. In this case the Black Swan is the world has become significantly more dangerous, so there is now a growing view that the Hunter’s 32 missile cells are insufficient for the current threat environment. Put another way, even if the Hunter delivers the contracted capability it’s no longer what we think we need.

The minor war vessel stream is in a similar position. It has also encountered delays. Due to reasons the Government and Department of Defence have not disclosed, the Arafura-class OPV program has missed schedule milestones for delivering and commissioning vessels. According to public documents the program is still on budget, but that may well change should the delays continue. More significantly, there is another, larger factor that means the expenditure may well be wasted, whatever it may be.

Like the Hunter program, a Black Swan has flown in through the open window. Again, we’ve decided the OPVs are the wrong capability. The world has moved on before the project has delivered anything. Previous governments were concerned about people smugglers. We’re now much more concerned about great power competition and conflict; in that context an 1,800 tonne ship that is virtually unarmed and adds nothing to the anti-air, anti-surface or anti-submarine fight doesn’t represent an optimal use of resources. So the government appears to be considering options to cancel or shrink the program. And that will definitely result in cost impacts.

The third plank of the shipbuilding program is submarines. There again, major cost, schedule and capability risks have been realised. The cost of the future submarine capability has gone from $50 billion before the Attack-class conventional submarines were selected, to $80-90 billion once they were selected, to the SSN program with an estimated (acquisition and operating) cost of $268-368 billion over thirty years. By the time the Attack-class was cancelled, total expenditure was around $3.5 billion for delivery of no capability or useful infrastructure. The schedule for the submarine program had also gone from a mid-2025 initial operating capability at the time of the 2009 Defence White Paper to around 2033 by the time the Attack-class program was cancelled. The ‘optimal pathway’ announced by the current aims to halt that schedule slide by aiming to have the first SSN delivered around 2032—but many factors will have to align for this constellation of megaprojects to hit that target.

The biggest risk realised in the French incarnation of the submarine program was—as with major surface combatants and minor war vessels—that a very large capability Black Swan flew in through the open schedule window. Despite a steady line of ministers and senior Defence officials assuring the parliament and public that the Attack-class would present a ‘regionally superior’ submarine capability throughout its life, we suddenly learned after its cancellation from the previous prime minister, supported by the united military leadership of the ADF, that it would actually be obsolete from the moment it was launched. Once again, the world had moved on and the government assessed a conventional submarine capability was no longer relevant.

So the outside view strongly suggests that the SSN program will be consistent with other megaprojects and that cost, schedule and capability risks will be realised. Again, this doesn’t automatically mean Australia shouldn’t continue with it. But we should be doing everything possible to manage the program in a way that ensures those risks are identified and addressed. In future posts we’ll look at Flyvberg’s recommendations on how to do that—or at least minimise their impact—and examine whether those measures are being applied in the SSN program.

Note: for easily digestible introductions to Flyvberg’s work see:

  • his introduction to The Oxford Handbook of Megaproject Management;
  • his essay ‘Top Ten Behavioral Biases in Project Management: An Overview’; or
  • his very readable book with Dan Gardner, How Big Things Get Done.

Dr Marcus Hellyer is Head of Research at Strategic Analysis Australia