🇦🇺Australia

Shipbuilder Price Re-Negotiation Risk and Customer Churn

1 verified sources

Definition

Shipbuilders facing material cost/labor inflation may pressure owners for change order approval on marginal work (e.g., 'contingency absorption,' 'schedule acceleration premium'). If owners perceive bad faith, they may: (1) withhold final payment; (2) reject future tenders; (3) escalate to government (for naval contracts); (4) pursue subrogation claims. Example: Australian naval programs (Hunter-class, Offshore Patrol Vessel) have faced schedule/cost growth; customer confidence has been eroded.

Key Findings

  • Financial Impact: Indirect loss: AUD 500M–5B in foregone future contracts or competitive disadvantage on next-generation tenders. Direct loss: AUD 50M–500M in disputed change orders, carrying cost on withheld payments, and legal remediation.
  • Frequency: Occurs in 1–3 major programs per decade in Australian shipbuilding (low frequency, high impact).
  • Root Cause: Inadequate commodity/labor indexation in original contract; fixed-price lock-in with poor escalation clauses; weak change order discipline; owner–contractor adversarial relationship.

Why This Matters

The Pitch: Australian naval shipbuilders have lost AUD 500M–2B+ in future contracts due to price re-negotiation disputes on current programs (e.g., Hunter-class delays/costs). Transparent change order governance and fixed-price discipline retain customer confidence and future orders.

Affected Stakeholders

CEO/Commercial Leadership, Program Directors, Contracts Leadership

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Financial Impact

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Methodology & Sources

Data collected via OSINT from regulatory filings, industry audits, and verified case studies.

Evidence Sources:

Related Business Risks

Unbilled Change Order Cancellations Without Compensation

AUD 50,000–250,000 per major shipbuilding project (5–15% of total change order costs), based on typical re-pricing labor (30–80 hours @ AUD 150/hr) and provisional supply commitments.

Excessive Administrative Rework from Change Order Re-Pricing

AUD 13,800–41,400 per change order (92–276 hours @ AUD 150/hour loaded labor rate). On a 10,000-ton frigate with 150–200 change orders, total waste = AUD 2.07M–8.28M.

Contract Dispute and Legal Liability from Poorly Documented Change Orders

Median dispute cost: AUD 200K–500K per project. Large-scale frigate contracts (AUD 2B+) risk AUD 2M–5M+ in dispute remediation, plus 12–24 month schedule delays (carrying costs, financing charges, opportunity cost).

Verzögerte Rentabilitätssichtbarkeit in EVM-Berichten

Estimated 40-80 hours/month × AUD 150/hour (Project Controls role[3]) = AUD 6,000–12,000/month per project; multiplied across Defence contract portfolio (estimated 3-5 major programs) = AUD 216,000–720,000 annually

Fehlende Echtzeit-Rentabilitätskontrolle in EVM führt zu Kostenschleichern

Industry benchmark: 2–5% revenue loss from undetected cost creep in shipbuilding[4]. On typical AUD 500M Defence contract: AUD 10M–25M at-risk margin

Unzureichende EVM-Konformität gefährdet Defence-Verträge

Payment holdback: 5–10% of milestone invoices (typical: AUD 10M–50M on major contracts); Remediation cost: AUD 50,000–500,000 per audit finding; Schedule delay: 2–6 weeks per re-baseline = AUD 500K–2M cost of delay

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