Austal out of patrol vessel build

The German company contracted to build Australia's new offshore patrol vessels has concluded negotiations with its build partners, but Henderson-based Austal will not be participating, with Civmec being the big local winner.

Construction of the first vessel for the Royal Australian Navy will get under way in South Australia before the end of 2018, with two vessels to be built in SA before the remaining 10 are buit in WA.

German shipbuilder Lürssen said today it had worked hard to explore options to use the experience base at Henderson for construction of the 10 vessels in Western Australia, including conducting lengthy negotiations with Austal, which is a major contractor to the US Navy.

"Ultimately the negotiations with Austal have not generated a proposal that represents an acceptable level of value for money and Austal will not be a participant in the OPV build team," the company said.

"Lürssen will now work with its subcontractors to deliver this proven capability for navy and to open up new opportunities for Australian businesses and suppliers by contributing to a sustainable and globally competitive industrial base."

Lürssen and Civmec had been bid partners for the project, while Austal had teamed up with another German business, Fassmer.

An announcement by the federal government last November that both Civmec and Austal would jointly be involved in the build came as something of a surprise to the market.

The government said Lürssen would be left to negotiate commercial arrangements with the two.

That process was reportedly difficult, however.

Earlier this year, the federal government appointed WorleyParsons chairman John Grill to mediate between the parties.

In April, Civmec was picked as the fabrication and construction contractor for the 10 vessels to be built in WA.

Minister for Defence Industry Christopher Pyne said today that the government had asked Lürssen to "explore options to leverage wider shipbuilding experience in Henderson" as a means to open the option for Austal to be involved.

But he said that had been subject to contractual negotiations.

“The Turnbull government’s commitment to construct 10 offshore patrol vessels at Henderson, as part of the continuous shipbuilding program for minor war vessels in WA, remains unwavering,” Mr Pyne said.

“We will have Australian workers, in Australian shipyards, using Australian steel providing the capability navy needs.”

Austal chief executive David Singleton said today the business's current pipeline of work would enable it to sustain operations at Henderson.

"We are grateful to the government for the continuous support and endorsement they have provided to Austal, both in this program and in our commercial and defence operations around the world," Mr Singleton said.

The company said it had contracted $US400 million of new ferries in the past 18 months.

Austal's revenue is primarily sourced in the US, where it operates a large shipyard in Alabama.

In the half-year to December 2017, 85 per cent of its total revenue of $652 milion was from the US, with Australia accounting for 12 per cent.