A major Defence project to build up to 450 new, armoured vehicles in Australia could be dramatically scaled back as the government looks to prioritise military spending in other areas, such as cyber security.
At the same time, the Defence Department is refusing to answer questions about progress on an earlier related program for the army's Combat Reconnaissance Vehicles (CRVs), with military insiders warning the Boxer project is facing numerous technical problems.
Government and Defence sources say cabinet's National Security Committee (NSC) has discussed how to reduce the scope and cost of the multi-billion-dollar LAND 400 Phase 3 program to acquire Infantry Fighting Vehicles (IFVs) to replace the army's ageing M113AS4 armoured personnel carriers (APCs).
Over recent months, NSC and cabinet's Expenditure Review Committee (ERC) have considered possible savings on various Defence projects, such as the recent axing of the $1.3 billion SkyGuardian program, to help fund other initiatives, including the $9.9 billion cyber program REDSPICE.
Numerous figures familiar with the high-level discussions say the government has examined reducing the 450 planned IFVs, down to around 350 vehicles, a move that would free up around $1 billion in Defence spending.
One option being explored by the army would be to replace some of the non-combat IFV variants in LAND 400 Phase 3, such as ambulances and supply vehicles, with cheaper but less mobile Bushmasters which are already assembled in Australia.
A winning design on the LAND 400 Phase 3 project was widely anticipated to be announced before the election, but Defence Minister Peter Dutton has insisted a decision is not scheduled until September.
Germany company Rheinmetall — which secured the LAND 400 Phase 2 contract for CRVs — is competing against South Korean company Hanwha for the far more lucrative Phase 3 IFV project.
On Tuesday, Mr Dutton denied suggestions that differing opinions inside government had delayed the announcement of a winning bidder in the highly anticipated LAND 400 Phase 3 project.
"There's no split in the NSC, or in cabinet, or anywhere else, in relation to LAND 400 Phase 3," Mr Dutton told reporters in Sydney.
"We've been clear with both parties [that] there are technical aspects, and there are probity issues around this. I'll be guarded in what I say, but the timeline, from memory, was about September that Defence [would be] ready to bring that forward.
"We've had an initial look and we're sticking with that timeline. There are still some questions that need to be answered, and that's, as I understand, it been conveyed to both of the companies."
The Defence Department declined to respond to questions from the ABC about whether it was examining options for building a reduced number of Infantry Fighting Vehicles.
Defence refuses to discuss problems with combat reconnaissance vehicles project
As the Defence Department continues to evaluate the competing German and South Korean bids for LAND 400 Phase 3, it's refusing to answer questions about technical problems emerging the Boxer CRV being built for Phase 2.
Military insiders claim Rheinmetall's Boxer is experiencing "carbon monoxide toxicity" inside the vehicle, vibration problems for passengers, difficulties operating the vehicle at night-time, delays with passing blast tests and no anti-tank missiles able to be fitted for two years.
"Army is pushing for the introduction of the Boxer vehicle too fast, just so they can meet a promised June Initial Operating Capability (IOC) date when there are still serious problems not fixed," a project team member told the ABC, speaking only on the condition of anonymity.
The Defence Department has repeatedly refused to answer detailed questions from the ABC about the apparent problems with the Boxer build.
In a statement, Rheinmetall Defence Australia managing director Gary Stewart said the company continued "to work closely with the Australian Defence Force to deliver and support the Boxer Capability".
"This includes training, testing and certification activities currently underway to meet the Initial Operational Capability milestone," Mr Stewart said.
"In relation to the achievement of Initial Operational Capability milestone and Projects of Concern, both of these matters are managed within Defence."
Last year, the ABC revealed a series of problems being experienced with the Boxer program, including an overweight weapons system that was threatening to affect the multi-billion-dollar vehicle's capability.
