Austal (ASX:ASB) said its newly-created, wholly-owned unit, Austal Defense Shipbuilding Australia, entered a strategic shipbuilding agreement with the Commonwealth of Australia, formally appointing the unit as the country's strategic shipbuilder for tier-2 surface combatants at Henderson, Western Australia, according to a Thursday Australian bourse filing.

The agreement establishes the framework under which Austal Defense will design, construct, integrate, and deliver naval programs. It is expected to deliver 18 LAND8710 landing craft medium vessels and eight landing craft heavy vessels for the Australian Army, subject to contract finalization.

The landing craft medium project contract is expected to be finalized in the January quarter of 2026, while the landing craft heavy contract is expected to be finalized by the end of the year.

The agreement has a 15-year maximum term, and it uses a target cost incentive model with performance-based gainshare/painshare mechanisms.

The firm's shares fell 4% in recent trading on Thursday.