Defence Minister Stephen Smith said on Monday the project had experienced delays of some two years with a risk of further delays and recently one aircraft suffered a major engine failure.
"The MRH project has encountered a number of significant technical issues, which have now triggered early indicators and warnings thresholds for schedule and contractor performance," he said in a statement.
Defence Materiel Organisation acting chief executive Warren King had recommended the project be listed as a project of concern and the government had agreed.
"Our policy objective here is a successful project and that is why we have reformed and improved and enhanced the project of concern arrangement with a very strong focus on remediation," he said.
The project of concern list now covers nine projects, headed by sustainment of the navy's Collins submarines.
Some good news: the Frigate upgrade program is off the project of concern list and is showing progress. Frigate class warships are highly useful for Australia's naval security needs.