I noticed that with the latest (1.0X) patch upgrading is still very much a random affair. Sometimes I get the upgrade-screen (where you have to pay), sometimes I don't. It seems to depend on how much you change, but more often than not the pay-screen doesn't show up and the ship design is simply duplicated with no way to change the old ships.
Provided this works, I still feel that the entire cost and method for upgrading should be radically reconsidered. As noted in another post, the costs for upgrading are astronomical. Correct me if I'm wrong, but the entire concept behind upgrading is time and money. You already have the hulls and often the engines in place, you just need to upgrade weapons. So, a necessary criteria is that, generally speaking, a ship upgrade should be considerably cheaper than a new ship, which it now obviously isn't. And also to preserve the experience of the crew.
So perhaps its better to calculate the cost schematically as follows:
+Cost of new equipment - Cost of scrapped equipment
+Base Upgrade Fee
+Redesign Fee, increasing depending on how far apart the differnt techs are in the tree
(so substituting Laser IV with Laser V isn't as expensive as Laser IV with Plasma III)
--------------------------------------------------------------------------- +
= total cost
In addition, you should have an option to upgrade space-bound vehicles or starport-bound vehicles. Starport vehicles should be added to the millitary que just like in Moo2 and not cost anything (in terms of cash, except for a design fee) except for turns to complete it.
Upgrading spacebound vessels really makes no sense at all, you should need a starport at the very least. I am mystified why they made this supremely illogical move the pinnacle of upgrading.
All in all, I get the feeling they didn't pay the attention to upgrading as they perhaps had planned and instead focused on other things, but I do hope this can adressed in a later feature patch.