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Op-Ed: Déjà vu in Australian defence industry participation

Expanding opportunities for Australian industry participation (AIP) in the nation’s multibillion-dollar defence modernisation and recapitalisation program requires significant policy support to maximise the opportunity and impact on Australias sovereign industry capability, explains Chris Skinner.

Expanding opportunities for Australian industry participation (AIP) in the nation’s multibillion-dollar defence modernisation and recapitalisation program requires significant policy support to maximise the opportunity and impact on Australias sovereign industry capability, explains Chris Skinner.

Australian industry participation in major Defence projects does matter a lot for at least two primary reasons that need to be stated very plainly:

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  1. In times of international crisis or conflict relying on overseas supply chains may be in jeopardy. Even more so if the source of the supplies is a combatant or their supporters. Even neutral supplying countries can be convinced or coerced to stop supplies, witness Sweden in the Vietnam War;
  2. Secondly, the engagement of local industry has an economic multiplier effect that goes far beyond defence. The investment in plant and equipment, tooling, intellectual property licences and, most importantly, skilled workforce all have potential for further non-defence industrial development and realisation for domestic and export markets. The resulting economies of scale in turn flow back to defence as better pricing for supplies and services.

All these issues were debated and resolved back in the 1980s with the Collins submarines and the Anzac frigates. These programs and the AIP therein were debated at length, as I well recall, under the aegis of a far-sighted minister for defence Kim Beazley, AC, now Governor of Western Australia. Most of the lessons therefrom seem to have been forgotten or overlooked in the haste to get the naval shipbuilding program rolling.

What can be done this time around is the question in the minds of many concerned people who look at the immensity of the defence investment program and wonder how to get the most benefit in this time of unexpected economic recession.

Well for a start we should stop crying over spilt milk on why we got to where we are today. Yes, the shipbuilding program was started several years later than it should have been to avoid costly life extensions for the Collins submarines. And yes, to get the shipbuilding program structured for a continuous industry needed a force structure size that dictated the drumbeat of deliveries.

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Then the double-sized submarine fleet needed conventionally powered boats with greater endurance than achievable with a son of Collins, mandating a new design; nuclear would have been even better but that is beyond our collective acceptance – for now anyway.

For the frigates there was an attractive design coming out of the UK and timing was great to get the shipbuilding work going ASAP, albeit with the need to delay the offshore patrol vessel (OPV) program to build the first two in SA before the full scale set-up in WA. We even managed to collaborate with Canada for the three countries to acquire the same basic Type 26 design for our respective programs.

All well and good but then what about AIP? Well as we had proven with the Anzac frigate upgrade, we had some good gear from CEA and we also had continuing close collaboration with the US on the Aegis program, so we needed them in the Hunter frigates.

Now that has resulted in rather more naval architectural work than the initial idea of an off-the-shelf design might have suggested. But the continuous shipbuilding program is well underway so all good, so far.

But wait on, the Hunter frigates are over 8,000 tonnes displacement compared with a mere 1,700 for the OPVs, so what we are calling frigates are actually rather large surface combatants, and are even larger than the recently completed Hobart Class guided missile destroyers (DDG). So what?

Well we should already be looking at some corvette-sized frigates to provide the low-mix (expendable tin-cans) to be built with not-to-exceed cost, maximum AIP and reduced crew numbers, in just the same way the FFG-7 Oliver Hazard Perry program was for the USN in the height of the cold war with USSR. In other words, if you are the buyer you can specify the envelope of cost, schedule and industrial participation at the time of calling for proposals.

Personally, for such a corvette program I would bet on Austal who are now moving into steel-hulled ships thanks to investment by the US Department of Defence.
Back to what needs to be done to fix the AIP in Hunter and Attack programs.

Fortunately both of them have not yet reached the major construction contract stage, although the Attack program does have a strategic partnering agreement that is supposed to cover the terms and conditions of future contracts for construction.

Even so, as with any contract, there is always scope for contract change proposals (CCP) to be negotiated to cover resulting changes in deliverables, price, delivery schedule or other terms and conditions of the contracts.

So therefore, the following should be considered for Hunter and Attack construction contracts:

  • Make all those supply items capable and desirable for AIP into Government Furnished Equipment or Materiel (GFE or GFM). This will require some additional government management resources, but they could come from Department of Industry, Science, Energy & Resources (DISER). A good place to start would be for the Attack Class main battery cells to be sourced from PMB Defence as GFE.
  • Mandate that all major purchase orders (over a threshold value) from prime contractor or first-tier sub-contractors be subject to screening by Defence for potential AIP substitution or adaptation. This again will require more government effort but the cost of that would be many times returned in the increased industrial activity.

These two steps are rather draconian, but anything less won’t work, and we will still be agonising over the issue long into the future, bewailing lost opportunities.

I believe they would be supported in principle by advocacy groups, especially the Australian Industry Defence Network and Australian Shipbuilding and Repair Group to name but two that I regard as leaders in constructive thinking on this topic.

Chris Skinner served 30 years in the Royal Australia Navy with extensive sea-time, and development experience ashore in defence and transportation. He was the initial project director for the Anzac frigate program, and served in the US Naval Sea Systems Command as trails manager for the FFG-7 program.

Op-Ed: Déjà vu in Australian defence industry participation
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