Future of Australia's naval shipbuilding final report tabled

As the final report of three previously tabled, this report builds on the earlier findings and recommendations of the Senate economics references committee (the committee) into the future of Australia's naval shipbuilding industry regarding to the Navy's new supply ship program and the future submarine program respectively.

However, despite recent procurement and policy announcements made by government, most notably the successful bid by BAE Systems with their Type 26 Global Combat Ship, to be known locally as the Hunter class, in its final report, the committee highlights a number of major concerns, including:

• Government's management of naval shipbuilding programs, particularly following the findings of the auditor general in Audit Report No.39 Naval Construction Programs - Mobilisation particularly as it relates to the Future Submarine Program.
• Concerns about extending Australian industrial involvement in the SEA 5000 procurement project - particularly as a result of the government's tender request fails to mandate the foreign designers subcontract Australian businesses as part of their proposals.    
• Concerns regarding the Offshore Patrol Vessel Program (OPV) procurement process - particularly where government directly inserted Australian shipbuilder Austal into Lurssen's commercial negotiations after the announcement that Lurssen was the preferred tenderer. 
• Delays and cost increases relating to the establishment of the Naval Shipbuilding College - the cost of the college has increased from $25 million to $62 million, even before the operating costs were factored in. 
• The government's lack of planning and failure to communicate regarding the future role of the ASC and its staff, as the ASC staff numbers continue to fall. 

The auditor general's report concluded that in order for Australia's high-profile $80 billion Future Submarine program to be successful, implementation of the existing and planned naval shipbuilding programs as part of the government's $89 billion Naval Shipbuilding Plan programs MUST be seamless in order to minimise the risk of cost overruns and delayed delivery of key defence assets.

A key part of this, is further highlighted with the committee's disappointment at the Strategic Partnership Agreement (SPA) between the Commonwealth and Naval Group Australia which is still under negotiation, which raises important serious questions around project cost and delivery for key work programs reliant on a completed SPA. In particular, the delay in the transfer of background intellectual property and information between the parties will dramatically impact the overall cost and scheduling of Australia's premier sovereign shipbuilding program: SEA 1000. 

Where the committee highlights specific concerns and contradictions between publicly discussed and advertised government policy, is the aforementioned lack of mandatory Australian industry subcontracting as part of the SEA 5000 bids. In particular, this appears to disrupt the Sovereign Shipbuilding Capability and the government's public insistence in supporting the development of a sustainable and competitive local shipbuilding industry.  

However, government's announcement of the SEA 5000 winner, BAE and the conditions around which it will be investing in and developing Australia's domestic, sovereign naval shipbuilding capacity contradicts these concerns:

"The program provides a unique opportunity to not just strengthen but guarantee Australia's naval shipbuilding sovereignty. BAE System's Hunter Class of frigates will be built by ASC Shipbuilding at the Osborne Naval Shipyard in South Australia. ASC Shipbuilding, currently wholly owned by the Commonwealth, will become a subsidiary of BAE Systems. This subsidiary status will ensure that BAE Systems is fully responsible and accountable for the timely delivery of the frigates and guarantees the work will be carried out by Australian workers and create Australian jobs," said Prime Minister Malcolm Turnbull.

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Additionally, as part of this commitment to Australian naval shipbuilding, BAE in conjunction with the government have ensured that Australian Industry Content (AIC) for the Hunter class of Future Frigates will be 65-70 per cent, which will directly create 4,000 jobs around Australia once construction of the first ship begins in 2020. 

Finally, the Prime Minister, in his announcement of the successful bidder and the subsidiary terms around which ASC and BAE Systems will collaborate throughout the construction phase, highlighted the long-term benefits to Australia's naval shipbuilding capacity: "At the end of the program the Commonwealth will resume complete ownership of ASC Shipbuilding, thereby ensuring the retention in Australia of intellectual property, a highly skilled workforce and the associated equipment." 

Additionally, the Committee's report raises concerns around the OPV procurement and government's willingness to intervene in commercial negotiations, placing Australian shipbuilder Austal in a precarious negotiating position with primary contractor for the OPV program: Lurssen. This extraordinary government intervention, it is believed showed a lack of good faith from the government and provided no incentive for Lurssen and Austal to reach a mutually beneficial settlement. 

In response, the committee made a number of recommendations, including: 

• Recommendation 1: The committee recommends that the Commonwealth and state/territory governments work together to develop a national shipbuilding plan, incorporating the existing naval shipbuilding plan, with any national shipbuilding plan including the following:
  • Agreed procurement principles focused on support for a continuous build of vessels in Australia utilising Australian industry and Australian shipyards;
  • At a minimum, all vessels procured by the Commonwealth be subject to the same level of scrutiny as naval procurement projects have been and be planned according to the national interest;
  • Identify how remaining shipyards not identified in the naval shipbuilding plan will contribute to the continuous national shipbuilding build program;
  • How Australia's commercial and exports industry can be supported and planned for. 
• Recommendation 2: The committee recommends that in the absence of a national shipbuilding plan in the short-term, reporting against the government's current naval shipbuilding plan and its four key enablers and three major continuous build programs be provided to Parliament every six months.
• Recommendation 3: The committee recommends that the government prioritise finalising the future location of Collins Class sustainment activities and confirm plans for the future of the ASC and its employees.
• Recommendation 4: The committee recommends that the funding announced in MYEFO expenditure of $29.4 million over three years from 2017-18 for ASC job retention scholarships be immediately released to the ASC to prevent further job losses from the strategically vital naval shipbuilding industry. 
• Recommendation 5: The committee recommends that the Naval Shipbuilding College establish structured consultations mechanisms with Industry Reference Committees associated with Naval Shipbuilding Occupations.
• Recommendation 6: The committee recommends that the Australian Industry Skills Committee task the existing Industry Reference Committees, responsible for the development of training products associated with naval shipbuilding occupations, with establishing Technical Advisory Groups to ensure that skills gaps identified through their own industry consultations or by Naval Shipbuilding Colleges are integrated into existing training package development and maintenance work. 
• Recommendation 7: The committee recommends that the government provide clear definitions about what constitutes Australian involvement, content, and participation, and how this will be achieved in each project outlined in the government's naval shipbuilding plan. These definitions and requirements for Australian industry involvement are to be stipulated in each contract.
• Recommendation 8: The committee recommends that Australian Industry Capability plans for new Defence naval projects are subject to examination by the Senate – conducted in a manner similar to international treaties. The committee further recommends that finalised Australian Industry Capability plans are subject to six-monthly reviews against progress by the Senate. 

 The full report, including detailed information and recommendations is available here. 

Stephen Kuper

Steve has an extensive career across government, defence industry and advocacy, having previously worked for cabinet ministers at both Federal and State levels.

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