In the market for a naval shipbuilding plan
26 Sep 2013|

The first Air Warfare Destroyer block to arrive in Adelaide was successfully rolled off the barge at the Government of South Australia’s Common User Facility wharf and into the ASC’s AWD shipyard.

In the first week of October, the 2013 Pacific Maritime Congress and Exposition will be held in Sydney’s Darling Harbour. It’ll be a massive event. More than 400 companies from 17 countries will take part in the Exposition, expected to attract around 10,000 people from Australia and around the world, including ‘numerous senior commercial, military and government delegations from some 30 countries’. Keeping with the scale and importance of the event, the (invitation only) opening ceremony next Monday will see speeches by no less than the new Defence Minister, the Chief of Navy and the NSW Premier.

The unashamed focus of the event is business. Suppliers of maritime and naval equipment will be there show off their wares. Private buyers and government officials will be looking to see what the market has to offer. Deals will be done.

A debt of thanks is owed to the non-profit organizers of the exposition, Maritime Australia Limited. By bringing together buyers and sellers, they help create an efficient market for maritime and naval goods and services. And the taxpayer can rest assured that the Defence will take full advantage of the event—not just by informing itself about the latest in naval technology, but by updating industry on its future acquisition requirements.

Of course, it’s naïve to think of Pacific 2013 as just a marketplace operating along the lines of the vibrant Paddy’s Market down the other end of Darling Harbour. Rather than looking to do commercial deals, many of the attendees will arrive with a very different agenda; influencing government policy. This will be most acute in naval shipbuilding. Private firms and state governments will all be vying to shape government policy to secure a larger slice of the multi-billion naval acquisition program.

Among the strongest voices are the South Australian government’s defence industry lobbying agency DefenceSA and the Australian government-owned ASC Pty Ltd, which built the Collins Class submarines and is presently involved in the $8 billion Air Warfare Destroyer project. The main thrust of industry lobbying advocates a move away from periodic ‘boom and bust’ naval construction projects to a collaborative continuous-build model that would see naval ships (including submarines) built at a steady rate.

The argument was set out in some detail in DefenceSA’s 2009 publication Naval Shipbuilding: Australia’s $250 billion Nation Building Opportunity. While the model has some benefits in terms of preserving skills and accumulating expertise, it comes at the cost of blocking foreign competition and creating a monopoly domestic shipbuilder. But even if such an outcome is the least of available evils—and that’s far from clear on the basis of what we know today—we should be very careful about being pushed in that direction by vested interests.

In the shorter term, the agenda is to secure more work to avoid the so-called ‘valley of death’ following the conclusion of the troubled Air Warfare Destroyer project. In a classic case of the tail wagging the dog, entirely new naval projects are being proposed for no better reason than to preserve some measure of work in local shipyards.

Make no mistake; the industry lobbying effort is slick and high powered. In an echo of Eisenhower’s final televised speech warning of the emergence of a military-industrial complex, it’s increasingly common for retired senior Defence officials to find common cause with defence industry. The DefenceSA Advisory Council, for example, counts among its numbers two retired Chiefs of the Defence Force, two ex-Service chiefs and two retired senior Defence officials. With credentials like that, access to the highest levels of government is assured.

What makes the present situation especially troubling is that Defence is either incapable or unwilling to help the government work rationally though the many complex issues surrounding naval shipbuilding. Last year the Defence Materiel Organisation (DMO) released a publication entitled Future Submarine Industry Skills Plan: A Plan for the Naval Shipbuilding Sector. A discussion of the documents myriad shortcomings can be found here and references therein. Suffice to say it does a dismal job of taking account of the taxpayer’s interests but it was no doubt warmly received by parts of industry. Perhaps it’s to be expected, given the conflicting expectations placed on DMO to simultaneously keep local industry happy and deliver value for money.

With decisions looming on the future submarine and some firms facing acute commercial pressures, lobbying efforts are set to reach fever pitch. Pacific 2013 will be the first opportunity for industry heavyweights to argue their case to the newly-elected government in earnest. But the taxpayer, and indeed the Navy, deserve better. Rather than live with deals hatched over complimentary bottles of Coopers ale on the floor of the main exhibition hall at Darling Harbour, the future of the naval shipbuilding sector should be built on sound objective analysis.

With Defence having so far dealt itself out as a source of evidence-based advice on naval shipbuilding, the government should lose no time and commission an independent external review of the future of the naval shipbuilding and repair sector, including arrangements for the future submarine in particular. There is no point stumbling on hoping for the best and making decisions on a project by project basis.

The first and critical question to be answered concerns the naval industrial capacity Australia needs. Then comes the fiendishly difficult task of designing an efficient approach to achieve that goal. Key questions will include the future ownership of ASC, the role of competition, the demarcation between assembly and maintenance, and the contractual framework(s) to be used.

Although stakeholders in industry and the states would naturally need to be closely involved in any review of the naval sector, the government should look broadly for expertise and views. This is too important an issue to be left to the usual suspects and vested interests. The government could do a lot worse than engage some of the world-class people behind Australia’s multi-billion dollar resources sector.

Mark Thomson is senior analyst for defence economics at ASPI. Image courtesy of the Royal Australian Navy.