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The British are coming

Posted By and on August 6, 2014 @ 06:00

The British are coming! [1]

Last week, The Australian broke the story [2] of BAE Systems potentially being brought in to fix the troubled Air Warfare Destroyer [3] project. The three-ship build is already well underway in Adelaide, and the project is currently managed through an industrial alliance contract involving government-owned ASC Pty Ltd [4], Raytheon Australia [5] and Defence.

Approved at a cost of $8.5 billion dollars in 2007, the project has accumulated nearly two years of delays and $300 million in additional costs. A government-initiated review of the project [6] by ex-US Secretary of the Navy Don Winter and former Transfield boss John White recommended a range of measures [7], including ‘the urgent insertion of an experienced shipbuilding management team into ASC’.

But while the summary of the Winter/White report was announced by government just two months ago, the AWD Alliance had taken steps before that to remedy some of the project’s shortcomings. One of us (Andrew) visited the site at Osborne last week, and it was clear that some good work has been done.

When the Australian National Audit Office reported on the project in March, many of the identified problems [8] related to the transfer of the design from Spain to Australia, and the inexperience of the Australian workforce after more than a decade without a build project. Those factors contributed to a poor start to the project. Low productivity was the inevitable result, due to reworking of both the design and often the hardware. As a result, the first-of-class HMAS Hobart took shape fitfully and inefficiently.

A critical question is whether the existing project management and workforce can retrieve the situation. The answer seems to be a ‘qualified yes’. The Alliance has recruited some experience in production engineering and is seeing positive results. Visits to the yard at about the same stage of progress on ships 1 and 2 revealed a huge difference between the two. The blocks for ship 2 in the yard are more complete (with internal piping, painting, insulation etc) and are constructed to tighter tolerances than the first. For example, when the upper blocks were first lowered into position on ship 1, a substantial gap resulted. On ship 2, the parts fitted neatly together. The already in situ features in the modules mean there’s less need for work in tight and cramped spaces (in particular, the need for difficult overhead work is greatly reduced). The reduction in labour hours required from the first to second of class will be well over 20%, with further improvements expected for ship 3.

The ‘yes’ has to be qualified because there’s still substantial work to be done before a functional warship is delivered. In particular, the capability of the vessels will depend critically on how the Aegis combat system and other sensors and weapons function together. The job of building integrated systems into the hulls is yet to come, although land-based integration is well advanced.

Perhaps because of those improvements, news of BAE’s putative role has taken many by surprise, even though the government showed its cards [9] by appointing a team of corporate lawyers [10] and investment bankers [11] as strategic advisors back in June. By seeking out mergers and acquisition specialists (rather than shipbuilders), the government revealed its inclinations.

So what might we expect if BAE is brought in? At a minimum, BAE could provide individuals with shipbuilding expertise to assist ASC. More likely, BAE would be asked effectively to take charge of the project. It’s even possible that BAE would take an equity stake in ASC’s shipbuilding arm—perhaps contingent on completing the AWD project. (There are good reasons to retain ASC’s submarine maintenance role in government hands, at least for the time being.)

BAE taking charge of the AWD project—if that’s indeed what’s to happen—would bring benefits and risks. On the positive side, BAE could reach back to the UK for help. Of course, BAE’s own problems with module construction for the AWD [12], and their trials and tribulations with the LHD project [13], show that they’re capable of overestimating their own abilities. If nothing else, however, BAE would bring the commercial focus that the government-owned ASC lacked. And they’d have every incentive to do so; not only will their reputation be on the line, but success with the AWD would likely secure them the massive eight-vessel Future Frigate Anzac replacement next decade.

On the other hand, the disruption that’s an inevitable result of a change of management would have to be carefully handled. While BAE has experience as a subcontractor, there’d still be a lot for them to learn about the project. The challenge would be to ensure continuity of effort concurrent with the introduction of new blood. As we’ve seen, ASC hasn’t been sitting on its hands. A lot would depend on the attitudes taken by the parties involved and cooperation will be critical. If it happens, let’s hope that the intervention adds more than it subtracts from the project’s likelihood of success.

As ever, the devil’s in the details, and another post will discuss the intricacies of third-party intervention and what the alternatives might look like.

Andrew Davies is senior analyst for defence capability and director of research at ASPI. Mark Thomson is senior analyst for defence economics at ASPI. Image courtesy of Flickr user Kayla Casey [14].



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URLs in this post:

[1] Image: http://www.aspistrategist.org.au/wp-content/uploads/2014/08/3389818923_8b02173c8b_z.jpg

[2] broke the story: http://www.theaustralian.com.au/national-affairs/policy/axe-looms-over-85bn-ship-crisis/story-e6frg8yo-1227006466859

[3] troubled Air Warfare Destroyer: http://www.minister.defence.gov.au/2014/06/04/minister-for-defence-air-warfare-destroyer-added-to-projects-of-concern-list/

[4] ASC Pty Ltd: https://www.aspistrategist.org.aufile:///C:/Users/AndrewDavies/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/HGGI5QYH/ww.asc.com.au

[5] Raytheon Australia: http://www.raytheon.com.au/

[6] government-initiated review of the project: http://www.financeminister.gov.au/media/2014/mr_2014-06.html

[7] recommended a range of measures: http://www.minister.defence.gov.au/2014/06/04/minister-for-finance-and-minister-for-defence-joint-media-release-putting-the-air-warfare-destroyer-program-back-on-track/

[8] many of the identified problems: http://www.aspistrategist.org.au/the-awds-and-the-auditors-round-two/

[9] showed its cards: http://www.financeminister.gov.au/media/2014/0619-advisers-appointed-air-warefare-destroyer-program.html

[10] corporate lawyers: http://www.ashurst.com/

[11] investment bankers: http://www.greenhill.com/index.php?option=com_content&task=view&id=27&Itemid=148

[12] problems with module construction for the AWD: http://news.smh.com.au/breaking-news-national/new-warfare-destroyers-running-a-year-late-20110526-1f5yi.html

[13] their trials and tribulations with the LHD project: http://www.theaustralian.com.au/national-affairs/policy/new-warships-14000-defects/story-e6frg8yo-1226989024660

[14] Kayla Casey: https://www.flickr.com/photos/kaylacasey/3389818923

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