The future submarine project: one step, two step

one step, two step

We’ve been at the PAC2015 maritime expo and conference this week. There’s only really been two topics of conversation on the trade floor: the future submarine and the future frigates. Admittedly those two projects amount to $60 billion in total, give or take, so it’s hardly surprising that they’re centre of attention.

As usual in defence matters, there’s a range of views about the strategic case for either or both, as has been reflected here on The Strategist. (Ships and submarines.) But we found near universal agreement on two fronts, which was pretty striking—when people talk defence, consensus is unusual and diametrically opposed views are common. The first was that the Abbott government’s August announcement about bringing the frigate and minor warship building projects forward would add unnecessary risk to the project. We’ve written a lot about that recently (and here), so we’ll only note that there’s no pressing need to hurry, with Anzac frigates being newly upgraded and the DDGs (air warfare destroyers) yet to be commissioned.

The second point of near unanimity was that the Competitive Evaluation Process (CEP) for the future submarine project is woefully inadequate as a vehicle for collecting data, and that it won’t produce sufficiently detailed information for a well-informed value for money decision. The agreement on that point is so strong across the board—we note ex-DMO head Warren King today calling for an extra year in the CEP—that we thought we should explore the alternatives.

We find ourselves torn on the subject—perhaps for a surprising reason. As analysts who’ve spent years worrying about acquisition projects and good governance in the expenditure of public money, we agree about the CEP’s limitations. We’d prefer a systems engineering approach that systematically identifies risks and formulates strategies to avoid, manage or—if we must—accept them. Collecting information progressively, winnowing the possibilities and making trades between capability aspirations and engineering realities are the key elements of the Kinnaird two pass process.

One way of moving from the CEP to a more systematic approach would be to use the CEP as an ersatz Kinnaird first pass that eliminates only one of the competitors, leaving two in a second stage. At that point they’d be asked to produce detailed submarine designs, allowing for a more systematic evaluation of risks and more realistic cost and schedule estimates that could be used as a firmer basis for contracting.

That’d require time and money. But detailed design work has to happen after the CEP regardless, so the only extra time would be in evaluating two options rather than moving immediately to implementing a single concept. The extra cost might run to a few hundred million dollars, since it takes about a million engineering hours to design a submarine. Even so, that’s just 1.5% of a $20 billion project and it might be money well spent. Recall that Kinnaird and Mortimer recommended spending 10–15% of the project cost before contract signature as a prudent way of retiring risk early. Hurrying now could cause delays later, when they’ll be much more expensive to fix.

Pulling us in the other direction, towards a single step process, is the recognition that the future submarine is as much a strategic decision as it is an engineering one. After all, Australia’s in the market for a submarine design and build partner to help us build an enduring Australian submarine capability. But in the case of Japan, the deal would mean a lot more; it would represent a substantial strengthening of strategic ties between the two countries. Critically, it would send a strong signal to both Washington and Beijing that the two countries are willing to work together to bolster a favourable strategic balance in the region. That was probably a strong factor in the Abbott government’s original thinking.

From that perspective, there arguably isn’t much to gain from a two step process. If the name of the game is geopolitics, and if the government judges that a closer strategic relationship with Japan is in Australia’s interests, we should get on with the task of developing the submarine and the relationship.

Of course, that’s predicated on the domestic political aspects of the project being equal, and they’ve played a significant role in the evolution of the project to date. That’s pretty much why we have a CEP; the Japanese option seemed to offer less to Australian industry—enter the politics of jobs. Recent Japanese statements about their willingness to build locally should now have allayed that particular concern.

So when the government sits down to contemplate the CEP submissions, it needs to decide what’s more important: the fidelity of technical information, or making a decision about Australia’s strategic relations within Asia. Do we want an industrial partner or a strategic partner? If it’s the latter we should just get on with it.