After two prime ministers, three defence ministers, three assistant defence ministers and two parliamentary secretaries—and a 12 month delay—we welcome today’s release of the Defence White Paper.
We also support the Government’s decision to deliver on its promise of Defence funding to 2% of GDP. This keeps faith with Labor’s commitment for 2%, and Bill Shorten’s commitment to support any realistic and practical proposal to achieve that target.
The Turnbull Government is now telling Australians that it intends to support the acquisition of twelve Future Submarines.
It’s been a tortured road. In 2013, then-Opposition Leader, Tony Abbott, pledged to support Labor’s resolve to build an expanded submarine fleet, and to build it in Adelaide. If the Liberal Government had stopped there, they would have saved all of us a lot of pain and unnecessary costs.
Instead, in early 2014 the Liberal Government began exploring ‘Option J’, the acquisition of our Future Submarines from Japan. Tony Abbott’s ‘Captain’s Call’, suspected to be a result of discussions between him and Japan’s Prime Minister Shinzo Abe, meant breaking another election commitment, and abandoning the Australian submarine enterprise, which has been centred in Adelaide since the 1980s.
The Liberal Government’s contention that Australia lacked the skills to build a capable and cost-effective future submarine were steadily debunked over 2014. Senate inquiries, expert witnesses, industry and veteran submariners all succeeded in embarrassing the government again and again, pointing out the need for a competitive tender process, establishing that a competitive tender process doesn’t mean a capability gap (thereby debunking Treasurer Hockey’s contention), highlighting the economic benefits of a build in Australia, and proving that there were no proven submarine designs available on the international market that could meet Australia’s needs.
The ‘submarine issue’ was hurting Tony Abbott and the Government.
On 11 February 2015, in the context of a leadership challenge, Tony Abbott invented the Competitive Evaluation Process, a process hitherto unknown to Defence. The CEP announcement secured the support of SA backbenchers for Abbott in the party room.
The fact that Australia’s largest ever Defence acquisition found itself being bandied around in factional negotiations is an enduring scandal.
Today, the CEP is a year old. Much of it is secret. The CEP sought formal proposals from TKMS of Germany, DCNS of France, and the Government of Japan. In an inexplicable and punitive act, Kockums of Sweden was excluded.
Because the CEP was a ‘political fix’ rather than a bona fide process, it has attracted criticism. It isn’t a suitable process for making a well-informed commercial selection. Because the CEP is designed to make a choice of supplier now, it eliminates competitive pressure before a design has been developed, let alone finalised. If the Government plans to sign a production contract three years after selecting a preferred designer then it exposes Defence to enormous risks. The Commonwealth will either have to pay whatever the designer wants—or start the process again. The CEP doesn’t enable the Commonwealth to control price.
Warren King, former CEO of the Defence Materiel Organisation, opined on 8 October 2015 that the Commonwealth should retain competitive pressure in the CEP process by selecting two preferred designers, rather than one. Such a decision wouldn’t add to the length of the process (and hence can’t be accused of creating a likelihood of a ‘capability gap’):
‘To rush the start of the project in order to meet what's perceived to be immediate jobs — against the opportunity to create a competent, capable, efficient industry — that can go on functioning for decades and decades needs to be balanced out.’
Further, Mr King told The Australian that the three contenders to design the new submarines hadn’t been given nearly enough to time to present considered and detailed proposals and this presented enormous risks to the project in the years ahead.
The CEP is really about choosing our submarine marriage partner for the next half century (some would argue that we did that when we chose Sweden and the Collins-class last century). If we down select to one partner nation at the end of what’s a very short competitive evaluation process, a process that won’t deliver all that much in the way of verifiable performance, then competitive tension thereafter won’t be possible.
Might it not be better instead, rather than choosing a single winner in mid-2016 before real work even begins on the submarine design, to down select to two finalists and take both into the concept design phase? That approach could save hundreds of millions of dollars in the longer term, possibly billions in whole of life costs.
The announcement that the Government is now seeking twelve submarines is yet another blow for the already flawed CEP process. That’s because the Abbott Government required TKMS, DCNS and Japan to bid for eight submarines, not twelve. All of the work undertaken by those contenders for the Future Submarine—data on construction location choices (with options for overseas, Australian, and hybrid construction plans) and Australian Industry plans—have now all been rendered obsolete by the changed requirement for twelve, not eight.
The fact is that the requirement for twelve strengthens the case for building the submarines in Adelaide. And twelve rather than eight will transform the production schedule, the Navy’s manning requirements and training obligation, and much more besides. Twelve submarines is the minimum-sized force to enable a continuous build strategy, but the bidders haven’t been asked to contemplate that, making obsolete many of the assumptions that will underpin their bids.
It’s yet another failure in what has been a trying few years for Defence—with three Defence Ministers, three Assistant Defence Ministers and two Parliamentary Secretaries, and a Defence White Paper that’s now a year late. There hasn’t been a Defence Industry Policy Statement or updated Capability Plan since the change of Government in 2013. This has resulted in the loss of over fifteen hundred shipbuilding jobs across Australia.
The decision to build twelve submarines is the right decision for Australia, just as it was right when it was announced in 2009.
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