Increasing Australia’s sovereign shipbuilding
capability: a shipload more to be done
Betrayal of a National Kind
1.1
I thank the committee for the work it has done in relation to this long
running but very important inquiry. I also thank the secretariat for their
behind the scenes efforts.
1.2
I support the general findings in this report and the recommendations
that flow from them, but there is a need to emphasise one issue of considerable
concern that stands out against the significant ground covered by the committee
in its work.
1.3
The $89 billion naval shipbuilding program could have served as a
program that would bring not only great economic benefit to the nation, forming
the nucleus of a high technology industry sector, but also serve as the bedrock
of a sovereign naval shipbuilding capability. Unfortunately the latter will not
occur as the Government offshores the lead responsibility, and in some
instances the actual build, to foreign entities.
Supply Ships
1.4
As was explained in the main report, in June 2014 the Government gave
approval for Defence to conduct a limited competitive tender between Navantia
of Spain and Daewoo Shipbuilding and Marine Engineering of South Korea for the
construction of the ships.
1.5
Arguments were made that the job could not be done in Australia because
of a lack of appropriate infrastructure. Such an argument only stands when
subject to shallow consideration. The Government’s planning in this program has
been like putting the ‘cart before horse’ – the Naval Shipbuilding Plan was
finalised only after all the major shipbuilding tenders were released and, in
the case of supply ships and submarines, after procurement decisions had
already been made. Had a plan come first, existing infrastructure could have
been examined and upgraded to enable a local build of any ship for the RAN.
1.6
The tender eventually concluded and the contract was awarded to Navantia
to build the ships in Spain; an outcome that saw Australian taxpayers money
being used to support foreign supply chains and jobs at the expense of our own.
Ice Breakers
1.7
About the same time that the Supply Ship contracts were awarded, the
Australian Antarctic Division also awarded a contract to have a Dutch Company,
Damen, build Australia’s future Icebreaker in a shipyard in Romania. In doing
so, more cash and Australian jobs were exported.
Future Submarines
1.8
The Submarines were next. DCNS, now Naval Group, won a competitive
evaluation process that was run to select Australia’s strategic partner for the
Future Submarine Program. Documents released to the Senate in 2018 in response
to an order for production show that DCNS intended, if they were to be the
successful design partner, to build the future submarines in partnership with
ASC.
1.9
Slowly but surely, Defence has conceded that its preferred outcome is
for Naval Group to be the builder and that they are working towards legally
committing Naval Group to conduct the build in the Strategic Partnering
Agreement about to be signed by the Government. When this occurs, ASC, the
company that represents Australia’s most significant body of submarine design,
build and sustainment expertise, will have been sidelined in favour of a
foreign entity.
Offshore Patrol Vessels
1.10
The lead on the Offshore Patrol Boat (OPV) program has been given to the
German company Luerssen. ASC will be the lead builder of the first two ships,
with the remaining 10 vessels going to Civmec in Perth (which was a Singaporean
listed company at the time).
1.11
The Australian shipbuilder Austal has been excluded from the program.
1.12
Austal is the largest aluminium shipbuilder in the world. In 2016,
Austal delivered 10 ships all around the world and had 14 other ships in
construction. Some of these ships are as big as, and bigger than, the ships
being proposed by the Navy for its future frigate program. In the US, Austal
are the only company since American independence that has ever designed and
built ships for the US Navy that is not a US based company. In fact, they
design and build two classes of ships for the US Navy. No-one else in the world
has ever done that, whether they are British, Spanish or Italian.
1.13
The Committee found that “the procurement process was poorly managed.”
The Governemnt inserted Austal into Luerssen's commercial negotiations after
the announcement that Luerssen was the preferred designer. This approach did
not put Austal in a strong negotiating position, nor was there any incentive
for Luerssen to reach a mutually beneficial settlement once it had won the
prime contract.
1.14
To me, this was not just poorly managed, rather shows significant
commercial naivety inside Government. That Luerssen, left alone without strong
direction from the Commonwealth, would not find agreement with Austal who
operates in the same fiercely contested market space is pretty obvious.
1.15
Instead of supporting a great Australian sovereign shipbuilder, an
exporting shipbuilder at that, the Government turned their back on them and
simultaneously propped up one of their international competitors.
Future Frigates
1.16
In August last year former Senator Xenophon revealed that Australian
shipbuilders, ASC and Austal, would be shut out of the $35 billion project.
1.17
A leaked portion of future frigate tender documents stated that:
The Commonwealth’s intention is that the successful tenderer
will (itself or through its Related Corporate Bodies) directly manage and
supervise the workforce undertaking shipbuilding work. The responsibility for
build management and supervision should not be subcontracted in its entirety to
a third party entity.
1.18
This was an absolute betrayal of Australian’s existing sovereign
shipbuilding capability; which was confirmed when the full tender documents
were released under FOI laws in January this year. It stated more clearly:
Tenderers should be aware that the Commonwealth has selected
the Tenderers on the basis of their Reference Ship Designs and their ability to
undertake the design and build of the Ships. As such, the Commonwealth’s
expectation is that the core design work relating to the Ships and the
management and supervision of build activities will be undertaken by the
successful Tenderer (or its Related Bodies Corporate) and not
subcontracted to a third party entity. In particular, while the successful
Tenderer may decide to engage a Subcontractor to provide shipbuilding labour
resources, the Commonwealth expects the successful Tenderer (or its Related
Bodies Corporate) to personally and directly manage and supervise the workforce
and, in particular, the shipbuilding activities. [emphasis in original]
1.19
It was an act of betrayal that then turned into an act of cowardice
when, under questioning from Senators, no-one in Government owned up to who had
made the decision to deliberately exclude our own sovereign shipbuilding
industry.
1.20
When Austal and ASC reacted to the
developing situation by forming a joint venture, Defence further undermined
them. As described in the main body of this report:
Participation by Australian shipbuilders in the frigate
program was further undermined by evidence that Defence had contacted the
shortlisted tenderers to advise them to disregard ASC and Austal's teaming
arrangements.
1.21
The approach taken by Defence in the Future Frigate Program is contrary
to the national interests and appears to be driven by a deep bureaucratic
preference for foreign industry, and arguable malice towards Australian
shipbuilders. Australia’s two established and highly capable shipbuilders, ASC
and Austal, have been excluded in the tender documents from having
responsibility for the build. Instead, the Government has invited three foreign
ship designers to bid for the job, offering them a taxpayer-funded shipyard in
Adelaide and a $35 billion contract to establish themselves to compete with the
long standing Australian companies.
Summary of Betrayal
1.22
The following table summarises the treachery.
| Vessel |
Previous Governments |
Turnbull Government |
| Icebreaker |
‘Aurora Australis’ built
in Australia by an Aussie Company |
New Icebreaker being
built in Romania by Dutch Company Damen |
| Supply Ship |
‘HMAS Supply’ built in
Australia by an Aussie Company |
Two new supply ships
being built in Spain by Spanish Company Navantia |
| Offshore Patrol Vessels |
Armidale Patrol Boats
built in Australia by an Aussie Company |
Twelve Offshore Patrol
Boats being built in Adelaide and Perth led by German Company Luerssen |
| Frigates and Destroyers |
ANZAC’s Frigates and
Hobart Destroyers built in Australia by an Aussie Company |
Australian companies not
permitted to tender for build of Future Frigates |
| Submarines |
Collins Class submarines
built in Australia by an Aussie Company |
Australian companies not
permitted to tender for build of Future Submarines |
1.23
The Government’s approach to this program has taken Australia backwards
in its sovereign shipbuilding aim.
1.24
Instead of building upon the substantial capability and experience this
country has invested in ASC and giving it responsibility for the build of our
future warships, the intention is for the next generation of Australian Navy
ships to be built by foreign companies. The Government favours foreign
shipbuilders rather than Australian companies to carry forward the work on
these vital projects. Foreign companies will operate from Australian waterfront
real estate.
1.25
This backwards approach is unprecedented in developed countries and
leaves us looking strategically weak. The image below, provided to the
committee by Austal, tells the story.
Source of image: Austal submission to the Senate Inquiry into the
Future of Australia’s Naval Shipbuilding Industry
1.26
The use of Australian companies for the build is important for a number
of reasons:
-
It will ensure the know-how of these programs is transferred
to an Australian-controlled company, not to a daughter company of a foreign
entity.
-
It will ensure that foreign entities will not have veto power
over any export opportunities Australian shipbuilders wish to engage in.
-
It will ensure the Australian shipbuilding workforce can be
better managed. There will be no competing amongst multiple shipbuilders for a
common workforce – under the current regime there will be competition amongst
ASC, Austal, Civmec, Luerssen, Naval Group and BAE/Fincantieri/Navantia and,
indeed, lay-offs with the ebb and flow of contracted work across multiple
shipyards.
-
Australian shipyards will be able to assure export customers that
they have the confidence of their own Navy.
-
Reduce exposure to foreign corporate risk – we do not want the
entirety of this $89 billion work in the hands of foreign entities
-
It will ensure that Australia retains and develops sovereign
shipbuilding and support capabilities able to support a larger and more
self-reliant Royal Australian Navy in a strategic environment characterised by
considerable uncertainty. It will also allow Australia to confidently exercise
independent naval power in our immediate region.
Recommendations
1.27
Australia's uncertain strategic future requires a much greater measure
of self-sufficiency as a pacific maritime power.
1.28
While Australia can expect to work with our alliance partners for a long
time to come, it needs balanced and self-sustaining naval capabilities that
will buttress our security in a regional environment that is likely to be more
contested than it has been at any time since the Second World War.
1.29
Australia needs to be able to exercise a much greater measure of
independent maritime power in our region and to do that we need a sovereign
naval shipbuilding and support sector.
1.30
The following critical recommendations are made:
Recommendation 1
The Parliament should pass the Defence Amendment (Sovereign
Naval Shipbuilding) Bill 2018.
Recommendation 2
As is permitted under the tender terms and conditions, the
Future Frigate Program should be reconfigured such that an Australian controlled
entity has responsibility for the Future Frigate build.
Recommendation 3
Noting Strategic Partnering Agreement negotiations with
Naval Group are well advanced, and that this agreement will make a commitment
to Naval Group to build the Future Submarines and close off all options to
future governments, the following term should be inserted into the Strategic
Partnering Agreement:
Nothing
in this agreement would prevent ASC being contracted for part or all of the
build of the Future Submarines.
Rex Patrick
Senator for South Australia
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