Chapter 15 - Strategic planning
15.1
As the sole purchaser of naval vessels in Australia, the Australian government
exerts considerable influence on the performance and viability of the domestic
naval shipbuilding industry. Noting that the defence department is a
monopsonist, Mr Robert Wylie, a specialist in public policy analysis, was
of the view that the defence industry in Australia is 'overwhelmingly a product
of government decision'.[1]
He explained:
The classic argument then follows that what business it does and
how it does that business has a direct and immediate effect on the nature and
scale of the industry capabilities that we have in this country. Similarly, the
choice between what Defence and the armed forces do in house and what they do
in industry has a similar direct effect. The choice between what we import and
what we decide to do ourselves, by whatever criteria, has far-reaching
implications.[2]
15.2
Indeed, the committee has noted more than once that Defence cannot be a disinterested
bystander of the national shipbuilding and repair industries and should have 'a
strong and enduring interest in the industry's success'.[3]
15.3
In this context, this chapter has two parts. The first looks at key
areas where the government and Defence may better assist Australian shipbuilders
improve their productivity. It highlights the need for a coordinated approach
between industry and state and federal governments to promote SMEs and invest
strategically in infrastructure and skills. The second part deals with the need
for Defence to moderate fluctuations in demand and formulate a strategic plan
to clarify Defence's long-term objectives for the industry.
Assisting industry improve productivity
15.4
The following section considers some of the key aspects of the industry discussed
in the body of the report where submitters considered that strategic planning
would substantially improve industry efficiency. They include: the supply network,
infrastructure and skills.
SMEs
15.5
The committee has noted the vital and valuable contribution that local
companies are making to the naval shipbuilding industry. It found that Australian
SMEs not only deliver a particular good or service but add value to the
shipbuilding industry.[4]
Indeed, the committee used the network of shipbuilding and repair enterprises
in Tasmania to demonstrate the depth of skills, knowledge and experience ready
and willing to support the industry. It is important that the reservoir of
local talent residing in Australia—and the Tasmanian example provides only a
small sample of the potential—is properly harnessed and nurtured. The committee
believes that Defence has a key role in developing this network and that
considerations such as how best to nurture local SMEs should be part of
Defence's overall strategic planning.
15.6
In some specialised areas involving complex systems, Australia benefits
from overseas assistance that helps to fill capability gaps in the local
industry. In many cases, overseas companies have established subsidiaries in Australia
that have gone on to become valuable participants in the country's shipbuilding
industry. They are working side by side with local firms to provide the
shipbuilding industry with an extensive, reliable and capable network of
enterprises supporting the construction of naval ships. Raytheon Australia,
however, pointed to the importance of ensuring that overseas companies
contribute to the development of Australia's industrial base. It noted:
...simply contracting the work to an overseas company, or hiring
overseas workers without ensuring the transfer of knowledge to local people,
results in little or no increase in Australian industrial capability.[5]
15.7
Without doubt, many foreign companies are contributing to a vibrant and
innovative naval shipbuilding industry offering employment opportunities and
driving advances in science and technology. The committee underlines the need
for the government to ensure that Australia takes full advantage of their
presence in Australia, especially in the area of technology transfer.[6]
This means that important considerations should also be given to matters such
as IP. Such matters should be important considerations in any strategic plan.
Infrastructure
15.8
Australia's naval shipbuilding and repair industry dates back to the mid
19th century. Since then it has evolved and, in many ways, is a
product of its history. Some submitters suggested that the present state of the
industry reflects investment tailored for specific past projects resulting in a
lack strategic coherence.
15.9
For example, the Government of South Australia stated that 'Australian
shipbuilding infrastructure has evolved on a project-by-project basis rather
than in response to a national plan'. It maintained that 'the myriads of
facilities that are left are old, underutilised and not cost competitive'. In
its view, further infrastructure investment beyond that already planned, can 'only
add to the underutilisation of costly assets'.[7]
The Government of Victoria surmised that fragmented single project based
decisions had given rise to a situation where there was an oversupply in the
naval shipbuilding and repair sector at the same time that Australian industry
does not have the capability to undertake the AWD and LHD projects
concurrently.[8]
The New South Wales government also referred to what could be a better use of
established facilities rather than putting in place a new facility.
15.10
In pointing to problems created by this rather ad hoc approach to
investment planning, including underutilisation of existing facilities and
unnecessary capital expenditure at others, the governments agreed with the view
that a national strategic plan could result in a better and more efficient use
of resources.[9]
The South Australian government, for example, cited the lack of strategic
direction at the national level for the industry as the most significant factor
contributing to the problems. In its view, government has the task of providing
strategic direction and that 'industry alone cannot set the ground rules for
how it must operate'.[10]
It was looking for a longer term strategic plan that 'leverages off investments
already made'.
From the perspective of a state that has committed more than
$250m in investment in critical shipbuilding infrastructure and skills
development, there is an urgent need for a more proactive dialogue between Defence
and the industry to ensure these critical capabilities are maintained for the
future.[11]
15.11
Recognising that a long-term Commonwealth shaped shipbuilding industry
plan is essential, the Government of South Australia urged the Commonwealth, as
the only customer in the naval building and repair industry, to set the
parameters by which industry can succeed.
15.12
Rear Admiral (retired) Kevin Scarce also drew attention to what he
perceived as a fragmented industry with outdated infrastructure,
underinvestment in skills and a volatile demand in shipbuilding and repair that
impeded the delivery of cost-effective products. He reinforced the view that
one of the major factors underpinning this situation was the 'lack of a
strategic industry direction at the national level'.[12]
Committee view
15.13
While individual shipyards and state governments develop their
infrastructure to cater for a specific project, there is the potential for
inefficiencies and underutilisation of infrastructure across the industry. The
Commonwealth government, as the major buyer of naval ships in Australia and the
custodian of taxpayer money, together with state governments have an important
role in ensuring that the pattern of infrastructure development benefits the
industry as a whole and not just particular sites. This is especially important
considering the two major naval ship projects that are underway.
Competition and collaboration
15.14
In any future planning, the Commonwealth government and Defence should
be aware of how individual projects affect the pattern of infrastructure
development across the industry as a whole. Their approach should ensure that
existing infrastructure and the current developments taking place are
complementary and do not lead to inefficiencies in the industry. Although the
opportunity is there for the Commonwealth government to take a leadership role,
State governments should also assume some responsibility for contributing to a
strategic approach to infrastructure development.
15.15
Indeed, the governments of Western Australia and South Australia are
taking the initiative. They have signed a Memorandum of Understanding (MoU) which
according to the Government of Western Australia 'promotes a co-operative
approach in vying for the new work [stemming from the AWD project] and
maximises the chances of our two States competing successfully against the more
populous and politically powerful eastern states'.[13]
The Government of South Australia stated:
In the absence of a national plan both Governments decided to
work together to ensure that their shipbuilding and repair industries and
infrastructure developed in complementary manner.
It suggested that 'this template has the potential for national
application'.[14]
However, as Major General Peter Haddad told the committee:
It is not the state government that decides where the work gets
done; it is the federal government that awards the contract and it is the
commercial firm that then places whatever work needs to be placed. It may be
that these sorts of agreements are a helpful thing, but I do not know whether
they are a critical thing.[15]
15.16
The final decision on which prime wins a contract does indeed rest with
the Commonwealth government. However, the State governments, both competitively
and cooperatively, must actively seek to retain and attract prime contractors
through investing in infrastructure. While encouraging competition, Defence
should also ensure that such activity does not lead to waste or inefficiencies.
Committee view
15.17
The committee believes that there is a need for sensible and efficient
investment in major shipbuilding infrastructure, with State governments, the
Commonwealth government and the private sector co-operating closely and taking
into account the existing industry base. It supports the initiative taken by
the South Australian and Western Australian governments in agreeing to a
Memorandum of Understanding.
Skills
15.18
Australia has a quality skilled labour base, with skills relevant to
naval shipbuilding distributed across various heavy engineering sectors. This
base has been developed through government investment—both federal and state—in
past naval shipbuilding programs. The committee has noted the challenges
associated with skilled labour shortages, given the future shipbuilding
schedule and the current high demand in the resources sector. Clearly, strategic
planning is crucial to the management of labour resources. Another important
factor is investment in and coordination of skills and training programs.
15.19
The Western Australian and South Australian governments have taken a
strong lead in investing in and coordinating defence and naval shipbuilding
skills programs. Both governments have recently announced major defence skills
programs with a focus on strategic collaboration with key stakeholders.[16]
At the national level, the Skilling Australia's Defence Industry (SADI) initiative
is a step towards Defence working with industry to address skills issues. Skilled
labour shortages provide an incentive for the private sector to be innovative
in recruiting and training staff.
Committee view
15.20
The committee strongly supports collaborative, state based skills
programs. It is important that these forums are used to connect the needs of
industry, government and training institutes and focus on the state's training
requirements for future naval shipbuilding projects. The common goal must be to
develop programs that target both short and long-term skill requirements.
15.21
However, these programs will take industry only so far. It is crucial
that there is also collaboration on skills issues between state governments,
Defence and the Commonwealth. Western Australia's MoU with South Australia is
an important example of a platform from which both states can implement their
skills strategies for the upcoming AWD build. The Commonwealth should recognise
opportunities for its defence skills programs—notably SADI—to complement and
reinforce the states' initiatives.
Summary
15.22
The committee has highlighted how three of the main components of Australia's
naval shipbuilding industry are making significant contributions to the
industry's viability. SME's and international subsidiaries form a vibrant and
innovative network of suppliers; past and current investment in infrastructure
places the industry on a sound footing to meet future demand; and initiatives
by both the public and private sector are tackling the problem of skills
shortages to ensure that Australia has the knowledge and skills to support the
industry.
15.23
Despite the healthy state of the industry, a number of participants to
this inquiry were of the view that greater efficiencies were to be achieved
through a more coherent, strategic approach to planning. The committee agrees
with their view and recommends that the government and Defence take note of the
call for a more strategic approach by the Commonwealth to planning.
15.24
One area that underlines the importance of having a strategic plan is
the issue of demand flow.
Managing demand fluctuations
15.25
Recent overseas studies have highlighted the problems created by
fluctuations in naval shipbuilding demand in both the U.S. and the UK.[17]
With regard to Australia, Dr Mark Thomson of the Australian Strategic
Policy Institute noted that the current schedule for ship construction is
problematic:
There are six year gaps between the first and second of class
for both the Amphibious and Afloat Support programs which will prohibit a
sequential build of each class and compromise the potential economies of scale.
Also, the bunching of work early next decade will see the concurrent
construction of three class of vessel. This will multiply the infrastructure
and workforce requirements, and stretch Navy's ability to accomplish a timely
acceptance and transition into naval service. In addition, there is no delay
between the first and second AWD to allow lessons from the first-of-class trials
of this very challenging project to be referred back into the remaining
vessels.[18]
15.26
Indeed many commentators and witnesses pointed to the feast and famine
nature of the naval shipbuilding industry and called on government to take
measures to help smooth demand. They argued that volatility in demand for naval
vessels creates significant costs for the industry and the taxpayer, including:
- 'ramp up' costs associated with attracting and training the required
workforce following periods of low demand;
- the difficulty of retaining highly skilled, efficient teams and
the tacit skills and knowledge gained during construction work; and
- costs of underutilised infrastructure.
15.27
Mr Geoff Evans of the Navy League of Australia, summarised:
Australia's main problem as a naval shipbuilder is, and always
has been, lack of continuity in orders for ships, making it difficult if not
impossible to for shipbuilders to hold a highly trained workforce together.[19]
15.28
Mr Tunny, Managing Director of ASC Pty Ltd, expressed concern that demand
peaks and troughs may reduce Australia's naval shipbuilding capacity in the
longer term. He said:
Feast and famine is an excellent Darwinian environment for the
strong surviving, but it is an environment where a lot die as well. That is not
always the best thing, because when a company goes under or scales back
dramatically it is not always the case that the survivors pick up all of the
key skills and experience that are let go by that company.[20]
15.29
The Australian Academy of Technological Sciences and Engineering
reflected the views of many witnesses in arguing for 'a consistent long-term
base workload':
No industry can survive on a stop/start order book and while
exports can fill in gaps, a base load of reasonably predictable local demand
can provide the platform on which a competitive export industry can be
developed.[21]
15.30
It submitted that:
Costs cannot be divorced from the demand question and a steady
flow of orders to naval shipbuilding yards will spread the establishment
overheads, avoid recurring design or manufacturing errors, provide greater
negotiation leverage over suppliers, amortise the training costs and reduce
labour mobility. It would be particularly helpful if ship-procurement programs
could be adjusted to ensure the timing of the order for the first in any class
of ships allowed a sufficient interval before the rest were required, to allow
full validation of design, construction and operating features, so avoiding
costly later modifications.[22]
15.31
The Academy stated that it had every reason to believe that, should a
steady stream of work be available, Australian costs and productivity would
match the European, American and Japanese yards who would be the alternative
suppliers.[23]
Rear Admiral Doolan (retired) stated:
...if we look out over 50 to 60 years and have a consistent
pattern of building warships in Australia and fitting in...the various elements
of them in a sensible replacement pattern rather than in an ad hoc knee-jerk reaction,
that is the basis on which the naval shipbuilding and naval ship repair
industry can plan into the future. We have no disagreement with that point and
we support it.[24]
15.32
The South Australian government argued that 'over the long term demand
must be smoothed, and shipbuilding infrastructure and skills development
consolidated to ensure that the industry is sustainable and efficient. To
achieve these challenging policy goals a national shipbuilding and repair plan
is required'.[25]
The AMWU supported this viewpoint. It was convinced that the Australian
industrial base has the capacity to construct large naval vessels over the long
term and on a sustainable basis but noted the problems created for the industry
by the cyclical nature of demand.[26]
The Australian Association for Maritime Affairs Incorporated joined the call
for Defence to place a high priority on ensuring that the industry remains
sustainable into the future:
Long-term assured levels of government commitment over decades
rather than over individual budget cycles are essential to achieve an effective
growth and sustainment strategy. For a nation whose physical form, maritime
responsibilities, history and trade dependence is deeply embedded in the
security and integrity of its maritime boundaries and sea lines of
communications, such a long-term investment is seen as paramount.[27]
15.33
Defence asserted that while smoothing demand for naval construction may
appear relatively straightforward, naval acquisitions need to be considered in
the context of Defence-wide procurement. For example, scheduling of high cost
projects such as the AWDs and LHDs is influenced by funding considerations and
other major projects, such as the Joint Strike Fighter. Also, Defence maintained
that the capabilities of some acquisitions are dependent on other acquisitions
and so cannot be scheduled in isolation. For example, the full capability
provided by the amphibious ships is interdependent with other projects such as
the Main Battle Tank Replacement.[28]
Defence argued:
To reschedule one capability would have a complex effect on the
overall Defence capability which could result in considerable capability
wastage with assets unable to be used effectively while related capability is
delayed.[29]
15.34
Defence acknowledged that it ultimately 'pays for successful companies
to adjust to fluctuations in market demand each time a contract is signed'.
Defence also pointed to the costs of alternative industry models:
While releasing and then attracting resources can be expensive,
the overall costs for Government are generally lower than if selected defence
companies are paid to retain spare capability on an extended basis.[30]
15.35
Overall, Defence did not consider that the naval shipbuilding industry
was in a unique position in dealing with demand peaks and troughs. Defence
argued that it is industry's responsibility to manage cyclical demand:
The cyclical demand of project work is a factor for all industry
sectors not just shipbuilding.
Shipbuilding is no more or less cyclic than oil/gas or mining or
construction. Those industries have coping strategies to mitigate expected
cycles, as must Defence industry.[31]
15.36
Defence was clear that it primarily considers naval procurement
decisions on the basis of defence capability and the ongoing support needs of
the fleet, not in terms of market influence, industry needs or broader economic
outcomes.
15.37
It should be noted, however, that a 2004 study by ACIL Tasman on the
Australian Defence Industry, stated bluntly that:
Where Defence is the sole customer for an industry, it is the
management of defence demand, rather than a free market, that will determine the
health and capacity of that industry.[32]
15.38
Similarly, while the recent First Marine International study found that
'the successful implementation of best practice requires the full cooperation
of the workforce and the unions', it added:
The government and Navy could assist by working in partnership
with the industry to smooth demand in order to provide more stable employment.[33]
15.39
The committee accepts that the naval shipbuilding industry is subject to
cyclical flows in demand that to a degree characterise that industry. However,
it considers that as naval shipbuilding is a monopsony market, the
circumstances of industry players are substantially different to many other
cyclical industry sectors. It is concerned that if Australian companies cannot
survive and grow through peak and trough demand cycles, the capacity to meet
defence's capability needs into the future will be reduced.
15.40
The committee is concerned that Defence does not fully accept how
powerfully its demand scheduling shapes Australia's naval shipbuilding capacity
and efficiency. The committee rejects the notion that measures cannot be taken
to moderate demand peaks and troughs more effectively without adversely
affecting Defence capability. Clearly, long-term strategic planning is required
to address this problem.
15.41
The committee noted in chapter 14, in relation to Australian industry
involvement and Defence's procurement, a possible disjunction between the
government's broader interest in fostering Australian industry and Defence's
primary concern with capability and value for money. The committee observes
this disjunction again here, with Defence viewing demand planning in terms of
its capability requirements and not necessarily with a view to sustaining a
viable and efficient industry into the future. The issue of demand planning
underscores the need for a clearly articulated policy on Australian industry
involvement and a clear indication of the weight given to supporting the local
industry in procurement planning and decisions.
Demand flows for ship repair and
maintenance
15.42
With regard to repair and refit for major ships, Defence acknowledged
that it has had a 'short-term focus that is detrimental to developing and
sustaining a viable industry support base and is inefficient in delivering
effective support outcomes'.[34]
Defence explained:
Currently, Defence contracts each major surface warship
maintenance availability separately. About 20 availabilities are conducted each
year. Each availability is unique and the work load can vary significantly
between availabilities. The four members of the ship repair panel are therefore
faced with the need to frequently prepare and submit tenders to achieve ship
repair work. Both Defence and industry are therefore focused on the short term,
undertaking the current work and preparing for the next maintenance tender.[35]
15.43
It identified specific shortcomings resulting from these arrangements:
- The short term focus does not allow sufficient time for industry
(and Defence) to conduct adequate planning. Industry bids may therefore be
based on inadequate planning and understanding of the outcomes Defence
requires.
- Inadequate planning is a factor in the very high level of
contract change proposals raised during ship repair availabilities to meet the
outcomes of the availability.[36]
15.44
Defence explained that it is intending to improve this situation by
batching a number of successive maintenance jobs into one contract. Successful
contractors will then be engaged for a longer period (3–5 years) than for a
single maintenance contract (typically 2–4 months).[37]
15.45
The committee notes and commends Defence's endeavours to schedule its
naval vessel repair and maintenance program in order to achieve greater
efficiencies.
A strategic plan
15.46
Without doubt many participants in this inquiry called for Defence to
take a more strategic approach to planning its naval acquisitions program.[38]
Some gave detail as to what they would like a strategic plan to do. Rear
Admiral Scarce, proposed a strategy that would identify key capabilities and
workloads to enable industry 'to consolidate and focus with government on
platform and equipment affordability and productivity'.[39]
He argued that the Commonwealth in implementing an industry policy needs to:
- determine what critical skills are necessary to sustain Australia's
maritime capability;
- formulate a ship demand plan which narrows the peaks and troughs
over the longer term;
- introduce a comprehensive skills investment program for both
primes and SMEs; and
- invest in modern, internationally competitive infrastructure that
enables Australia to produce quality, cost-effective products.[40]
15.47
Engineers Australia noted that Defence's current approach to acquisition
'involves assessing the costs and benefits of Australian industry involvement
in each program, and selecting the option that provides the best value for
money in each case'. It expressed the view that, although this series of
decisions provides valuable work to Australian companies and employees, it lacks
strategic coherence. According to Engineers Australia, 'the work has little
long-term value in developing new large scale industries or capabilities'.[41]
It suggested that Australia:
...could choose to develop a long term strategy for Australia’s
naval shipbuilding and repair sector, which would involve an evaluation of the
costs and benefits of each project’s option in terms of the national strategy.
15.48
In its view, the option that 'provides best value for money in terms of
achieving the longer term strategy would be selected'.[42]
Some witnesses wanted Defence, through strategic planning, to exert more direct
control over the industry. For example, Mr David Miller, Executive General
Manager of Tenix Defence Pty Ltd, suggested that there should be a more focused
industry policy that addresses questions such as where is the right place to
have common user facilities and what is the correct timing of work so that the
shipbuilding and the resource sectors can coexist as 'happy neighbours in
Western Australia'.[43]
He argued that if the market is based 'only on competitive tenders, each
project may be optimised but the longer-term interest of the nation is in some
cases suboptimised'.[44]
Along similar lines, other submitters also were asking for the strategic plan
to address competition issues. The South Australian government advocated a
rationalisation of the industry around a centralised hub.
15.49
Recently a number of leading experts on Defence industries called for an
improved statement on strategic industry policy. Professor Paul Dibb of the
Defence and Strategic Studies Centre at the Australian national University said:
Australia needs a new Strategic Industry Policy Statement, which
will focus on managing demand and competition, and state what industrial
capabilities are of strategic importance and why. It would confirm that the
government continues to seek to maximise the economic benefits to Australia's
economy, while retaining preference for the best value for money.[45]
Admiral Chris Barrie, a Visiting Fellow at the Australian National
University, reinforced this view:
We need a comprehensive statement of government policy that sets
out the broad principles, establishes the decision-making framework, and brings
to bear an active approach to solving this important set of problems in
utilising all the skills and talents available in industry, government, the
bureaucracy and in the armed forces.[46]
Committee view
15.50
The committee suggests that because of Defence's dominance in the market
place, it should recognise and use its influence to assist industry gain
greater efficiencies and to perform better. Strategic planning is central to
Defence achieving this objective. The committee has not received sufficient
evidence to recommend in detail the specific nature of a strategic plan. It has
received strong evidence, however, that there is a need for Defence to take a
more coherent and strategic approach to planning. Furthermore, this planning should
take account of how better;
- to encourage and use Australian SMEs and overseas subsidiaries;
- to build on existing infrastructure and guide future investment
to ensure that Australian shipyards are used to their capacity; and
- moderate fluctuations in demand.
15.51
In addition, the committee's evidence suggested that Defence could take
a more active leadership role in ensuring that the contribution by the states
and the private sector to sustaining and developing Australia's naval
shipbuilding industry is complementary.
15.52
Strategic planning relies not only on a thorough knowledge of the
industry but on an understanding of how it fits into the broader industrial
landscape. The committee has noted the merging of technologies and the
opportunities for the industry to gain greater efficiencies. In Western
Australia for example, the naval shipbuilding industry and the oil and gas
sector are taking advantage of the growing similarities in their requirements.
The CUF at Henderson is expected to service the oil and gas, resources, marine
and defence industries. Transferability of skills between sectors is also
considered important for addressing labour demands. Similar opportunities may well
exist for the naval shipbuilding and the commercial shipbuilding industries.
Recommendation 7
15.53
The committee recommends that Defence conduct a full analysis of, and
identify, how the naval shipbuilding industry and the commercial shipbuilding
industry and heavy engineering activities can better integrate to produce
increased efficiencies and productivity gains for these sectors.
15.54
The committee supports the call for a strategic plan and considers that
it should address the factors listed above. The committee further considers
that the Defence Capability Plan can be improved as a document to reflect a
more strategic approach.
Strategic planning—Defence Capability Plan
15.55
Defence acknowledged that industry needs a predictable and sustainable
basis on which to plan ahead.[47]
It recognised the importance of keeping industry abreast of its future
requirements so that industry would be able to align its planning and
development to meet Defence's long-term needs. The committee has drawn attention
to concerns about the lack of data available on past and current
projects—costs, productivity, overall performance. It now proceeds to consider
Defence's Capability Plan (DCP), the key document that informs industry about
Defence's future acquisition program.
15.56
Those in the shipbuilding industry rely on astute forward planning to
manage their business effectively. In many cases, the respective companies look
to government to provide a blue print that would clearly indicate the intention
behind, and the schedule for, future naval acquisitions. Such information would
enable them to make informed business decisions based on sound intelligence.
15.57
For example, Mr Proctor, Saab Systems Pty Ltd, told the committee that
'lack of assurance is the biggest deterrent to a positive attitude'.[48]
Similarly, Mr Geoffrey Barker, a journalist and long-standing commentator on
Defence procurement, stated:
If you are a defence business, you have to ask yourself: ‘Will I
make long-term capital investment in the hope that there will be Australian
industry involvement in the project going this way?’ You would have to say, on
reading that, that you are not getting much assurance that your punt is going
to pay off. There is that uncertainty. So there is that need for, I think,
greater transparency to the extent that one can have it. It is very difficult,
I acknowledge, to give businesspeople a greater sense of certainty about the
plan. But we need to do more than just saying: ‘Here’s your plan, but it could
all change—or a fair bit of it could change—and you’ll carry the investment
risk if you buy in too early in the hope that you are going to be able to do this.’[49]
15.58
Currently, the public version of the Defence Capability Plan is the
primary means by which Defence articulates future naval shipbuilding demand and
likely acquisition schedules.[50]
It provides a ten-year outline on Defence capability requirements. Defence's
long term capability needs and objectives are also set out in the Defence
Update and Defence Capability Strategy. In addition, Defence 'uses various
industry councils to discuss on a regular basis long term capability
development programmes that are outside the ten year DCP time frame'.[51]
15.59
Defence maintained that its capability plan 'provides some certainty to
Australian Industry as a whole'.[52]
While the DCP aims to 'provide industry with sufficient guidance to enable
broad business planning', commentators and industry experts identified
perceived shortcomings in the DCP for planning purposes.
15.60
As noted earlier a number of leading experts on Defence industries,
including Professor Dibb and Admiral Barrie, called for an improved statement
on strategic industry policy. They wanted such a statement to set out broad
principles, establish the decision-making framework and include the identification
of strategically important industrial capabilities. Dr Brabin-Smith also levelled
criticism at the current Defence Capability Plan:
Removal of ambiguities in the government's defence policies
would help, as would the development and publication of a new Defence
Capability Plan, consistent both with a coherent interpretation of the
government's policies and with the levels of funding likely to be available.[53]
15.61
Participants in this inquiry also called for changes to the DCP. ADI
underscored the need 'to create a single integrated plan that pulls together
operational issues, resourcing and industry aspects of shipbuilding and
whole-of-life repair and maintenance'.[54]
Mr Mark Proctor of Saab Systems Pty Ltd acknowledged that Defence has
produced a number of documents about its defence needs and strategic
requirements. He gave the example, however, of the amphibious ships and the
possibility of them being designed and built overseas which to his mind
'immediately puts people on the back of their heels to say: "That's a
change of tune. That wasn't in the documents" '.[55]
15.62
Engineers Australia considered that the Defence Capability Plan should
attempt to look further ahead than a ten-year period. It should be noted that
while the current DCP extends only until 2016, naval shipbuilding workforce
projections submitted to the inquiry by Defence extended to 2025, acknowledging
an anticipated replacement frigate and submarine program beyond the DCP.
15.63
Defence acknowledged that some in the industry were calling for it to do
more about informing industry 'of its future requirements...and a concept led and
capability based approach to developing capability'.[56]
In response to suggestions to extend the timeframe of the DCP, Defence stated
that it was 'hard to see how a projection beyond the 10 to 20 years influenced
by the DCP can be prudently extended'. It maintained that 'to do so would
require a faith in the linearity of the development of technology and war
fighting concepts that might, for example, be foolhardy'.[57]
Committee view
15.64
Both experts and commentators on Defence procurement as well as those
active in the shipbuilding industry were critical of the information made
available through the Defence Capability Plan. Witnesses wanted accurate and
reliable information on Defence's forward procurement plans. Indeed, one of the
strongest messages coming out of the inquiry was that Australian industry wants
clearer guidance from government on its long-term plan and objectives for the
industry. In particular they want a comprehensive statement providing accurate
and reliable information on Defence's future plans for its naval acquisition
program that go beyond ten year projections. They are looking for detailed
information on the value placed on, and the weight given to, Australian industry
involvement, the industrial capabilities identified as strategically important,
and the levels of funding likely to be available.
15.65
The committee notes Defence's response to suggestions that the DCP
should extend over a longer period. It is of the view, however, that there is
scope for the plan to provide industry with a better appreciation of Defence's
longer term requirements. The plan currently seems to bring industry into the
discussion about capability development too late. It believes that the DCP
should provide the opportunity for Australian industry, and indeed the wider
community, to engage with Defence in the earlier stages of analysing and
identifying Australia's strategic priorities and the capabilities needed to
meet them. An analysis of Australia's strategic priorities in the DCP would
facilitate discussion on capability development at a higher level before
decisions and commitments are made about particular acquisitions. It would not
only allow projections to be made about technology developments into the future
but include industry in considerations about defence capability.
Summary
15.66
This chapter has highlighted the need for a more strategic and
collaborative approach to using and investing in Australia's naval shipbuilding
resources. It has reviewed calls for a strategic plan and assessed the value of
Defence's Capability Plan as an informative and instructive means of keeping
industry abreast of current and future developments in the industry. It found
the need for Defence to improve its Defence Capability Plan so that industry
has clearer guidance on Defence's long-term objectives for Australia's
shipbuilding and repair industry and the intentions underpinning its
acquisition program. In brief, the committee believes that the DCP is inadequate
as a means of informing the industry, parliament and the public about Defence's
future plans and intentions regarding its acquisition program.
Recommendation 8
15.67
The committee recommends that Defence make their DCP a document that
provides industry with a much clearer sense of Defence's future plans and
intentions. In particular, it recommends that the DCP provide:
- a statement on the way the DCP accords with Australia's
broad national security strategy including the nation's strategic priorities;
- a discussion about the nation's future strategic capability
requirements that identifies the industrial capabilities deemed to be
strategically important;
- an assessment of the nation's existing shipbuilding and repair
facilities and future investment needs;
- a comprehensive statement providing accurate and reliable
information on Defence's future plans for its naval acquisition program that goes
beyond ten year projections;
- a clear indication of the government's policy on Australian industry
involvement in government projects and how Defence would apply this policy to its
acquisition program; and
- a detailed explanation on the acquisition schedule indicating
the reasoning behind it and how Defence has taken into account demand flows.
15.68
While the committee is asking Defence to provide more detail in their
DCP and include information that provides a much clearer indication of
Defence's future acquisition program, it accepts that the document can only be
as good as the quality of the strategic planning it represents.
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