Creating a fairer defence industry for Australian SMEs

Published in Defence Connect 3 August 2021

Let’s make sure that primes and Australian SMEs are able to work together to support Australia’s sovereign defence industry, writes Brent Clark, CEO of the Australian Industry & Defence Network.

It is the responsibility of AIDN to set out matters of policy that impact AIDN’s members – the Australian owned defence sector businesses that support the ADF – AIDN has in previous articles highlighted a series of behaviours from certain prime system integrators that need to be challenged.

It is also important to note that AIDN is not “anti-prime”, AIDN is opposed to certain behaviours that some primes have exhibited. AIDN seeks a change in the current defence industrial structure where poor behaviour is accepted and becomes the standard modus operandi.

AIDN wants primes to engage with the Australian supply chain, in contract, in the same manner as the prime claimed it would engage during the tendering process.

For instance, where a prime contractor tendering for a program makes commitments to Australian companies that they will be awarded subcontracts for nominated work scopes within the program if those prime win the contract. It is AIDN’s expectation that if that prime does win that tender and is awarded a contract for the program, then they will do as they said they will do – they will award those subcontracts to the Australian companies.

What AIDN seeks is honesty and integrity - Honesty and integrity should be standard practice.

The feedback we have from our members indicates that this is not always the case. Certain companies offer one thing to Australian businesses during the tendering process, but once in contract, backtrack, and behave in a different way.

This is the behaviour that AIDN wishes to remove from our industrial landscape.

To achieve this, it is first necessary to understand who benefits, and who loses from this practice.

This practice benefits companies who promise one thing at tender and do something else in contract. These companies can provide offers to Defence that look attractive in terms of Australian industry content; possibly more attractive than tenders offered by competitor companies that are genuinely offering Australian industry content.

They are not concerned with the commercial implications of managing the local supply chain that they are promising as they know that they will be able to back out of those commitments in contract. This approach rewards them with contracts for programs that they may not have won if they had tendered what they planned to do.

The losing side of the ledger is more crowded.

Clearly Australian businesses – lose out because they do not receive the subcontracts that they were promised during the tendering phase.

Defence loses out, as the industrial capability that it needs to sustain the ADF during operations is not developed in-country. In our changed strategic circumstances, the ability to sustain operations without needing access to offshore facilities or industrial resources is now essential, as access to offshore resources may be compromised during high level conflict.

The Australian taxpayer loses out, as subcontract revenue for supply flows not into Australian businesses, but offshore into the alternative supply chains outside Australia, reducing employment and taxation benefits for the Australian economy.

AIDN wishes to highlight that there is an additional party that loses out due to these poor practices.

The companies that behave honestly towards their Australian suppliers. They make commitments to Australian businesses during tender phase that they intend to keep yet miss out on winning tenders.

How can the commitments made to Australian industry gain a comparative advantage during tender evaluation if any company can tender commitments, without being troubled by needing to meet those commitments?

This behaviour deprives the honest companies of a competitive market advantage they are rightfully entitled to.

At the root of this is the need for Defence to stop facilitating this behaviour. Defence must stop accepting changes to tendering responses saying one thing at tender about engaging with Australian suppliers, and then doing something quite different in contract.

Defence’s message to companies must be clear – if you want Defence business, you must deliver what you say you are going to deliver.

Words are important, but for the message to be received in a manner that will lead to the desired changes, there needs to be enforcement.

Defence knows specific cases of primes whose behaviour reflects what we have been discussing. AIDN calls for Defence to stop issuing contracts to the contractors that have reneged on their workshare commitments to Australian controlled suppliers.

Defence simply cannot further reward these companies and must instead start creating real commercial advantage for the companies following through on their commitments.

The current Defence AIC policy, in which in contract primes only need to show “best endeavours” when engaging Australian suppliers must be dispensed with. This policy emboldens poor performance, whilst removing commercial advantage for those companies doing the right thing.

If a company can make promises of local industry engagement at tender, yet back-track in contract then a company knows that all that must be said in contract is “we put in our best endeavour to work with the Australian supplier, but it didn’t work out”.

Any faith in the “best endeavours” mechanism can only be regarded as rank commercial naiveté. This policy does not constitute an effective tool to induce good behaviour.

Anything other than firm contractual obligations for local workshare will continue to lead to work share atrophying offshore.

AIDN is calling for Defence policy that ensures a measurable and agreed contract value to be placed into local Australian controlled businesses, and for all the work within a prime contract that is identified as a sovereign industry capability priority (SICP) to be undertaken within local Australian controlled businesses.

AIDN appreciates that there will always be unusual cases that do not fit neatly into this construct – but these must only be exceptions rather than the rule. AIDN’s position is that such exceptions should only be allowed with the prior approval of the National Security Committee of cabinet.

AIDN notes that this firmer approach is consistent with what some companies are in any case doing; these companies will not have any problems with this policy. This policy acts as an effective incentive, in offering commercial rewards only to those primes acting appropriately.

However, this policy will undoubtedly be challenging for some companies.

These policy changes get to the heart of the flawed framework of the Australian defence industry sector, and it is necessary that our elected leaders lead on this.

Encouragingly, in one of his first interviews following his as appointment as Defence Minister, referring to Defence’s major programs Peter Dutton stated he was “determined to ensure Australia, and particularly Australian industry, received value for money from the investments”, and further stated “I want to make sure there is a very clear message to the primes here. We are not going to tolerate slippage in relation to Australian content” (The Australian, 4 April 2021). AIDN applauds the clarity of the Defence Minister’s message.

AIDN will work constructively with any company seeking to improve their practices in this regard, and with both sides of the political divide to improve their defence industry policies.

The poor behaviours described have been allowed to prevail for too long. Too many part measures facilitating the continuation of the unacceptable behaviour have been offered on too many occasions.

The time has now come for this to be addressed.

Brent Clark is the chief executive of the Australian Industry and Defence Network (AIDN).

AIDN National 2nd Quarter 2021 Newsletter

Assessing AIC commitments under the Hunter Class program

By Brent Clark, AIDN CEO
Published in Defence Connect, 22 June 2021

There have been numerous articles circulating around the Attack Class Submarine Project and Naval Group, and whilst it is proper to apply appropriate levels of scrutiny on that project, it is equally important to apply proper levels of scrutiny on the Hunter Class Frigate Project.

A significant issue is emerging with the Hunter Class and the associated supply chain. The Department of Defence appears to be accepting that primarily the existing Type 26 supply chain will be utilised for batch one of the program; in other words, the first three ships.

This is explained away under the banner of schedule pressures, coupled with additional risk to include Australian suppliers.

The Department then explains that for the second batch of ships a competitive process will be undertaken involving Australian companies and that they will be able to compete for opportunities in this program.

It is unclear as to why there will be less schedule pressure or risk by following this strategy, arguably there will be greater risk introduced as you not only have all the requirements to have Australian companies in this supply chain, you are now also adding the risk or replacing an incumbent supplier.

It is unclear how an Australian company will be able to compete with this incumbent supplier as it can only be assumed that risk to schedule, cost and value for money remain driving principals for selection.

In other words, if an Australian company isn’t on the reference ship today, the likelihood of it forcing its way into the supply chain seems remote at best.

Ron Finlay AM, a member of the Naval Shipbuilding Expert Advisory Panel, made the following comment at Senate estimates on 1 June this year: “I will pick a very simple example — if you are going to pick a foreign generator for ship one and then switch to an Australian generator for ships two and three, you as a shipbuilder are creating a risk. So the plan would not be to change suppliers from ship one to ship two, for example. The target would be to get into the Australian content as soon as one could to avoid creating a risk for yourself as a shipbuilder.”

And yet this appears to be exactly the plan that BAE Systems is following with endorsement from Defence.

None of this is what BAE Systems proposed in the numerous industry engagements that they undertook prior to the down selection process and none of this aligns with the Morrison government's strategy to develop a sovereign industrial base.

From what AIDN is seeing and hearing we can only be nervous about BAE Systems Maritime Australia back tracking on AIC.

BAE Systems has stated in recent ADM articles, “The Prime Mover equipment, the Category A and B that BAE refer to, were always things that Australia does not manufacture domestically. We don’t make gas turbines, we don’t make gearboxes, we don’t make shafts in country”.

This, of course, will be disturbing to Australian industry and rightfully so as we actually do produce these types of equipment in-country, what we need to do is invest in the capability that we have, rather than investing in overseas companies, in order to be able to produce the equipment to the standard required.

If we further unpick the Category A and B items, as classified by BAE, there seems to be equipment such as; propellers, valves, HVAC systems, LV switchboards, funnel exhausts, ships doors and shaft lines (to name only a few) that existing companies in Australia have been designing, manufacturing and selling both domestically and internationally on a variety of platform types — both commercial and military.

So, the question that AIDN is asking is — why, when these items actually exist in Australia, being produced by Australian companies as many of these items are simple platform systems, are they being classified as CAT B items by BAE Systems?

Further to this, the question needs to be answered as to why Australian companies aren’t being included in these simple platform items.

There is sufficient time to make these decisions and undertake the required transfer of technology, IP and know how in order to ensure that Australian companies are included into the initial platforms.

BAE Systems itself has stated in their online Australian Industry Plan that they have engaged with and have some 1,600 in-country suppliers, and for the main part, they have utilised many of these companies in their maritime sustainment programs and shipyard operations.

Expanding further on this let’s take HVAC as an example, there are multiple companies located in Australia supplying maritime heating, ventilation and air-conditioning on a variety of Australian military and commercial shipping, including companies based in Western Australia that are already supplying to BAE Systems for their Defence maritime projects in the companies Henderson facility.

Why are these companies not at the very least being provided the system specifications in order to allow them to be pre-qualified for the Hunter Class supply chain?

This activity will ultimately be required if these companies are going to be allowed to compete for batch two equipment, or will this simply become yet another reason to exclude Australian industry from the program.

After all, a company cannot be considered for the supply chain if it is not qualified to be part of the supply chain.

Ultimately, it is for government through the Department of Defence to ensure that Australian industry is treated fairly on these matters.

Defence needs to reject BAE Systems’ current plan and expect a revised plan that includes Australian industry from the outset, anything less than this is doing a disservice to Australian industry.

Brent Clark is the chief executive of the Australian Industry and Defence Network (AIDN).

To see the article click here.

By Brent Clark, AIDN CEO
Published on Defence Connect 22 June 2021

The have been numerous articles circulating around the Attack Class Submarine project and the Naval Group and whilst it is proper to apply appropriate levels of scrutiny on that project it is equally important to apply proper levels of scrutiny on the Hunter Class Frigate Project.

A significant issue is emerging with the Hunter Class and the associated supply chain, the Department of Defence appears to be accepting that primarily the existing Type 26 supply chain will be utilised for batch one of the program, in other words the first three ships. This is explained away under the banner of schedule pressures, coupled with additional risk to include Australian suppliers. The Department then explains that for the second batch of ships a competitive process will be undertaken involving Australian companies and that they will be able to compete for opportunities in this program. It is unclear as to why there will be less schedule pressure or risk by following this strategy, arguable there will be greater risk introduced as you not only have all the requirements to have Australian companies in this supply chain, you are now also adding the risk or replacing an incumbent supplier. It is unclear how an Australian company will be able to compete with this incumbent supplier as it can only be assumed that risk to schedule, cost and vfm remain driving principals for selection. In other words, if an Australian company isn’t on the reference ship today, the likelihood of it forcing its way into the supply chain seems remote at best.

Mr Ron Finlay AM a member of the Naval Shipbuilding Expert Advisory Panel member made the following comment at Senate estimates 01 June this year, “I will pick a very simple example—if you are going to pick a foreign generator for ship 1 and then switch to an Australian generator for ships 2 and 3, you as a shipbuilder are creating a risk. So the plan would not be to change suppliers from ship 1 to ship 2, for example. The target would be to get into the Australian content as soon as one could to avoid creating a risk for yourself as a shipbuilder.”

And yet this appears to be exactly the plan that BAE Systems is following with endorsement from Defence. None of this is what BAE Systems proposed in the numerous industry engagements that they undertook prior to the down selection process and none of this aligns with the Morrison Governments strategy to develop a sovereign industrial base. From what AIDN is seeing and hearing we can only be nervous about BAE Systems Maritime Australia back tracking on AIC.

BAE Systems have stated in recent ADM articles, “The Prime Mover equipment, the Category A and B that BAE refer to, were always things that Australia does not manufacture domestically. We don’t make gas turbines, we don’t make gearboxes, we don’t make shafts in country” this of course will be disturbing to Australian Industry and rightfully so as we actually do produce these types of equipment in-country, what we need to do is invest in the capability that we have, rather than investing in overseas companies, in order to be able to produce the equipment to the standard required.

If we further unpick the Category A and B items, as classified by BAE, there seems to be equipment such as; Propellers, Valves, HVAC systems, LV switchboards, Funnel

Exhausts, Ships Doors and Shaft lines (to name only a few) that existing companies in Australia have been designing, manufacturing and selling both domestically and internationally on a variety of platform types both commercial and Military.

So the question that AIDN is asking - is why, when these items actually exist in Australia, being produced by Australian companies as many of these items are simple platform systems, are they being classified as CAT B items by BAE Systems. Further to this the question needs to be answered as to why aren’t Australian companies being included in these simple platform items.

There is sufficient time to make these decisions and undertake the required transfer of technology, IP and know how in order to ensure that Australian companies are included into the initial platforms. BAE Systems themselves have stated in their online Australian Industry Plan that they have engaged with and have some 1600 in-country suppliers, and for the main part they have utilised many of these companies in their maritime sustainment programs and shipyard operations.

Expanding further on this let’s take HVAC as an example, there are multiple companies located in Australia supplying Maritime Heating, Ventilation and Air-conditioning on a variety of Australian Military and Commercial shipping, including companies based in Western Australia that are already supplying to BAE Systems for their Defence Maritime projects in the companies Henderson facility.

Why are these companies not at the very least being provided the systems specifications in order to allow them to be pre-qualified for the Hunter Class supply chain? This activity will ultimately be required if these companies are going to be allowed to compete for batch two equipment, or will this simply become yet another reason to exclude Australian industry from the program, after all a company cannot be considered for the supply chain if it is not qualified to be part of the supply chain.

According to the Australian Governments business website, BAE Systems Australia Global Access Program (GAP) was established in 2012 to provide Australian suppliers with access to worldwide opportunities and an entry point to BAE Systems’ global supply chain. Through a team embedded across BAE Systems’ international business units, GAP creates export opportunities for Australian companies within the supply chains of BAE Systems group and partner organisations. It is important to remember that this program has been funded by the Australian taxpayer.

Ultimately it is for Government through the Department of Defence to ensure that Australian Industry is treated fairly on these matters, Defence needs to reject BAE Systems current plan and expect a revised plan that includes Australian Industry from the outset, anything less than this is doing a disservice to Australian Industry.

Dutton left with a sub-standard mess

The Australian
By Cameron Stewart
12 June 2021

The new Defence Minister is being forced to make key decisions on the submarine fleet that will affect the nation’s security for decades, to say nothing of China.

The list of problems Peter Dutton has inherited on the submarine program is daunting and a wrong move either way could cost taxpayers many billions.

Of all the problems Peter Dutton inherited when he became Defence Minister, none is more urgent or more strategically vital to Australia than sorting out what he calls the “mess” of Australia’s future submarine project.

Dutton is being forced to make key decisions on the submarine fleet that will affect the nation’s security for decades, in the face of a rising China which is aggressively boosting its own submarine war-fighting capabilities.

But the list of problems Dutton has inherited on the submarine program is daunting and a wrong move either way could cost taxpayers many billions of extra dollars or, worse, leave the nation without a potent submarine fleet.

First of all Dutton has to decide how he will deal with the French giant Naval Group which, having won the $90bn bid to build 12 Attack-class submarines in Adelaide, has tried to play hardball over the level of Australian industry content and, more recently, by asking for what Defence believes is an excessive amount to produce the detailed design of the boats. The project, now five years old, is at a temporary impasse with the government refusing to sign new contracts to allow it to move forward.

The dispute has frustrated both Dutton and Prime Minister Scott Morrison, and even if the two countries resolve their differences soon the first of the Attack-class boats is not due to be operationally ready until 2035 – a strategic lifetime in an unsettled region.

This absurdly long time frame is due to a combination of Australia being too slow to select its future submarine in 2016, and then choosing the riskier French option which also had the slowest build time.

This leaves Dutton with a fundamental strategic dilemma: how to keep Australia’s six ageing Collins-class boats both operational and potent for two decades given that Defence admits that not until 2042 will there be more Attack-class boats than Collins boats in the navy’s submarine fleet.

The Collins-class boats, which came into service progressively from 1996-2003, are already fast reaching their original withdrawal date, which starts for the first boat in 2026.

The government simply has no choice but to undertake a major, risky and expensive rebuild of the Collins-class fleet in order to keep it not only in the water but also

regionally superior into the late 2030s and early 2040s, until it can be progressively replaced by the French submarines.

As The Weekend Australian reveals today, Dutton has made a major decision to extend the life of all six of the Collins fleet by a decade – double the three boats that the navy initially expected to extend – in order to try to avoid a capability gap in Australia’s defence from later this decade.

But this program, known as the Collins class life-of-type extension, or LOTE, is arguably in trouble before it begins. Despite knowing for years that it would be necessary to extend the life of the Collins fleet, Defence has been slow to make key decisions on the program, including what exactly these extensive refits will entail. No design or construction contracts have yet been finalised.

This is something that Dutton, as the new minister, will need to rectify quickly.

The budget for the life-extension program was estimated at up to $6bn but is now considered by experts to be more likely to cost about $10bn.

“The government knew of this problem back in 2012 and have not progressed this in anywhere near the speed it needed to be,” former submariner and independent senator Rex Patrick says.

Andrew Davies, author of a forthcoming book on the Collins-class boats, says the government now finds itself in a dilemma because Defence has been too slow to prepare for the extension of the Collins fleet.

“I think the fact that we have lost years in getting to decision points on both the future submarine and on the LOTE means that we have now got ourselves into a really fraught situation where you can’t afford to slip up on either,” he says. “And the ambition of expanding the submarine fleet (beyond six boats) has now disappeared into the 2040s. It’s absurd. This process should’ve begun much earlier and in a more robust way.”

Defence claims it will be able to keep the Collins fleet in the water and regionally superior until the Attack-class enters service.

It plans to do this by taking the first Collins-class submarine out of service in 2026 and giving it a two-year LOTE rebuild to re-enter the water in 2028 and thereby extend its service life by another decade. Defence will perform a two-year LOTE on each Collins-class boat at two-year intervals from 2026, meaning most of the fleet will still be sailing into the late 2030s and even early 2040s.

The first of the 12 Attack-class submarines is not due to enter service until 2035, the second in 2038 and then two-year intervals between new boats.

So even without any slip-ups, Australia will not have more than six submarines until well into the 2040s. But there is a real danger that even these tentative plans will be up-ended by reality, leaving Australia with a grossly inadequate submarine fleet of only a few operational boats from later this decade lasting all the way through the 2030s.

Dutton admits the timeline is tight but says he is committed to a serious investment in extending the Collins fleet to prevent such a gap.

“There is no doubt in my mind that we need to pursue life-of-type extension (for Collins) and we are working on that program now,” he tells Inquirer. “All six (submarines) would be on the schedule.

“It is a tight timeline, no question about that, and that’s why we need to make sure that Defence gets the contracting right, that our partners know that their undertakings and their commitments in the contract must be honoured and it’s important for us to get not only the timeline right but the costings right as well.

“We need to be realistic about what lies ahead by way of threat in our own region, and the submarine capacity is a significant part of how we mitigate that risk and it’s important we get the program right. Clearly there have been problems with the arrangements with Naval Group. There has been concern on both sides in relation to the program and I need to make sure that we have the best capacity available to us and that contractual arrangements are being met.”

The first risk to the navy’s submarine availability is the nature of the LOTE itself.

Expert advice recently given to Dutton’s office is that the two years which Defence has allowed to rebuild each Collins-class submarine is inadequate for the scale and complexity of such work, which amounts to designing and building a new submarine.

Defence admits it has never done a rebuild as large or as complicated as that required to extend the life of the Collins boats.

“Two years to carry out a full-cycle docking with LOTE is just completely unrealistic,” Patrick says. “It doesn’t show an appreciation of the risks that are involved. They are seeking to change out a main motor on the submarine with a new motor that has never been used in any other submarine before.”

A LOTE will require the submarine to be cut open with almost all the major systems replaced, a much larger job than the regular two-year full-cycle docking which each submarine undergoes after each decade of service. It will involve fitting the submarines with new diesel generators, main motors, batteries, sensors, digital periscopes and new systems across the entire submarine.

Shipbuilder ASC, which maintains the Collins fleet, has never done the sort of major work that a LOTE would entail and will almost certainly need to be assisted in the program by the original Swedish builders of the submarines, Saab Kockums. If the LOTE process cannot be completed for each boat within a two-year time frame it will blow out the government’s schedule, leaving Australia with fewer operational submarines than it wants from the late 2020s.

There is also the vexed question of whether a LOTE will be extensive enough to make the submarines as lethal as they will need to be more than a decade from now, when they will be approaching 40 years old. Installing new systems on very old boats can still work, but no matter how sophisticated the upgrades, the navy would naturally prefer not having to operate such an ageing fleet for so long.

“The challenge now becomes keeping the LOTE ambitious enough to provide the capability we need, but modest enough to not introduce more risks and delays into the process,” Davies says. “So it is a real balancing act if we are to have a continuous submarine capability.”

The second risk to the extension of the Collins fleet is the very real potential that the first of the Attack-class submarines will not be ready from 2035 as promised.

The Attack-class are a first-of-type submarine which will attempt to replicate some features of France’s nuclear-powered Barracuda-class boats, such as pump-jet propulsion, into a diesel electric boat.

The degree of difficulty and risk inherent in such a highly developmental concept is enormous, and global experience shows that almost all first-of-type submarines are delivered late and over budget.

The Collins-class boats, famously labelled “dud subs” in their early days, were between 21 and 41 months late and were so bedevilled with problems that the entire class was not clear for full operation service until 2004, eight years after the first submarine was commissioned.

So if the schedule for the Attack-class submarines is delayed, then the Collins fleet will reach the end of its life, even with the LOTE extensions, before the French boats arrive.

This is the dilemma Dutton faces and it is one of the reasons the government is now toying with a so-called plan B to give it options if the French boats are delayed, or if the government chooses to walk away from the French deal altogether.

Defence Secretary Greg Moriarty told the recent Senate estimates hearings that although the government was “absolutely committed” to building the 12 French submarines in Adelaide, “prudent contingency planning” was under way if for any reason the program could not proceed.

Moriarty did not say what plan B might entail, but the most radical option would be for Australia to take a closer look at the 3400-tonne long-range submarines that Saab Kockums is proposing to build for the Dutch navy.

These proposed conventional submarines would have a range similar to that of the Collins and Saab is promising to deliver the first two to the Dutch navy in 2027-28, seven years before the scheduled arrival of our first Attack-class submarine.

Dutton will not comment on the plan B option, although sources say the minister is yet to be convinced about ordering a scoping study for a so-called “son of Collins” concept, which would be a locally built submarine based loosely on the Saab proposal for the Dutch navy.

Regardless of how serious the government is about looking at the Swedish alternative, the fact of appearing interested in plan B options gives Australia much-needed leverage over France’s Naval Group.

As things stand, Naval Group enjoys a monopolistic position in which it can dictate the terms of its deal with Australia and has little incentive to improve its performance on cost, schedule and Australian industry involvement.

Keeping the “son of Collins” option alive, if only in theory, helps to keep pressure on France in its dealings with Canberra.

“It would be prudent for the government to look at a plan B and I don’t think it implies for a second there is an issue with Naval Group or the future submarine,” says Brent Clark, chief executive of the Australian Industry and Defence Network, which represents local small and medium defence contractors.

“You need a contingency plan because you just don’t know what may happen. You are talking massive dollars here and if for some reason the future submarine can’t continue in its current form, what are you going to do if you haven’t thought about the alternative? Are you going to go back to square one?’

Clark says that regardless of what the government chooses to do, it is in the country’s interests to ensure all options have the highest possible Australian industry involvement.

What Dutton does next is likely to be heavily influenced by the findings of the review the government commissioned this year to look at the options available on submarines.

The review, by Vice-Admiral Jonathan Mead and Commodore Tim Brown, is looking at the timing, scope and structure of the LOTE program, the problems and ways forward for the Attack-class program and the feasibility of looking more closely at the Swedish submarine for the Dutch navy.

In his short time as Defence Minister, Dutton has shown he is willing to take the hard decisions that some of his predecessors did not.

But nothing will have as much bearing on Australia’s long-term security as the decisions he now faces on submarines.

$10bn refit for ageing Collins-class submarines amid China concerns

The Australian
By Cameron Stewart
11 June 2021

All six of the navy’s Collins-class submarines will be completely rebuilt to extend their life for another decade, under an ambitious, high-risk plan to safeguard the nation’s submarine capability in the face of growing Chinese hegemony in the region.

Defence Minister Peter Dutton will order the whole Collins fleet to undergo the major life-of-type extension, doubling the initial Defence plan to extend just three boats, as a hedge against the fact that the first of 12 new French Attack-class submarines is not due to enter service until 2035.

The plan, which will cost up to $10bn, aims to guarantee that the submarine fleet does not fall below six boats into the future, however the slow delivery of the new French boats means the navy will not achieve its aim of having a fleet of 12 submarines until the 2050s.

“We need to be realistic about what lies ahead by way of threat in our own region and the submarine capacity is a significant part of how we mitigate that risk and it’s important we get the program right,” Mr Dutton said.

“There is no doubt in my mind that we need to pursue a life-of-type extension (for the Collins class) and we are working on that program now. All six would be on the schedule.”

The news comes ahead of a meeting in France next week between Scott Morrison and France’s President, Emmanuel Macron, where the project by French shipbuilder Naval Group to build 12 new submarines in Adelaide will be discussed.

The project has been troubled by delays and disagreements between the two countries about the level of Australian industry content and pricing.

The project is at an impasse over the price of the contract for the detailed design of the submarines, which will be a first-of-type conventional long-range submarine based partly on the design of France’s Barracuda-class nuclear-powered boats.

“Clearly there have been problems with the arrangements with Naval Group,” Mr Dutton said. “There has been concern on both sides in relation to the program and I need to make sure that we have the best capacity available to us and that contractual arrangements are being met.”

However, he said he was encouraged by the instalment of new senior Naval Group staff on the project.

“There has been a stronger engagement in the last six months than there has been before that so there are some positive signs in that regard,” Mr Dutton said.

The government was left with no choice but to extend the life of the Collins-class fleet to avoid a capability gap until the French boats enter service.

But the life-extension project is a high-risk endeavour because it will entail the complete gutting of the submarines and the replacement and upgrading of all key -systems – from diesel generators, main motors and batteries to sensors, digital periscopes and other features across the entire submarine.

The first of the six Collins submarines reaches the end of its 30-year life cycle in 2026.

The planned program, known as the Collins Life of Type Extension, or LOTE, will involve rebuilding each submarine progressively once it reaches 30 years of service.

However, because the submarines were not commissioned evenly two years apart, the fifth and sixth boats, the Sheean and the Rankin, will be in service for two years longer than their 30-year life cycle even before they undergo their life-of-type -expansions.

The rebuilding is scheduled to take two years for each boat.

But Defence has never attempted such a complex and complete rebuild of a submarine before and it faces a major challenge to successfully complete each boat within the two-year time frame.

If the rebuilds take longer, then the navy’s fleet of available submarines will fall below six at a time when China’s naval power in the region is growing.

Defence Minister Peter Dutton says Australia must be realistic about the threats in its region over the next decade.

Defence estimates that there are currently between 60 and 70 Chinese submarines operating in the Indo-Pacific. This number is expected to rise to at least 75 submarines by 2035.

The rebuilding of the Collins submarines is expected to be carried out by ASC in Adelaide and assisted in some form by the original builder of the boats, Sweden’s Saab Kockums.

However, no contracts have yet been signed to finalise the full extent of the work to be undertaken in the LOTE program or the degree of involvement by Saab Kockums.

“Saab is a trusted partner and they will form some part of the picture in LOTE and the extent of that is something we are contemplating at the moment,” Mr Dutton said.

“It is a tight timeline, no question about that.

“That’s why we need to make sure that Defence gets the contracting right, that our partners know that their undertakings and their commitments in the contract must be honoured and it’s important for us to get not only the timeline right but the costings right as well.”

Defence says the LOTE rebuilding will cost up to $6bn but experts say the realistic cost of such a major program will be as much as $10bn.

Faced with a tight timeline, the government has refused to rule out a so-called Plan B to give it options if the French boats are delayed or if the government chooses to walk away from the French deal altogether.

Defence Department secretary Greg Moriarty told a recent Senate estimates hearings that although the government was “absolutely committed” to building the 12 French submarines in Adelaide, “prudent contingency planning” was under way if for any reason the program could not proceed. Mr Moriarty did not say what Plan B might entail, but the most radical option would be for Australia to take a closer look at the 3400-tonne long-range submarines that Saab Kockums is proposing to build for the Dutch Navy. Mr Dutton declined to comment on a Plan B except to say: “Our focus at the moment is on the life-of-type extension for Collins, but I’ve never ruled out taking whatever decisions are necessary to make sure that we have the proper protections in place.”

Future Subs: Defence Department confirms talks of a Plan B should Naval Group project collapse

By Brent Clark

Defence is preparing a contingency plan should the $89 billion subs project fall over, as Scott Morrison prepares to discuss the issue with the French President.

A Plan B for the Future Submarines is being investigated in case the $89 billion project with French company Naval Group cannot go ahead, the Defence Department has confirmed.

It comes as Scott Morrison is expected to have frank discussions with French President Emmanuel Macron about the troubled Attack Class submarine project when he travels to the G7 next week.

The Prime Minister will meet Mr Macron for bilateral talks in Paris after he travels to the UK for the world leaders meeting.

While the Defence Department denies it is looking at German-made submarines, Defence Secretary Greg Moriarty on Wednesday confirmed the department was doing “prudent contingency planning” for the Future Subs, which are set to be built in Adelaide from 2024.

More than $2.04 billion has been spent on the project, which has been underway since 2016 when then-Prime Minister Malcolm Turnbull announced French company DCNS, now Naval Group, would design the subs.

“It is prudent that Defence is looking at alternatives if we are unable to proceed with Attack,” Mr Moriarty told a Senate Estimates hearing in Canberra on Wednesday.

“We are very committed to delivering the Attack, but it is appropriate that we would be looking at alternatives if we are unable to proceed. I think that’s just prudent planning.”

Mr Moriarty confirmed he had provided advice to the federal Defence Minister recently on “alternative capability pathways” and said he had been thinking about the matter “for quite some time”.

“I have certainly thought more about this issue over the last 12 months,” Mr Moriarty said in response to questions from Labor Senator Penny Wong.

“It became clear to me that we were having challenges with the Attack Class program over the last 15-12 months so, of course, you do reasonably prudent thinking about what one of those options might be or what you might be able to do if you were unable to proceed,” he said.

“But the government is absolutely committed to trying to work through with Naval Group and build a regionally superior submarine in Adelaide.”

There have been tensions between Naval Group and the Defence Department over the cost and time frame of the Future Submarines, but it is Mr Moriarty’s strongest remarks to date on “challenges” with the project.

Asked whether Defence was considering submarine designs by German company TKMS or Swedish defence firm Saab, which designed Australia’s Collins class, Mr Moriarty said: “I am not going to go into those pathways, but the Chief of Navy said yesterday we are not looking at the TKMS.”

He would not reveal details, saying: “Some of it is highly classified, and it has to do with our interpretation of the threat environment.”

In response to Senator Wong’s questions, Mr Moriarty referred to last year’s defence strategic update, which outlined how the strategic environment had changed and Australia could no longer expect a 10-year warning time for conflict.

“We are absolutely committed to providing good advice to government on how we can meet the challenges of our strategic environment,” he said.

“Some of that involves adjustments to capability, some of that involves recommendations to bring capability early, some of it might mean modifications to capability.”

A top Navy official, Commodore Tim Brown, was asked about the inquiry he is conducting into the Navy’s future requirements for undersea warfare, which includes Australia’s subs fleet, but said he could not answer as it was classified.

State Opposition leader Peter Malinauskas said it was “incredibly disconcerting” for thousands of South Australians who were looking to the Future Subs project as a source of work in the state.

He said the Federal Government’s “indecisiveness” on Defence projects, including the future location of Collins Class submarine maintenance, was “undermining job projects in our state”.

He called for “clarity and transparency” and urged Premier Steven Marshall to “apply maximum pressure to the Commonwealth to start making decisions”.

Mr Marshall said the Federal Government was “committed to building submarines in Adelaide” and the State Government was “committed to growing a world-class defence manufacturing sector that continues to generate jobs for South Australians.”

A Naval Group spokesman said the company was “fully committed to continuing to achieve important program milestones.”

“Significant progress has already been made on submarine design, workforce growth and Australian industry involvement,” he said.

Labor’s defence spokesman Brendan O’Connor said the government must explain any changes to the Future Subs project, while SA Labor Senator Penny Wong accused the government of “failing to deliver on the jobs promised to SA and failing to deliver on the submarine capability Australia needs”.

“Officials have confirmed there’s likely to be almost 300 submarines based in the Indo-Pacific by 2035,” she said.

“By that time Australia will be lucky to have seven - and that’s only if there’s a life-of-type extension on all of the Collins class submarines.

“These failures aren’t making Australians safer.”

SA Senator Rex Patrick, a former submariner, welcomed confirmation Defence was looking at Plan B and said any solution should be done in SA.

The Australian Industry & Defence Network said any secondary option for the Future Submarines must include consultation with Australian industry.

AIDN chief executive Brent Clark said: “Whilst AIDN will not speculate on the relationship between Naval Group and the Department of Defence, AIDN does see merit in Government pursuing a backup plan, should unforeseeable issues prevent the current program from being delivered.”

He said Australian industry “must be included in the design process from the outset” in order to maximise local involvement.

“It is important that Australian industry is directly included in these discussions rather than just bureaucrats with little to no practical industrial experience making binding decisions or assumptions,” Mr Clark said.

“Equally relying solely on foreign-owned overseas prime contractors to be assessing the in-country capabilities of Australian industry, when they have pressure from their overseas supply chain and potentially other international obligations, is not appropriate.”

Naval or not, they must build here
Analysis – Claire Bickers

A plan B is never a bad idea.

All projects need contingencies in case something goes wrong – and particularly the most expensive military acquisition in Australia’s history.

So Defence Department Secretary Greg Moriarty’s confirmation that Defence is “very committed” to delivering the $89 billion Future Submarines but is looking at “alternatives” as part of “prudent contingency planning” is welcome. But the No.1 one question for South Australia is where would a Plan B be built if the Naval Group contract doesn’t go ahead?

It’s something Defence and the Federal Government must make clear for the sake of Australian defence businesses and for South Australians.

Thousands of future SA-based jobs and billions of dollars of investment are tied up in the project to deliver 12 Attack Class subs, which has been under way for five years.

More than 250 people are already employed in Australia by Naval Group Australia, with most based out of the company’s Port Adelaide HQ, which opened last year.

A new shipyard is rising from the dust at Osborne specifically designed to build the Future Subs. And more than $2 billion has already been spent on the Future Subs project, according to the federal budget.

But if there is a risk the subs could be delayed due to “challenges” in the Attack Class project, then an interim option or alternatives must be considered for the sake of national security. Taxpayers also deserve to know as soon as possible if the project cannot go ahead in its current form. Given SA’s shipbuilding history and commitment to develop a workforce, any Plan B – if it gets that far – should be done here.

Op-Ed: The Need to Define an Australian Company

By: Brent Clark

July last year, the Prime Minister released the 2020 Defence Strategic Update, which set out the deterioration in Australia’s strategic circumstances. This triggered wide-ranging discussions on the state of Australia’s preparedness for armed conflict, the state of Australia’s program of major Defence procurements, and the extent to which sovereign industrial capabilities are being suitably developed via these programs.

AIDN has been direct in setting out the necessity for critical defence industrial capabilities to reside in sovereign Australian organisations, and the risks to the ADF of relying on foreign controlled suppliers.

The question of what comprises an Australian industrial participant has arisen.

AIDN considers that the answer to this question lies in the nature of the strategic risk that sovereign control addresses. In the circumstance of national emergency and armed conflict, where the ADF needs to lean hard on Australian industry to keep it in the fight, which industrial resources can be absolutely relied upon to answer the call?

Conversely, which industrial resources are in some form subject to external influence that might detract from providing that support? Maybe parties are owned offshore in countries whose national interests may not necessarily align with the Australian interest. Maybe those countries might see fit to withhold support (possibly because our adversary has threatened them against any involvement). Or maybe those countries prefer that resources be directed towards addressing their own force’s immediate needs ahead of the ADF’s.

The question really boils down to who can we be absolutely certain that we can rely upon in the ADF’s hour of need?

AIDN asserts that this can only be answered in the affirmative for those businesses whose ultimate ownership is Australian, and most certainly whose ultimate control is Australian.

The bulk of Australian defence industry is owned or controlled by foreign owned prime contractors. It is only natural that these parties would oppose this view.

Currently Defence uses the following definitions for an Australian company:

1. Australian business entities that perform work in Australia with Australian-based employees and have an Australian Business Number (ABN); and
   
   
2. New Zealand business entities that perform work in New Zealand with New Zealand-based employees (consistent with the Closer Economic Relations Trade Agreement between Australia and New Zealand) and have a New Zealand Business Number (NZBN).
   
   
3. Australian industry also includes subsidiaries of overseas companies (e.g. equipment manufacturers) based in Australia or New Zealand, that meet the above criteria.

Clearly this simplistic definition is not acceptable to Australian industry.

Under direction from the government, Defence is reviewing the definition of what an Australian entity is and is considering the following two possible options;

Option 1 – registration-based means:

1. a company registered under the Corporations Act 2001 (Cth) or a company registered under the Companies Act 1993 (New Zealand);
   
   
2. a body corporate, partnership, or association formed or incorporated in Australia or New Zealand; or
   
   
3. a foreign-owned company with an ongoing business presence in Australia or New Zealand, and which has a registered body number (i.e. ARBN or NZRBN).

Option 2 – tax-based means 

  1. an Australian or New Zealand tax resident:

  2. a person who:

  3. a person other than a person under paragraph a or b who:

  4. is subject to income tax in Australia or New Zealand.

Neither of these proposals addresses the fundamental issue of where sovereign control resides.

While part of Defence has struggled to understand sovereign risks relating to control of Australian industry in a deteriorated strategic environment, other parts of Defence have been taking the matter very seriously.

The Defence Security Agency is one such agency. AIDN members will have been going through the process of updating their security systems and frameworks to meet the new industrial security guidelines and framework. While updates to this system every few years is not unusual, the recent change has sought material improvements from participants, including their IT systems, to better control access to Defence information to protect against cyber-attack and other threats.

To control the security risks relating to industry, DSA has required industrial entities, once they have their security systems to the designated level, to reapply to join the industrial security program.

Clearly it is in DSA’s business to understand the nature of risks associated with each entity applying to join the DISP. After all, entry into DISP provides industrial entities access to sensitive security information, and it is important to understand any factors that might influence the industrial entity to utilise that information other than for the Australian national interest.

The types of questions that DSA asks in assessing applicant businesses includes:

• Does any foreign government, any single foreign person(s), either alone or together with associates, have a 20 per cent or more holding in your Entity?
• Do any two or more foreign persons (and any associates), or foreign corporations (and any associates), have a total holding of 40 per cent or more in your entity?
• Notwithstanding the above, does any foreign person(s), or foreign corporations(s) otherwise hold an interest that amounts to control or influence over the operations of your entity?
• Does any foreign person(s) serve as members of your entity’s board of directors (or similar governing body), officers, executive personnel, general partners, trustees or senior management officials?
• Does any foreign person(s) or foreign corporations(s) have the power, direct or indirect, to control the election, appointment, or tenure of members of your entity’s board of directors (or similar governing body) or other management positions of your entity, or have the power to control or cause the direction of decisions or activities of your entity?
• Do any members of your entity’s board of directors (or similar governing body), executive personnel, general partners, trustees, or senior management officials hold any positions with, or serve as consultants for, any foreign corporation(s)?
• These questions (and there are others that have been omitted for brevity) are entirely sensible in seeking to understand the extent of non-Australian influence on an industrial entity, so as to assess the level of risk that the entity’s “non-Australian-ness” poses to Australian security information.

If the Department is able to recognise the potential risks to information security posed by this substantial range of foreign influences on entities; why is the Department uninterested in the equivalent risk to the availability of industrial capability posed by the same range of foreign influences?

Both involve questions of sovereign risk; one regards to sovereign security information, the other to sovereign industrial capability. There is a clear inconsistency here.

AIDN’s membership of Australian SME’s represent genuinely Australian controlled industry. Locally developed, Australian-owned businesses are the only businesses clear of external influences that might fetter the ADF’s access to supply during times of need.

Defence should be making untrammelled efforts to support and encourage this group. Instead, the Department is abiding by definitions for Australian industrial entities crafted to allow “business as usual” to continue with the big foreign controlled primes.

The Department’s approach in this regard would be problematic under ordinary circumstances. But in our current strategic environment, it is no longer acceptable.

The time has come for the Department to reflect the reality in its definition of what a sovereign Australian industrial entity is.

Brent Clark is the chief executive of the Australian Industry and Defence Network (AIDN).

To view the full article, click here.

Breakthrough for $89bn Future Subs contract as Naval, Defence sign 60 per cent agreement

Despite fears in recent weeks the $89bn Future Submarines contract could be axed, Naval Group and Defence have reached a major breakthrough overnight.

Claire Bickers Federal Politics Reporter

March 23, 2021 - 9:22AM

At least 60 per cent of the $89bn Future Submarines contract will be spent in Australia after French company Naval Group and the Defence Department officially locked the promise into the contract overnight.

It comes a year after Naval Group first made the promise, after Australian defence companies voiced concerns they may not get enough work on the lucrative military contract.

Acting Defence Minister Marise Payne said the agreement would maximise Australian industry involvement “in all phases” of the Future Submarines project.  Industry had raised concerns over the time it was taking to sign the promise into the contract to build 12 Attack Class submarines in Adelaide.

Defence and Naval Group had disagreed over the details but reached a deal last month when Naval Group’s global chief executive Pierre Eric Pommellet visited Australia.

Mr Pommellet today said: “Naval Group is fully committed to supporting the development of Australia’s sovereign submarine capability.”

“I have been very impressed by the existing capacity of Australia’s manufacturing sector, and its enthusiasm for the Attack Class project.”

He added the project would deliver 12 “regionally-superior” submarines specially designed for Australia’s unique conditions.

“It will also create a new and sovereign submarine building industry in Australia,” he said. “Strong local supply chains will ensure that Australia has new self-reliance in this critical defence capability.”

The Australian Industry & Defence Network, which represents local defence companies, said the details of the agreement needed to be made public.

AIDN chief executive Brent Clark said: “The finalisation of the negotiations for the contractual minimum of 60 per cent Australian industry content is applauded.”

“AIDN remains of the view that the details of how AIC is going to be ramped up over the course of the acquisition phase, the plan for transferring IP and technical know-how to Australian companies and how any commercial issues will be addressed to ensure that there are no blockers to ensuring this happens needs to be made public,” he said.

“This is the only way to ensure public and Australian business confidence going forward.”

Naval Group Australia chief executive John Davis said his staff were already working with hundreds of local businesses. “There will be increasing levels of local content in each of the 12 Attack Class submarines, as we continue working with local businesses to boost Australia’s sovereign capability,” Mr Davis said.

Work will start on the subs in 2023 at the Osborne shipyard.

Click here to read the article.

SHAKE UP OF NAVAL SHIPBUILDING AS CONCERNS GROW OVER FUTURE SUBMARINES, FRIGATES

A powerful new Cabinet committee has been formed to tackle problems with Australia's multi-billion-dollar Naval Shipbuilding Plan as more concerns emerge over the complex future submarine and frigate projects.

The ABC can also reveal the National Shipbuilding Advisory Board (NSAB) has been abolished, although its former Chair, Professor Don Winter, is now working as special advisor to Prime Minister Scott Morrison.

In recent weeks, the Morrison government established the new Naval Shipbuilding Enterprise Governance Committee, which will work under the auspices of Cabinet's National Security Committee (NSC).

Scott Morrison will chair the new committee, which includes the Foreign Minister and Defence Minister, but the government says its decisions will still have to be endorsed by the NSC.

"The committee will ensure the naval shipbuilding enterprise and each component of it is on track to deliver against Commonwealth agreed outcomes, and emergent or forecast risks are identified that may impact or prevent achieving delivery of milestones," the government said.

"Agreed outcomes and actions are identified to address these risks."

Since being released in 2017, the Coalition's Naval Shipbuilding Plan has been beset by contractual disputes, design problems, cost blowouts and varying delays.

The ABC has confirmed that the now-defunct National Shipbuilding Advisory Board will be replaced by a smaller panel that will not include former female members Lisa Paul and Lesley Seebeck.

Inside defence and industry ranks, there is some disquiet over Professor Winter's appointment as special advisor to the Prime Minister on shipbuilding, with several figures privately questioning whether the former United States Navy Secretary is the right person.

"The reservations that many had about Don Winter's ability to understand the Australian small-scale, sovereign and non-nuclear submarine program seem to have been borne out," one former Defence official told the ABC, speaking on the condition of anonymity.

Future programs to come under further scrutiny

Sources have told the ABC that Prime Minister Scott Morrison has become increasingly worried in recent months about Defence's ability to deliver massive projects and has relayed his concerns directly to the Department's National Naval Shipbuilding Enterprise team.

Last month, the visiting global boss of French defence giant Naval Group was bluntly reminded by the government of Australia's expectations on local industry content in the massive $90 billion Future Submarine contract.

"We will continue to work closely and ensure collaboration to create thousands of jobs in the Australian supply chain while creating business opportunities for Australian companies, up-skill Australian industry, through the transfer of technology," Pierre Éric Pommellet said before returning to France.

At the same time, there are growing concerns inside the Defence Department and industry circles over the $45 billion Future Frigate program being run by British company BAE Systems.

The UK-owned company insists it is exceeding its requirements for Australian industry content, but Brent Clark from the Australian Industry Defence Network says local suppliers are concerned.

"We really need to see evidence that local industry is being given every opportunity to compete in a fair and equitable way across all the programs because otherwise we just cannot achieve what the government's outcome was, which is the sovereign capability," Mr Clark told the ABC.

"Australia needs to look after itself and have a robust and vibrant industry."

During Senate estimates hearings this week, Defence officials are expected to be grilled about progress on designing the new Hunter-class anti-submarine warships, which are based on the British T26 frigate.

Click here to read the article.

Posted 22 March 2021