OPINION: Government can do better for Australian industries in naval acquisitions
By Brent Clark, CEO-AIDN -29/07/2020
As a result of the release of the 2020 Defence Strategic Update and the 2020 Force Structure Plan which together outline a new strategy for Defence and the capability investments to deliver it, the Prime Minister has announced a commitment to spend $270 billion over the next 10 years on additional defence capabilities including $75 billion investment over the next decade for the Royal Australian Navy, building on the government’s 2017 Naval Shipbuilding Plan.
In this context, the Defence Industry Minister was quoted as saying, in part, “We’re talking about a generation of Australian jobs, and a substantial level of Australian industry involvement in these major acquisitions”. What has not been addressed in the Minister’s statement is any reference to the manner in which Australian industry involvement will be optimised as a fundamental and integrated part of a capability life cycle approach to both the acquisition and sustainment of naval capability over generations.
It has been reported that to support a larger and expanded fleet, up to $12 billion will be invested in developing the infrastructure necessary to support the capabilities of our naval fleet during construction, operation and sustainment, noting that the future of maritime sustainment in Australia is set to change with Navy’s Plan Galileo laying the foundations for an integrated and consistent approach to maritime sustainment by leveraging opportunities created under the government’s Naval Shipbuilding Plan.
Successive governments have, over time, undervalued the importance of optimising Australian industry involvement including the sustainment of naval assets. Aiming at achieving a substantial level of Australian industry involvement without the government mandating and contracting minimum levels on both acquisition and sustainment elements on a project by project basis does not do justice to Australian industry.
Taking a life cycle approach to the acquisition and sustainment of a naval project has to commence at the concept stage rather than the emphasis initially being on the acquisition of the capability – early consideration of sustainment of the asset can have a profound impact upon the quality, size and effectiveness of the industry program.
A strong government commitment to the early and integrated engagement of Australian industry, with emphasis on the significant role of SMEs in the ongoing sustainment activities, as part of the development of a project capability life cycle will achieve optimised levels of Australian industry involvement during the sustainment over extended periods.
The government has recently committed to placing significant additional emphasis and funding on enhancing Australia’s trade/technical and technological skills base. Earlier engagement by government with Australian industry will provide the incentive to industry to invest in their skills base and capability in order to optimise their participation in the sustainment of naval assets into the future.
Australian industry has demonstrated in the past that it is capable of cost effectively committing to and optimising its involvement in the sustainment of naval assets (e.g. Collins Class Submarines, ANZAC frigates and mine-hunters to name a few).
The government needs to do much better than to seek non-binding undertakings from overseas primes to maximise Australian industry involvement during the acquisition phase of naval assets.
The government needs to provide the incentive and appropriate guidelines to its procurement agency, CASG, and to Australian industry, for its binding and optimised involvement and sustainment outcomes.
Editor’s Note: Brent Clark is the chief executive officer of the Australian Industry & Defence Network. He served as a submariner and officer in the Royal Australian Navy before joining AIDN and has held a number of senior corporate positions, including with Thales; Saab; and Naval Group. Opinions expressed in the essay are his.
By Brent Clark | Opinion | 9 July 2020 | Australian Defence Magazine
There has been substantial media and discussion around Australian companies becoming part of the supply chain for the large number of Defence programs.
The Prime Minister recently announced expenditure of $270 billion over the coming decade, a number so large it overwhelms the public.
Maths tells us that if we only achieve 50 per cent Australian content, in effect that means $135 billion of Australian taxpayer money is heading overseas, a 10 per cent increase of Australian content means an additional $27 billion remains in Australia, multiplying throughout the wider economy.
AIDN requires Australian companies to be designed into the supply chain from the beginning of these programs. Do this and meaningful work packages can be contracted, IP exchanged and Australian companies can undertake the required investment to be in a position to compete in a fair and equitable manner in order to become suppliers into these massive programs. If they are not designed into the supply chain from the outset, then the stark reality is that they will not be included at some mythical point down the track.
The task of integrating Australian companies into supply chains becomes far more problematic when the supply chain for the initial batches of equipment is established. Australian companies would still need to be qualified to provide supplies; there is a cost to undertake this activity, and that will impact schedule and overall program price. This makes Australian companies appear less competitive than they truly are.
This places Australian companies at a tremendous disadvantage to ‘break into’ the incumbent supplier base. It also potentially allows for more foreign owned companies to establish 100 per cent owned subsidiaries to be created in the Australian market, effectively forcing the current domestic-owned companies out of their home market.
If we are in the process of qualifying overseas companies for the initial platforms this means that there currently is an activity involving qualification, proving supply chains, transfer of IP and all the other requirements to become certified into the supply chain.
Why is there no opportunity to qualify Australian firms into this supply chain? Why is there some need to qualify overseas suppliers first and at a later point qualify Australian-owned companies?
AIDN rightfully asks the question of BAE Systems, to name but one of the foreign owned multinational companies that have been awarded lucrative defence contracts, exactly how many Australian companies are they in the process of qualifying to supply tier 1 and tier 2 level supplies?
This question can also be asked of Naval Group, Rheinmetall, Lürssen, indeed all of the Defence Primes.
Reviewing the contracts associated with some of the larger programs, Naval Group reportedly has no actual percentage of Australian Industry included, BAE Systems reportedly has 54 per cent as a contracted requirement, Rheinmetall has best endeavours as does Lürssen.
If we specifically look at the Hunter Class Frigates example, assuming that the acquisition contract is $45 billion, then nearly $21 billion is heading overseas.
More concerning is that the Prime Contractor for this program could achieve 60 per cent of AIC without actually doing any work in Australia during the acquisition phase, assuming that they can achieve 90 per cent AIC during the sustainment phase. This is highly likely given Defence claims a figure of 92 per cent AIC for the sustainment of the Collins Class Fleet.
AIDN proves this statement based on the maths: “The Prime Minister announced a budget of $45.6 billion for acquisition recently, applying the rule of thumb that sustainment is roughly twice the amount as acquisition, hence $91.2 billion, then the total cost of the program is $136.8 billion.
“Assuming a 90 per cent AIC result for the $91.2 billion of sustainment then this translates to $82.08 billion, i.e., $82.08 billion is spent locally thus achieving 60 per cent AIC over the full life of the program.”
Obviously, the Hunter Program will contract some percentage of AIC during the acquisition phase, but as demonstrated from the above concept it is possible to backend load the AIC through sustainment, allowing more of the acquisition work using their existing overseas supply chain.
It is difficult to believe this is what the Australian Government hoped to achieve when it stated it wanted to create a sovereign Australian Industry to ensure as a nation, we have a higher level of self-reliance. The COVID-19 pandemic has demonstrated the absolute need for Australia to achieve the highest possible levels of self-reliance.
At least BAE Systems has a contracted amount of AIC content (54 per cent) in the build phase. We can take some comfort that they have to achieve an Australian spend of at least $24.6 billion during acquisition, assuming that the AIC percentage is specified for the acquisition phase and not the total program life.
AIDN cannot identify what the other prime contractors will deliver in the AIC space, nor does it appear that Defence has a contractual clause to hold them to. The vagaries of ‘contractor best endeavours’ or ‘maximise’ do little to ensure that actual work packages are achieved in-country.
AIDN will continually advocate and highlight these issues with Government and Defence. We must ensure that the Prime Contractors are doing what they said they would during the bid phase of these programs.
We have this obligation to our SME community; this critical issue must be made right. The sovereignty of our nation depends upon it.
Note: Brent Clark is the CEO of AIDN National.
Its one thing to build war fighting capability it’s another to build industrial capability.pdf
The Australian Industry & Defence Network (AIDN), Australia’s largest national defence advocacy group representing small business, has appointed Brent Clark as their new CEO.
Brent joins the organisation after a multi-decade career in defence and defence industry. He is a former submariner and has held a number of senior roles within Defence Industry.
“AIDN is thrilled to have Brent on board to help us develop as Australia’s voice for defence industry,” AIDN National chair, Lester Sutton said.
“Defence policy is an Australia wide concern and that obviously requires a strong voice in Canberra, which Brent will provide,” Mr Sutton said.
“The COVID-19 crisis has shown defence industry’s importance to the Australian economy, and that importance will only grow as the future submarine, future frigate and other significant defence programs ramp up,” Mr Sutton said.
“Our job at AIDN is to advocate as strongly as we can for our members to make sure they benefit as much as possible from the Federal Government’s defence spend to maximise sovereign capability.
“Beyond the benefits for AIDN members, ensuring a maximum level of sovereign capability is the right thing to do for our national security and the economy,” Mr Sutton said.
Brent Clark will continue in his role as CEO of Industry Voice, a complementary defence industry body that has taken a lead role in the debate around Australian Industry Capability (AIC) - particularly sovereign capability.
Industry Voice has joined AIDN as an Associate Member and signed onto the MOU to form a single national organisation representing small business in the sector.
“I congratulate Brent Clark on his appointment, and I look forward to working in collaboration with AIDN to jointly further the cause for Australian small businesses,” Industry Voice Chairman, William Hutchinson said.
AIDN National Newseltter 1st Q 2020.pdf
AIDN National hosted their Annual Dinner at the QT in Canberra on the 19th of February 2020. The event with more than 300 attendees from Defence and Industry enjoyed a great evening of Networking and celebrating 25 years of AIDN.
The evening was coordinated by MC Graham Priestnall, and included presentations from Platinum Sponsor Lockheed Martin, Deputy Country Executive – Scott Thompson, AIDN SME Success Story Products for Industry (PFI) – Nick Green (aka Rocket Man), and Guest speaker Chief of Navy – Vice Admiral Michael Noonan, AO, RAN. The National Young Achiever Award celebrated 4 young finalists who have all made significant contributions to Defence Industry and have the opportunity to provide plenty more for the future.
Alexander Bowen-Rotsaert, the Queensland YAA winner from Boeing Defence Australia was presented his award by Chief of the Defence Force General Angus Campbell AO, CSC, and Deputy Secretary, CASG Tony Fraser, AO, CSC.
AIDN National Invites you to attend a panel discussion “National Suppliers – Are you Defence Ready?” as part of the Pacific 2019 International Maritime Exposition on Tuesday, 8 October 2019 . The panel session will provide SME’s with:
Kerryn Smith – CEO AIDN-NT
Dr. Rodger Manning – Managing Consultant, BidWrite
Joseph Cardillo – BAE Major Contracts Manager SEA 5000
Michelle Richard - Thales Procurement Director
See the AIDN National LinkedIn page for further details.
The International Centre for Complex Project Management (ICCPM) and AIDN have signed a MOU outlining their commitment to jointly
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