Future of Australia's naval shipbuilding industry: final report

28 Jun 2018

In the previous Parliament, this committee tabled three reports on the future of Australia’s naval shipbuilding industry. The committee's first and second reports dealt with the tender process for the navy's new supply ships and the pre-tender process for the future submarines, respectively. The committee's third report reaffirmed recommendations made in earlier reports, and also made findings applicable to the wider topic of Australia's future shipbuilding industry, including a recommendation that particular matters be included in the government's Naval Shipbuilding Plan. In this final report, the first in this Parliament, the committee builds on its earlier findings and recommendations, and has also examined the naval shipbuilding plan, and recent procurement and policy announcements made by the government.

The committee remains concerned about the government's management of the naval shipbuilding programs, particularly given the findings of the Auditor General in Audit Report No. 39 Naval Construction Programs–Mobilisation. The Auditor General concluded that in order for the submarine program to be successful, implementation of the programs must be ‘seamless’. There are early warning signs that the government’s management of naval shipbuilding is far from seamless. Further, the committee is concerned that the government has at times actively excluded Australian workers and shipbuilders from participating in naval shipbuilding programs.

In relation to the Future Submarine Program, the committee was disappointed to hear that the Strategic Partnership Agreement (SPA) between the Commonwealth and Naval Group Australia is still under negotiation, placing enormous cost and scheduling pressures on work programs reliant on a completed SPA. The committee is concerned that in the absence of a signed SPA, the delay in the transfer of background intellectual property and information between the parties will place the whole submarine project under enormous cost and scheduling pressures. The committee is also concerned that delays related to the future submarine program risk leaving a sovereign capability gap.

In relation to the Future Frigate Program, the announcement of the successful designer for the future frigates program is due by the end of June 2018. The committee is concerned that there will be minimal participation from the Australian shipbuilding industry because the government's request for tender does not require the three shortlisted foreign designers to subcontract Australian businesses in their proposals. This decision undermines the government's publicly stated commitment to the local shipbuilding industry and its workforce, and runs counter to the development of domestic and sovereign capability. The committee believes that it is not too late to include a mandatory requirement that Australian businesses be involved in the future frigate program, and evidence suggested that such inclusion would accelerate the program rather than delay it.

In relation to the Offshore Patrol Vessel Program (OPV), the procurement process was poorly managed. The government inserted Austal into Luerssen's commercial negotiations after the announcement that Luerssen was the preferred tenderer. This approach did not put Austal in a strong negotiating position, nor was there any incentive for Luerssen to reach a mutually beneficial settlement once it had won the prime contract.

The Auditor General expressed concern that the OPV program had progressed through second-gate approval without detailed sustainment costs and finalised commercial arrangements. The committee shares these concerns and notes that any disruptions to the OPV build will result in subsequent disruptions to the Future Frigate Program.

Other examples of cost blow outs, delays and poor management include the following:

  • The delay and cost increases related to the establishment of the Naval Shipbuilding College. The cost of the college has increased from $25 million to $62 million, even before the College’s ongoing costs have been considered. The College was scheduled to commence operations in January 2018 but is still not operational.
  • The Naval Shipbuilding Advisory Board, established in December 2016, has already cost taxpayers more than $2.4million in payments to board members alone. The committee has not been provided with any evidence that the board represents value for money, and remains unclear as to the role of the board. The committee is also concerned at recent attempts by the board to avoid public scrutiny.
  • The appointment of former Defence Minister, David Johnston to the position of Defence Export Advocate is perplexing given his failure to recognise the skills and strategic importance of the Australian Submarine Corporation (ASC) and his potential conflicts of interest. The committee is also concerned about the lack of transparency relating to his appointment and his remuneration.
  • The government's lack of planning and failure to communicate regarding the future role of the ASC and its staff, as the numbers of ASC staff continues to fall.

Nevertheless, throughout this inquiry the committee was reminded of the tremendous capacity of Australian industry and Australian workers to contribute to the naval shipbuilding enterprise. The committee notes that the decision on the Future Frigates is imminent. It is critical for the development of Australia's sovereign capability that Australian shipbuilders have a significant role in the build of the Future Frigates

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