Submarines: the management consultants' review

It is hard to know whether to laugh or cry at the thought of $4.3 million of taxpayer’s money being spent on a management consultant’s audit of the Australian Submarine Corporation’s delivery of through-life support to the Collins class submarines, as reported in yesterday’s Australian Financial Review.

No-one without deep domain knowledge and systems safety expertise could opine on whether or not the Defence Materiel Organisation is getting timely and cost-effective performance from ASC Pty Ltd, or whether improvements could be made without compromising safety and military effectiveness.

To explain why, it is necessary to make some observations about what we are dealing with here:

(1) The Collins class submarine is a warfighting platform. In order to be an effective warfighting platform it must be safe to operate, it must provide a reliable mobile platform for its warfighting systems, its self-protection systems must operate reliably, and its warfighting systems must operate reliably. Effectiveness and reliability are everything – raise a doubt about any of the items I have mentioned and the submarine ceases to be a military capability. It becomes instead a lump of metal that you would not put in harm’s way:

- Submarines operate in an extremely hostile environment – the depths of the sea. There is a high risk that a safety “incident” on a submarine will result in the loss of all hands, not to mention the loss of the defence capability embodied in the platform.

- They are also intended to venture as required into environments that are hostile because some very unpleasant but highly capable people do not want them there. No avoidable risk to the survival of the submarine in carrying out its missions is to be tolerated. We must be sure that it can avoid detection, evade counter-attack, and escape from the area of operations without breaking down.

- An accident or breakdown en route to the area of operations means that the mission must be aborted, which is unacceptable.

(2) Because it moves in three dimensions a submarine is much more like an underwater aeroplane than it is like a surface ship. There are a great many circumstances in which a disabled surface ship will stay afloat until the crew can be rescued and the ship can be repaired, or recovered for repair elsewhere. A disabled submarine which is not fortunate enough to be able to make it to the surface will sink to the bottom, from where a rescue is feasible only when the submarine is in shallow water. If it sinks in deep water it will reach what is known as the “crush depth”, the point at which the water pressure is too much for the pressure hull, at which point the only possible outcome is a twisted mass of metal and bodies settling on the deep ocean floor.

(3) There are however important differences between the world of submarines and the world of aviation:

- There are thousands upon thousands of aircraft flying throughout the world. For every aircraft type a huge amount of operating experience is being gained every hour of every day. In the safety conscious and very public world of aviation there is a huge sharing of all of the accumulated knowledge, and rapid dissemination of new information arising from maintenance experience, incidents, accidents and inquiries.

- There is nothing similar in the world of submarines. By contrast with the number of operating aircraft of any one type, there are very few submarines in operation and no opportunity to build up anything like the same body of data concerning operational and maintenance experience. In addition, the world of submarines is for good reason about as secretive as the military world gets, so there is very limited sharing of technical information, even between trusted allies.

- If you have ever seen maintenance engineers working on an aircraft you will have seen a lot of people at work, mounted on jackable platforms and working from the outside in. Parts that need to be serviced or tested can be accessed relatively easily by removing external panels. In a submarine, by contrast, most of the onboard systems are inside the pressure hull which separates personnel, machines and systems from the crushing pressures of the sea. This pressure hull is welded to the highest standards and should never be breached. Within the pressure hull space is at a premium, and optimised for the warfighting role, not necessarily for ease of maintenance. Instead of many people working together from the outside in, there is often one person working alone in a very confined space. This adds to time and cost.

(4) ASC shoulders all the responsibilities that flow from the fact that the Royal Australian Navy is the “parent Navy” for the Collins class. All of the maintenance regimes have to be developed and kept up to date within Australia. While we can obtain technical data from manufacturers of the individual sub-systems, we have nowhere to turn regarding management and maintenance of the submarine as a total operating system. That is up to us, and it is a new experience for the Australian Defence Force. This is a very heavy responsibility and one would expect that those who bear it would proceed cautiously and conservatively.

There is a generic problem with this kind of management consultant’s review, no matter how highly esteemed might be the management consultant(s) concerned. Management consultants are profit making entities which make their profits by delivering to their clients in accordance with their brief. If they are given a brief to find savings they will find them, but these are “all care and no responsibility” jobs – the management consultant identifies options and/or makes recommendations, but it is up to the client whether or not to implement them. Many a corporate tear has been shed post-implementation as the consequences of the recommended cost-saving program become manifest. I have seen one or two of these exercises in the process of “reforming” government agencies and have found the results unconvincing to say the least.

Note also that the client in this case is not the company (ASC) but the company’s dissatisfied customer (DMO). ASC has not sought this advice and in light of the fact that the company chairman John Prescott has written to the Prime Minister (see Submarines: Chairman ASC to Prime Minister) about the matter we may safely assume that ASC neither welcomes nor agrees with the outcome of the audit.

The problem for DMO is that all roads lead back to ASC. As well as being the Government’s submarine builder and maintainer, it is the design authority for the Collins class submarines – it has the last word on configuration management, maintenance regimes etc. Every change in the configuration of the submarine or the way it is maintained must be signed off by ASC. And ASC is where the buck stops – if there is a significant incident leading to injury, death or damage to the submarine, the people who sign off on the way the work is done can take no refuge in saying to the Board of Inquiry that the management consultants said it would be alright.

For anyone who is sceptical about the validity of the above comments, try conducting the following thought experiment: how happy would you be about a management consultant being given a brief to review Qantas’s safety systems with a view to finding substantial savings?

Submarines: do we need an arbitrator?

In Submarines: Chairman ASC to Prime Minister I commented on a recent report in the Australian Financial Review that the Chairman ASC had written to the Prime Minister in relation to certain problems between ASC and the Defence Materiel Organisation (DMO).

Today’s AFR reports (p. 4) that the Prime Minister is being urged to appoint an independent arbiter to resolve these issues.

As far as the future submarine is concerned, we do not need arbitration. We simply need a Government decision that the Government’s submarines will be designed and built by the Government’s submarine builder.

If there is a real issue between DMO and ASC concerning the timeliness and cost of ASC’s maintenance services for the Collins class submarines, it is surprising that it could not be resolved at the working level, very surprising that it could not be resolved at senior executive level, and disturbing that it had to go beyond the two CEOs. This is an issue between two taxpayer owned and funded entities in the one portfolio.

Perhaps, rather than an arbitrator, we need a client’s engineer to manage the contractual relationship between DMO and ASC at an appropriate remove from both organisations. There are companies with the skills and domain knowledge to perform that function.

Nothing in what we know of this affair allays my scepticism about the desirability of DMO becoming an Executive Agency as recommended by David Mortimer in the report of the Defence Procurement and Sustainability Review. The procurement and sustainment of defence equipment is so central to the functions of the Defence Department (providing the Government with the capacity to apply lethal force) that it should clearly and unambiguously be one of the accountabilities of the Secretary, Department of Defence. This means that the Head, DMO should be directly and solely accountable to the Secretary. This sounds like a Deputy Secretary function to me. Making DMO a Prescribed Agency was a bridge too far.

Defence white paper: plus ça change?

In what looks like a well informed piece in The Weekend Australian for 25-26 April national security editor Patrick Walters gives us a glimpse of what might be contained in the forthcoming Defence White Paper, which Walters says might be released as early as next week.

If Walters is correct, we are about to be presented with a vision splendid in which there will be 100 F-35 Joint Strike Fighters, a doubling of the submarine fleet, a new class of eight 7000-tonne surface ships equipped with ballistic missile defence systems, a new class of 1500-tonne corvette-sized boats to replace the Armidale-class patrol boats from the mid-2020s, replacements for the AP-3 Orion fleet, 6 extra C130-J Hercules transport aircraft, two extra infantry battalions and many other items adding up to an investment program in excess of $100 billion. This comes about because, in Walters’s words in a companion comment piece, “Kevin Rudd wants Australia to be able to exercise more strategic weight in what promises to be a more dynamic Asia-Pacific region over the next generation”.

I have no problem with any of that, but unfortunately Walters goes on to say “Rudd has promised to maintain annual real increases in the defence budget of 3 per cent and Defence has been tasked with finding billions of dollars to fund future equipment needs”.

That is exactly where the Howard Government came in – we will guarantee 3 per cent real growth in the Defence budget, and we will fund future capital equipment needs with all of the savings we are going to make from our Defence Efficiency Review.

If Walters is correct about the Government’s intentions for funding the “huge military buildup”, then that is about the only line in the Defence White Paper that anyone will need to read because most of what is in the White Paper simply won’t happen – as happens now, key parts of the program will continually be “slipped to the right”, i.e., deferred.

First, 3% real growth is 0.5% per annum less than Australia’s 3.5% average rate of economic growth from 1997 to 2007. So assuming that we one day return to something like that “normal” growth rate, the Government will be promising a huge military buildup on the basis of a steady decline in the already modest share of GDP that we currently spend on Defence.

Second, the mullock heap of internal savings to fund capital equipment has already been dug over. There are some wasteful practices in Defence, a couple of which I will describe on another occasion, but I do not think that anyone would be prepared to tackle them and in any event they do not add up to the sort of money we are talking about here.

So it is dollars as usual, and dollars as usual means business as usual. We continue to publish splendid plans but we have forward funding arrangements that are plucked from the air, not derived from the plans. The consequence is that we purchase less capital than is in the program, but more capital than we can sustain, and we have too many hollow force elements that are under-maintained, under-manned, have insufficient self-protection to be put in harm’s way, and are permitted too little training in the form of the required flying hours or steaming time.

As the French would say, “plus ça change, plus c'est la même chose” (the more things change, the more they stay the same).

Yehudi Menuhin: the great EMI recordings

Serious fans of Yehudi Menuhin will be attracted to the remarkable set of 50 CDs of Yehudi Menuhin’s recordings for EMI which has been released to mark the 10^th anniversary of his death on 12 March 1999. Spanning the period of 70 years he recorded for the company, this great collection of course includes his iconic recording at the age of 16 of the great Elgar Violin Concerto, with the composer conducting the London Symphony Orchestra.

Amongst the many other recordings are the Bach sonatas and partitas for solo violin, a 1932 recording with George Enescu of the Bach Concerto for Two Violins, the Beethoven and Brahms concerti with Wilhelm Furtwängler, Beethoven’s Kreutzer Sonata and Brahms’ Sonata No. 3 accompanied by sister Hepzibah, Menuhin’s only recording of the Sibelius Violin Concerto, with Sir Adrian Boult, lesser known works such as violin concerti by Vaughan Williams, Walton and Williamson, and pieces by Gershwin and Grappelli with the great Stephane Grappelli.

This is not a collection for the faint-hearted: you get four recordings of the Beethoven Violin Concerto, four of the Mendelssohn Violin Concerto, two of the Bruch Concerto No. 1. This was a long career.

If you are undeterred by this, Presto Classical will fix you up for £95.65 plus £2.00 postage and handling – go direct to the relevant page here.

And if you are as keen on Menuhin as that you should also visit Yehudiana: Reliving the Menuhin Oddysey to find out about Philip Bailey’s new biography of him.

Submarines: Chairman ASC to Prime Minister

In Future submarine: why the design competition? I reported on the Defence Materiel Organisation’s puzzling approach to SEA 1000, the project to develop Australia’s next generation submarine. The DMO has opted to involve selected European submarine builders in a design competition for a submarine that everyone in the business knows will have to be designed and built in Australia.

The Australian Financial Review for Friday 24 April 2009 carries an interesting item by John Kerin which reports that ASC (formerly Australian Submarine Corporation) Chairman John Prescott has written to the Prime Minister to outline his concerns about a series of disputes between ASC and DMO.

John Prescott is a business-like person of moderate behaviours, not given to extravagant gestures, needless confrontation or the creation of high drama. And as the former Managing Director of Australia’s largest company, he would expect even the most difficult issues to be resolved in sensible discussions between sensible people – especially as we are dealing here with transactions between a Government agency and a wholly Government-owned business enterprise in the same portfolio. If John Prescott is writing to the Prime Minister, there is a problem.

The AFR article tells us a little about what the issues are and it is worth having a closer look at those:

(1) ASC is understood to have become increasingly dissatisfied with the DMO’s planning approach to the new generation of submarines...

One would have to sympathise with ASC here, because it is difficult to explain why DMO has opted to run a design competition when there is only one submarine in the world which comes close to being the starting point for our next generation submarine and that is the one that ASC designed, built and maintains.

One would have to assume that part of the problem is some confused notion of the benefits of “competition” in the mind of DMO and perhaps Government at large. Competition only works when there are at least two credible competitors, and in this case there are not. As the report of the Defence Procurement and Sustainability Review (“Mortimer Review”) noted (p. 19), “...on occasions, the market may simply not be offering anything suitable now or in the future – as was arguably the case with the Collins class submarines – and the Commonwealth will have to bear the cost and risk of development alone”.

In any event, design represents only a small proportion of the total cost; the real benefits of competition are to be found later on in the project, when competition between potential sub-contractors and suppliers of sub-systems could produce real cost benefits.

It is worth noting here that one of the duties of the Defence Materiel Organisation is to foster and nurture the Australian industrial capacities that are required to support the warfighting capabilities of the Australian Defence Force. Any behaviour on the part of DMO that seeks to marginalise the role of ASC, or has that effect, would seem to run counter to that very important role.

Perhaps another part of the problem is the long-standing fantasy on both sides of politics that the Government will at some stage privatise ASC, leading DMO to attempt to treat ASC as just another company. As I have said in Let's keep ASC where it belongs, it will never be a good time to sell ASC. We should acknowledge that and proceed on the basis that ASC is in Government hands to stay.

(2) DMO claims the submarine builder’s maintenance on the existing Collins submarine fleet involves too many delays and is too costly.

I have no way of knowing the strength of this claim, but as ASC is the design authority, and much of the through life support is integrally connected to safety, it is hard to know how DMO could be sure either.

Also, in an environment in which Defence is being asked by Government to make heroic (and in my view unachievable) savings, I would have to wonder whether or not DMO is trying to contribute to the achievement of the savings target by demanding that its support contractors make efficiency gains. If so, one would expect strong push-back from the contractors – there are limits to which man-hours and materiel costs can be reduced without compromising safe, reliable and effective operation, and in any event the contractors are bound by contract to perform to prescribed standards.

(2) DMO chief Stephen Gumley has embarked on a global search for design, propulsion, weapons and sensor systems for the next generation of submarines as well as seeking an expression of interest from ASC.

This is quite extraordinary. Since 2005 ASC has been the technical design authority for the Collins Class submarines. It is the only organisation in Australia with the technical and engineering depth and experience to design a submarine. Why would DMO itself embark on the “global search” when there is a taxpayer owned organisation that is the Government’s designated design authority? Would it not have been more efficient from the outset to have designated ASC to lead the development of the future submarine and for ASC itself to conduct the global search for partners and inputs?

Instead ASC, the custodian of the Government’s technology, is invited to put an “expression of interest” to a less technically capable organisation. And as I understand it, even that was an afterthought – ASC was initially excluded from this phase of the exercise.

(3) But ASC’s leadership is miffed that its expertise in some specialist areas is not being sought and that the DMO appears to have paid little heed to the government’s election promise that the next fleet be built in Adelaide.

The apparent notion that the decision about who will build the submarine is a matter for another day certainly flies in the face of the Government’s election promise. Either that or DMO is using the European submarine builders as stalking horses to force the most cost-effective deal out of ASC, which would mean that DMO is not being straight with the Europeans. Besides which, contemporary engineering contracting practice offers much more efficient ways to achieve the desired result.

(4) Defence Minister Joel Fitzgibbon announced in November last year that the DMO would embark on a global search to source possible designs for the new submarines.

Presumably this was on the recommendation of DMO. Quite bizarre – we all know that there are no designs out there that come close to our requirements. We also know that our future submarine must incorporate both United States and European technology, and that the U.S. Navy and the Europeans will not release to each other the sensitive technologies required for our next generation submarine. This makes the design competition a completely redundant and costly step. And given all the other pressures on DMO, one wonders where it will acquire the manpower and expertise to manage two separate submarine design projects.