The government-owned submarine builder and maintainer ASC Pty Ltd is in the firing line again over the maintenance of the Collins class submarines; see for example Shake-up at navy shipbuilder by John Kerin in The Australian Financial Review, Wednesday 7 April 2010. Kerin says that ASC:
...has been under fire from the Rudd government and the DMO over the cost and adequacy of its maintenance of the Collins class submarine fleet.
Only three of the six Collins class submarines are capable of putting to sea, although this is an improvement on two at the end of the year.
ASC and DMO are renegotiating the terms of a 15-year, $3 billion contract to maintain the subs after accusations by DMO that ASC’s maintenance work was too costly.
It needs to be remembered by all concerned that ASC is a commercial organisation, albeit a government-owned one, which is no more than a service provider to the Defence Materiel Organisation of the Department of Defence. Defence can have as many submarines available to put to sea as it is prepared to pay to maintain and crew.
The facts of the matter are:
(1) The Navy has not trained enough crew to be able to man more than three submarines, and will not be able to in the short run – see Managing the submarine workforce.
(2) DMO has never budgeted for the maintenance of six submarines, so it is a bit rich to blame ASC for the state of the submarine fleet. Indeed last year DMO cut the budget for submarine maintenance, and was unpleasantly surprised to discover that ASC had to lay off desperately needed skilled workers. No doubt ASC could make improvements, all industrial organisations can, but any gap between its current performance and the best that might be achievable would nowhere near account for the current state of Australia’s submarine capability.
(3) The Defence Budget Audit made clear that maintenance program instability (in other words changing Defence requirements) were causing problems for ASC (see Future submarine and other matters).
Ultimately these factors come back to the size of the Defence budget, and the failure of Defence to manage the submarine fleet as a military capability.
Proximity is power when it comes to the bureaucratic blame game. DMO and Navy have constant access to the Defence Ministers, ASC cops the blame.
The Minister for Defence Personnel, Materiel and Science, The Hon. Greg Combet, today announced reforms to Australia’s naval ship repair sector. Under the reforms,
... the Defence Materiel Organisation will reform the Navy's Major Fleet Unit Repair and Maintenance program as outlined in the Smart Sustainment initiative.
If the DMO’s conduct towards the government’s shipbuilder/sustainer ASC Pty Ltd is anything to go by, the thought of DMO teaching anyone else how to go about their business does not have me throwing my hat in the air.
On 15 December 2009 the Minister for Finance announced the retirement (completion of term) of two directors of ASC, and the appointment of four new directors.
The retiring directors are:
(1) Dr Bill Schofield AM, a lifetime defence scientist, having served in various positions in the Defence Science and Technology Organisation (DSTO) from 1965 to 1991. From 1995 to 2001 he was Director of the Aeronautical and Maritime Research Laboratory at Fisherman’s Bend. In my time as Secretary, Department of Defence, he played a key role in the resolution of outstanding technical issues with the Collins Class submarine. As a member of the Kinnaird Review of defence acquisition which reported in 2003, he was instrumental in the recognition by government of the role which DSTO can play in minimising and managing technical risk in major defence projects. At the time of his retirement from the ASC board he was chairman of its risk committee, a function in which domain knowledge would appear to be critical.
(2) Mr Michael Terlet AM, who spent twenty years in defence industry before retiring in 1992 and becoming a professional company director. He was Chief Executive Officer and Deputy Chairman of AWA Defence Industries, prior to which he was Managing Director of Fairey Australasia Pty Ltd at the time of its merger with AWA.
The new directors are Ms Sally Pitkin, Mr John (Jack) O’Connell AO, Mr Bruce Carter and Mr David Miles AM. So we have replaced two engineers with four professional company directors, two of whom are lawyers and two of whom have an accounting background. None, as far as I can see, have any domain knowledge concerning the building and sustainment of submarines. In his media release announcing their appointment (see here), Finance Minister Lindsay Tanner said:
... the appointees bring a range of skills and experience in legal and financial matters to the board, and will enhance the board’s high level of expertise and standards of governance.
The new appointees on the ASC board join its Chairman, Vice Admiral Chris Ritchie AO RANR (who has a background in surface ships), Director Mr Geoff Phillips (a company director with a background in finance and management), and newly appointed Chief Executive Officer and Managing Director, Mr Stephen Ludlam (formerly President – Submarines for Rolls Royce (UK)), bringing the total Board membership from five to seven.
This means that the only person on the board as reconstituted who has a deep background in submarines is the Chief Executive Officer.
Several questions arise. None of what follows is to be taken as questioning the suitability of any single member to serve on the ASC board – each person individually clearly has the background and qualifications to make a contribution to the governance of ASC. My questions relate to balance of skills, where the Government thinks it is heading, and what is really going on here.
In no particular order my questions are:
(1) Why was it considered necessary to increase the size of the ASC board at this time?
(2) Given that the board was being increased in size, why was it decided to narrow the range of skills available? Why not, for example, retain Dr Schofield and Mr Terlet, and simply appoint someone with a legal and someone with an accounting background?
(3) What does this change signify regarding the Government’s approach to ASC? Does it see this wholly owned entity as a fundamental element of Australia’s defence capability, or is it just another company which the government still hopes to sell one day? Is the Government more interested in the sale price it will one day receive than it is in the defence value of the last remaining Australian-owned prime defence contractor? The Government’s ongoing refusal to commit to ASC as the designer and builder of the future submarine, the only sensible game in town, suggests that the defence value of ASC is seen to be of small moment.
(4) The key risks faced by ASC are technical risks, not the normal range of commercial risks. Now that the only person on the Board with domain knowledge of submarines is the CEO, who will ask management the hard questions? Who will evaluate the answers it receives? How will the board know what risks it is taking on? Who will chair the risk committee?
Given that the Government shows no sign of moving with the alacrity required to bring the future submarine into service by 2025, this is a more important question than it might appear. My guess is that we will be lucky to introduce the new submarines into service before 2030, by which time we will be managing Collins class submarines as aging platforms, managing a whole new suite of emerging risks.
(5) Where did the idea of letting Dr Schofield and Mr Terlet go actually come from – who recommended this to the Minister for Finance and why?
(6) Is this reconstitution of the ASC Board just another step in the Defence Materiel Organisation’s ongoing warfare against ASC?
(7) If so, why is the Government so cheerfully tolerant of, let alone complicit in, bureaucratic warfare between two wholly taxpayer-owned entities? Is it in on the game, or simply asleep at this particular wheel? Read Combet captured? before you answer that.
(9) Why is such a key defence asset as ASC run as an asset of the Department of Finance rather than an asset of the Department of Defence?
(10) Why is there no-one in the mainstream media with the wit to ask these questions?
A piece by defence writer John Kerin in The Australian Financial Review’s Thursday 3 December Special Report on Defence throws some interesting light on the current thinking within Defence concerning the acquisition strategy for the future submarine which is to replace the Collins Class from about 2025, with the build to commence in 2016.
The key paragraphs are:
The government weapons purchaser, the Defence Materiel Organisation, has already embarked on a global search for designs, propulsion, weapons and sensor systems, talking to Spanish submarine builder Navantia, German builder HDW, US builder Electric Boat, Swedish builder Kockums and British builder BAE Systems.
Adelaide-based government-owned submarine builder ASC has a head start in terms of the project given its existing expertise. But government sources suggest that how big a slice of the build ASC gets will depend upon whether it can improve the efficiency of its maintenance of the Collins-class submarines.
Only two Collins-class submarines are now available, although the Defence Materiel Organisation, the navy and ASC are now working jointly to try to improve submarine availability.
The South Australian and federal governments have ensured there is a common user facility and vacant land near ASC at Port Adelaide which could be made available to a private sector rival.
The DMO has not yet recommended to the government how the acquisition strategy for the submarines should be handled.
DMO chief executive Stephen Gumley has warned that the project is simply too big for any one prime contractor.
The project may follow the alliance approach used with the $8 billion air warfare destroyer project, in which Raytheon, the Defence Materiel Organisation and ASC have formed a partnership to build three vessels for the navy.
The destroyer project is at this stage running to budget and on schedule.
There is still vigorous debate within the federal government and the defence community about an Australian-built submarine as the better option or whether an off-the-shelf solution may provide better value for money for taxpayers.
Some observations about the above:
(1) The suggestion from “government sources” that how big a slice of the build ASC gets “will depend on whether it can improve the efficiency of its maintenance of the Collins-class submarines” betrays extraordinarily muddled thinking, and suggests ongoing failure in the relationship between the two Government-owned entities the Defence Materiel Organisation (DMO) and ASC Pty Ltd. The Government owns ASC: if it has a sustainable case for dissatisfaction with ASC’s performance on the through-life support of the Collins class submarines, then it should address that question directly and resolve it. The industrial support of our platforms is a fundamental component of our defence capability, and problems in that regard must be resolved promptly, not simply used as an excuse to withhold future work on other projects.
(2) The odium being heaped upon ASC in relation to the through-life support of the Collins class seems to be a good example of the ancient principle of bureaucratic warfare that propinquity is power. The George Pappas-led Defence Budget Audit makes it quite clear that there are three organisations, DMO, Navy and ASC contributing to the current low level of submarine availability and long maintenance turn-around times, and it is no coincidence that the organisation furthest from the Minister’s ear is taking almost all of the public flak.
On page 114 the recently-released Defence Budget Audit says:
There are substantial systemic issues across the support landscape for the Collins Class (including Defence, ASC and its suppliers)), which are interacting to drive increased observed cost and low levels of availability. Frequent design modifications and upgrades (including significant legacy issues arising from the build phase), along with overlapping docking periods, drive higher demands upon finite resources. In turn, this leads to further extension in docking periods and causes further instability in the master maintenance schedule (exacerbated by lack of contingency built into the schedules to absorb emergent work). Schedule instability makes the planning of spares provisioning inaccurate, which further exacerbates productivity issues, extends repair turnaround times and increases docking periods. This cycle is further compounded when low submarine availability compromises training of seamen, which exacerbates crew shortages. These crew shortages can lead to submarines docking early, further disrupting the schedule. It will be impossible to break this cycle without coherent action at all levels – to the commercial arrangements between Defence and the ASC; in the repair facilities themselves; and in the end-to-end enabling system, including Defence.
Later in the Audit (page 118):
Maintenance efficiency is exacerbated by: low spare parts availability, currently at a 66% demand satisfaction rate, mainly due to the lack of a pool of repairable items ‘on the shelf’; very long turnaround times from many industry suppliers; increasing obsolescence; and schedule instability. As a result of Defence budget constraints in fulfilling the current ‘bow wave’ of maintenance, there are continual changes to the master maintenance schedule. This reduces the available forward planning time which, in turn, exacerbates the issues of parts availability and low labour productivity.
So it is quite explicit: budget constraints, maintenance schedule instability and crew shortages all contribute to the current problems and it will take ASC, DMO and Navy working together to fix them. It is a pity that our conventional media do not take the trouble to join up these dots.
(3) The crew shortages reflect well on neither the Navy nor the civilian Defence establishment including a succession of Ministers and Secretaries. It is the responsibility of the Chief of Navy to raise, train and sustain the Navy (in plain English that means that he is required to have trained sailors available to man all platforms) and he is the Capability Manager for all naval platforms. It is the job of the Minister, advised by the Secretary, to ensure that the Chief of Navy gets the resources he needs to perform his statutory functions – or accept political responsibility for deciding that the capability should be unavailable. Ships without crews are not capability, they are very expensive pieces of rusting metal and deteriorating systems.
To his credit, the current CN (Vice Admiral Russ Crane) is attempting to rectify this situation (see Managing the submarine workforce), but it is not going to happen any time soon, and the shortage of crew is itself contributing to the inability to train sufficient crew to put submarine manning on a sustainable basis.
(4) It is extraordinary that the South Australian and Commonwealth Governments have invested taxpayers’ money to ensure that “there is a common user facility and vacant land near ASC at Port Adelaide which could be made available to a private sector rival”. Why would a government want to do that when it already owns the necessary facilities and a company which is the national repository of submarine design and building expertise? Is this to be yet another very Australian story of investing billions of dollars in establishing a national capability and then insouciantly shredding it?
(5) The suggestion attributed to DMO chief Stephen Gumley that the future submarine project “is simply too big for any one prime contractor” is ridiculous. Leaving aside ASC’s claims for the moment, too big for Navantia? Too big for HDW? Electric Boat? Kockum? BAE Systems? Why would it be too big for any of the above? Surely someone is to be in charge of this complex project, and able to be held to account by the Commonwealth as client? Or is this code for DMO setting itself up to be the effective prime for this massive project, or indicative of a desire on the part of DMO, as implied by the AFR piece quoted above, to tilt the playing field in favour of another excursion into alliance contracting.
(6) In relation to alliance contracting, the article notes approvingly that the Air Warfare Destroyer (AWD) project is at this stage running to budget and on schedule. They always do at this stage; the hard part is the systems integration phase that comes at the end, as the Airborne Early Warning and Control project (Wedgetail) has demonstrated so abundantly. Yesterday Defence Materiel Minister Greg Combet put out a media release marking the achievement of another milestone in this project, the completion of testing of the Aegis Combat System equipment destined for HMAS Hobart. This is a step along the road, to be sure, but it doesn’t tell us much about the virtues of alliance contracting: the Aegis system is in service on nearly 100 warships in a number of navies, so we should expect that step to be completed without great problems.
(7) On 28 November 2001 the Australian Government Solicitor published some Commercial Notes that identified some substantial issues to be considered by Government agencies in considering whether to enter into an alliance contract (see Alliance contracting in Defence). In short, the key problems identified include the facts that it is difficult to select alliance partners fairly, there can be no meaningful sense that costs are fixed, and most compellingly in my view, the Commonwealth could be estopped from holding the contractor responsible for decisions in which it (the Commonwealth) participates.
(8) An “off-the-shelf solution”, as proposed by some, is not a solution if it does not do what we need it to do. The future submarine will inevitably be an evolution of the Collins class submarine which we currently have in service. No-one starts designing a submarine with a clean sheet of paper, and neither will we.
One of the key elements of the Government’s cost saving program for Defence is the hardy perennial that we should do more off the shelf purchasing – instead of having materiel that is especially designed for our needs, we should as far as possible purchase items that are already in production and available off the shelf – ready-to-wear rather than bespoke tailoring, so to speak.
This sounds fine in theory and where possible it should be the practice. There are, however, one or two catches. The first is the one identified by the Australian Industry Group’s Defence Council, as reported by defence writer John Kerin in today’s Australian Financial Review:
[The Council] warned that Rudd government moves to buy more overseas sourced and off-the-shelf equipment in a bid to slash costs on the program, if overdone, could cost jobs in the 29,000 strong defence sector.
That is true, and is an important issue. Perhaps more important is the related issue of maintaining the industrial capacity to sustain our defence equipment in times of conflict, and in peacetime to modify and upgrade it, both to improve its performance and to ensure that it remains capable of dealing with emerging counter-measures. To do that we need a diversified and profitable domestic defence industry – not necessarily Australian owned, but certainly located here.
Perhaps most important of all is ensuring that the materiel we buy is genuinely fit for purpose, and in this regard overseas equipment will not always make the cut. Submarines are a classic case – diesel electric submarines are normally designed for short patrols in deep cold water, we want ours to do very long range patrols in warm shallow water.
Another example would be the Infantry Mobility Vehicle (IMV), for which Australia uses the Australian designed Bendigo manufactured Bushmaster vehicle.Perhaps it would have been cheaper to buy US Humvees off the shelf? It depends what you mean by cheap. The Bushmaster was designed for high levels of crew and passenger protection. It has a shaped, armoured hull, which deflects the blast from the equivalent of a 9.5kg high-explosive land mine detonated under any wheel or under the centre section of the vehicle. As a consequence, Australian forces serving in Iraq and Afghanistan have suffered very low numbers of casualties resulting from land-mines and improvised explosive devices (IEDS). Because this level of protection was designed into the vehicle from the outset, they are taken into account in designing the vehicle for its acceleration, braking and rollover characteristics. They have proved themselves so well that we have sold them to our Dutch allies in for use in Oruzgan Province.
Humvees on the other hand were initially designed as thin-skinned vehicles to provide mobility behind the front lines. In urban and counter-insurgency situations they proved something of a disaster. After the “Blackhawk Down” incident at Mogadishu the M114 version was developed to provide protection against small arms fire, but it remained thin skinned underneath. “Up-armour” kits were provided for the older M998 version, but not in great numbers.After the invasion of Iraq in 2003 US troops began use scrap materials to improvise additional protection (“hillbilly armour” or “farmer armour”), but the extra weight compromised the handling characteristics and service life of the vehicle. The Americans are now in the process of a full-scale program to produce Mine Resistant Ambush Protected (MRAP) vehicles, but meanwhile they have suffered very high rates of casualties from mines and IEDs – over 60% of casualties in Iraq and 75% of casualties in Afghanistan. Many a grieving US parent would derive little comfort from knowing that the outcome might have been very different if their son or daughter had been in a Bushmaster.
I remember a US Congressional Committee in the early 1970s agonising about the fact that the last 50% of the cost of major military development projects went on the last 5% of performance. The trick is that the people who take that equipment into harm’s way tend to place a very high value on that last 5% of performance. My supervisor at the time had been a bomber pilot in New Guinea. He used to say to me, “I’ve been to war in the second best aircraft in the sky. It is not a lot of fun”.
The decision to buy “off-the-shelf” is not a simple one, and I do not think we will see it used nearly as extensively as the Government might hope.
Governments never tire of reorganising defence acqusition, and telling us that each iteration will greatly reduce delays and cost over-runs. At each stage victory is declared a short time after the reorganisation, in disregard of the fact that major defence projects have long lead times and the difficult bits are always at the end. Project Wedgetail is a good example of that – see Project Wedgetail: a cautionary tale.
In 2000 the Howard Government merged the former Defence Acquisition Organisation with Joint Logistics Command to produce the Defence Materiel Organisation, nothwithstanding the demonstrable fact the DAO’s performance on cost and schedule was very creditable when compared with its peer organisations in the United States and the United Kingdom.
In 2003 we had the Kinnaird Report, the recommendations were accepted, and victory was declared again – so much so that the 2008 Report of the Defence Procurement and Sustainment Review conducted by Mr David Mortimer was published with the title Going to the Next Level – the clear implication being that, by implementing the new report’s recommendations, an organisation which was already fabulous would become even better.
This report was said by the then Parliamentary Secretary for Defence Procurement, the Hon. Greg Combet, to be:
... a formal evaluation of the effectiveness of the ongoing reforms to the Defence Materiel Organisation (DMO) [that] were implemented following the 2003 Review of Defence Procurement...
In announcing the review, Mr Combet said that he was also seeking advice on:
...further potential reforms to the acquisition and through-life support of defence equipment.
We now have two interesting pieces of data that together shed an interesting light on the permanent revolution in DMO.
The first comes from the Report of the Defence Procurement and Sustainment Review. On page 30 there is an interesting chart which shows the results of a DMO analysis of the primary causes of schedule slippage to major capital projects in financial year 2007-08. The three principal causes of slippage are:
- Australian industry: 30%
- Foreign industry: 20%
- Foreign Government negotiation and payments: 16%
In other words, fully 66% of the reasons for schedule slippage in 2007-08 were factors beyond the control of DMO.
The second comes from Senator Faulkner’s 13 August speech to the Australia and New Zealand School of Government. Speaking about Defence’s acquisition performance, Senator Faulkner said:
But it is important to remember that 83% of the over 200 Defence acquisition projects closed in the last ten years have been on – or below – their approved budget.
It is worth dwelling on what this statement actually means. It refers to projects closed out in the last ten years.Even taking a very conservative estimate of five years for the average life of projects (and that is a very conservative estimate: Wedgetail commenced in 2000), that means that roughly speaking we are talking about projects commenced in the time span 1994-2004. A good swag of that 83% closed out on or under budget would have been undertaken by the old Defence Acquisition Organisation, before any of this nonsense began. And the data could only include the less complex projects begun since the government began implementing the recommendations of the Kinnaird review of 2003.
To summarise, most of the reasons for schedule slip are beyond DMO’s control, and for as long as anyone can remember, the overwhelming majority of acquisition projects have come in on or under budget.
Enough to make one wonder what all the fuss has been about.
In Future submarine: why the design competition? (21 April 2009) I queried the thinking of Defence concerning the development of SEA 1000, the project to acquire a fleet of twelve next-generation submarines to replace the current Collins class boats when they begin to be withdrawn from service from 2025.
The thinking at the time appeared to be that Defence would engage two European designers to participate in a Defence-funded design development. For reasons outlined in that post, this struck me as an extraordinary and redundant step. The repository of submarine design knowledge relevant to Australia’s circumstances is our very own Government-owned ASC Pty Ltd.
Furthermore, it will take an Australian submarine builder to perform the necessary integration of technologies from United States and European companies that will not release their technologies to each other – another indicator of the central role that ASC must play.
These considerations nothwithstanding, the Defence Materiel Organisation’s approach seemed calculated to sideline ASC as far as possible.
In a welcome outbreak of commonsense the Minister for Defence, John Faulkner, and the Minister for Defence Personnel, Materiel and Science, Greg Combet, have today announced that Defence will call a Request for Tender (RFT) to complete a Domestic Design Study for SEA 1000.
In the media release announcing the intention to issue the RFT, Senator Faulkner said:
Investigations by the Future Submarine Project Office to date have covered a number of diverse areas aimed at developing an understanding of the capability of the international submarine industry.
This RFT adds to these preliminary investigations by examining Australia’s design capabilities, and forms part of a program of studies being undertaken to support the planning of Australia’s future submarines as outlined in the Defence White Paper.
The RFT would add to current information collected to help shape the approach to the design of the next generation submarine.
Mr Combet said:
We are undertaking a number of studies to identify and explore all the options to ensure we have the appropriate design capability to support our submarines throughout their life.The information we collect through this process will help to develop strategic options for the Government’s consideration.
This Government is committed to carefully planning for Australia’s next generation of submarines. This is clear through the program of studies and information we are gathering.
This request for tender recognises the skills that our Australian domestic defence industry has in the design and development of submarine technologies and systems.
All very polite stuff, but the reorientation of thinking is as clear as it is welcome – the earlier studies are being repositioned as “preliminary investigations”, part of the due diligence, but now we are going to take a good hard look at what our domestic industry can do, and give full weight to its capabilities: to repeat Mr Combet’s carefully chosen words, we are going to “identify and explore all the options to ensure we have the appropriate design capability to support our submarines throughout their life”.
