A fourth Air Warfare Destroyer?

According to this online piece from News Limited,

Adelaide is in line to secure a fourth $2 billion air warfare destroyer because the Federal Government wants a major shipbuilding project in its defence program.

The project will be included in next year's Defence White Paper.

The Government wants to help bridge the national skills gap and a fourth air warfare destroyer is the likely choice.

Leaving aside any question of whether we needed the first three Air Warfare Destroyers, let alone a fourth, and leaving aside that this represents a Government that is highly unlikely to be elected at the next election thinking aloud about what it will do following the election after that, this seems a curious way to shape the Royal Australian Navy.

Let us leave aside also the fact that if the Government had conducted itself with any meaningful sense of purpose in relation to the future submarine we would have been cutting metal by 2016 in order for the first of the new submarines to go into service as the Collins Class submarines reach the end of their planned service life from 2025.  That didn’t happen; instead, the Government presided over a charade in which the Defence Materiel Organisation ran around the world trying to drum up a design competition when it has been clear from the start (including, apparently, to the European submarine builders) that the only way for Australia to procure a submarine that is fit for purpose is to have the Government’s very own ASC Pty Ltd build a submarine that takes HMAS Collins as its starting point, evolves the design both to build on what we have learned from designing, building and operating the Collins Class and to take account of perceived changes of requirement. We must be the only country in the world in which the Government owns a submarine builder and yet agonises for years over who should build its submarines.

I would be the first to agree that continuity of work for Australian defence industry and the preservation of its very high skills is important, and if any Government were to start to talk seriously about a “continuous build” approach to both its surface ships and its submarines (there is talk of this for the future submarine build) I for one would raise a cheer.

Meanwhile, I would have thought that an adequate maintenance and refit budget to keep Australia’s six submarines and 48 commissioned surface vessels in fighting trim would be more than adequate to maintain all the shipbuilding and maintenance skills we would need to support the RAN – especially as the Government’s antics in relation to the future submarine mean that it has inadvertently committed us to cutting up and refitting some number of Collins Class boats – a major shipbuilding task in itself, the end result of which will be a 1980s submarine for the 2020s-30s.

Whatever the case for the Air Warfare Destroyer, I think the certainty of being able to deploy two vessels in fighting trim, while a third undergoes maintenance or refit, would be preferable to having four in various states of disrepair. Given that the Navy could not muster a single seaworthy amphibious ship to assist in disaster relief during last year’s cyclone season, there is plenty of work to be done. What is required is the money and the political will to do it.

Renegotiating the Long Term Ammunition Agreement

There is an article, Thales contracts in Combet’s sights, by John Kerin in the 15 March 2010 edition of The Australian Financial Review, which can only be described as an ill-informed beatup.

After informing us that:

Defence Materiel Minister Greg Combet has ordered a review of all “poor value for money” long-term Defence contracts with industry as part of a $20 billion drive to cut wasteful spending.

Kerin goes on to tell us that:

Government sources have told The Australian Financial Review that the Defence Materiel Organisation has had the Thales arrangements in its sights since at least 2006, suggesting the contracts were drawn up in the “bad old days” when the plants were transferred from government to private ownership (ADI) and before regular performance-base contracting.

Having been directly involved as Secretary to the Department of Defence in the closing stages of the privatisation of Australian Defence Industries (ADI) I can attest that the form of the contract had nothing to do with the bad old days before Dr Gumley took up the reins at the Defence Materiel Organisation, and everything to do with the Howard Government’s objectives in privatising ADI, namely, to maximise the proceeds of the sale.

By way of background, Australian Defence Industries was the corporate vehicle into which the Hawke Government had gathered up all of the assorted manufacturing and service-providing activities that had been directly owned by the Department of Defence.  Until its privatisation it was a government corporation with its own CEO and Board, but a wholly owned entity of the Department of Defence. Its assets included the Captain Cook Graving Dock at Garden Island, the contract to build six modern minehunters, the ammunition factory at Benalla and the propellant plant at Mulwala, the so-called Long-Term Ammunition Agreement with Defence, and an assortment of smaller plants and businesses.

In one of the first conversations I had with then Defence Minister Ian McLachlan on taking up duty in February 1998, he told me that the Department of Finance (Office of Asset Sales) was complaining that Defence was dragging the chain on completing the provision of the due diligence data required for the privatisation. He told me that I was to have the process completed in four weeks. I told him that I would look into it and get back to him.

On looking into the matter I quickly ascertained that the jewel in ADI’s crown was the Long Term Ammunition Agreement, under which ADI had a contract to provide Defence with certain ammunition natures for a twenty-year period from the date that the munitions factory at Benalla commenced operations in 1995. It was that agreement that put the value into the factories at Mulwala and Benalla. I read the 250-odd pages of the agreement from cover to cover, and came upon the clause that said in effect that Defence could give its wholly owned entity one-month’s notice to terminate the Long Term Ammunition Agreement, would meet all the costs of winding up the relevant operations of ADI, but would not be liable for any other costs.

I went back to Mr McLachlan and said that without a renegotiation of the LTAA, to give the buyer contractual certainty, the Commonwealth would have virtually nothing to sell. Who would pay for a contract that had 17 years to run, but could be wound up without compensation at one month’s notice? He agreed, I said we would complete the matter without delay, and would have all outstanding matters dealt with in weeks, not months, and we did.

The point of this tale is to make the point that the Howard Government’s privatisation strategy for ADI was shaped by its desire to get as much money as it could for the business, as quickly as possible.  It was sold by public tender, and the Transfield-Thomson CSF Joint Venture (the original purchaser) paid a price that reflected what they perceived the LTAA was worth to them. For its part, the Commonwealth capitalised that expected profit stream. If the Commonwealth had placed more stringent performance conditions or less certainty on the contract, that would have been reflected in a reduced price. The Joint Venture got what it paid for, and the Commonwealth was paid the best price it could obtain for what it chose to sell.

Over ten years on, it is entirely appropriate that Defence consider what arrangements it wants to make for the acquisition of the hundreds of ammunition types that it purchases. Everyone has always known that the LTAA was a fixed term arrangement, and that there were no understandings, explicit or implicit, about what would happen after it expired. This is the ordinary course of business and is not a reflection on either Defence or Thales, the current owner of the ammunition facilities and the LTAA.

It is interesting that the only other one of the “older poor value long term contracts” that rates a specific mention relates to the Collins-class submarines:

Another long-term contract under renegotiation is Adelaide-based submarine builder ASC’s $3 billion, 15-year maintenance contract on the troubled Collins-class submarines.

There seems to be a bit of a pattern emerging from this and other reports by Kerin. It seems that nothing that happened in the defence acquisition world prior to the advent of Dr Gumley was quite up to scratch, and similarly, ASC’s performance since he ceased to be the CEO there has been distinctly below par. I wonder where Kerin gets those impressions from?

Defence: off-the-shelf is not just about jobs

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.

Defence Materials Technology Centre

The Defence Materials Technology Centre (DMTC) was established in June 2008 following the Commonwealth Government’s decision to establish technology development joint ventures, Defence Future Capability Technology Centres (DFCTCs), to combine expertise and resources from defence industries and research providers.

Launched in February 2009, DMTC is Australia’s first DFCTC and focuses on developing and delivering superior technologies to Australia’s defence industry.

Its purpose is to develop and deliver advanced materials technologies and manufacturing processes across four program areas – Aircraft Platforms, Maritime Platforms, Armour Applications and Propulsion Systems.

Projects within these programs will deliver new materials technologies that will increase strength, payload capacity and operating range while improving performance and durability in Australia’s defence industry. New manufacturing processes will increase efficiency in production, reduce costs and waste, customise equipment for specific Australian conditions and provide access to new markets.

The business structure of DMTC is modelled on the successful Cooperative Research Centre (CRC) program. Its core and supporting partners from defence industries, universities and research agencies are already experienced in providing a wide range of industrial and technological disciplines within the supply chain that supports Australia’s defence industry capability.

Partners provide DMTC with access to their skilled personnel, materials and manufacturing facilities and work with the company to ensure that all research is focused on delivering to the end-user – the Australian Defence Force.

DMTC operational funding is drawn from several sources with an initial underwriting in excess of $85 million in cash and in-kind contributions. The Commonwealth contributed $30 million with the State Governments of Victoria, Queensland and New South Wales putting in a combined $9 million. Collaborative partners are responsible for providing the remaining resources.

DMTC operates as a private company, and is funded for an initial seven-year term. Its Chief Executive Officer is Dr Mark Hodge, a professional engineer who prior to his recruitment in June 2008 had been for three years the CEO of Australian Aerospace and Defence Innovations (AADI).

Future submarine: domestic design study

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”.

Well done, those men.

Defence Appointment for Tony Quick

The Ministers for Innovation and Defence Materiel announced today that Mr Tony Quick has been appointed as director of the new Enterprise Connect Defence Industry Innovation Centre.

The Defence Industry Innovation Centre is a part of the Australian Government’s Enterprise Connect program and will offer a range of hands-on services to small to medium enterprises in the Defence industry sector. The Centre is a key element of the Rudd Government’s $61 million defence industry skilling package.

This is an excellent appointment. Tony Quick has an extensive background in the defence industry, most recently as Director and General Manager of GKN Aerospace Engineering Services, an Australian company heavily involved the Joint Strike Fighter project.