When the Australian National Audit Office (ANAO) delivered a scathing report into the government’s $89 billion Naval Shipbuilding Plan, warning of high levels of risk, cost blowouts and schedule delays, it was met with a typically arrogant and inadequate response from Christopher Pyne.
“Key risks relate to the delivery of expected capability, program cost, ability to meet program schedules, and management of the industrial base. The Naval Shipbuilding Plan did not address the management of these risks in any detail,” the report said.
“Schedule compression presents such extreme risk that cost and schedule over-run is likely and proceeding on the current schedule has the potential for severe reputational damage to Defence and the government.”
Successful implementation of the overall Naval Shipbuilding Plan will “depend on actively managing the high to extreme levels of risk”, the ANAO found, adding that Australia’s experience in this area, alluding to the Air Warfare Destroyer Project, suggested delivering these projects on time and on budget was “very high expectations”.
The ANAO recommended “That Defence, in line with a 2015 undertaking to the government, determine the affordability of its 2017 Naval Shipbuilding Plan and related programs and advise the government of the additional funding required to deliver these programs, or the Australian Defence Force capability trade-offs that may need to be considered.”
But the recommendation has been rejected by Defence and Defence Materiel Minister Pyne.
“Building an Australian shipbuilding and submarine industry is a huge undertaking, it’s a nation building project so of course it contains risk,” Minister Pyne said. “The alternative would be to send the $200 billion of taxpayers’ money we are spending on the largest build-up of our military capability in our peacetime history overseas, creating jobs and advanced manufacturing opportunities in other countries.”
“We make no apologies for deciding to invest in Australian-built ships, creating Australian jobs and using Australian steel rather than buying foreign ships off the shelf and using Australian tax dollars to strengthen the defence industries and increase employment and wealth overseas.”
This from the government who decided a fibre NBN was too expensive.
This from the government who refused to, in line with all other manufacturing nations, subsidise the car industry.
Holden received $1.8 billion in Commonwealth Government Assistance between 2001 and 2012. During that time, they generated $32.7 billion in economic activity for Australia and paid $21 billion to other Australian businesses such as component suppliers.
That is a very big return on a relatively small investment.
Unlike the ship-building program.
Starting with the small fry, the cost of establishing a Naval Shipbuilding College to provide training to future shipbuilding workers has already blown out from $25 million to $62 million before they have even begun and ongoing operational costs for the College have not been considered or included in any costings.
The Offshore Patrol Vessels (OVPs) build was brought forward to avoid a so-called “valley of death” in naval construction after the Hobart Class Destroyer project ended. But the report said there was no cost-benefit analysis done on whether accelerating the patrol vessel build was the best way to maintain a domestic workforce and that the accelerated construction of the OPVs and frigates added $5 billion-$6 billion to their cost.
For the OPV acquisition, “reliable sustainment cost estimates were not provided to the Government at second gate approval, and commercial arrangements between the selected ship builder and Australian shipbuilding firms had not been settled when the tender outcome was announced.”
The report also warns that “A key potential risk relates to any decision to integrate the Aegis Ballistic Missile Defense capability into the selected frigate, which would require significant development work and be a departure from the Government’s guiding principle of minimising unique Australian design changes.”
When the contract to design our future submarines was awarded to a French company, Malcolm Turnbull stressed the 12 submarines would be built in Adelaide and the project would create 2,800 Australian jobs.
Defence SA figures released in 2016 estimated that “In 2026-27, the workforce is forecast to peak at 5805.”
Then CEO of DCNS, Sean Costello – who has since quit – said “over 90 per cent” of the build would occur in Australia but, at Senate estimates in June last year, DCNS would not commit to that target, telling the Senate committee it was too early to say whether it could be met.
The company’s interim chief executive, Brent Clark, told the committee DCNS had “no formal agreement” with ASC and that the company intends to “absorb” ASC workers.
A report by DCNS executive Marie-Pierre de Baillencourt posted on the company’s subscriber-only website in 2017 noted the project would see DCNS Australia “create 2000 jobs”.
“DCNS Australia today has around 30 personnel…this will ramp up to 300 to 500 in 2019-20 and 2000 direct employees from 2021, the scheduled start date for production of the first submarine in Adelaide,” the stakeholder update read, according to a translation.
It’s a far cry from the glossy brochure DCNS put out as part of its bid for the Future Submarines design contract, which broke down “the roadmap to 2900 jobs”, of which the French company would occupy just 100 and ASC would account for 1700.
Despite such assurances and Christopher Pyne’s declaration last October that “the valley of death is over and we are now seeing an upturn in employment”, a few weeks ago the ABC reported that “Government-owned shipbuilder ASC is poised to shed up to 223 jobs from its Adelaide shipyard by June.”
In 2015, the government asked the US-based military research thinktank Rand Corporation to review Australia’s shipbuilding capabilities and the costs and benefits of government investment in the industry. It found that production in Australia “involves a 30% to 40% price premium over the cost of comparable production at shipyards overseas.”
Furthermore, a report prepared by the Australian Strategic Policy Institute (ASPI) warned that rapid advancements in underwater military technology could make the RANs future submarine fleet obsolete much sooner than Australia’s defence ministry is anticipating.
In 2013-14, 7,950 people were working in shipbuilding and submarine and ship repair. The demise of car manufacturing cost about 50,000 jobs.
We abandoned an established industry that used Australian resources, employed many Australians, and brought significant economic return, for an industry that might employ a few thousand, at huge expense, making military hardware designed by foreign companies that will probably only ever be used for war games.
If the shipbuilding is anything like the Rheinmetal contract to build the LAND 400 vehicles, there are no guarantees about benefits to Australia.
The $5 billion contract was supposed to create 350 new long-term jobs in Ipswich with the government claiming that “Overall, the contract could support more than 1000 new jobs” in the area.
That’s only $5 million per job – except we don’t have the expertise to build them so “the first vehicles will be built overseas to train staff in construction before the operation moves to Australia” – or maybe if it moves to Australia?
And they claim to be better economic managers.