Defence Major capital equipment projects

Budget Review 2010-11 Index

Budget 2010–11: Defence

Major capital equipment projects

Nicole Brangwin

The current Budget estimates that costs associated with the Defence Capability Plan (DCP 09) will be $277.9 million for the 2010–11 financial year.[1] This is a significant decrease from the previous year’s estimate of $1433.7 million for the 2010–11 financial year.[2] The Opposition has argued that this signifies the deferral of around $1.2 billion in defence projects.[3] The Government countered that the decreased figure indicate ‘money was transferred to the Defence Materiel Organisation (DMO) for spending on approved projects’.[4] However, this transfer of funds is not obvious from the budget figures.

This year’s budget shows that there are 15 significant DCP 09 projects in development for second pass approval.[5] Three of these projects have been deferred from the previous year’s budget and carried over into this year’s budget:

• Seahawk Capability Assurance Program (Phase SCAP1 of AIR 9000)
• Joint Counter Improvised Explosive Device (Phase 1 of JP 154) and
• Military Satellite Capability—Wideband Terrestrial Terminals (Phase 3H of JP 2008).[6]

Absent from the list of projects in development for second pass approval is Project Land 121—Overlander (Phase 4), which has received first pass approval but is ‘seeking further guidance from Government prior to second pass approval.[7]  This poses the question of whether the Department is seeking financial guidance or a change of strategy.

The year in which second pass approval might be expected for these projects is imprecise as the indicative years for approval now span two financial years instead of one.[8] Brendan Nicholson of The Australian suggests:

... the government has given itself wriggle room by changing the timing of projects. Last year, equipment purchases were allocated to specific years for approval, but they are now placed in two-or-three-year brackets, making it harder for those scrutinising Defence spending to hold it to account.[9]

By extending the bracketed period for decision, there is the potential for reprogramming to be obscured, which may impact on defence industry planning.

Risk

As the Defence Industry & Aerospace Report (DIAR) points out:

... the seven largest projects within the ‘Top 30’ list are forecast to constitute 67.9% of the DMO's total forecast acquisition expenditure for 2010/11’ (as predicated on realisation of the forecast outcome for 2009/10)... The budget papers further note the high-level dependence upon a small number of projects raises a significant risk to the DMO in achieving its overall acquisition budget expenditure projections, should one of these projects experience a substantially technical difficulty or related schedule delay.[10]

One significant project that appears to be absent from the coming financial year’s estimates is SEA 1000–future submarine.

SEA 1000—future submarine

The Defence White Paper 2009 (DWP 09) specified that by 2030 the existing fleet of six Collins Class submarines will be replaced by a ‘more superior class’ of 12 submarines.[11] The estimated potential cost for this ambitious project was not disclosed in the DWP 09 or the 2009–10 Defence Budget.

When the Defence Capability Plan (DCP 09) was released in June 2009, estimated costs for project SEA 1000 were not specifically identified. The DCP 09 simply lists the Acquisition Category (ACAT) as ‘Level 1 very high’, which means the project is expected to exceed $1500 million.[12] 

The DCP states that project SEA 1000:

... seeks to acquire an increased and enhanced submarine capability that will provide the ADF with a potent submarine capability beyond the planned withdrawal date of the Collins Class submarines. Phase 1 will commence the design of the new capability.

SEA 1000 will provide Australia with a new and more potent defence capability with greater range, longer patrol endurance and increased capability compared to the Collins Class. Key capabilities will be in the areas of anti-submarine warfare; anti-surface warfare; strike; intelligence, surveillance and reconnaissance; electronic warfare; mine warfare; and support to both Special Forces and advance force operations.[13]

Construction of the future submarine fleet is expected to commence in 2016.[14]

Current funding allocation?

Project SEA 1000 commenced a phased acquisition process in August 2009 with the Government’s announcement that Requests for Tender would be sought by the Department of Defence for a domestic submarine design study.[15] In November 2009, it was announced that the (US) RAND Corporation had won the contract with the study report expected to be completed by February 2010.[16] To date, no further announcements have been made.

So far, $15.4 million has been allocated to project SEA 1000 for early studies and scoping activities. The project is not scheduled to receive second pass approval until 2016 and due to a number of design decisions still to be made, further costs are yet to be determined.[17]

While the Government remains hesitant at this stage to estimate an overall cost for SEA 1000, Sean Costello and Andrew Davies from the Australian Strategic Policy Institute (ASPI) forecast that costs could reach around $36 billion (in 2009 dollars) based on historical trends.[18] In a November 2009 speech, the Minister for Defence Materiel and Science, Greg Combet, acknowledged that commentators are suggesting the cost for funding the future submarine project might exceed $30 billion. While he would not confirm this figure, he stated that ‘these estimates give some idea of the potential scale of the project depending on what choices are made’.[19]

The Defence Portfolio Budget Statements 2010–11 did not indicate any specific funding for project SEA 1000 other than to note the project is in development and scheduled for first pass approval sometime between 2009–10 and 2010–11.[20] The Opposition and defence analysts cautioned the Government that if significant funds to the future submarine project were not committed in the 2010–11 Budget, the project would slip before it has begun.[21]

ASPI predicts that the acquisition strategy for SEA 1000 will take some time to develop due to the level of complexity involved in the project.[22] Additionally:

... in order to have a boat in the water for sea trials by 2022 and in service by 2025, Australia has barely seven years in which to determine the design and capability of the Collins Class replacement.[23]

In terms of funding, the Minister for Defence, John Faulkner, stated:

... [a]dditional funding will continue to be made available, step by step, as the Government is satisfied that the necessary preliminary work for each stage of this large and complex undertaking has been done.[24]

Given the necessary timeframe to significantly progress project SEA 1000, funding to properly maintain the existing fleet of Collins Class submarines is all the more crucial.

Submarine unit ready days

While $352 million has been allocated to the sustainment of the Collins Class submarine for the next financial year, the number of days the Collins Class submarine fleet is expected to be available for tasking has been rendered indistinguishable in the current budget.[25] The submarine ‘unit ready days’, details of which are traditionally listed separately from other naval platforms, have been placed in the same category as the Royal Australian Navy’s frigates and identified as ‘major combatants’.[26] This might be indicative of the number of submarines undergoing repairs, planned maintenance and system improvements. As Defence reported earlier this year in a response to a Question on Notice, only one submarine (HMAS Farncomb) was fully operational for the period 1 July to 30 September 2009.

[1].    Australian Government, Portfolio budget statements 2010–11: budget related paper no. 1.5A & 1.5C: Defence portfolio, Commonwealth of Australia, Canberra, 2010, p. 28, viewed 17 May 2010, http://www.defence.gov.au/budget/10-11/pbs/index.htm

[2].    Australian Government, Portfolio budget statements 2009–10: budget related paper no. 1.4A & 1.4C: Defence portfolio, Commonwealth of Australia, Canberra, 2009, p. 30, viewed 17 May 2010, http://www.defence.gov.au/budget/09-10/pbs/index.htm

[3].    J Kerin, ‘Faulkner under fire on projects’, Australian Financial Review, 13 May 2010, p. 24, viewed 14 May 2010, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22media%2Fpressclp%2FGWOW6%22

[4].    J Kerin, ‘Faulkner fires back’, Australian Financial Review, 14 May 2010, p. 21, viewed 14 May 2010, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22media%2Fpressclp%2FO8PW6%22

[5].    The term ‘second pass approval’ denotes that ‘the Government agrees to fund the acquisition of a specific capability system with a well-defined budget and schedule and to allocate future provision for through life support costs’—Department of Defence, Defence Capability Development Manual 2006, Commonwealth of Australia, Canberra, 2006, p. 30, viewed 17 May 2010, http://www.defence.gov.au/publications/dcdm.pdf

[6].    Portfolio budget statements 2010–11: Defence portfolio, op. cit., p. 76.

[7].    The term ‘first pass approval’ denotes that the ‘Government considers alternatives and approves a capability development option(s) to proceed to more detailed analysis and costing, with a view to subsequent approval of a specific capability’—Defence Capability Development Manual 2006, op. cit., pp. 29, 77.

[8].    Ibid., p. 76.

[9].    B Nicholson, ‘Afghanistan soldiers, veterans given priority’, The Australian, 12 May 2010, p. 9, viewed 17 May 2010, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22media%2Fpressclp%2F44OW6%22

[10]. T Thomas, ‘2010/11 Defence Budget Analysis’, DIAR.com e-Newsletter, Vol.12, No. 17, 12 May 2010; and Portfolio budget statements 2010–11: Defence portfolio, op. cit., p. 156.

[11]. Department of Defence, Defending Australia in the Asia Pacific century: Force 2030, Canberra, May 2009, p. 64, viewed 17 May 2010, http://dpl/Books/2009/defence_white_paper_2009.pdf

[12]. The phased expenditure bands used in previous DCPs were replaced in the 2009 DCP with Acquisition Category (ACAT) scores, which designate the project’s level of complexity. SEA 1000 is designated ACAT 1 which is described as ‘major capital equipment acquisitions that are normally the ADF’s most strategically significant. They are characterised by extensive project and schedule management complexity and very high level of technical difficulty, operating, support and commercial arrangements’. Cited in Defence Materiel Organisation (DMO) and the Capability Development Group, Defence Capability Plan (public version), DMO, Canberra, 2009, pp. 6–7, 172, viewed 17 May 2010, http://dpl/Books/2009/DeptDefence_DefenceCapabilityPlan2009.pdf

[13]. Ibid., p. 171.

[14]. Ibid.

[15]. J Faulkner (Minister for Defence), Future submarine project study, media release, 6 August 2009, viewed 17 May 2010, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22media%2Fpressrel%2FJJBU6%22

[16]. J Faulkner (Minister for Defence), Future submarine design capability study, media release, 3 November 2009, viewed 17 May 2010, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22media%2Fpressrel%2FK24V6%22

[17]. J Faulkner, ‘Answer to Questions on notice: Defence White Paper’, [Questioner: D Johnston], Senate Question 2557, 25 February 2010, pp. 1307–1308, viewed 17 May 2010, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22chamber%2Fhansards%2F2010-02-25%2F0251%22

[18]. S Costello and A Davies, How to buy a submarine: defining and building Australia’s future fleet, Australian Strategic Policy Institute, Canberra, October 2009, p. 2, viewed 17 May 2010, http://dpl/Ejournals/ASPI_StrategicInsights/No.%2048.pdf

[19]. G Combet, ‘From Collins to Force 2030: the challenge of the future submarine’, Speech to the Sydney Institute, Sydney, 4 November 2009, viewed 17 May 2010, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22media%2Fpressrel%2FQD4V6%22

[20]. Portfolio budget statements 2010–11: Defence portfolio, op. cit., p. 77.

[21]. M Dodd, ‘Time to bite the bullet on subs’, The Australian, 11 May 2010, p. 4, viewed 17 May 2010, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22media%2Fpressclp%2FCMNW6%22

[22]. S Costello and A Davies, op. cit., p. 10.

[23]. Ibid., p. 2.

[24]. I McPhedran, ‘Sub project funding sinks below surface’, Adelaide Advertiser, 13 May 2010, p. 11, viewed 17 May 2010, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22media%2Fpressclp%2FAZOW6%22

[25]. Portfolio budget statements 2010–11: Defence portfolio, op. cit., p. 180.

[26]. Ibid., p. 43.