On 25 June 2014, the Senate referred the matter of the future of
Australia's naval shipbuilding industry to the Senate Economics References
Committee for inquiry and report by 1 July 2015. The term of reference for the
inquiry is straightforward yet comprehensive in its coverage—the future
sustainability of Australia's strategically vital naval ship building industry.
Conduct of inquiry
The committee advertised its inquiry on its website and in the Australian seeking views directly from a range of people interested in the future of
Australia's naval shipbuilding and repair industry. In addition, the committee
wrote to, and invited submissions from shipbuilders, suppliers, unions,
and individuals engaged in the shipbuilding industry such as engineers and
architects as well as academics and economists. The committee also invited
state governments and relevant Commonwealth government departments to lodge
Submissions and hearings
To date, the committee has received 26 submissions as well as additional
information, listed at Appendix 1. The committee also received over 250 brief
messages supporting strongly Australia's naval shipbuilding industry and urging
the government to ensure that the future submarines would be built in Australia.
The committee has held five public hearings so far in 2014:
21 July in Canberra, which concentrated solely on the tender for
the Navy's two new supply ships;
30 September in Canberra, which focused on the acquisition of the
8 October in Newcastle;
13 October in Melbourne; and
14 October in Adelaide.
A list of witnesses is at Appendix 2. References to the
committee Hansard are to the proof Hansard and page numbers may vary between
the proof and the final Hansard transcripts.
The committee also undertook site visits to shipbuilding and Defence
facilities. In Melbourne, the committee visited the BAE Systems Williamstown
dockyard and, accompanied by Captain Craig Bourke and Mr Bill Saltzer, toured
BAE facilities including the plate shop, panel line and profile cutter, a
blast and paint, the dry dock and slipway. The committee also inspected the
Landing Helicopter Dock (LHD) ships at Nelson Pier.
In Adelaide, committee members visited the Air Warfare Destroyer (AWD)
Systems Centre, where they were briefed by Mr Warren King, CEO, Defence
Materiel Organisation (DMO), Mr Peter Croser, AWD Program Manager and Commodore
Steve Tiffen, General Manager Stakeholder Engagement. Committee members met Mr
Roger Duffield, AWD Platform System Coordinating DAR and toured ASC's AWD
shipyard to see construction progress of AWD Ship 01 and Ship 02.
Committee members then visited ASC North, where Commodore John Chandler
provided an introductory briefing. Members toured the shipyard to view
maintenance reforms and work being carried out on the submarines. They
a Collins class submarine. To conclude the visit, ASC CEO Stuart Whiley
an ASC presentation and was available to answer questions.
Part I—tender process for Navy's
new supply ships
As part of this broad inquiry into Australia's naval shipbuilding
the committee resolved to inquire into the tender process for the Royal
Australian Navy's (RAN) new supply ships as its first order of business. The
committee's decision was prompted by the government's announcement on 6 June
2014 that it had given approval for Defence to conduct a limited competitive
tender between Navantia of Spain and Daewoo Shipbuilding and Marine Engineering
of South Korea for the construction of two replacement Auxiliary Oiler
Replenishment (AOR) ships. The Minister for Defence claimed that the
decision to exclude Australian companies from the tender and involve only two
overseas companies was due to: the urgent need to replace the vessels and avoid
a capability gap; the current low productivity of shipbuilders involved with
the AWD project; and value for money considerations.
During this inquiry into the acquisition of the AORs, the committee
considered the need and importance of the supply ships to the Australian Navy,
the capacity of Australian industry to build the ships and the contribution
that such construction could make to sustaining Australia's naval shipbuilding
industry. Evidence taken on the tender process for the new supply ships
highlighted a number of concerns. They related to the lack of contestability
and competition in the limited tender, the lack of industry engagement in the
process undertaken so far and
the absence of long-term strategic planning that led to the decision.
In particular, the committee found that Defence had not consulted with
industry or encouraged open discussion about possible Australian engagement
with the project. Indeed, it appeared as though local shipyards were shut out
of all consideration. In this regard, the committee formed the view that
Defence should have consulted with local shipyards and allowed them to present
their case when it came to building the supply ships in Australia. The committee
was not convinced that
a limited tender involving only two companies was the best way to obtain the
necessary information to proceed to second pass.
The committee also believed that the way in which the decision for a
limited tender was taken and announced was a significant blow to Australian
industry. The absence of consultation was at odds with Defence's stated
industry policy objectives, which seek to promote competitive, collaborative
and innovative industry.
Overall, the committee concluded that decisions, such as the acquisition
the supply ships, were extremely important for both Defence capability and for
the sustainability of defence industry in Australia. They involve huge amounts
of taxpayers' money and have long-term implications for Navy's future procurement
strategies and, importantly, its capability. In the committee's view, such
decisions should be well considered, based on sound research and analysis, and
informed through close consultation with industry. The committee recommended
that the tender process for the two supply ships be opened up to allow all
companies, including Australian companies, to compete in the tender and to make
clear in the tender documents that a high value would be placed on Australian
content in the project.
The committee tabled Part I of its report on 27 August 2014. The
report is available on the committee's website.
Part II—acquisition of future
Shortly after presenting Part I of its report on the tender for the
Navy's new supply ships, the committee's focus was drawn to developments regarding
the future submarine project. The statement by the Foreign Minister that
discussions with Japan had included the possibility of purchasing 'entire
submarines' fuelled public speculation that the government planned to break its
commitment to build 12 submarines in Adelaide. The major concern centred
on the possibility that
the government was about to make pre-emptive decisions that would effectively
shut down potential and viable avenues for acquiring the submarines and again
a limited tender. Questions were also raised about the effects that such a
decision would have on the future of Australia's shipbuilding industry and the
overall success of the future submarine project. Rather than subside, talk of a
possible agreement with Japan to acquire submarines for the Australian Navy
In light of these developments, the committee resolved on 25 September
2014 to hold a public hearing on 30 September to further investigate the
various statements and assumptions being made about the future submarine
project. As noted earlier,
the committee also held public hearings in Newcastle on 8 October; in Melbourne
on 13 October; and in Adelaide the following day, where the committee took
on the future submarine project.
Given the importance of the decisions that are to be taken on the future
submarines and the thrust of the evidence gathered so far, the committee
resolved on 28 October to report its findings to the Senate. The committee took
this step because
it feared that critically important decisions were about to be made without
adequate public consultation and moreover without a fair, proper and
transparent competitive tender process.
The committee is firmly of the view that the future submarine project is
of immense national importance and every decision relating to the project
should be based on the best advice available. Having access to such advice
requires that ideas and proposals are thoroughly contested and assessed
objectively. Open and informed debate would confer much needed transparency on
government decisions; it would allow genuine scrutiny of government decisions,
provoke robust debate and engender public, industry and multi-partisan
political support for the proposed acquisition.
The decision to acquire the future submarines is a decision in the national
interest and should be owned by Australians.
This report is intended to start this process of much needed
transparency and informed debate and the committee encourages all those
interested in the purchase of the future submarines to assess critically the
evidence taken by the committee and
to agitate for a more open and inclusive process.
The committee thanks all those who assisted with the inquiry, especially
those who made written submissions and appeared before the committee at such
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