The committee dealt exclusively with the tender process for the future
submarines in its second report, which was tabled in November 2014. In this
report, the committee expressed grave concerns about the direction being taken
to acquire the submarines and urged the government not to enter into a contract
for the future submarine project without conducting a competitive tender,
including a funded project definition study.
Also, as noted in its second report, the committee was concerned about
Australian industry being ignored, even quarantined, from the process so far.
Although the government is yet to respond to the committee's
recommendations in its second report, there have been a number of recent significant
announcements indicating that the government is continuing down a path that
would prevent rather than promote openness and competition in tendering. In
this chapter, the committee looks carefully at these statements and their
implications for the future submarines and more broadly the naval shipbuilding
industry as a whole.
Defence White Paper—2009
In the 2009 Defence White Paper, the government indicated its intention
to replace and expand the current fleet of six Collins class submarines with a
more capable class of submarine. This project to acquire the submarines would
be a multi-billion dollar undertaking requiring very long lead-times for
project development, acquisition and entry into service.
Schedule and design capability
The White Paper indicated that this major design and
construction program for the future submarines would span three decades, and be
'Australia's largest ever single defence project'. Given the long lead times
and technical challenges involved, the White Paper argued that the complex task
of capability definition, design and construction must be undertaken without
According to the White Paper, the government had decided that the boats were to
be assembled in South Australia and would be conventionally-powered.
To ensure the project's success, the government stated that it would
need to engage with a number of overseas partners during the design and
In particular, the government noted its intention 'to continue the very close
level of Australia–US collaboration in undersea warfare capability', which, in
its view, would be crucial in the development and through life management of
the future submarine.
Defence Capability Plan
Details of the capability Defence was seeking to acquire from the
acquisition of the 12 submarines specified in the White Paper were then
translated into a more concrete proposal in the Defence Capability Plan (DCP)
2012. The future submarine project entered the DCP as SEA 1000. The DCP
confirmed the government's intention that the future submarines would be
assembled in South Australia.
The DCP anticipated that a staged acquisition process would be undertaken
to acquire this capability and the government would on multiple occasions
consider the project as information was gathered that facilitated government
Phases 1 and 2 of SEA 1000 would entail the design, build and delivery
of 12 conventionally-powered submarines as well as infrastructure and
integrated logistic support requirements. At the time of its publication, the
DCP indicated that all options from military-off-the-shelf to a new design were
being examined. Indeed, during the early stages of the program the following 4
options were being explored:
Option 1—a military-off-the-shelf (MOTS) submarine modified to
conform to Australian legislative requirements;
Option 2—a MOTS submarine with a combat system of Australia's
choosing that would be aligned pretty much to the combat system methodology
used for the Collins class today;
Option 3—an evolved Collins; and
Option 4—broadly termed a new design.
The 2013 Defence White Paper reaffirmed the government's intention to
have 12 future submarines assembled in South Australia and again ruled out of consideration
a nuclear-powered submarine capability to replace the Collins Class fleet. It
did note, however, that the project would now focus on options 3 and 4 with
further investigations into options 1 and 2 suspended. It also recognised that
the future submarine program represented 'a true nation building endeavour'
which presented both challenges and significant opportunities for Defence and
Australian industry. It argued that to complete the program successfully, the
government would need to support the Australian naval shipbuilding industry to
develop and maintain a workforce 'skilled in a wide range of specialist
Election and new government
In the lead-up to the 2013 general election, the then Shadow Minister
for Defence visited ASC and said that the Coalition was committed to building
12 new submarines in Adelaide.
The Coalition's Defence Policy made clear that, within 18 months of
winning the election, it would make the decisions necessary to ensure that
Australia would not experience a submarine capability gap. It also gave
assurances that the work on the replacement of the current submarine fleet
would centre around the South Australian shipyards. The Coalition
won the election.
New or evolved design
In April 2014, the newly appointed Minister for Defence, the Hon Senator
David Johnston, reminded a conference on submarines that before the last
election, he gave his support to Defence's charted course for the Future
Submarine program—the suspension of investigations into options 1 and 2 and
more detailed investigation of options 3 and 4. The May 2014
Portfolio Budget Statement confirmed that work would proceed on options 3 and
But by mid-year, the certainty evident in the 2009 and 2013 white papers
and the 2013 election campaign pronouncements about an Australian build began
to dissipate. In July 2014, at an industry and defence conference, the minister
acknowledged that there was significant debate around the future submarine and
whether it should be built in Australia. He suggested that this debate must
consider the cost, risk and schedule as well as the benefits of the different
Speculation about Japanese submarine
On 26 August 2014, a delegation of Japanese defence science technicians
visited ASC, Osborne in South Australia. Mr Stuart Whiley, Interim CEO,
ASC, informed the committee that DMO wanted to demonstrate to the Japanese the
capability Australia had in-country in terms of the ASC facility and workforce.
This visit by 18 Japanese dignitaries cast doubt over the government's
stated intention to build the submarines in Adelaide. Media reports suggested
that the visit had heightened fears that the Australian Government was
contemplating building the future submarines overseas. For example, the South
Australian Defence Industries Minister, the Hon Martin Hamilton-Smith, wanted
to know whether the visit 'signalled a back down from the Coalition's election
promise to build the submarines in Adelaide' and was urgently seeking an
explanation from the Australian Government.
In response to a question without notice seeking clarification on the
government's intention with regard to the possibility of buying Japanese
submarines, the Minister for Defence, told the Senate on 27 August 2014 that
'We are not ruling in or out anything here'. According to the minister there
were only three places that Australia could approach for the design of a new
submarine—France; Germany; and Japan. Speculation continued to
mount, however, about the possible decision to purchase the future submarines
from Japan without an open competitive tender process.
Committee's findings in second report—open tender
In its second report, the committee detailed at length the history of
the future submarine project starting with its debut in the 2009 Defence White
Paper, its entry into the DCP as SEA 1000 and confirmed in the 2013 White Paper.
Having considered the activities of the government, the committee was concerned
that the government was not only backing away from its commitment to build the
submarines in Adelaide but that there would be no open, competitive tender. In
the following section, the committee looks at developments in the tendering
process for the future submarines since it tabled its report on this matter in
As noted in the previous chapter, the government disagreed outright with
the committee's recommendation that the government require an open tender process
for any future naval acquisitions. The government stated that it supported open
tendering whenever it was assessed as 'the best procurement method available to
attain the core principle of achieving value for money for the Australian
In its second report, the committee drew attention to the emphatic and
overwhelming support for a competitive process to select Australia's future submarine.
Witness after witness agreed that decisive action must be taken to start the
tender for the future submarines but insisted there was time for a truly
competitive process where all proposals from tenderers could be tested and
their claims validated.
Witnesses mounted numerous and compelling reasons for holding a
competitive tender for the future submarines. But importantly, in their
collective view, a competitive process was the only way that the government
could ensure that Australia secured a conventionally-powered submarine that would
meet the nation's unique requirements at a reasonable price for Australian
Witnesses outlined a process and timeline for a competitive tender to
the future submarines that would be effective and:
challenge assumptions, interrogate assertions, question and
compare proposals and finally allow specialist engineers and technicians to
test and evaluate
the tenderers' claims to ensure that the capability proposed was deliverable;
place tenderers under competitive pressure so that they develop
an optimal solution for Australia;
stress test the costings associated with the proposals, compare
to ensure value for money and pro-actively manage the risks associated with the
ensure that the integration of other desired systems (particularly
the combat system) was compatible with the proposed designs; and
provide the means to give priority to an Australian build for the
submarine and to maximise Australian content in the construction and
through-life support of the boats.
Evidence, both before tabling its first report and since, recognised that
Australia requires international partners to assist in the design to build a
world-class submarine. Further, a competitive tender was the only way to ensure
that Australia had access to the very best technology and was assisted by
capable and reliable partners who shared Australia's commitment and ambitions. Based
on this evidence, the committee remains firm in its view that anything short of
this process would be folly and place the future submarine at unnecessary risk.
Although the government is yet to respond formally to the committee's
findings in its second report, the government did refer to this project in its
response to the committee's report on the new replenishment ships. In the case
of the future submarine program, the government argued that an open tender process
which involved approaching all submarine producers was 'clearly not an option'.
A formal request for tender to design and build the future
submarine would be a lengthy process. It would involve extensive work to fully
define submarine specifications against which competitors would then have to
develop detailed designs that could be evaluated for performance and then
priced with any degree of reliability.
More recently, Mr David Gould, General Manager Submarines, DMO,
indicated that he was not aware of any nation that 'goes to an open tender for
a submarine'. He maintained that normally:
...even for a submarine that is a very close derivative of an
existing design, you would expect a country to go through a very rigorous
shortlisting process before they actually put it out to tender. Normally, after
having made a selection of a designer, there is still an ongoing process of
completing, perfecting and changing the design before a final contract is let.
I am not saying it has never happened. It was tried, so far as I understand, in
the early stages of the Collins program and failed.
Moreover, according to the government, this open tender process would
take 'at least five years before reaching the point of selecting the international
design partner'. In contrast, the government referred to its proposed
competitive evaluation process that would be expected to run for at least 10 months
after which the international partner would be selected.
The committee has no understanding of how the government arrived at this
unsubstantiated figure of 'at least five years' to complete an open tender for
the future submarines, which contradicts the evidence presented in the
committee's second report indicating there was time for a robust competitive
Thus, while the committee acknowledged that decisive action must be
taken to get the process moving, it agreed with the contention that there was
time for a competitive process where all proposals could be tested and claims
validated. Indeed, Dr John White underscored the value of an open competitive
process. He informed the committee:
The discipline of a well-structured competitive tendering
process for major Defence assets has a solid track record for achieving the
best value for money outcomes in recent naval projects such as the ANZAC
Frigate and Minehunter projects.
Indeed the principle of open tendering has its roots in
Australian Competition and Defence policy.
In his view, a viable acquisition strategy over a tightly controlled
timeframe was possible and supported his proposition by setting out a detailed
schedule for such a competitive process.
Commitment to build 12 submarines
It should be noted that toward the end of February 2015, the Prime
Minster raised doubts about acquiring the promised 12 submarines when he
Now, sustainment alone on the basis of an eight submarine as
opposed to a 12 submarine fleet will produce an ongoing 500 additional jobs.
So, one way or another, there is going to be more submarine jobs here in South
Many in the industry were concerned that the government was backing away
from its commitment to build 12 submarines.
For example, the Hon Mr Hamilton-Smith, South Australian Minister for Defence Industries,
referred to the Prime Minister raising 'the probability of building 8
submarines not 12, while making no commitment to an Australian build'.
Importantly, a number of specialists argued that 12 submarines would be prudent
in order to provide 'at least one additional, operational submarine for other,
concurrent tasks such as Task Group support at closer ranges or for ASW
[anti-submarine warfare] force training'. In this regard, Rear Admiral Peter Briggs
(Rtd) and Commodore Terence Roach (Rtd) maintained that allowing for the rule
of three, Australia would require a total force of at least 12 submarines. The
rule of three is based on the operational cycle requirement of three
submarines—one will be in maintenance/refit, one will be training/preparing for
a deployment and one will be available for deployment or deployed. They stated:
Twelve submarines is the minimum force size to enable
Australia to sustain one deployed at long range in a demanding but practical
cycle, provide one operational submarine available for other tasking and have
some capacity for ASW training or other contingencies.
The Submarine Institute of Australia (SIA) also indicated that at least
12 submarines were required.
Importantly, in its second report, the committee detailed the integral
role of the submarine fleet to Australia's national security. For example, the
SIA stated that submarines were the only means available to allow the Australian
Government to exert consistent influence along the full length of Australia's
sea lines of communication.
Clearly, according to Rear Admiral Briggs, there are 'sound strategic,
personnel and industrial reasons why we should build at least 12 and move to a
Since the Prime Minister made his statement on 20 February 2015
suggesting the possibility of acquiring eight submarines, there has been no
firm recommitment to build 12 submarines.
In the following section, the committee considers the government's proposed
competitive evaluation process.
In early 2015, the government announced the acquisition strategy for the
future submarine program. As noted earlier, this program is the largest Defence
procurement program in Australia's history and represents an investment in the
order of $50 billion in Australia's security.
On 8 February 2015, the Prime Minister stated that the government had
always intended to have 'a competitive evaluation process' for the acquisition
of the future submarines.
The following day, he noted that Australia wanted the best possible deal for the
nation and the competitive evaluation process was 'exactly what you'd expect
from a Government'.
The next day, on 10 February 2015, the Minister for Defence explained:
Notwithstanding much recent commentary, there are more
effective and efficient ways to run a competitive evaluation process for
complex capabilities such as submarines than just open tender.
This reference to a competitive evaluation process generated much
confusion about what such a process would entail. Observers were seeking a
working definition that would clarify the meaning of this phrase.
On 11 February 2015, the Prime Minister offered the following explanation:
There is quite a difference between an open tender and a
competitive evaluation process. They're both competitive processes but an open
tender is there for anyone and the last thing we would want to see is a Russian
company, for argument's sake, bidding to produce an Australian submarine. It is
standard defence procurement procedure for very sophisticated items of
equipment to have a competitive evaluation process between selected tenderers
but certainly we would encourage the Australian Submarine Corporation to be
part of this competitive evaluation process.
Within the fortnight, the Minister for Defence announced further details
of the competitive evaluation process to be undertaken by Defence. The process was
intended to provide 'a pathway for Australian industry to maximise its
involvement in the program, whilst not compromising capability, cost, program schedule
As part of the competitive evaluation process, Defence would seek proposals
from potential partners for:
pre-concept designs based on meeting Australian capability
options for design and build overseas, in Australia, and/or a
rough order of magnitude (ROM) costs and schedule for each
positions on key commercial issues, for example intellectual
property rights and the ability to use and disclose technical data.
On Defence's advice, the government also endorsed a set of key strategic
requirements for the future submarines:
range and endurance similar to the Collins Class submarine;
sensor performance and stealth characteristics that are superior
to the Collins Class submarine; and
the combat system and heavyweight torpedo developed jointly between
the United States and Australia as the preferred combat system and main
At that time, and based on work completed by Defence, three countries
emerged as potential international partners—France, Germany, and Japan. According
to Defence, the three countries had 'proven submarine design and build
capabilities' and were currently producing submarines. They were to be invited
to participate in the competitive evaluation process that would 'assess their
ability to partner with Australia' to develop a future submarine that meets Australia's
Also, according to the government, Defence would soon be holding
industry briefings to inform Australian industry about the process and how they
could engage with potential international partners. In addition, an expert
advisory panel would also be appointed to oversee the competitive evaluation
According to the announcement, the government expected that significant
work would be undertaken in Australia during the build phase of the future
submarine including combat system integration, design assurance and land based
testing. This would result in the creation at least 500 new high-skill jobs in
Australia, the majority of which would be based in South Australia. Defence would
invite potential international partners to seek opportunities for Australian
industry participation in the future submarine program. 
Soon after the announcement, Mr Whiley told the committee that ASC was
open to working with any potential submarine designer and builder and further
that ASC had had informal conversations with three companies—Swedish SAAB, and
the French and German companies about the future submarines. He explained,
however, that ASC did not have a grasp of what the companies were proposing. He
informed the committee that ASC had not had that level of detailed
conversations because it was waiting on advice from government to understand
what the requirements were so that it could make 'appropriate choices at that
time based on the requirements' and how they should be met.
He explained that once ASC had that understanding it could engage with some of
the other parties but at the moment everything was 'speculative'.
The committee took further evidence two months after the government
announced that it would conduct a competitive evaluation. Confusion about what
this process entailed, however, was still apparent. Mr Glenn Thompson,
Australian Manufacturing Workers' Union (AMWU), told the committee that the
first thing that should happen is for the government to clarify the process
around the future submarine program. He stated:
We are still effectively in limbo, and thousands of jobs in
Adelaide are still hanging in the balance around the government not having made
a commitment on an Australian build of future submarines. The government needs
to make clear that the build will occur in Australia and that the process
underway is a genuine one that does not favour one of the three options over
In June 2015, Senator the Hon Mathias Cormann, Minister for Finance, described
the process as 'a proper competitive evaluation process', which involved
assessing the relative merits, strengths and weaknesses of each potential
A probity framework applies to the competitive evaluation process and
the personnel involved in the process will be subject to that framework
including matters such as conflicts of interest and confidentiality. As an
example of how Defence would manage a conflict of interest, Mr Harry Dunstall, Acting
CEO, DMO, explained:
...we would normally point to provisions in our conditions of
tender along the lines that bids must not be prepared with the assistance of
individuals who have previously or in recent times worked with the
Commonwealth. We would then write to the tenderer and suggest to them, 'You
have to meet that requirement, that condition of tender. We will be expecting
you to provide evidence as to how you do that. We would be interested to
understand how you can do that given that you are now proposing to employ the
According to Mr Dunstall, the department has post-separation employment
policies that it would 'expect people to comply with when they are taking up
employment following their departure from the organisation'.
The Australian Government Solicitor has been appointed the probity adviser.
An expert advisory panel has been appointed to oversee the process including
to ensure its probity and the maintenance of confidentiality in relation to all
sensitive information received during the process, and to manage any conflicts
The role of the panel of experts is to provide assurance to the government on
the soundness of the competitive evaluation process: that the conduct of the
process is 'defensible from a probity and accountability perspective'. The
panel is also to provide assurance that the participants are treated 'fairly and
equitably in accordance with Commonwealth legislative and policy requirements'.
The Minister for Defence explained that the panel's oversight was to
provide the government and the public with confidence that the process would
robustly address all relevant factors. It would allow the government 'to
balance important considerations, for acquisition and through life support,
including capability, cost, schedule, and risk'.
On 5 June 2015, the minister announced that the following members had
been appointed to the advisory panel:
Professor Donald Winter, a former Secretary of the United States
The Honourable Julie Anne Dodds Streeton, a former Justice of the
Federal Court of Australia;
Mr Ron Finlay, one of Australia's leading infrastructure specialists
with very extensive legal experience; and
Mr Jim McDowell, a member of the First Principles Review team
with very extensive Defence experience.
The minister appointed the members of the panel from candidates proposed
by the Department of Defence.
Collectively, the members brought with them experience in complex military
acquisition programs, legal and probity matters, and major projects.
Defence informed the Senate that the common evaluation framework to
assess the participants' proposals under the competitive evaluation process
included the following criteria:
Platform system criteria—used to evaluate the pre-concept designs
and determine their ability to meet key capability requirements.
Combat system criteria—used to assess the ability of participants
to integrate the combat system and heavyweight torpedo jointly developed by
Australia and the United States into the future submarine.
Cost and schedule criteria—used to assess affordability and the
acceptability and appropriateness of proposed timeframes for delivery of the
Project management criteria—used to assess plans by which the
program will be executed. Design and safety management criteria have been
developed to determine how the proposed design process would accommodate
technology insertions and meet Australian legislative safety requirements.
Australia's sovereign ability to sustain the future submarine—assessed
through sustainment criteria and the proposed level of Australian industry
involvement would also be evaluated.
Build strategy criteria—used to assess the method of build and
associated facilities requirements while crewing and training criteria would
consider the ability to implement Australia's preferred crewing concept,
habitability and training requirements.
The adequacy of the intellectual property arrangements, technology
access, commercial arrangements and ability to achieve Australia's sovereign
support requirements would be assessed under commercial and government
criteria. The participants' appreciation of program risks and their management would
also be assessed.
The Minister for Defence indicated that weightings would not be applied to any
of the selection criteria.
The committee is unsure of the extent to which through-life support,
maintenance and upgrades are to be evaluated in this competitive evaluation
process, particularly in light of the strategic importance of self-reliance in
keeping these vessels operational and at the cutting edge of technology. Indeed,
as highlighted in its first report, the costs and effectiveness of keeping the
future submarines operational and enhancing their capability as technology
advances should be central to any consideration. Given the experiences of the
Collins Class submarines, the committee is of the view that this evaluation
should require the contenders to detail what their design would be to meet the
top level requirements and essential specifications and standards needed to
maintain and operate the submarines in Australia.
Also, given that weightings would not be applied, the committee is
similarly, unsure about the priority to be afforded to maximising Australian
content. Indeed, the committee suggests that this competitive evaluation should
be premised on an Australian build. In other words, the request for proposal
should be seeking details on the proposed preliminary design for the future
submarines that would show how the tenderer would meet Australian requirements
and provide an indicative price for an Australian build. This requirement would
not preclude the tenderer from submitting an indicative price for an overseas
or hybrid build. But, consistent with the committee's recommendation, the
preferred choice should be a local build.
Purpose of the competitive
Essentially, the purpose of the evaluation is to choose a design for the
future submarines and a build partner for Australia. To date, Defence have
preselected three entities backed by their governments and who, according to Mr
Gould, are well qualified by their pedigree to go through the complete design
and build process. Defence have provided the three contenders with a very specific
set of documentation. He explained that Defence have:
...asked them a series of very specific questions based on the
performance requirements that we have, questions about our industrial approach,
questions about their commercial approach, and the degree of industrial
involvement they would see happening in Australia to bring out, first of all, what
is the quality of their understanding of the relationship between the technical
and performance requirements of the design and how much adaptation of designs
they would start with and have to do. What we expect to do, having selected
somebody, is to go into the detailed design in concert with them.
The three contenders must now undertake pre-concept designs that meet these
'very specific mission and performance requirements'. Mr Gould noted that:
These are not final designs; they are pre-concept designs. It
requires them to produce options for builds that have previously been discussed
in different ways. It requires them to release rough order of magnitude costs
and particularly the basis on which those rough order of magnitude costs have
been assembled and their positions on the key commercial issues. There is a
very specific set of contract deliverables in there. The companies are on
contract to do that. The way in which they have to engage in the process has
been set out in terms of workshops, meetings, progressive evaluation and the
way in which the answers to the contract deliverables are actually produced and
given to the project team. So it is not vague; it is very, very specific.
Although the tenders would contain time lines and dollar figures, they would
'not be fixed for the full program'—they would provide a 'rough order of
magnitude' for the schedule and the cost. As Mr Gould indicated, the design
would not be sufficiently mature to fix the cost and timescale:
To try and fix either of those things at that point would be
basically asking the companies to mislead us. The design will not be
sufficiently mature in any of those circumstances for them to do that. What the
cabinet will get is an analysis of the merit of partnering in the long-term with
one of the three contenders.
Mr Gould expanded further:
None of the contenders have suggested to me that they would
be in a position at that point to have developed a design to the point of
maturity where they could commit to a complete production of the contract. They
understand very well that the normal process in their own countries of going
through this sort of program is to produce a concept design to the point where
they have an outline solution to the technical tenders in the program, and then
to work very closely with their client to take that design through and make the
appropriate trade-offs of cost, capability and time to produce a program of
which there can be good assurance about the outcome.
...What we need to do here is to make sure that we can engage,
unencumbered by competition, with the lead design partner to make sure that we
produce an outcome which is understood by the Commonwealth, which produces the
right trade-offs of cost and capability for the Commonwealth, and which we can
be assured will produce an outcome in a timescale that we understand and at a
cost that we understand.
For the committee, the numerous references to the maturity of the design
raises some alarm bells. One of the most telling lessons from previous major
builds, from evidence before this committee and the most recent RAND report is
the emphasis on ensuring that the design is sufficiently mature before
committing to the design and builder. This matter is discussed later in this
Schedule for competitive evaluation
The government anticipated that the competitive evaluation process would
take approximately ten months, that is, have the bids by the three potential
partners finalised by the end of 2015. Following this process, the National
Security Committee, which would typically involve the Prime Minister, the
Treasurer, the Minister for Defence, the Minister for Finance and the Minister
for Industry, would take account of 'all sorts of factors' and arrive at a
decision. At the end of the process, the government would judge the best way to
proceed. Senator Cormann stressed:
But fundamentally and ultimately what will drive our decision
is obtaining for Australia the best possible submarines for the best possible
defence and national security outcome at the best possible price and subject to
these objectives to maximise Australian industry involvement.
Engagement with prospective
In the meantime, ASC was engaging with all the potential international
partners— Germany, France and Japan—to assess who might be able to help Australia
achieve the best possible value.
This engagement was consistent with ASC position as 'a very significant
stakeholder' and government business enterprise that would be involved in some way
in the procurement and maintenance of the next generation of submarines. According
to the Minister for Finance, ASC's participation was to ensure that it and
prospective partners could understand each other's capabilities, requirements
and opportunities to partner'.
Indeed, representatives from France, Germany and Japan have visited ASC over
In April 2015, Mr Andy Keough, General Manager, Business and Strategic
Development, ASC, informed the committee that while the competitive evaluation
process was specifically between the government and the three invited to
participate, ASC was working with those parties.
He explained that a German delegation had visited the ASC and the engagement
was not just with TKMS. He noted that the meetings involved a broader range of
representatives from German industry, science and technology. He indicated that
ASC would also meet and talk with the French company and some of their
delegates, as well as attend a conference in Japan and in due course meet the
Subsequently, Mr Whiley informed the committee that a Japanese delegation
had visited ASC on 26 May 2015 and were to visit Henderson the following day, 'generally
to see our capability and understand what we may have to offer in terms of
their proposal'. The Japanese delegation comprised different agencies—the Japanese
Ministry of Defense, representatives from Mitsubishi Heavy Industries, and representatives
from Kawasaki Heavy Industries. Mr Whiley thought there were in the order of
about 19 participants in the forum.
According to Mr Keough, the overseas delegations that had visited the
shipyard had given 'very favourable' feedback' both directly to ASC and to
other parties. Mr Keough informed the committee that:
Certainly, as to the facilities we have put down there and
the capital investment we have made, some of those parties have been very
impressed to see that capital investment and to see how we have been able to
use that for greater outcomes and productivity.
Mr Keough stressed, however, that ASC was proceeding 'politely and
carefully'. He explained:
...before we start into this, there is an enormous amount of
work that needs to be done from a legal probity perspective that we are working
on at the moment to make sure that we respect the process, understand the
process and follow the process.
Mr Whiley explained that for the competitive evaluation process, ASC had
been instructed to make sure that it was open and fair across all the three
ASC had a small team that was working on the process with the CEO, the
chairman, the board and all the executives 'very closely attuned' to what was
going on in the competitive evaluation process.
The Minister for Defence was also actively engaged in consultation with
the three countries. For example, during the third week in April 2015, the minister
met his French and German counterparts and industry leaders to discuss their
involvement in the competitive evaluation process, emphasising the need to
maximise Australian industry participation.
On 23 April 2015, he attended a bilateral meeting with Minister for Defence, Dr
Ursula von der Leyen and later toured ThyssenKrupp Marine Systems shipyards.
The following day, he spoke with his French counterpart, Minister for Defence
Jean-Yves Le Drian and toured the Direction des Constructions Navales Services
Adequacy of tender process
The committee notes that at the end of this competitive evaluation
process, an international partner will be selected based on the criteria
described above. The committee is concerned, however, that to select just one contender
at this early juncture may be premature and that the government should consider
proceeding with two tenderers who would then further refine their proposals and
develop their design to a more mature stage. To support the committee's
findings, it refers to the recent RAND study which recommended, inter alia:
selecting a mature design at the start of the build and limiting
the amount of changes once production begins;
the necessity of ensuring a well-integrated designer, builder and
supplier team; and
ensuring there is visionary leadership provided by company
Also, in its second report, the committee detailed some of the potential
complications in selecting a Japanese designer. The committee takes this
opportunity to reiterate some of these concerns, which include language
barriers, the lack of experience in, and Japanese political sensitives around,
exporting military technology and differences in industrial culture and
organisational processes. The recent experience with Navantia that produced
their drawings in Spanish is a timely reminder of the pitfalls in knowledge
transfer. In contrast to the Japanese, Germans are very experienced as are the
French to some degree in exporting Defence technology.
Furthermore, the committee notes the importance of the Australian
Government moving away from government-to-government discussions with Japan to
an Australian government-to-commercial-entity discussions with Kawasaki and
Mitsubishi and whether it is to be one company or a joint enterprise.
The short-listing to two contenders after the initial 10-month
evaluation process would allow them time, during the next stage, to develop and
offer full design definition and fixed price contracts for an Australian build
with overseas options as a comparator. Thus, importantly, Defence would require
a price for defined, through-life support. Indeed, the tenderers would need to
demonstrate that the submarines would be totally supportable within Australia
without reliance on overseas supply chains. The committee believes that this
approach is important because it would make the designer and the builder think
exactly about what it takes to maintain, service and provide the spares to the
submarines for a defined period—10 or 15 years.
It may also be worthwhile for the government to consider establishing a
Naval/Submarine Construction Authority as a 'non corporate
Commonwealth entity with appropriate industry and Defence expertise and
authoritative leadership to deliver the future submarine'.
Finally, the focus of this inquiry, in particular, has been on the
tender process for the new supply ships and the future submarines. It has
highlighted the importance of having a robust, open and competitive tender
process to ensure that Australia selects the best design and build partner to
acquire the future submarines. There have been a number of previous reports
that have delved deeper into Defence tender and contracting processes for major
acquisitions that went to critically important matters such as the need for the
early engagement of industry and timely test and evaluation processes. The 2012
FADT References Committee report on procurement procedures for Defence capital
projects gave special attention to the future submarine and the committee notes
in particular recommendation 16.
Despite the announcement that Defence would conduct a competitive
evaluation process, the committee remains deeply concerned that this process
falls short of a truly rigorous procurement process for the largest and most
complex defence program in Australia's history.
Evidence given during Budget Estimates in June confirmed that the
competitive evaluation process was not designed to deliver three competitive
contract options; would not produce accurate costs and build schedules; nor would
the resulting designs be of a 'mature' nature.
Evidence was also presented during Budget Estimates that Japan's
involvement in the process to acquire the future submarines is based on
political imperatives rather than merit. This is concerning given that the government
has restricted the potential involvement of Australian industry, and other
international bidders, on the basis that the competitive evaluation process was
a merit-based process. Evidence clearly indicates that this is simply not the
While the committee agrees that timeliness is an important
consideration, it remains strongly of the view that the government's decision
not to undertake a competitive tender is poorly-considered and highly risky.
Noting the strategic importance of the future submarines, the complexity of the
undertaking and the costs involved, the committee believes that further caution
in conducting the tender is warranted.
The committee is concerned by recent reports that the government is
considering the acquisition of eight submarines instead of 12. The 2009 and
2013 Defence White Papers outlined the strategic rationale for the quantum of
vessels. Navy confirmed recently at Budget Estimates that the threats
underpinning this strategic assessment had not diminished.
In a speech to the Australian Submarine Institute in March this year,
the Minister for Defence said that '[b]y 2030, half of the world's submarines
will be in Australia's broader strategic region'. Evidence given to this
inquiry by submarine experts also reaffirmed the need for 12 submarines to
provide an effective submarine force. The committee is particularly concerned
that a potential reduction in the number of submarines to be acquired from 12
to eight does not reflect the strategic realities that the Defence Minister has
recently acknowledged, nor would it result in an effective force to meet both
current and future challenges.
It is also the view of the committee that eight submarines will not
provide the certainty industry requires to ensure that the economic value of
this project is optimised.
Based on evidence given by expert submariners and industry, the
committee is of the view that an acquisition process that is competitive,
allows for maximum participation from prominent submarine builders and is
complete by the end of 2016 would ensure that the first of 12 future submarine
would be in the water by the middle of the next decade.
Noting this, the committee makes the following recommendations:
The committee recommends that the government adopt the following
procurement process to acquire 12 future submarines:
a twelve to eighteen month procurement process, involving a
Request for Proposal, followed by a Request for Tender;
invite the most prominent and relevant submarine designers to
participate in the process, encompassing Germany, France, Japan and Sweden;
conduct a Funded Project Definition Study; and
down-select two submarine builders to provide full design
definition and fixed priced contract bids.
The committee also reaffirms recommendation three from its report
on the future submarines that:
Given the weight of evidence about strategic, military, national
security and economic benefits, the committee recommends that the Australian Government
require tenderers for the future submarine project to build, maintain and
sustain Australia's future submarines in Australia.
Also, given the national significance and complexity of the
project to acquire the future submarine, the committee recommends that the
government establish a Naval/Submarine Construction Authority as a 'non
corporate Commonwealth entity with appropriate industry and defence expertise
and authoritative leadership to deliver the future submarine'.
The committee further recommends that Defence heed and apply the
lessons learnt from the AWD regarding the transfer of knowledge and those of
the Collins Class submarine about the consequences of being a parent navy to
the future submarines.
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