Long term national strategic plan
If Australia is to have a vibrant, innovative and internationally
competitive defence industry, it must have a steady and reliable flow of work.
The committee made this point in its first report drawing not only on evidence
from its inquiry but on decades of experiences from both Australia and
overseas. It further emphasised this fact in the previous chapter. Despite
world-wide recognition, countries, including Australia, continue to struggle
with planning and implementing a continuous naval shipbuilding program that
would support their indigenous defence industry.
A national strategic naval shipbuilding plan is central to achieving
this goal of maintaining a continuous stream of work for Australian shipyards.
In this chapter, the committee endeavours to reconcile government statements
and planning documents with what is happening on the ground in Australian
So far the committee has produced evidence that is stark and
incontrovertible: Australia has suffered the consequences of feast and famine
cycles in naval shipbuilding, which means that industry struggles to survive
during the downturn and then has to rebuild capacity after a lull in
construction. The AWD is the most recent example that demonstrates clearly the need
for a strategic approach to Australia's shipbuilding industry. In this particular
instance, Australia, without proper planning, found itself in a situation where
Defence needed to acquire concurrently the LHDs and replace the AWDs.
Indeed, the shipyard at Williamstown was stretched, working on two major
projects at the same time—steel blocks for the AWDs and the superstructure and
integration of the LHDs.
There are numerous problems encountered when starting major shipbuilding
projects, such as the AWD, from a cold start. They include the costs of
finding, recruiting, training and retooling skilled workers, upgrading or
cranking up disused or under-utilised infrastructure, re-establishing the
critical supply network, and importantly, relearning lessons that normally
would be part of the domain knowledge of a shipyard.
This is not to ignore the adverse consequences and wastage of skilled
workers lost to the industry and idle infrastructure as demand tapers off after
a peak in production. The committee has highlighted the leakage of skilled
workers from the industry, the lost corporate knowledge and the detrimental
effects that filter through the economy.
The government and Defence have made commitments to supporting Australia's
naval shipbuilding industry in key strategic documents—Defence White Papers, the
Defence Capability Plan and Defence Industry Policy Statements. But, for many
years, defence industry has criticised these documents as an ineffective means
of providing assistance to the industry. In particular they provide no workable
or practical solutions and, in some cases, pay no heed to maintaining a
continuous flow of business.
Defence White Paper 2015
The Prime Minister and the Minister for Defence announced on 4 April
2014, that Defence would produce a new Defence White Paper to be released in
2015. Defence white papers are key strategic documents that present the
government's long-term strategic forecast and commitments for Defence including
its future capability. Such documents have a critical role in providing guidance
to government about Australia's long-term defence capability. They allow the government
and community 'to understand the opportunities and challenges for Australia's
future defence and security needs'. According to the Prime Minister, the 2015
Defence White Paper would be 'a whole-of-government product that reflects the
Government's overall strategic, fiscal and broader policy priorities'.
Following the release of the 2015 White Paper, Defence would publish a
10-year Defence Capability Plan and a Defence Industry Policy Statement.
Both documents should 'provide defence industry with greater certainty about
the Government's key priorities and timeframes'.
In conjunction with the White Paper, the government will also publish a
fully-costed 10-year Defence Investment Plan and an enterprise-level Naval
Shipbuilding Plan. According to the government, together these policies and
plans will ensure Australia has a sustainable and viable industry.
Defence Capability Plan
The DCP is a 'classified and costed 10-year detailed development plan
for Australia's military capabilities (including workforce requirements)'. Defence also publishes a public version of the
DCP designed to:
with a synopsis of the projects including: confirmed scope; background;
indicative schedule; Australian Industry opportunities; cost banding; and
points of contact. The format of this Public DCP also introduces stakeholders
to the concept of Program and Sub-Program management.
Government approval for entry of projects into the DCP provides
'the foundation for subsequent capability work in Defence'.
The DCP is one of the primary means whereby Defence has articulated
its future naval shipbuilding demand and acquisition schedules. The DCP should
provide industry with the assurances and guidance that allows businesses to
plan with confidence.
For decades, defence industry has been calling for a strategic long-term
naval shipbuilding plan on which industry could depend. For example in 2006, after
a comprehensive examination of Australia's naval shipbuilding industry,
including the cyclical flows in demand that characterise the industry, the
Senate Foreign Affairs, Defence and Trade References Committee (FADT) found
...as naval shipbuilding is a monopsony market, the
circumstances of industry players are substantially different to many other cyclical
industry sectors. It is concerned that if Australian companies cannot survive
and grow through peak and trough demand cycles, the capacity to meet defence's
capability needs into the future will be reduced.
The FADT committee also expressed concern that Defence did not fully
accept how powerfully its demand scheduling shaped Australia's naval
shipbuilding capacity and efficiency. It rejected the notion that measures could
not be taken 'to moderate demand peaks and troughs more effectively without
adversely affecting Defence capability'.
At that time experts and commentators on defence procurement and those
engaged in the defence industries were critical of the information made
available through the DCP. They wanted accurate and reliable information on
Defence's forward procurement plans: clearer guidance on the government's
long-term plan. Moreover, they were looking for detailed information on the
value placed on, and weight given to, Australian industry involvement; the
industrial capabilities deemed to be strategically important, and the levels of
funding likely to be available.
The concern with the quality and reliability of information available,
particularly through the DCP, was also evident in the 2012 FADT committee report
on Defence procurement for Defence capital projects. Again industry told the committee
that key planning documents for industry such as the Defence White Paper and
the DCP fell short in providing the level of certainty that industry required
'to be an effective partner in capability development'.
The evidence before this current inquiry reinforces those same messages of a
decade ago and repeated just three years ago.
Need for long term plan
Defence is the sole customer for Australia's naval shipbuilding industry
and because of its dominance in the market is able to create policy settings to
assist industry become more effective and competitive. As Austal observed:
Industry must, and can be competitive against international
benchmarks, provided the government puts the right policy levers in place.
Such measures include 'driving the most effective procurement plan to
support capability and industry'.
Dr Mark Hodge, DMTC, was firmly of the view that Australia can build naval
ships, but a framework or strategy has to be in place that ensures Australia
has the skills and capability transfer mechanisms that are 'independent, or at
least not specifically tied to, those feast and famine processes'.
He explained that if industry were not equipped with the skills and best
practice programs in terms of productivity and access to technology to enable
participation in the global supply chains when there is an upswing in
production then it would 'not be in the game'.
...while you might not know which designer is coming to build a
particular ship, you might not know which prime or you might not know much
about it, you do know it is going to be made of steel, you do know you are
going to need to weld it and you do know you are going to need to drill holes
in it. You know a lot about it. You know enough about it where there is an
opportunity for a very marginal cost to invest through appropriate models to
ensure that you are benchmarking your supply chain productivity and providing
the opportunity to insert technology in a way that gives that supply chain a
trajectory to tool itself up for when those opportunities come.
Mr Wardell argued that for this industry to survive, it needs to have
10-year, 20-year plans. In his assessment, the industry cannot survive on the
four-yearly cycle of one government to the next government. According to Mr
Wardell, there has to be bipartisan agreement which allows for long term
planning. He firmly believed that:
...if the government were to get its act together and put down
a plan, it could foster competition between the likes of BAE and other prime
contractors—Thales and SAAB or whatever—and if we could maintain continuity of
work and benefit from the learning curves and the lessons learnt, the
shipbuilding industry in Australia could be world class and very competitive.
It is not going to take a lot to do it, but it cannot be done in a start-stop
Along similar lines, Mr Saltzer, BAE, noted:
Ultimately, the government has to sit down and help us
understand what their long-term plan is and what is strategically important to
do in Australia, and the industry will rationalise around that. It does not
make sense for us to go up to 8,000 or 10,000 people for a couple of years and
then come down to zero to 500. It just does not make sense to do that. Get us
to the point where we need to be, and allow us to produce without all the peaks
and valleys, and the productivity, I guarantee you, will be there.
In his view, the tender process for the Supply ships was an act of
...the government here needs to focus and decide on its
priorities in terms of what is strategic for naval shipbuilding in Australia,
and then to work with the industry to create that rationalisation that will be
needed to support that level of capability. The fact is that we keep going back
and forth to the idea that 'we have not done anything, so let's not do it on
this ship,' and then the next ship comes along and you still say 'we have not
done anything, so let's do it on the next ship that comes along.' It is an
endless cycle with no result.
Professor John Norris also spoke of the need to provide industry with
certain guidance of future requirements to encourage investment in targeted
areas. To his mind, '"the certainty of ongoing orders" and investment
in new technology remains an obstacle to productivity'.
He explained further:
To facilitate this approach the Australian shipbuilding
industry needs adequate warning of the chosen design route so that it can
explore the most productive manufacturing options. If overseas 'best practice' in
shipbuilding is examined it is clear that significant productivity improvements
could be made by employing automation, new welding processes, improved design
tools and advanced metrology. These developments may need major investments to
be made by the industry and this is only possible if there is a clear
commitment to an ongoing Naval shipbuilding and sustainment program in
The Defence Teaming Centre added its voice to the call for a strategic
long-term naval ship building plan. Mr Burns stated:
These projects should be considered collectively in the
context of a whole-of-government national shipbuilding vision and plan that has
bipartisan support and is developed in collaboration with the crossbenches.
Developing such a plan would not be an onerous or time-consuming task. Much of
the data required already exists in the numerous studies and reviews of
shipbuilding that have been conducted.
Underlining the need for clarity and certainty from Defence, Mr Burns
reinforced the argument that industry can only make investments based on a
sound strategic Defence capability and acquisition plan. He told the committee
that, from an industry viewpoint, the DCP had not been reliable for a number of
years. Indeed, in his view, since 2009 industry had not been able to rely on
the DCP because it has 'not been delivered, budgeted or funded'. He stated that
industry still does not have a funded Defence capability plan at this time.
Put bluntly, if 'you do not know and you cannot rely on the plan, you cannot go
to the bank and make your plans'.
He repeated his concern:
Industry cannot invest based on the Defence capability plan
because it is not reliable and it is not funded and so a company cannot go to
its bank and say, 'I need money to sustain myself in order to secure that
Mr Burns, was one of a number of witnesses who mentioned that the US,
the UK and Canada have:
...developed 30-year national shipbuilding plans agreed by all
parties of government. They develop these plans with the realisation that, when
you take a truly long-term perspective and consider the whole-of-life cost
benefits to the nation, you appreciate the value for money and return on your
investment if you partner with and commit to work with your national industrial
Along similar lines, Mr Dunk referred to the Defence White Paper and the
Defence industry policy statement, which, in his view, had never made a
...between the strategic requirement to build ships and the
strategic requirement to maintain them and the crossover in skills necessary to
ensure that we can achieve the maintenance through shipbuilding. It may well be
that shipbuilding in itself is a strategic requirement, but it is not listed as
one as far as the government policy is concerned.
Defence industry's ability to plan for, and invest in, people and
facilities in order to partner with Defence to deliver future naval ships
depends significantly on the information Defence makes available. Clearly, from
industry's perspective, Defence's strategic planning documents do not instil
confidence and fall far short in providing the certainty industry requires to commit
resources to proposed future projects. Further, the strategic planning that
underpins these documents lacks foresight and commitment resulting in
volatility in demand and confusion about future intentions.
The urgent need to forestall a capability gap and undertake a limited
tender for the two replenishment ships is evidence of this lack of planning. It
should also be noted that the need to avoid a capability gap in the 2020s when
the Collins Class is scheduled for retirement from service has placed the delivery
of the future submarine under increasing pressure. In addition, the fact that the
start of the construction of the AWDs overlapped with work on the LHDs, which created
heavy demands on the Australian shipyards, also indicates a lack of foresight. Further,
now there is the prospect of a gap in production between the AWDs and the
future frigates, from which the industry is already suffering, as well as the
anticipated lull around 2035. 
Government's policies and plans
The government's decision regarding the limited tender for the
replacement replenishment ships was announced simultaneously with its decisions
to bring forward work to keep open the option of building the future frigates
in Australia; an open competition with Australian industry to construct the
replacement Pacific patrol boats; and the development of an enterprise-level
Naval Shipbuilding Plan as part of the White Paper 2015 process.
With regard to this plan, Defence informed the committee that the development
of the White Paper and the enterprise-level Naval Shipbuilding Plan would:
...address issues associated with the Australian shipbuilding
industry and develop a plan that aligns Defence capability requirements with industry
capacity. The goal will be to ensure that the recapitalisation of the Navy over
the coming decades can be undertaken in a way that ensures a cost-effective solution
for Defence and provides Navy the assured capability and structure to fight and
win at sea.
In its 2015–16, Defence Budget Statement, the government stated that it
would 'enhance its strong record of investment in Defence capability'. It noted
further, a complete program of capital investment in new capabilities,
including, as mentioned earlier, a detailed enterprise-level Naval Shipbuilding
Plan, would accompany the 2015 Defence White Paper.
This shipbuilding plan, together with policies, is meant to ensure that
Australia would have a sustainable and viable ship building industry. It is
provide for the long-term future of the Australian naval
shipbuilding industry; and
provide greater certainty to industry about key priorities and
But as noted earlier, companies such as BAE and the many SMEs that
support Australia's naval shipbuilding industry are already shedding jobs and,
further, have little confidence that the government has a plan to help revive
Without doubt, there is a pressing need for the government to formulate
a long-term strategic naval shipbuilding plan. This plan, however, must be
credible, reliable and, of paramount importance, address the immediate problems
confronting the industry. Defence industry wants a predictable and sustainable
basis on which to plan ahead.
Experts, analysts and commentators on naval shipbuilding as well as
those engaged in the industry were critical of the quality and reliability of information
made available through the DCP and other planning documents. Witnesses wanted a
greater level of detail on Defence's forward procurement plans, certainty in their
implementation and improved understanding of Defence's expectations of the
industry. They were asking for detailed information on the value placed on, and
the weight given to, Australian industry involvement, the industrial
capabilities deemed strategically important, and the levels of funding likely
to be available. Importantly, they wanted greater fidelity in project
timelines. But, above all, they want to be able to plan ahead, confident that
the proposed projects together with their projected costs and schedules were
true indications of the government's commitment to deliver those projects.
The committee underscores the importance of the government keeping the
Australian defence industry informed of its future naval requirements so it can
align its planning, investment and research and development to meet Defence's
long-term needs. Without doubt, there is a need for Defence to take a more
coherent and strategic approach to planning its major naval acquisition
programs and to consult with industry when planning. The committee strongly
supports the call for a long-term strategic plan, which should be developed
within the context of Australia's broad national strategic framework and take
account of how best to:
optimise the use of Australian SMEs and overseas subsidiaries
established in Australia;
build on existing infrastructure and encourage future investment
in people, facilities and research and development to ensure that Australian
shipyards and their complementary supply chains are prepared to participate in
and support Australia's naval shipbuilding industry;
provide the Australian defence industry with a clearer sense of
Defence's future plans, priorities and intentions, providing industry with the
confidence to invest in Australia's ship building industry for the long term
and to make informed and better targeted investment decisions;
smooth the 'peaks and troughs' that have characterised Australian
naval shipbuilding; and
maintain a constant base load of work that would sustain a viable
naval shipbuilding industry in Australia.
The proposed enterprise-level Naval Shipbuilding Plan should complement
the Defence Investment Plan and provide a certain and reliable indication of
Defence's future acquisition program, with sufficient information to enable the
Australian defence industry to deploy resources with confidence. Based on
previous reports and the evidence before this inquiry, the committee makes the
The committee recommends that the 2015 White Paper is prepared in
such a way that all procurement proposals are costed and scheduled
realistically, and informed by the need to have a continuous build program for
The committee understands that, following the release of its 2015
Defence White Paper, the government will also publish a Defence Investment Plan
and an enterprise-level Naval Shipbuilding Plan.
The committee recommends that both documents take note of the
evidence provided in this report about the importance of having a continuous
build program that will sustain a viable naval shipbuilding and repair
industry. Further that both documents, provide:
a schedule of anticipated timelines for the construction and
delivery of all DCP projects, with continuity of production the paramount
a discussion about the nation's future strategic capability
requirements that identifies the industrial capabilities deemed to be
strategically important and Defence's expectations for Australia's naval
an assessment of the nation's existing shipbuilding and repair
facilities, including the shipbuilding supply chain, and predicted investment
a comprehensive statement providing accurate and reliable
information on Defence's future plans for its naval acquisition program that
goes beyond ten year projections;
a detailed explanation on the acquisition schedule indicating
the reasoning behind it and the major factors influencing demand flows; and
reliable cost estimates.
recommends that both plans recognise that a 10-year span is insufficient and
should cover at least 20 years.
The committee recommends the establishment of an ongoing
shipbuilding industry advocate to work with the Australian Government and the
shipbuilding industry, including supply chain and SMEs. The shipbuilding
industry advocate should advise Defence and industry during the development of
the Defence Investment Plan and Naval Shipbuilding Plan.
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