Katherine Ziesing | Canberra
In September last year, then Defence Minister David Johnston commissioned the RAND Corporation to look into the Australian shipbuilding industry asking them to look at three key questions:
1. Provide an understanding of the current shipbuilding capability and gauge how alternative acquisition strategies might affect both the capability of the industrial vase and the total cost of the enterprise
2. Compare the cost of Australia’s naval shipbuilding industry with overseas manufacturers that produce platforms of a comparable size and scope.
3. Assess the economic costs and benefits of government investment in Australia’s naval shipbuilding industrial base under the various enterprise options.
The government has released this report today in the lead up to the White Paper.
In reading the report it was easy to spot that submarines had been completely left out of the equations presented.
This was a deliberate decision from government, according to RAND.
The report concludes that the government pays anywhere between a 20 and 45 per cent premium for ships built in Australia compared to comparable overseas programs, depending on the ship type.
“However, that premium could drop to approximately half that level over time with a steady production program that leads to a productive workforce,” the report reads.
“The economic benefits of a domestic shipbuilding industry are unclear and large dependent on broader economic conditions in Australia.
However, a domestic shipbuilding industry will add more than 2,000 jobs to the local economies.”
The report does not take into account wider multiplier effects such as taxation gains, SME supply chain issues or other intangibles such as sovereignty.
“We believe that the shipbuilding premium could be cut in half if the following changes are made:
- Engage in a continuous build strategy
- Improve acquisition practices to have more mature designs at the start of construction and to minimise change during construction
- Encourage industry itself to shift to a continuous improvement program”
A recommended drumbeat build program of between 1.5-2 ships (one ship delivered every 1.5 to 2 years) seems to be the optimum solution for industry and navy, the report concludes.
While the report acknowledges that moving up a patrol boat program (either Pacific patrol boats or OPVs) to start production before 2020 would be ideal it is unlikely to happen.
Rationalisation will occur in the industry in the short term as the nation can only really sustain one major shipyard.
But again, submarines have been left out of the equation, as has sustainment it seems.
ADM comment:
The report provides a lot of comparison in the US context with a few more examples on the costing front, but overall it is incredibly US centric in its views.
“We are not decision makers,” lead RAND author John Birkler told media.
“The report is to inform government on their options.”
That may be so but I would hate to think that this report is the major determining factor on the future of the Australian shipbuilding industry, without or without submarines and sustainment being considered.
Defence Minister Kevin Andrews foreshadowed a continuous build program strategy at ASPI’s recent future surface fleet event and that does seem more likely in the wake of this report.
The report provides some credible numbers on which to base the plan.
“A sustained build program would help to develop and retain skilled workers and thus improve productivity,” the report states.
“But the needed improvements go beyond the just more proficient workers; many acquisition practices also have to improve.
One necessary change is a much more rigorous approach to program execution to avoid the issues seen on AWD.
These changes include better integration between designers, builders and suppliers; a mature design at the start of the build; and control of the requirements and design changes once the build begins.”
There do seem to be a lot of ‘well, duh’ moments in the report but it is still good to see the nuts and bolts laid out for government.
The One Defence approach outlined in the First Principles Review is well supported by this document, despite the RAND report having some glaring holes.
What shape will this leave the Australian shipbuilding industry in?
Probably better than where it started but it’s coming off a low base.