The decision announced last week on the OPV build, while welcome, surprised many watching the national shipbuilding effort unfold. Our straight report on the announcements and comments from some of the lead players can be found here along with Patrick Durrant’s analysis here.
At first glance, it looks like Defence did not like what it got back from the tender process in terms of teaming arrangements. It decided it wanted Luerssen as the designer but wasn’t happy with the shipbuilder arrangements tendered.
“What happens when you get all your tenders in and they don’t meet the outcome you’re seeking?” Kim Gillis, Deputy Secretary at CASG reflected. “We’re trying to build a truly sovereign national shipbuilding capability. We’re going to do stuff that is hard in an unforgiving timeline. Competition after competition in shipbuilding is not going to deliver what the RAN, Government and taxpayer need.”
When examining the tenders, the CASG team demanded much of the tenderers in terms of pricing models and build strategies. ADM understands the build split between SA and WA, as mandated by Government, was priced separately to give an insight into the true costs of the program from a dollar perspective. This would then let the Commonwealth team inform Government on the consequences of their decision from a strategic perspective.
Gillis confirmed to ADM that the key participants in the process were contacted before the current strategy was pursued.
“Austal now has an entry card to the negotiation table,” Gillis said explaining that the contract negotiation process is still very competitive at the moment.
The current timeline is aiming for signature in January with steel to be cut in SA before the end of 2018 (effectively to work as a bridge between the end of the Air Warfare Destroyer program and the commencement of the Future Frigate program under Sea 5000) with steel in WA to be cut in 2020.
As to the exact split of work between Austal and Forgacs, a Civmec company in the West, that is still on the table, according to Gillis. Given the respective skills of the companies, there are logical splits but the finer detail will be negotiated by Luerssen as the prime contractor over the coming weeks. Austal has been building ships for some time and Civmec has bought a NSW based shipbuilding brand and has excellent fabrication capabilities.
“All parties (ASC, Austal and Forgacs) have the chance to win significant work, with the Commonwealth having full visibility into the cost models in play,” Gillis said. “There is a real opportunity here for Austal and Forgacs to grow an amazing capability in the West, ASC will continue to grow an amazing submarine capability in SA, as will Naval Group, and an Adelaide based future frigate shipbuilder will also have an amazing opportunity for growth.”
ADM Comment: I must admit when I saw the announcement on OPVs I had reservations; the Government is picking winners, I thought. They decided to pick and choose from industry rather than letting industry choose its natural balance point, using free market forces. The hand of the free market was being firmly replaced by the hand of government.
And while this did not initially sit well, the implications and consequences of such a move have begun to make sense. Defence industry, both locally and globally, is not a level playing field; it never has been and never will be. The issue of sovereignty is too prominent along with the monopsony nature of the customer base.
I have made the case before that it does not matter what colour shirt the Australian shipbuilding workforce wears; but it does matter they they’re wearing something. Arguments from Austal and ASC in the vein that the shipbuilder has to be owned and operated by an Australian company do not ring true to my mind. The argument is particularly strange coming from Austal, with its US based business made up of predominantly US personnel as dictated by that monopsony buyer: the US Government, which has an incredibly tight hold on the company and technology thanks to ITARs and relevant corporate legislation.
Both Austal and ASC leaders are international citizens themselves, arguing for protection from the Australian Government for their respective businesses, which they have every right to do. But that doesn’t mean it’s in the national interest.
The approach of getting a handful of chips and watching the seagulls fighting over the spoils and with one another is over I hope. The program view rather than the project view for shipbuilding going forward means the projects like Sea 1000, Sea 5000, OPVs, Pacific Patrol Boats and other minor war vessels cannot be examined in isolation.
While Government may not have replaced the invisible hand of the market here they are clearly attempting to guide it, and with good reason. I can only hope they have accounted for the consequences of their decisions and manage them accordingly.