Sea 4000 - when the ship comes in

We're weeks away, at most, from a decision which will set the course of Australia's naval construction industry for the next generation or more.
Less than a month from now we should know where the Navy's three new Air Warfare Destroyers will be built and which company will build them. Whoever wins the contract also wins a substantial proportion of the $6 billion the destroyers are expected to cost.

We'll also learn the answer to an intriguing riddle: Australia has only two dockyards capable of building these formidable, 7,000-ton warships - so why is the Department of Defence evaluating bids from three contenders?

The identity of two of those contenders is no surprise: ASC Shipbuilding has one of the most modern shipyards in the southern hemisphere, at Osborne, where its parent company built the six Collins-class submarines. Tenix Defence built 10 Anzac frigates for the Australian and New Zealand Navies at its Williamstown yard in Melbourne. Tenix is believed also to have offered the option of building the destroyers at Osborne, alongside ASC's yard.

American prime contractor Northrop Grumman Ship Systems took everybody by surprise when it too lodged a tender just before the closing date on 23 December.

Defence has emphasised it wants to avoid "megaphone marketing" by companies lobbying the government through the media, so has instructed all of the bidders not to discuss their proposals nor the project itself. Therefore details of Northrop Grumman's proposal, its intentions and its Australian partners remain a mystery.

Defence has four issues to resolve: who will build the destroyers; where they will be built; which of three competing designs will be built; and which local company will work with Lockheed Martin to develop the destroyers' combat system?

Defence was scheduled to pass its recommendation to the Federal Cabinet and the Secretaries Committee on National Security (SCONS) by the end of March; the recommendation is expected to go before SCONS and then the Cabinet this month. The winning bidder could be named by the end of this month, though an early May announcement now seems more likely. The shipbuilder will then advise Defence on which destroyer design it should select. The Minister for Defence, Senator Robert Hill, is expected to announce the winning design around mid-year.

Navy is looking at a ship of around 7,000 tonnes (nearly twice the displacement of an Anzac frigate) and will choose from three competing designs: a derivative of the Spanish Navy's F-100 Aegis-equipped frigate; a derivative of the German Navy's F-124 frigate, which isn't equipped with Aegis but whose designer, Blohm + Voss also designed our Anzac; and a stripped down version of the US Navy's own DDG-51 Aegis destroyer design.

At over 9,000 tonnes and with a crew of almost 380 the DDG-51 is too big and expensive for Australia, but a "lite" version designed by American naval architect Gibbs & Cox for a much smaller crew would be a very strong contender.

The two European designs have crews of 250 but at less than 6,000 tonnes they need stretching to carry the number of missile launchers the Navy wants.

Is shrinking a big ship riskier than stretching a small one? We'll know what Defence thinks by mid-year.

Regardless of who wins, the destroyers will be assembled from modules fabricated all over this country and in New Zealand, and then fitted out with their combat systems. And Hill, Treasurer Peter Costello and Prime Minister John Howard have reiterated that the destroyers will be built in Australia by an Australian owned company.

If ASC Shipbuilding wins, this will happen at Osborne. If Tenix wins, Defence must also choose one of the options Tenix is believed to have offered - Williamstown or Osborne? If Northrop Grumman wins...well, who knows?

The destroyers will be equipped with Lockheed Martin's Aegis air warfare system, which the Commonwealth will buy direct from the US Navy under US Foreign Military Sales (FMS) arrangement. But Australian companies, including BAE Systems Australia, Raytheon Australia and Saab Systems, have also tendered for the contract to pull together the destroyers' secondary radars, electronics, communications systems and sonars. The winning bidder, also to be named in April, will work with Lockheed Martin to integrate these and the Aegis equipment into a single seamless combat system.

The combat system is the high-risk part of the destroyer project. Defence and the Navy have learned their lesson from the Collins combat system debacle. The original system which gave the Collins class submarines such a bad name was unique to Australia and designed by a company, Rockwell, that had never built a submarine combat system before.

By contrast, the Aegis air warfare system is a mature, battle-tested product which will be in service with the US Navy for another 35-40 years so Australia will have access to American support, software upgrades and know-how.

However, while Aegis is a proven, relatively low-risk product with a well-charted growth path, it will start to become a legacy system in US terms about 10 years after entering RAN service when the US Navy's planned fleets of DD(X) and CG(X) surface combatants start to mature in service. The RAN cannot afford to wait until these ships and their combat systems are mature products; it needed the Aegis capability five years ago.

But with four other navies - Japan, South Korea, Norway and Spain - adopting Aegis air warfare systems for their surface navies, Australia will be part of a diverse and technically sophisticated user group which holds out the promise of in-service support through the AWDs' life of type.

Assembling the ships will be a massive job. Defence wants to select the shipbuilder before it chooses the ship, so the tendering process amounts to a beauty contest based on proven skills and experience and an accurate estimate of labour and infrastructure investment costs.

How do the contenders' credentials stack up?

Tenix did an outstanding job on the Anzac frigate project. It delivered ten ships on time and on budget and, thanks to Saab Systems, with fully operating combat systems. The company also got over 1,000 sub-contractors and suppliers working efficiently together and pioneered in Australia the philosophy of modular warship construction. Tenix has a highly skilled workforce with very strong design, engineering and project management skills. Notwithstanding that the Anzacs are relatively simple, low-technology warships compared with the AWDs, Tenix's credentials are rock-solid.

The Australian Submarine Corporation's reputation is coloured by the Collins-class submarines. As an Australian Admiral pointed out five years ago, most of the things that worked properly on the submarines were the bits that Australian companies produced; the bits that went wrong (like combat systems and faulty welds) were mainly the fault of foreign companies.

The Collins-class boats are recognised as probably the best non-nuclear submarines in the world today. They were far more complex and demanding than the Anzac frigates - almost on a par with the AWDs - and designing and building them was a massive engineering achievement. ASC also has a highly skilled workforce accustomed to working at aerospace industry levels of quality and reliability, with strong design, engineering and project management skills.

Line ball: each company brings different but complementary strengths to this project, but they both lack experience with the Aegis air warfare system. They need the expertise of American firms like Northrop Grumman to install it and integrate it with the rest of the ship.

ASC Shipbuilding has already teamed up with Northrop Grumman's American rival, General Dynamics Bath Iron Works. Its sister company, GD Electric Boat, is ASC's "capability partner" - in effect, a technical mentor - in supporting the RAN's submarines.

What about the shipyards? Williamstown is perceived as a prime piece of waterfront real estate, subject to increasing urban encroachment, with little room for expansion and which may be worth more as a real estate development site than as a shipyard.

However, it can be modernised, has an experienced workforce, a short passage to the open sea, and is closer than Adelaide to the uncluttered sea areas needed for sea trials and things like maritime firing ranges.

Osborne, by contrast, is on an awkward river estuary that needs regular dredging and requires a longer passage to the open sea for trials work. However, it also has a highly trained workforce and plenty of room for expansion: the foreshore has room for a second ship lift as well as a lengthy wharf, while there's plenty of room adjacent to the ASC yard for subcontractors and suppliers to set up shop.

The Victorian and South Australian governments have mounted vigorous campaigns to support their local champions and press the advantages of building the AWDs in their respective states.

Shortly after ADM closed for press the SA government was planning to launch its Defence Industry Sector Plan, a series of enabling policy and infrastructure investment moves designed to address the four key enablers of local industry capability: skills training, infrastructure, innovation and collaboration. While elements of the plan formed the basis for SA's support to the ASC bid for the AWDs, the State government is looking beyond the AWD contract at other opportunities coming down the track.

The Victorian government commissioned a report by Allen Consulting which analysed the Tenix Williamstown bid on the basis of capability and competitiveness; availability of a labour force with the necessary skills and experience; availability of a network of capable suppliers; capital expenditure required to secure an appropriate site; ability to build complex naval platforms; and ability to integrate naval systems.

The report states that the investment required to establish facilities needed to build the AWDs at Osborne is estimated to be at least double that required to upgrade Williamstown. And it concludes that Williamtown is a superior location for building the AWDs.

However, ASC's trump card may be last year's 25-year, $3.5 billion contract to support and maintain the submarines that it built. The skills and infrastructure at Osborne are strategically important: awarding the destroyer contractor to a company that will build the ships at Osborne would provide economies of scale and an injection of new skills and technology which will underpin this vital piece of defence infrastructure.

The final assembly and fit-out contract for the AWDs carries huge risks. Neither Tenix nor ASC have any experience of installing the Aegis equipment inside a warship, integrating it and making it all work properly. They need the expertise and experience of the American shipyards.

If ASC Shipbuilding wins the contract, Bath Iron Works will provide that expertise. If it doesn't win, Bath Iron Works may be free to offer its skills elsewhere, in direct competition with Northrop Grumman. It's not clear whether Defence would have to choose between them, or let Tenix make the decision - that is, if Tenix doesn't already have other arrangements.

One conspiracy theory suggests that Northrop Grumman might be awarded the contract on condition that it uses ASC Shipbuilding as its principal sub-contractor. That would pave the way for ASC to be sold off by the government to a consortium led by Northrop Grumman but dominated by an Australian company such as Tenix, but leaves Bath Iron Works on the outer.

On the other hand, the Federal Government would achieve much the same result by simply awarding the contract to ASC in the first place then putting it up for sale.

As always in major Australian shipbuilding programs, politics will play a significant and often unpredictable role in determining the final outcome. With the future shape of Australia's naval construction sector resting on the outcome there's everything to play for.

By Gregor Ferguson