Defence Business: DMO looks at ammunition manufacturing | ADM Feb 2011
Gregor Ferguson | Brisbane
The DMO has begun the market solicitation process leading up to the restructuring of in-country arrangements to manufacture strategically important munitions.
At LWC, the DMO held an industry brief for companies interested in the Domestic Manufacture of Munitions Agreement (DMMA).
Invitations to register an interest in the new contract, due to come into effect in 2015, should be out next month; respondents will be short listed and a restricted RFT is expected in early 2012 with 2nd Pass approval in mid-2013 and transition to a new 10-year contract in 2015.
The 17-year Strategic Agreement on Munitions Supply (SAMS) with Thales Australia (formerly ADI) was originally signed in 1998.
Under this agreement, Thales operates the government owned propellant manufacturing and mixing facility at Mulwala, and owns the Benalla ammunition manufacturing plant which it built during the 1990s.
The expiry of the SAMS in June 2015 provides the first chance for Defence to fundamentally re-shape the ammunition business and the DMO hasn’t ruled out the possibility of buying the Benalla plant from Thales (it has an option to do so) and then seek proposals to supply munitions, explosives and energetic materials on a Government-Owned, Contractor-Operated (GOCO) basis.
According to Brigadier Steve Kinloch, Director General of the DMO’s Munitions Branch, the Commonwealth’s goals are to maintain safe and sustainable manufacturing facilities and improve value for money in sustaining a Priority Industry Capability against the background of a declining indigenous demand for some ammunition natures and the demands of a Strategic Reform Program which is designed to reduce Defence’s cost base.
The new agreement will be shaped by a couple of things: firstly, the Mulwala Redevelopment Project, JP 2086, will see the 1,000ha facility re-equipped with modern machinery and a significant site remediation process to clean up contaminated groundwater and remove asbestos from some of the buildings.
Secondly, Defence will re-assess its demand for ammunition of all natures: the likelihood at present is that ADF operations in the Middle East will be winding down by 2015 at the same time the ADF embraces simulation to reduce expenditure of live ammunition in training.
And the ammunition types have changed since 1998: the ADF will stop using 105mm tank and artillery ammunition soon, but has increased its consumption of 155m artillery and 25mm ASLAV ammunition.
At present Defence acquires about $30 million-worth of ammunition a year, and this may fall; yet to keep Benalla and Mulwala open and available to handle unexpected surges in demand it makes annual capability payments to Thales: $29.7 million for Mulwala and $63.2 million for Benalla in 2008-09 alone.
Defence is determined to reduce this figure, but acknowledges it must pay some sort of premium to maintain a viable ammunition manufacturing capability in-country, says Kinloch.
Next month’s ITR is designed to solicit thoughts and ideas which will shape the RFT process – and warned industry the responses won’t be treated as Commercial in Confidence.
The challenge for any contractor will be manufacturing economically up to 15 different ammunition and munition types, from 5.56mmm small arms ammunition to 81mm mortar and propellants and High Explosive charges of different types, especially when local demand is so low and cyclical.
Defence believes exports could be a useful means of increasing volume, but industry sources warn that Australia’s current strong dollar works against it in what amounts to a commodity market.
Defence’s goals may not be able to be met economically by a contractor who can’t secure a significant export market, however, and one source told ADM at LWC that the DMMA agreement might be most attractive to global players seeking to consolidate manufacturing capacity, or smaller companies with global ambitions, who need the capacity and manufacturing quality that Benalla and Mulwala can afford.
In any case, it may not be affordable to continue to manufacture all of the current ammunition natures in this country – but that’s a judgement for Defence.