Partnership vital to submarines Opinion Editorial

After all the hyperventilation over ship building and submarines in the past week, my advice is to breathe deeply and consider the facts.

Firstly, if the collapse of the Navy’s amphibious fleet in 2011 has taught us anything, it is the fact that Australia needs to understand how to maintain its ships. We have a valid national security requirement to sustain the sovereign engineering and industrial capacity to undertake design-assurance, repair/modification and certification. The Coles Review into the Collins Class demonstrated that the same is true of submarines.

Creating and sustaining this capacity doesn’t mean we have to do everything in Australia from scratch. Despite the hype about home-grown subs, the fact is Collins was a modified European design with many key components that came from offshore suppliers. The RAND Corporation has estimated that an indigenous design capability would require in the order of 900 skilled engineers and draftsmen which we do not have and could not reasonably develop in the available timeframe.

The Government is left with the task of balancing considerations of risk, quality and cost in order to find the best way to meet Australia’s operational and through-life support requirements.

An inconvenient fact for some is that there is no simple “off the shelf” solution that has capabilities to match Australia’s geography and alliance considerations. Australia will have to partner with someone (probably Germany or Japan) to modify an existing design to meet our operational requirements.

The German design would need to be scaled up to achieve range/endurance requirements and have US government approval to integrate the AN/BYG-1 Combat Control System along with the Mk 48 ADCAP torpedo. The up-side with Germany is their approach to engineering that is broadly common with Australia and their extensive experience in exporting modified designs to over 22 countries. TKMS (Germany) stated earlier this year that they could produce 12 submarines to Australia’s requirements for a cost in the order of $20bn.

While the Japanese Soryu Class is about the right size, it would still have to be modified to achieve the required range and to integrate the US Combat Control System and Mk 48 ADCAP torpedo. When this development risk is combined with the fact that the Japanese have no experience in exporting complex defence systems, the cost/risk profile of the Soryu is higher than claimed by some advocates. The up-side with Japan is purportedly strong US support for two of its key pacific allies (Australia and Japan) to jointly develop a conventional submarine with common capabilities to integrate effectively with USN operations. There is no reason why a Japanese partnership couldn’t work, but it is not necessarily the cheapest or lowest risk option.

The successful TKMS approach to exporting submarines to other countries is something we need to learn from. TKMS ingolve the customer in any design development and to establish local supply chains; build the first boat or two in Germany to train customer staff; and then establish the production and support facility in the customer location. I don’t envisage making the same mistake we did with Collins and the Air Warfare Destroyer where we set up our own company to build someone else’s design. If TKMS were to retain oversight of manufacturing in Australia while growing the Australian workforce and engineering capacity, this would reduce production risk and enhance whole of life capability even further. A Japanese partnership could adopt the same approach, assuming in both cases that the US supported integration of the weapon and combat systems that underpin collaboration with the USN.

In terms of quality, it is a fact that Australian engineers, companies and manufacturing workers can be involved in building a world-class submarine in Australia. Despite early issues with noise and the combat system, the Collins Class is currently considered one of the world’s most capable conventional submarines. Following the remedial measures mandated by the Coles review, the Collins class is now meeting world’s best practice benchmarks for operational availability. Coles demonstrated that issues with reliability had far more to do with Defence under-investing in engineering skills and a suitable support system than with the underlying design of the Collins submarine itself. For those who argue that an Australian supply chain wouldn’t be good enough or cheap enough, I’d invite them to consider the fact that an Adelaide company is currently exporting large, locally manufactured components to a Korean shipyard on the basis of quality and cost.

Having dealt with risk and quality, we need to address facts around cost – a key reason why some people argue we should send this procurement offshore. The statement by TKMS proves that the commercial and political incentives to foreign providers to win the contract to produce these submarines will drive the price down. Even if the final bids have a price differential between an offshore or Australian build, the fact is that the Australian build may be better value for money.

To enable government to evaluate this accurately, the policy that guides Treasury and Finance advice regarding “value-for-money” has to be challenged. For many years, governments of both persuasions have been advised that value-for-money should be primarily assessed on the acquisition cost alone. Officials claim that it is impossible to predict any future value that a project may return to the economy. European, UK and US studies, however, show that it is possible to quantify the benefit to the economy of “spill over effects” flowing from complex defence procurement (such as building a submarine).
European experience is that there is a return to the economy of over 2x the investment in the design and construction phase, while the US experience has shown returns of up to 6x (in the case of the B1 bomber program). The so called “premium” to build in Australia could be largely off-set (if not outweighed) by the spill over effects that increase innovation and productivity in the supply chains that support the submarine build.

It can be tempting think you can shift procurement and technical risk to someone else as well as saving money by outsourcing work. Our own recent history shows that such an approach can render technically complex defence capabilities ineffective at some critical point. Australia needs a comprehensive and sustainable sovereign capability to manage the through-life support of its submarines. A proven way to achieve that is by having Australians involved in the design and build process. The proven way to minimise risk is to contract a company with mature design and production capabilities to build submarines for Australia, in partnership with an Australian supply chain and with an Australian workforce that takes increasing responsibility for the process.

The most important fact is that this will most likely represent the best whole-of-life capability for Defence as well as the best value-for-money for the Australian tax-payer