Shipbuilding Industry Matters of Public Interest

I rise to address this urgency motion, in three areas. First, to just rebut some of the political points that have been made by speakers opposite. Second, to talk about some of the areas of shipbuilding where this coalition government is already taking steps to put shipbuilding onto a sustainable footing. Third, to talk about some areas of defence reform that we need to be looking at to ensure defence industry is on a sustainable footing into the future.

Firstly, I go to the political points. We have just had a speech from Senator Gallacher where one of his main points was that Australian industry did not get a chance to tender. Can I take him back to JP 2048, phase 3 of the Amphibious Watercraft Program, which was the only naval construction program for ships that the Labor government, under Prime Ministers Rudd and Gillard, approved. And that was sent to Spain. I deliberately asked in last estimates whether ASC and others had the opportunity to be consulted, to talk about it, to put in a bid. Senator Gallacher is walking out; he does not want to hear this. What was confirmed by ASC was that they had no chance, that work was not tendered in Australia. The ALP sent that work to Spain, as opposed to allowing Australian industry to pick it up.

The other side of the argument, which the ALP do not like to recognise, is that when we realised a new icebreaker was required, they let a tender. In this case they put out an RFT and it included Australian industry. Two companies came back and said, ‘Yes, we can build the ship, but it will be built overseas.’ The Labor Party never even got around to funding it but nor did they require that that ship be built here in Australia. My rebuttal of the key argument around the fact that we have not allowed Australian companies to tender is not supported by the ALP’s own actions when they were in government.

I hear Senator Xenophon’s view around the valley of death and the impact on my own state of South Australia. I, like other senators here from all sides, am a passionate advocate of seeing good, high-skilled jobs retained in South Australia in manufacturing, as well as in other areas. Again, in estimates I asked the head of ASC about the time line for the project of their warfare destroyer and looked at the peak of the workforce, which is on us now—almost past it—and asked about the decision points that led to that.

In 2005 the Howard government chose ASC to be the builder of the air warfare destroyer. In 2007 Navantia was chosen to be the designer of the ship. We are now in 2014. If we are concerned about a valley of death in 2016-17, then decisions had to be made years ago, not months ago. That is one of the key flaws in the argument from the opposition on this matter. Both speakers today have talked about the fact that the coalition has now been in government for nine months, so why isn’t there follow-on work? It is because the time required from decision, and commitment to funding, to having people actually cutting metal and building ships is measured in years. Take the air warfare destroyer as an example. That is between five and seven years.

Why has the government taken the decision that the best way to get Australia onto a sustainable footing for shipbuilding is to look at the Future Frigate program? It goes to the issue of productivity. Unlike the comments from Senator Gallacher, the criticism is not of the workforce; it is of the enterprise as a whole. Whether you look at the UK, the US or Australia—even the Anzac program, which was correctly mentioned before, was very successful in Australia—the first ship is horrendously expensive. It happens in the US, in the UK and here. Over time, with enough ships in the fleet, you bring down that cost, which is why DMO, when they put together the Air Warfare Destroyer program. set a target of 80 man-hours per tonne, which is still 20 above world’s best practice, but that was the target they set for the program. So they realised it would take some time to bring that target down. The issue with short builds—just one-off ships or maybe two—is that you do not get the chance with a new design to bring that target down. With Anzac, we did. Over time we brought that down and Anzac ships were being produced at a productivity that was better than world’s best practice, better than benchmarks. That is where we can also end up with the air warfare destroyer.

The government, by bringing the $78 million forward for engineering and design work, is allowing us to look at the option of taking the Navantia hull, which is being used for the air warfare destroyer, originally designed for a vessel to be a subhunter and, once that design work is done, to look at the integration of an Australian system, CEA’s CEAFAR radar, and at the option of integrating Australian design and supported ship control systems like those produced by Saab in South Australia. Then we can start bringing forward the manufacture of hull blocks, because the hull is the same design as the platform. That means that we can continue to draw value from the investment we have made in infrastructure and, more importantly, in the skills of the workforce not only on the production line but in the design area. By building on that air warfare destroyer program for future frigates, over time we will drive that productivity right down and, like the Anzac class, to world’s best practice benchmarks. That is how we put Australian shipbuilding onto a sustainable footing. Setting people up to fail and costing the taxpayer a motza in the meantime is not a way to gain the confidence of the public, the media or the parliament around shipbuilding in Australia.

How we move forward for defence as a whole I believe fundamentally comes back to rethinking how we look at defence industry. For far too many years across both sides of politics defence industry policy has sat separate to defence’s capability planning. Defence, in their capability development manual and procurement approach, look at what they call the fundamental inputs to capability—the people, the organisational structures, the training, the equipment and the doctrine that is required. One of those fundamental inputs is industry. The way that we will put defence industry onto a sustainable footing is by not seeing it as a job-creation place, not seeing it as something that is there for its own benefit; we will put it there by saying, ‘What does defence capability need over time?’ Then when we take first and second pass decisions to government, built into those cases should be a clear articulation of the skill sets within industry, the manufacturing and repair capabilities within industry, that we need such that government procurement decisions are informed as opposed to saying, ‘We want this particular piece of equipment and we will decide down the track whether Australian industry has a role.’ That should be a fundamental part of our decision process as to what we will buy and how we will buy it.

One of the critical things to enable that to work is to overcome the objections of the central agencies when they consider best value for money, which at the moment looks at an off-the-shelf price and compares that to the price of the enterprise here in Australia. That is not an appropriate comparison. If you look at the work of people like Professor Goran Roos, it is very clear on a global scale—from work on things like the Anzac project, the Collins here in Australia, or shipbuilding in the UK, or KPMG in Canada, who have done good work—that for every dollar spent on a defence project, particularly something large like shipbuilding, the taxpayer, over a 10-year period, gets a substantial return. So the true value-for-money comparison has to be done on the 10-year return to the Commonwealth and to our society—all those spill-over effects or second-order effects in terms of training, other industry opportunities, improvements in quality. That is the comparison.

When you put that together with a defence capability plan that sees industry as one of its fundamental inputs, we then start to get to a place where we will have a procurement plan, a defence capability plan, that will look at sustaining the skill sets that Australia needs—not only to make sure that the men and women in our defence force have the very best capability but also to make sure that we retain the sovereign capability we need to make the decisions that are in Australia’s best interests about our defence equipment and the skills of our defence and industry personnel.