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The Senate Economics References Committee Part III Future of Australia's naval shipbuilding industry Long-term planning July 2015 © Commonwealth of Australia 2015 ISBN 978-1-76010-258-6 This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License. The details of this licence are available on the Creative Commons website: http://creativecommons.org/licenses/by-nc-nd/3.0/au/ Printed by the Senate Printing Unit, Parliament House, Canberra. Senate Economics References Committee Members Senator Sam Dastyari (Chair from 2 July 2014) New South Wales, ALP Senator Mark Bishop (Chair until 30 June 2014) Western Australia, ALP Senator Sean Edwards (Deputy Chair from 2 July 2014) South Australia, LP Senator David Bushby (Deputy Chair until 1 July 2014) Tasmania, LP Senator Matthew Canavan (from 1 July 2014) Queensland, NATS Senator the Hon. Kim Carr (from 1 July 2014 until 14 May 2015) Victoria, ALP Senator Chris Ketter (from 1 July 2014) Queensland, ALP Senator Jenny McAllister (from 14 May 2015) New South Wales, ALP Senator Nick Xenophon South Australia, IND Senators participating in this inquiry Senator the Hon Stephen Conroy Victoria, ALP Senator John Madigan Victoria, IND Senator Anne McEwen South Australia, ALP Senator the Hon. Penny Wong South Australia, ALP Secretariat Dr Kathleen Dermody, Secretary Ms Morana Kavgic, Administrative Officer (until 27 February 2015) Ms Ashlee Hill, Administrative Officer (from 23 February 2015) PO Box 6100 Parliament House Canberra ACT 2600 Ph: 02 6277 3540 Fax: 02 6277 5719 E-mail: [email protected] Internet: www.aph.gov.au/senate_economics iii TABLE OF CONTENTS Membership of Committee iii Acronyms and abbreviations ............................................................................ ix Executive summary and recommendations ..................................................... xi New supply ships ................................................................................................... xi Future submarines ................................................................................................. xi Air Warfare Destroyers (AWDs)......................................................................... xiii Continuous build ................................................................................................. xiv Strategic naval shipbuilding plan ......................................................................... xv Industry investment ............................................................................................. xvi Chapter 1: Introduction ..................................................................................... 1 Conduct of inquiry .................................................................................................. 1 Structure of the report ............................................................................................. 6 Acknowledgements ................................................................................................ 7 Chapter 2: Government response to committee's first report ....................... 9 First report—tender process for new supply ships ................................................. 9 Government response ............................................................................................. 9 Conclusion ............................................................................................................ 18 Chapter 3: Future submarines ........................................................................ 19 Defence White Paper—2009 ................................................................................ 19 Defence Capability Plan ....................................................................................... 20 Election and new government .............................................................................. 21 New or evolved design ......................................................................................... 21 Speculation about Japanese submarine ................................................................ 22 Committee's findings in second report—open tender .......................................... 23 Commitment to build 12 submarines ................................................................... 25 Competitive evaluation ......................................................................................... 27 Conclusion ............................................................................................................ 39 Chapter 4: AWD—Project of concern ............................................................ 43 AWDs ................................................................................................................... 45 The Winter report ................................................................................................. 49 Reform strategy .................................................................................................... 50 Productivity .......................................................................................................... 53 Comprehensive cost review or forensic audit ...................................................... 60 Conclusion ............................................................................................................ 63 Chapter 5: Continuous build ........................................................................... 65 Warning signs ....................................................................................................... 65 Recent developments ............................................................................................ 66 Supply chain ......................................................................................................... 67 Need for continuity ............................................................................................... 72 Chapter 6: Long term national strategic plan ............................................... 83 Defence White Paper 2015 ................................................................................... 84 Defence Capability Plan ....................................................................................... 85 Need for long term plan ........................................................................................ 86 Government's policies and plans .......................................................................... 89 Conclusion ............................................................................................................ 91 Chapter 7: Defence industry ............................................................................ 93 Economic benefits of local builds ........................................................................ 94 Conclusion ............................................................................................................ 97 Senate shipbuilding inquiry dissenting report ............................................... 99 Additional Comments by Senator Nick Xenophon ...................................... 103 Appendix 1: Submissions and additional information received ................. 109 vi Appendix 2: Public hearings and witnesses .................................................. 113 Appendix 3: Extract from Foreign Affairs, Defence and Trade References Committee, Procurement procedures for Defence capital projects, Final Report, August 2012 Recommendation 16 ................................................... 119 vii Acronyms and abbreviations ADF Australian Defence Force AMWU Australian Manufacturing Workers' Union ANAO Australian National Audit Office AOR Auxiliary Oiler Replenishment ASC ASC Pty Ltd, formerly Australian Submarine Corporation ASPI Australian Strategic Policy Institute ASW anti-submarine warfare AWD Air Warfare Destroyer CEO Chief Executive Officer DCP Defence Capability Plan Defence Australian Defence Organisation DMO Defence Materiel Organisation DMTC Defence Materials Technology Centre DSME Daewoo Shipbuilding and Marine Engineering FADT Senate Foreign Affairs, Defence and Trade References Committee FFG Guided Missile Frigate FMI First Marine International HMAS Her Majesty's Australian Ship LHD Landing Helicopter Dock ship MOTS Military-off-the-shelf RAN Royal Australian Navy RFT Request for tender ROM Rough order of magnitude SME Small and medium sized enterprises TKMS ThyssenKrupp Marine Systems UK United Kingdom US United States of America x Executive summary and recommendations This report is the committee's third on the future of Australia's naval shipbuilding industry. Although the committee's first and second reports dealt with the tender process for the navy's new supply ships and the pre-tender process for the future submarines respectively, the committee also made findings applicable to the broader topic of Australia's future shipbuilding industry. In this report, the committee builds on its earlier findings and recommendations. New supply ships The committee accepts that in many cases a limited tender may be the most sensible, strategically prudent and cost-effective means of acquiring capabilities for the Australian Defence Force. It is firmly of the view, however, that, wherever possible, options under consideration should include Australian defence industry participation as well as thorough assessments of the economic and strategic benefits of domestic involvement. In this regard, the committee believes that the limited tender process for the new