Section 1: Whole-of-capability approach to delivering Naval Capability

The Naval Shipbuilding Plan is premised on consolidation of industrial capability at two shipyards, one at Osborne in SA and one at Henderson in WA. This consolidation provides a focus for some aspects of the work, primarily the construction of the hulls in three streams of minor warship, major warship and submarine. The singular focus on construction and assembly within the Plan on these shipyards, however, is disproportionate for what should be a whole-of-capability plan.

A whole-of-capability approach to the Naval Shipbuilding Plan would recognise that much of the value of new naval vessels is not associated with construction of the hulls but resides in high technology areas such as design, systems integration, weapons, propulsion, communications, and logistics support.

Australia’s industrial and R&D strength in related technologies is principally resident in major centres geographically distant from the two shipyards. In fact, more than 80% of national industrial capability exists in states other than SA and WA, with 30% of total national manufacturing capability in NSW alone.

Additionally, as currently written, the plan does not place sufficient emphasis on the requirement to optimise the transfer of intellectual property (IP) and skills (where these originate overseas) to these Australian firms and workers. IP and skills acquisition are key components of sustainment and provide a sound base for future capability development for projects not yet initiated. IP and skills transfer will provide a quantifiable boost to these existing capabilities to undertake future work.

Recommendations:

Noting that Australian industry involvement in the ‘smart systems’ of naval vessels will be essential for implementation of Australian Industry Capability Plans, the Naval Shipbuilding Plan should be modified to:

• appropriately address whole-of-capability aspects beyond hull construction and assembly. • emphasise the requirement to optimise the transfer of intellectual property and skills to Australian firms and workers.

Section 2: Whole-of-Life approach to delivering Naval Capability

It is generally accepted within Defence that one third of total capability costs will be spent on acquisition and around two-thirds will be spent on sustainment. The Naval Shipbuilding Plan is currently too occupied with acquisition (and, as noted above, focussed on platform construction to the exclusion of the ‘smart systems’) at the expense of sustainment.

To maximise both overall effectiveness and economic benefits from the investment in naval capability, greater attention needs to be paid to sustainment elements of the Plan. A good first step would be to retitle the plan ‘The Naval Shipbuilding and Sustainment Plan’.

Today, around half the Navy’s major fleet units, including the two capital ships of the fleet, are operated and sustained from Fleet Base East in Sydney and supported by a network of other interconnected Defence establishments and facilities. To support this capability, NSW 3 We pay respect to the Traditional Custodians and First Peoples of NSW, and acknowledge their continued connection to their country and culture. Copyright Government of New South Wales © 2020 has a sophisticated ecosystem for naval sustainment, comprising of hundreds of defence companies that develop and support the fleet. The strength of that capability is illustrated by the fact that, directly and indirectly, the Naval presence in Sydney contributes around $1.83 billion annually to the regional economy and supports around 12,692 jobs.1

The NSW industry base includes major Defence primes and SME operating from and around Garden Island and the interlinked network of Defence facilities from Orchard Hills to Randwick. NSW is home to numerous defence Primes with indispensable industrial capabilities, including Thales Australia (sonar), Lockheed Martin Australia (systems integration), Raytheon Australia (weapons systems, systems integration) and BAE Systems Australia (systems support) and Navantia Australia (design authority). The presence of east coast exercise areas and training establishments, and major urban areas to support naval personnel and their families, are also key factors in the success of NSW in supporting naval sustainment.

The NSW Parliamentary Inquiry into Defence industry (2018) noted the potential opportunities for New South Wales provided by the Naval Shipbuilding Program and concluded that the state is well placed to provide a range of maritime sustainment and support services. The Inquiry emphasised the importance of the Naval Shipbuilding Plan in this context, referring specifically through the SEA1000 (Attack Class submarines) and SEA5000 (Hunter Class frigates) programs presenting opportunities for New South Wales.

In evidence to the Parliamentary Inquiry into Defence industry in New South Wales (2018), Thales Australia noted that increased ship repair and maintenance services will be required as a result of Defence’s investment in the naval fleet. Thales argued that its presence and recent investment in the Port of Newcastle, in conjunction with the longstanding Garden Island naval base, has helped New South Wales to position itself as a leader in maritime sustainment. 2

The current national shipbuilding plan does not adequately address the essential elements of being able to sustain the fleet long term. The plan would more accurately reflect the nation’s capabilities and challenges to support the national shipbuilding enterprise if it acknowledged that relevant skills and industry capabilities exist in strength beyond the select ship construction yards in SA and WA.

The Plan might usefully acknowledge the entirely legitimate role of those proven capabilities in sustaining the current fleet. It might also investigate ways to optimise their potential contribution to new platforms, while avoiding the current over-emphasis on moving qualified workers to SA and WA. This would be entirely consistent with the Commonwealth’s intent to maximise the use of Australian supply chains and would have a positive effect over the lifespan of each platform.

The Maritime Systems Division (MSD) of Defence is working on a new approach for sustainment of Navy assets. It is called the Future Maritime Sustainment Model (Plan Galileo). A key part of the new approach is the design and implementation of Regional

1 Economic Contributions of Naval Bases in Sydney 2 Defence Industry in New South Wales, page 30 para 3.11 4 We pay respect to the Traditional Custodians and First Peoples of NSW, and acknowledge their continued connection to their country and culture. Copyright Government of New South Wales © 2020

Maintenance Centres, which will be asset agnostic maintenance hubs in strategically located Navy home ports which are initially planned for Cairns, Perth and Darwin, and Sydney.

From public comment provided by Head of Maritime Systems, RADM Wendy Malcolm, RAN, it is understood that Plan Galileo is intended to match ‘our continuous naval shipbuilding capability with a continuous sustainment capability.’

Matching the continuous naval shipbuilding capability with a continuous sustainment capability is a sensible and indeed the only proper approach. We consider that a continuous sustainment capability already exists in Sydney in the form of the extensive Navy base infrastructure and the supporting industry cluster.

We also suggest that there is untapped industrial capacity available to support continued expansion of the naval presence in NSW, including through consideration of the establishment of new naval bases to support capability as required, such as the re- establishment of an East coast submarine base. Beyond Sydney, Newcastle Port and Port Kembla, which have not been named in connection with Plan Galileo, and their associated industry clusters offer strong and viable options for the sustainment of naval assets on the east coast of New South Wales.

Recommendations:

Noting the requirement to generate naval capability across whole-of-life, the Naval Shipbuilding Plan should:

• be modified to address generation of naval capability across the whole-of-life, including sustainment. • incorporate the latest Defence projections on future basing and sustainment of the fleet. • place more emphasis on the use of local content and supply chains.

Section 3: Whole-of-Nation approach to delivering Naval Capability

As mentioned above, the current Naval Shipbuilding Plan focusses heavily on the capabilities at two shipbuilding yards in Osborne and Henderson rather than looking at the shipbuilding and sustainment capabilities of the whole of the nation.

At the Future of Australia's naval shipbuilding industry inquiry public hearings (2017), several witnesses reiterated the national contribution to the shipbuilding programs. For example, at the committee's hearing on 4 April 2017, Mr John O'Callaghan, Executive Director, Australian Industry Group Defence Council, explained that shipbuilding is a national enterprise and there were many examples of where this national approach has proven successful, including supply of smart technology related to combat system activity from NSW and work undertaken by Victorian companies on the ANZAC frigates3.

3 Mr John O'Callaghan, Executive Director, Australian Industry Group Defence Council, Senate Economics References Committee, Committee Hansard (Future of Australia's naval shipbuilding industry), 4 April 2017, p. 21. 5 We pay respect to the Traditional Custodians and First Peoples of NSW, and acknowledge their continued connection to their country and culture. Copyright Government of New South Wales © 2020

Mr Brent Clark, then interim Chief Executive Officer, Naval Group Australia, observed that although the future submarine's hull construction and assembly take place in Adelaide, the parts and component suppliers will come from across the country. He added that despite Queensland often being left out of the naval shipbuilding discourse, suppliers from Queensland have supplied parts that go into a warship—pumps, cables, componentry, and electrical equipment.4

Similarly, the Hon Greg Combet, Victorian Defence Industry Advocate, explained that even though Victoria had not been awarded major contracts for defence builds, Victorian industry will still contribute to the nation's endeavours. He noted that Victoria's 'very significant' supply chain will be a large contributor to shipbuilding programs. Further, Victoria's capabilities in research and in engineering will play a large role in the delivery of these shipbuilding programs.5

Notwithstanding the apparent broad consensus that the shipbuilding supply chain depends on industry and expertise in states outside of the designated ‘shipbuilding’ states, there is almost no reference to this in the Naval Shipbuilding Plan. A level of coordination between the Commonwealth and the states is described but there are no specific measures to take advantage of the already sustainable industry clusters that exist in NSW.

A whole-of-nation approach is particularly critical in the areas of workforce and skills development, noting skills shortages have already been identified.

The Naval Shipbuilding Plan acknowledges that the national training system, and workforce, is not concentrated in the states chosen for shipbuilding (SA and WA). However, the response proposed in the plan is state centric, not nation centric. It suggests an untested process of moving workers from the states where they live and have been trained or educated to meet a need interstate, commenting: ‘The Government will explore the potential for skilled workers to relocate from interstate to South Australia. A public communications strategy will be important to raise awareness of the long-term and sustainable careers which will become available in naval shipbuilding as a result of the Government’s investments’.

The Naval Shipbuilding Industry Strategic Workforce Plan (October 2019) adopts a similarly myopic stance, offering only the following as strategic actions:

• ‘Work with South Australia/Regional Tourism Boards to better market Adelaide as a great place to work and live - improving attraction for interstate workers’ • ‘Develop the processes, tools and infrastructure to enable work to be packaged and performed in other states.’

Garden Island alone hosts over 12,000 workers in naval sustainment and these workers will clearly not be moving en masse to participate in the construction phase of new platforms.

4 Mr Brent Clark, then interim Chief Executive Officer, Naval Group Australia, Senate Economics References Committee, Committee Hansard (Future of Australia's naval shipbuilding industry), 20 June 2017, pp. 1–2. 5 The Hon. Greg Combet, Victorian Defence Industry Advocate, Department of Economic Development, Jobs, Transport and Resources, Victoria, Senate Economics References Committee, Committee Hansard (Future of Australia's naval shipbuilding industry), 20 June 2017, p. 33 6 We pay respect to the Traditional Custodians and First Peoples of NSW, and acknowledge their continued connection to their country and culture. Copyright Government of New South Wales © 2020

This labour resource will in fact continue to sustain the current fleet and future additions into at least mid-century.

Work appears to be in progress to increase the workforce size in the selected shipbuilding states, but published strategic plans fail to recognise or attempt fully utilise the work force and industrial capability within NSW or other jurisdictions. Given the capability of this ecosystem, the national shipbuilding effort would achieve significant productivity dividends by planning more actively to utilise it in situ.

Despite almost continuous discussion since 2017, there is little evidence of practical collaboration to develop a national labour force solution to naval capability. It is proposed that the labour force solution should be looked at truly nationally, considering the full life cycle of the vessels (including sustainment) rather than relying on workers moving interstate, to support one aspect of naval capability at the expense of another.

In a useful first step in recognising the strength of NSW in education and training – representing some 25% of national capacity - the Naval Shipbuilding College has signed a MOU with TAFE NSW, to pursue course endorsement from the Naval Shipbuilding College. Given the strength of the industrial base, and the capacity of the education/training sector in NSW, there remains substantial latent opportunity to be exploited here.

The Covid-19 pandemic has exposed the dangers of placing excessive reliance on overseas supply chains. A more concerted effort to maximise the participation of Australian industry is required and relocation to SA or WA should not be a precondition of worker or industry participation in the generation of naval capability.

The further development of existing industry clusters nationwide rather than emphasising designated shipbuilding states will maximise multiplier effects to local jobs and the economy, and achieve a truly sovereign defence capability.

Recommendations:

Noting the broader objective of developing sovereign defence capabilities and the benefits to jobs and economic growth, the Naval Shipbuilding Plan should:

• be modified to adopt a truly whole-of-nation approach across all aspects of project planning and implementation. • be retitled The Naval Shipbuilding and Sustainment Plan to appropriately address a whole-of-life, whole-of-capability, whole-of-nation approach.

7 We pay respect to the Traditional Custodians and First Peoples of NSW, and acknowledge their continued connection to their country and culture. Copyright Government of New South Wales © 2020

Conclusion

The Commonwealth’s naval shipbuilding endeavour represents a great opportunity to develop Australian defence capability at the same time as building industrial capability and workforce. The New South Wales government is a strong supporter of the naval shipbuilding endeavour and is committed to employing the full strength of NSW to support the Commonwealth achieve its objectives. To achieve those objectives, however, a true whole- of-capability, whole-of-life, whole-of-nation management approach will be required in all aspects of planning and implementation.

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Authorised by The Hon. Stuart Ayres MP Member for Penrith Minister for Jobs, Investment, Tourism & Western Sydney

Level 19, 52 Martin Place, Sydney NSW 2000 Phone: (61 2) 8574 6500 Fax: (61 2) 9339 5522 Email: www.nsw.gov.au/minister/ayres

8 We pay respect to the Traditional Custodians and First Peoples of NSW, and acknowledge their continued connection to their country and culture. Copyright Government of New South Wales © 2020