In a rare insight into the Defence Department’s problematic procurement systems, secretary Greg Moriarty has tabled a summary of its review of the procurement process around the beleaguered $50 billion Hunter-class frigate program.
In May this year, the auditor-general released one of his trademark “scathing” reports into the procurement, criticising it for poor process, failure to obtain value for money and terrible record-keeping. The undocumented role of then-secretary Dennis Richardson in selecting BAE in the shortlisting process has drawn particular criticism after the eventual decision to award the contract to that company. The suitability of the BAE design has also come in for criticism, prompting the company to alter the design to include more missile launchers.
Parliament’s Joint Committee of Public Accounts and Audit followed up the audit by adding it to its list of current inquiries, and yesterday Defence lodged a submission from Moriarty detailing the review it had undertaken after the ANAO report into the procurement process from 2014-18.
Moriarty said “successive government ministers were closely involved as the process developed”, and “officials were conscious that a key program objective from the outset was to ensure that the program could materially contribute to the implementation of the then-government’s policy to achieve continuous naval shipbuilding in Australia”.
This protectionist approach appears to have been a crucial element in the debacle that unfolded: “Following initial pass in June 2014, the review found that there was a growing incompatibility between project objectives including continuous naval shipbuilding and the intended procurement method as described throughout the tender process.”
That is, the need for value for money, and the political goal of propping up Australian defence manufacturing, clashed — unsurprisingly, as we know from the extended debate over the acquisition of submarines that major naval projects come with at least a 30% premium for local builds.
The result was an incoherent process — made worse by the rush in which it was conducted — without clear goals, leading to “disjointed advice” to government, without Defence fully understanding what was happening: “Defence did not appear to recognise how the incompatibility between the project objectives including considerations relating to price and continuous naval shipbuilding and the procurement method as described in the tender documents would impact on Defence’s ability to achieve value for money.” This was exacerbated by “deficiencies in the process”.
The BAE intervention by Richardson and the panel he led reflected a misunderstanding of what actually formed part of the procurement process; in Moriarty’s words, they “did not adequately recognise that the shortlisting of alternatives and the decision to shortlist was part of the procurement process and therefore subject to the legislated requirements and Defence procurement policy” — a remarkable statement about senior bureaucrats. The result:
During the shortlisting process and to take into account the evolving project objectives including continuous naval shipbuilding and an accelerated schedule, Defence departed from the agreed process and this departure lead to shortfalls in terms of the extent of reasonable enquiries made to facilitate accountable and transparent decision making; the level of diligence, fairness and consistency applied during shortlisting considerations; and the overall effectiveness of this stage of the procurement.
In short: “Defence did not fulfil the requirements of the Commonwealth Procurement Rules in relation to achieving value for money”. It also gave the government poor advice, partly as a result of shoddy record-keeping that meant Defence really couldn’t properly explain its recommendations to government.
In its own quiet way, Moriarty’s summary is more damning than the auditor-general report. While a succession of Coalition Defence ministers must share some of the blame, the primary responsibility must fall on the Richardson-era department, which made absolutely astonishing lapses in the most basic of procurement processes — and when they needed to apply under Commonwealth law.
The bigger issue beyond bureaucratic incompetence, however, is the problems generated by the clash between value for money and local construction.
It’s always been clear that taxpayers simply do not get value for money from local defence construction — the cost per job runs into the hundreds of thousands or millions per employee in the industry — but it’s now clear that the requirement for local building also undermines Defence’s capacity to conduct effective procurement processes at all.
Yes, this is a lesson that’s been hammered home time and again for decades. What is necessary — and will not happen — is to separate absolutely and forever the two incompatible objectives. Defence procurement should be solely concerned with meeting the requirements for Australia’s armed forces on time with the best quality kit at the best price available. Propping up Australian employment, skilled or otherwise, and buying votes by pouring subsidies into job creation schemes in marginal electorates, should be undertaken by a wholly separate department. In this way both objectives could be achieved at far less cost to taxpayers and with far superior outcomes.
Not that this is the only problem in Defence. The revolving door between government ministers, arms manufacturers, senior military officers and defence procurement, with all the cosy relationships and mutual back-scratching that creates, is equally pernicious.
I wont live to see it, but the AUKUS Submarine project will be the biggest debacle in Australia’s Defence procurement history.
Yes – Albo’s Albatross!!
It is not at all clear. What is clear is that destaffing the technical capabilities of Defence Department means that projects run off the rails wherever they are built. It is further complicated by letting knowall politicians a) select the design and b) decide the pace of construction.
There are as many “off the shelf” purchasing disasters and delays, with equipment purchased from overseas as that built here
Those off the shelf disasters usually come from the ADF and DOD procurement processes either falsely claiming something is off the shelf – or from requests to change stuff to either add capability or reduce cost. When the off-the-shelf purchase is a straight up Foreign Military Sale there’s no issues.
A symptom of ‘The Wrecking Crew’ (Thomas Franks) making government unfit for purpose and allowing external stakeholders influence and contracts.
If you think the frigate program is a bad outcome for Australia, it is a raging success compared to what the AUKUS program will eventually be. Hundreds of billions of dollars desperately needed for public housing, health, education, infrastructure etc swallowed up by nuclear powered submarines for which no (Australian) need has ever been creditably demonstrated.
And most likely, will never be delivered. We will however, get a nice, juicy nuclear waste dump for our money.
Care of our most loyal and trustworthy consultants and lobbyists – who will be skimming the cream for all they can get away with.
I have been involved in naval shipbuilding off and on for almost 50 years. The excuses above are bunkum.
We built the ANZACs successfully and even the third AWD came in at a reasonable cost, despite unbelievable poor documentation from Spain and poor project management from an understaffed and inexperienced project team on our side.
The Collins project was far closer to budget and schedule than the British Astute class. We built a new yard and new workforce and commissioned the fourth Collins 14 years after the contract was awarded. The fourth Astute built in an existing yard with an established workforce was commissioned twenty-one years after the order was placed. We also built them at a faster rate than Germany, Japan, Britain and France were building submarines at the time.
The Type 26 failed the first requirement of the project: that it was an established design like the French/Italian FREMM later selected by the US. The UK design has proved to be a dud even there. An Anti-submarine frigate that is not part of a carrier group without onboard degaussing and space for two helicopters is a joke. This design is even worse with an underpowered diesel-electric patrol propulsion system which means that when it is in sub hunting mode it can’t keep up with a troop transport or container ship that it is supposed to be escorting.
The design was overcomplicated and overweight to start with. A good design might have 15-20 grades and thicknesses of steel plate. This one had 57, it should have been designed with sufficient power and fuel capacity to absorb 500- 800 tonnes of upgrades over its life, but the launch versions will already be 1,200-1,500 tonnes heavier than the quoted design.
Then a shipyard that was built before the design was known has proved to be a production nightmare. Apparently the $350m yard needs $180m of modifications to make it efficient. Anyone with shipbuilding experience would have seen that before a contract was let. A proper layout would mean that hull material is moved 4-5 times during the production process. This yard requires that plate is handled up to 15 times
Then to top all this off we decided to graft a heavier, more power-hungry American combat and weapons system with CEAFAR radar onto an Australian version of the ship to keep our American masters happy, thereby adding many months to delivery and hundreds of tonnes to the ships weight, reducing range, speed, stability and survivability below even the poor British alternative.
Now the project is so far out of control that BAE has received permission to source components that were made here for the ANZACs from Britain to save time. This means that future maintenance and upgrades will be at the whim of the British defence industry. Our experience with the Oberon submarines vs the Collins indicates that those costs could be three times as high.
The project should be terminated as quickly as possible and we should order four upgraded AWDs while we work out whether capital ships have any value in the age of the Moskva and supersonic antiship missiles.
Given the amount of very detailed & specific information which you have provided I hope that you don’t have a dawn knock from the AFP with a battering ram for breaching the Crimes Act s70 (i) &(ii).
Thank you for bringing us true expertise. More contributions please Peter, we appreciate you.
It is indeed sad to read, once again, that Australia can’t build this that and just about everything else. We used to build steam turbines for power generation. We used to make high quality steel for use locally and export. We used to build passenger trains. We used to manufacture high quality hi-tech goods. We have built subs and all manner of sea vessels. We still can but it takes government leadership to do this.
Decades of government policy putting tender price promises (not even final price) ahead of quality, suitability and most important of all, Australian jobs has lead us here.
Now we seem to support a few very wealthy people exporting unprocessed earth (ores and coal). We support foreign companies drilling for our gas and exporting it ahead of supplying the local market at reasonable prices. These companies don’t seem to ever make a taxable profit and so don’t contribute.
And yet this is the best way? The best decision for Australia as a whole?
It is my impression from the very start that the Hunter Class based on the British E 26 model, was never a good design, suitable for Australia.
Perhaps it is time to remove all building programmes for Defence equipment from the Defence department. let them draw up the requirement and parameters, but keep them away from, Contract, procurement and acquisition. Their role should be testing and evaluation. As a final change all politicians should be kept away from defence procurement.
As a final change all politicians should be kept away… from most important decisions.
There’s a WA company which designs and builds high speed ships for the US Marines, each capable of carrying a battalion and all its vehicles and equipment. US defense rules mean they have to be built in the US with US labour. But we’ve been designing and building similar world-beating ships for decades.
Where’s Samuel Pepys?
Shhhhh….don’t tell ?