Future of Australias naval shipbuilding industry

Submission 37

SENATE INQUIRY INTO THE FUTURE OF AUSTRALIAS NAVAL

SHIPBUILDING INDUSTRY
PART 2: THE FUTURE SUBMARINES
SUBMISSION OF THE AUSTRALIAN MANUFACTURING WORKERS
UNION

Future of Australias naval shipbuilding industry

Submission 37

Introduction
Thank you for the opportunity to make a submission into part 2 of the Senate Economics References
Committee inquiry into the Future of Australias Naval Shipbuilding Industry.
The Australian Manufacturing Workers Union (AMWU) represents approximately 100,000 members
working across major sectors of the Australian economy. AMWU members are primarily based in
manufacturing industries but the AMWU also has civilian members within the Department of
Defence, including each of the Armed Services and the Defence Materiel Organisation and Defence
Science and Technology Organisation (collectively, the APS). It also has members within various
prime contractors to Defence, including BAE Systems, Thales, Boeing, ASC and Raytheon, and within
related sub-contracting firms.
The AMWU has long held a position that Australias defence capability cannot be separated from our
defence industry capability. This is a truth that is readily accepted in other countries but has been
increasingly ignored, if not in the rhetoric coming from government, then certainly in government
actions.
That is why the AMWU has recently conducted a campaign aimed at ensuring Australia maintains a
strong naval shipbuilding industry. 1 We fear that the fast approaching drop off in contracted work to
Australian shipyards places the jobs and livelihoods of thousands of workers and the future viability
of the entire industry in grave jeopardy. Without the bringing forward of shipbuilding projects by the
government, the loss in employment, skills and industry capacity will represent an unprecedented
blow to our naval shipbuilding industry, with obvious dire implications for Australias strategic Naval
capability.
This situation is perfectly illustrated by the shambolic process to replace the Collins Class submarines.
Having decided 30 years ago to create a sovereign submarine capability, successive governments
have supported and build an Australian submarine building and sustainment industry. Yet while the
current Government still claims support for a sovereign capability, its actions work directly against
this goal. Like its attitude to automotive manufacturing and economic policy generally and unlike
past governments of both political persuasions, this Government refuses to see any industry
capability as a national asset, either economic or strategic, and as a result refuses to act to build on

The AMWU has proposed a wide ranging response to the current shipbuilding situation in our report,
Australian Naval Shipbuilding, available at:
http://www.amwu.org.au/content/upload/files/Ships_Campaign_13/AA_AUST_NAVAL_SHIPBUILDING.p
df

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Submission 37

or support such capability, whether in the realm of naval shipbuilding, or in the realm of other
advanced manufacturing industries like automotive production.
Cameron Stewart in the Australian summarized this approach to our sovereign submarine capability
perfectly when he wrote:
Rather than view the industry as a national security asset that requires a degree of
government protection, it has applied the same free market philosophy that doomed the local
car industry.2
This is supported by the (former) Defence Ministers own words. In seeking to criticize the former
government for their commitment to the future submarine project (its existence, not specifics of
where submarines should be built etc), Minister Johnson stated:
Labor has never put forward a proper business or economic case.3
As if defence procurement decisions should be determined by an economic case rather than a
strategic national interest case. At best this is naive in the extreme. At worst, its driven by ideology
which is placing our national security at risk.
The conflict between the reality of supporting a sovereign submarine capability, and dogged
adherence to free market philosophy and a desire to improve defence relations with Japan has lead
the Government to mismanage the procurement of our future submarines. After just 18 months, we
are in a situation where regarding the facts as well as the appropriate way forward, the Government
finds itself directly in conflict ( apart from some media commentators ) with industry, unions, l other
political parties as well as academic and retired navy expert... It is no wonder that this approach has
already claimed one Defence Minister.
The AMWU strongly believes that if the Government is to act in the national strategic and economic
interest, it has no choice but to announce an open tender for the build of our future submarine fleet,
with tenders being assessed on their impact on the strength of Australian industry and in particular
ASC capabilities, in addition to other factors. Anything short of this would be an abrogation of
Government responsibility that will lead to a strategically exposed Australian navy, a devastated
submarine industry capability that has taken 30 years to build and the loss of thousands of jobs in

http://www.theaustralian.com.au/news/features/shipbuilders-crunch-time/story-e6frg6z61227150458280
3 http://engage.wa.liberal.org.au/national-security/submarine-capability-a-national-security-issue-davidjohnston-speech
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already struggling regions. It would also make a mockery of usual standards of good government
process and commitment to transparency and value for money.

A failed process
It is constructive to review how we got to the current situation with the future submarine project.
While the DoD and DMO has had a process in place that carefully assesses various aspects of a future
submarine procurement decision, a process that incidentally is not inexpensive in its own right,4 it
appears that a single briefing by the Japanese with the Prime Minister overruled this entire process
and led to a decision based on little more than a seemingly attractive price tag and a desire to
befriend the Japanese Prime Minister. By all accounts, the Prime Minister was impressed with how
cheaply the Japanese could supply submarines and has decided this option will be pursued and
justified regardless of all other considerations. As collateral damage to this decision are
considerations of;

A true assessment of value for money; whether that includes broader economic costs and
benefits or whether it includes an open tender process,

impacts on relations with other nations, notably China,

domestic shipbuilding capability impacts,
industry skills impacts,
sustainment cost impacts,
actual suitability of the Japanese option to Australias needs,
costs of modifying the Japanese option for Australian needs,
costs of potentially relocating submarine basing around the country due to possible range
inadequacies of a Japanese option,

A $214 million study into the various future submarine options has as far as the AMWU is aware not
been completed. This study was designed to make recommendations and inform decisions that it would
appear to have been pre-empted by decisions already taken. Media release available at:
http://www.minister.defence.gov.au/2012/05/03/prime-minister-minister-for-defence-minister-fordefence-materiel-joint-media-release-next-stage-of-future-submarine-project-announced/

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Submission 37

broader economic impacts on the strength, complexity and level of sophistication of our
industrial base and therefore broader economy.
Based on the public debate, public statements by the Government as well as leaked statements, we
there appears to be no evidence that a decision to purchase submarines from Japan, apparently has
taken any of these crucial aspects into account. Indeed, the whole affair around the future
submarine decision looks like a rushed decision was made, based on political and budgetary
considerations rather than a fully informed formal or official process. Ostensibly it appears once the
decision was made, people and agencies have been tasked to fill in the gaps to give the decision the
appearance of being one that was informed and followed due process, rather than one that was
politically opportunistic and ah-hoc.
Submarine builders from Germany, Sweden and France have expressed strong interest in supplying
our future submarines, but the government continues to refuse consideration of these options,
arguing there is no time to make a fully informed decision. A stance that is incredible for a number of
reasons, which will be discussed below.

The current situation

The current situation can best be described as a standoff, with the Government insisting there is no
time for an open tender while industry, unions and experts insist not only is timing not a problem but
to disregard other options represents a failure to make a fully informed decision that is in the
nations interests.
Naval shipbuilding expert and co-author of the Coalitions review into the Air Warfare Destroyer, Dr
John White, has previously told the Senate:

There is still sufficient time available, with adequate contingency, for the competitive PDS
(Project Design Study) to be carried out and to build the Future Submarines in Australia.
[Dr John White, Senate Inquiry- 13 October 2014]

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This evidence has been supported by former submarine commander, Retired Commodore Paul
Greenfield, who told the Senate there was no reason why the future submarines couldnt be built in
Australia:

If Government wants to avoid a capability gap, the timing of delivery and the rate of delivery
can be arranged so that the new submarines can be introduced in lockstep with the Collins
submarines as they are withdrawn from service.
[Commodore Paul Greenfield Senate Inquiry 30 September 2013]
Adding industrys voice to defence experts, the Australian Industry Groups (AIG) Innes Willox has
recently stated:
"there remains ample time for the federal government to hold a tender process to build
Australia's future submarines".5
In contrast to this evidence and in an attempt to answer the growing case for an open tender,
Treasurer Joe Hockey has recently stated:
"We don't have time to go through a speculation process. We do not have time for people to
suggest that they can build something that hasn't been built.6
It is worth considering exactly what the Treasurer has stated above.
Firstly, he has stated (incorrectly according to the advice of numerous experts7) that there is no time
to consider a selection process for the purchase of a key strategic asset worth tens of billions of
dollars. One that will not only have a key impact on our nations ability to defend itself, but also one
that has a huge impact on our defence industrys skills, capability and strength. Our nations
Treasurer, the supposed guardian of fiscal prudence, effectively says we need to spend tens of
billions of dollars on a particular option (which minimises flow-on benefits for jobs, skills and industry
capability) without even considering alternatives and therefore without considering whether it
represents the best value for money. All because of at best a strongly disputed claim that there is no

http://www.smh.com.au/federal-politics/political-news/joe-hockey-rejects-open-tender-for-newsubmarines-20141202-11your.html
6 http://www.abc.net.au/news/2014-12-02/johnston-should-crawl-off-and-die-submarine-workersunion-says/5935078
7 As well as the evidence provided above, further evidence is presented here:
http://theconversation.com/government-in-a-rush-to-make-the-wrong-decision-on-submarines-33544
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Submission 37

time to consider other options. This is by itself remarkable and can only be seen as a total abrogation
of all principles of due process and value for money.
If we as Australians observe other countries awarding multi-billion dollar government contracts
behind closed doors, without an open tender or any transparency and to proponents that are not
established suppliers, we are forgiven for suspecting corruption at the highest levels of government.
Yet this is exactly what we observe in the case of Australias future submarines, and we are expected
to believe this is the best the Australian Government can do. If the situation wasnt so serious and
the stakes so large, it would be comical. But Mr Hockey doesnt stop here.
The Treasurer goes on to say we dont have time to build something that hasnt been built. In
effect, he is stating Australias future submarines will be purchased off the shelf; only submarines
that have already been built elsewhere should be considered. This ignores the fact no conventional
submarines in operation today (with the exception of the Collins) have the range necessary for
Australias purposes, including the Japanese Soryu class. As the Committee is perfectly aware, and as
previously reported:
evidence from former submariners including Rear-Admiral Peter Briggs and Commodore
Paul Greenfield that the Soryu class lacked both the range and endurance to match even the
current ageing Collins fleet, though realists admit there is no submarine in service around the
globe that meets Australias unique requirements, without modification.8
This means that if an off the shelf option is chosen, as is clearly the intent if we believe the
Treasurers statement, in order to make the future submarine operational Australias submarine
basing would need to be moved from Adelaide to Darwin, likely more than offsetting the lower cost
of the off the shelf option in the first place, as well as devastating the submarine industry in
Adelaide. Such a scenario begs several questions:

What is the cost of building and operating an operational submarine base in Darwin?

Will additional defence investments need to be made in order to secure a future Darwin base
from possible air and other attack and if so at what cost? Indeed, can an operational Darwin
base be made secure against possible attack?

Will sustainment of the fleet still be centred in Adelaide (as promised by the Government)?
Would this be efficient given a separate operational base?

http://www.afr.com/p/inquiry_rejects_inadequate_japanese_8NgzqF3RHHOhv81ddQenDL

Future of Australias naval shipbuilding industry

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What are the additional sustainment costs from having sustainment performed by ASC when
they were not involved in the build9?

Are the additional costs being taken into consideration when deciding on a future submarine
option, and if so, how can we justify a $20 billion Soryu Japanese build that requires these
additional costs when other options available are also in the range of $20 billion (for example
the German Thyssen-Krupp Marine Systems Type 216 or the evolved Collins built by ASC) but
do not require additional Darwin basing costs?

It is clear that these questions demand answers and there is no indication that the Government has
sought answers even internally, but they appear to be committed to a Soryu Japanese build option.
On the other hand, if the Treasurers comment above isnt to be believed and the issue of suitability
to Australias needs (in particular, issues of operational range) are to be addressed, a significant
modification to the existing Soryu Class submarine will need to be performed. Such a modification
will require significant design and other work on the existing Soryu design.
Presuming the modified Soryu will be sustained in Australia by Australian industry,10 it would be
incredibly short-sighted to not have a heavy Australian industry role in the modification, design and
build of the enhanced Soryu class submarine. Locking Australian industry out of such a process, as
appears to be the preferred option, will certainly increase the costs of sustainment through the
decades long life of the future submarines,11 as well as handicap Australian industry in terms of
gaining the capacity to perform through life sustainment efficiently and at low cost. It will require
Australian industry to become expert in working on a design they have had nothing to do with, a
process that cannot be assumed to have no impact on costs or performance. Such an outcome would
not only represent an additional cost to the Governments budget, but it would represent a
significant risk to our Navy as they would be denied the best support possible.
There is so far no indication that the Government is considering the impacts on through life
sustainment costs of a foreign build, especially if it involves significant modification to an existing
design. As long as the Government insists on a process that lacks any transparency and is not open to
the consideration of more than one option, the AMWU expects crucial questions regarding
sustainment costs to be unanswerable. This is one issue we urge the Committee to pursue strongly

It is estimated sustainment costs for the ANZAC Frigates would have been at least twice as high had the
build not occurred in Australia. See the Tasman AIG report into the ANZAC Frigates.
10 The AMWU assumes the argument for Australian based sustainment does not need to be made hear, as
sending Australian submarines to Japan in times of war should be plainly ruled out as not feasible.
11 As flagged elsewhere, sustainment costs on the ANZAC frigates were cut in half due to their build being
domestic.
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with the Government as it not only has a impact on what future submarine option should be chosen,
it has an impact on ongoing costs, industry and jobs capabilities and crucially, the quality of support
our Navy receives.
One would be forgiven for thinking that, as some reports indicate, the future submarine program is
being run by the Prime Ministers press office, rather than a process that befits a multi-decade, tens
of billions of dollars, key strategic asset purchase.

Economic impacts
The AMWU has always believed that Australias defence industry is a crucial component of our
national security architecture. We cannot have a strong defence force without a strong defence
industry to support that force, in peace and in war.
In the context of the future submarines, the issue isnt whether our submarines are built in Japan or
the EU or Mars for that matter, its why they arent (at least partially) being build here to grow skills,
jobs, the economy, the capacity weve build over the last 30 years and our national security.
The former head of ASC, Steve Ludlam wrote in 2012:12
It is important, too, to consider what has been achieved in an industry less than 30 years of
age. For every direct employee involved in the Collins Class Submarine construction program,
it was estimated that there was a multiplier effect of two or three in Australian industry.
The Collins build program didn't just deliver a project, it laid the foundations for an industry -a high-end skills industry that put an international spotlight on Australia.
If the right decisions are made, the future Australian submarine will not only sustain an
already thriving defence industry but will also serve to enhance it.
A vibrant shipbuilding industry can be a powerful asset to the life of a nation, encouraging
investment and innovation, stimulating jobs growth and prosperity and providing for the
independent defence of the nation. A project of the size, complexity and scale of the next
Australian-built submarine, will shape the future for thousands of Australians looking for
training, employment and an exciting and challenging career many years from now.

12

Op-Ed in the Australian, January, 2012.

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This industry is a powerful asset that weve built up and invested in over decades but we now face a
government that through its own decisions, is willing to see wither and die. Neither the AMWU nor
South Australia are comforted by the Prime Ministers assurance that whatever work there will be
will be centered in Adelaide. if he cant keep his solemn election promise to build our future
submarines in Adelaide, why should we believe this promise?
As the Committee will be aware, the economic impacts of a domestic build are significant and
positive. Recent analysis conducted by the National Institute of Economic and Industry Research13
concluded that at an exchange rate of 92US cents to the dollar, the net commonwealth budgetary
cost of a domestic build is a saving of over $5 billion.14 That increases to over $11 billion at an
exchange rate of 74 US cents to the dollar. In addition, it is worth noting this cost does not include
the additional costs associated with a Darwin operating base. In terms of broader economic costs,
this analysis concludes that a domestic build would leave the Australian economy better off by over
$21 billion and 3,800 jobs.

Recommendation
The Committee, in its interim report part 2, recommended:
1. The government should not enter into a contract for the future submarine project
without conducting a competitive tender for the future submarines, including a funded
project definition study.
2. The government should begin this competitive tender immediately to ensure a
submarine capability gap is avoided.
3. Given the weight of the evidence about the strategic, military, national security and
economic benefits, the committee recommends that the government require tenderers
for the future submarine project to build, maintain and sustain Australia's future
submarines in Australia.
4. The government should formally and publically rule out a military-off-the-shelf (MOTS)
option for Australia's future submarines.
5. The government should strengthen and build a more collaborative relationship with
Australia's Defence industry and engender a co-operative environment in which industry

Detailed summary available at: http://www.martinhamiltonsmith.com.au/News/tabid/98/ID/3631/New-expert-economic-report-supports-an-Australiansubmarine-build.aspx

14 That is, it is $5 billion cheaper to build domestically than overseas, largely due to recouped tax
revenues.
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is encouraged to marshal its resources in support of a broader Australian shipbuilding

industry capable of acquiring and building a highly capable fleet of submarines.
The AMWU strongly supports all of these recommendations and sees them all as necessary for a
process that best serves our Navy, Australian industrys ability to support our Navy and long
established principles of value for taxpayers money. Anything short of acceptance of all 5
recommendations above exposes our Navy, potentially wastes billions of taxpayers dollars and
jeopardises crucial industry capabilities and tens of thousands of high skilled jobs.
In particular, only an open tender which specifies the need to improve, not degrade, Australias
submarine industry capacity will ensure the project meets our broader national security needs. In
addition, the project should be used to lift our industry to a world class competitive level, so
Australian industry is competitive in bidding for future submarine projects based in other countries.
Anything short of this is selling our industry, workers, defence forces and country short.
The AMWU would like to particularly note the support for an open tender from Government
Senators, Sean Edwards, Anne Ruston and David Fawcett. Senator Edwards is the Deputy Chair of the
current inquiry, and not withstanding the dissenting report from himself and Senator Canavan, after
the release of the interim part 2 report, Senator Sean Edwards told the media:
"Dr White has emphatically suggested that this is within our capability and all I'm asking my
colleagues is to ensure we're equitable and give the opportunity for shipbuilding in Australian
the chance to tender."15
In another venue, Senator Edwards went on to say:
I want to make it very clear that I will be pushing to ensure that the people involved from the
boss down know that in South Australia it has become clear that there is a capacity and they
want to have a crack, It has become very clear to me that people who are expert in this
field believe there should be an open tender and it is also my belief that is the case.16
The AMWU urges the Government to also head the evidence provided by the AMWU and others to
this inquiry and act in accordance with the recommendations outlined above. This is the only course
of action that does not jeopardise Australias defence and economic national interest.

http://www.smh.com.au/federal-politics/political-news/sa-liberals-push-for-submarines-to-be-builtin-australia-20141015-1166zh.html
16 http://www.theaustralian.com.au/national-affairs/defence/senator-calls-for-tender-process-onsubmarines/story-e6frg8yo-1227090565361
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