ASPI swipe at subs program hides call for industry policy

It is the gift that keeps on giving, Australia's multibillion-dollar SEA 1000 program continues to stir debate among Australia's strategic policy, defence and industry communities and even the public as the government and Defence seek to avoid the early program troubles of the Collins Class.

Growing concerns about cost, capability and especially the proposed delivery time frame have been further exacerbated following the release of a damning ANAO report, Future Submarine – Transition to design, building on the fallout from a fiery exchange at Senate estimates in late-2019.  

During which time, Future Submarine Program manager Rear Admiral Greg Sammut explained to the Senate estimates hearing that the 'out-turned' cost of Australia's future fleet of submarines was estimated to be around $80 billion – a figure frequently cited but subsequently rubbished by former defence minister Christopher Pyne and other Defence officials. 

Further compounding the costs associated with the acquisition is the continuing concerns about the capability of the proposed vessels, with many expressing, often vocally, concerns about the obsolescence of lead-acid batteries and the conventional power plant expected to power the vessels out to the 2080s. 

However, with the first vessel expected to enter the water in the mid-to-late 2030s, concerns regarding the cost, delivery and capability of the vessels is serving to raise questions about the value proposition for a conventional submarine at a time of increasing technological advancement in comparable vessels operated by peer and near-peer competitors in the Indo-Pacific. 

These issues have been further compounded by continuing concerns regarding not only fair access to commercial opportunities for Australian business in the generational program, but equally, concerns about Australia's capacity to meet the demands placed upon it throughout the build phase.

Recognising this, Graeme Dobell has penned a piece for the Australian Strategic Policy Institute (ASPI) titled 'The strange submarine saga: how did we get there?', in which he asks important questions regarding the factors leading up to the current predicaments facing the future submarine program, namely Australia's lack of a true industry policy. 

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Survey says 

Dobell highlights the now well known concerns regarding the rapidly ballooning costs associated with developing Australia's future, 'next-generation' Attack Class submarines, through the design, build and well into the operating and sustainment phase, stating: 

"‘Out-turned’ is Defence-speak for ‘accounting for inflation’. As it’s turning out, the dollars are blowing out. The $80 billion figure quickly turned upwards.

"The July strategic update upped the acquisition cost of the Attack boats to $89.7 billion, in a forecast extending beyond 2040.

"The precision of that last $700 million in the $89.7 billion forecast, 20 years from now, is a nice touch — nearly $90 billion, but not quite. ‘In the order of $80 billion’ in November; in the order of $90 billion by July. A billion here, a billion there, and that’s another 10 billion. Truly, this is a very hungry future submarine."

This cost explosion is further exacerbated by an apparent 'slip' in the planned commencement date for construction of the lead boat, HMAS Attack, which was widely publicised as 2022-23 and has now subsequently been pushed back to the 2024 time frame – further exposing Australia's ageing Collins Class vessels to potential adversary over match.

RADM Sammut was quick to explain this away, like a skilled operator, informing Senate estimates that the slated time frame was referencing the standing up of construction personnel, tools, infrastructure, processes and equipment to commence the construction of HMAS Attack's pressure hull in 2024. 

Finally, with the first vessel expected to enter the water in the mid-to-late 2030s, concerns regarding the cost, delivery and capability of the vessels is serving to raise questions about the value proposition for a conventional submarine at a time of increasing technological advancement in comparable vessels operated by peer and near-peer competitors in the Indo-Pacific. 

These points are expanded upon by Dobell's ASPI colleague and defence economist Marcus Hellyer, who highlights concerns raised by former submariner and independent senator Rex Patrick regarding the wildly fluctuating costs associated with 'out-turning' the future submarine fleet and the ramifications it will have on the capability delivered to the Royal Australian Navy.

"If the $50 billion constant/$80 billion out-turned estimate hadn’t changed since Naval Group was selected, then the window in which the estimate increased must have been between the receipt of bids from the participants in the competitive evaluation process at the end of November 2015 and the announcement in April 2016," Hellyer posits. 

Building on this, he states, "What caused the change? Recently there’s been discussion — for example, at Senate estimates — about whether the Commonwealth has been commercially ‘captured’ by Naval Group because it chose a single provider too early, exposing itself to cost increases. While that’s an ongoing risk to guard against, it doesn’t explain cost increases during the competitive evaluation process when there was still competitive tension.

"There are likely two reasons for the growth of the estimate during the competitive evaluation process. The first is that Defence’s $50 billion out-turned figure was already too low. ASPI’s 2009 estimate of $36.5 billion constant becomes around $42 billion constant when rebaselined to 2015. Out-turned, that becomes $67 billion.

"The second reason for the increase is the more demanding performance requirements. The 2016 white paper moderated the requirements for the future submarine by dropping its strategic strike role, which should also have reduced the cost. But the white paper also introduced the undefined term ‘regionally superior’. If anything was going to lead to an open-ended expansion of requirements, that would be it."

The cause? Playing politics and a lack of industry policy

For Dobell, the politicking of Canberra has had a dramatic impact upon the progress of the program and the costs associated — largely focused on the instability and inconsistency that riddled the Coalition government between 2015 and 2018, namely the push by former prime minister Tony Abbott to shepherd in the Japanese bid. 

"Abbott wanted submarines based on the Japanese Soryu Class, designed and built in Japan. He embraced Japan’s Shinzo Abe as a kindred conservative spirit. Getting a Japanese-made sub would cement a quasi-alliance with Japan within the trilateral relationship with the US," Dobell articulates. 

"Powerful arguments could be mounted: defence policy is too important to masquerade as industry policy. Every defence dollar must get the maximum bang for the buck. The Japanese sub would cost less and enter service quicker than an Oz build. Australia must move swiftly to deal with a darkening strategic outlook. It’d be a fiendishly difficult debate — even within the Liberal Party — but this big policy argument sank before being launched."

The backflip enacted by former prime minister Malcolm Turnbull following his successful coup against Abbott saw Turnbull continued Abbott's post-February coup politicking, seeming to place domestic political concerns at the forefront, with the business oriented Turnbull shifting the focus to an international field from France, Germany and Japan. 

Dobell states, "As the tender process concluded, Turnbull worried that Abbott had encouraged Abe to believe the decision would be ‘political’ and Japan would get the nod. Adelaide politics trumped Tokyo.

"Calling Abe in April 2016 to tell him that France had won, Turnbull said the Japanese leader ‘felt, with some justification, that they’d been let down … The political way in which the tender arose always had the potential to create awkward misunderstandings in Japan’."

For Dobell, however, the primary cause for the challenges we now face is identified in his final paragraph, "Politics is like that. And aligning Oz defence needs with industry policy makes for difficult politics with a mega price tag."

Australia's long-term lack of industry policy and substituting or in some way, transplanting the government's planned defence industry strategy into the public consciousness as an industry policy is politicking, without the impact of a true national industry policy, making a lose-lose situation for defence and the nation's economic diversity.  

Your thoughts

Given the geographic area of responsibility Australia will become increasingly responsible for and dependent on, will the RAN and the recapitalisation and modernisation programs currently underway be enough for Australia to maintain its qualitative and quantitative lead over regional peers?

As an island nation, Australia is defined by its relationship and access to the ocean, with strategic sea lines of communication supporting over 90 per cent of global trade, a result of the cost-effective and reliable nature of sea transport.

Indo-Pacific Asia is at the epicentre of the global maritime trade, with about US$5 trillion worth of trade flowing through the South China Sea and the strategic waterways and chokepoints of south-east Asia annually.

The Indian Ocean and its critical global sea lines of communication are responsible for more than 80 per cent of the world’s seaborne trade in critical energy supplies, namely oil and natural gas, which serve as the lifeblood of any advanced economy.

Submarines are critical to the nation’s ability to protect these strategically vital waterways and key naval assets, as well as providing a viable tactical and strategic deterrent and ensure the nation’s enduring national and economic security. Recognising this, the previously posed questions will serve as conversation starting points.

Traditionally, Australia has focused on a platform-for-platform acquisition program – focused on replacing, modernising or upgrading key capabilities on a like-for-like basis without a guiding policy, doctrine or strategy, limiting the overall effectiveness, survivability and capability of the RAN.

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