SEA 5000 tender arrangements shaped by AWD issues

The SEA 5000 tender documents have been the topic of much debate in recent months, with Labor and Nick Xenophon Team senators calling for the documents to be changed to mandate the use of ASC and Austal as builders of the vessels Such an arrangement has been rejected by Defence Industry Minister Christopher Pyne, who said having such a mandate would allow Austal and ASC "to write their own cheque with the three bidders".

But Warren King, a former Navy man and head of the Defence Materiel Organisation, has offered up the arrangements of the Air Warfare Destroyer program as a key reason for the SEA 5000 tender arrangements, pointing out the difficulties the project faced at a contract management level.

"The two fundamental lessons from Air Warfare Destroyer, I feel, are the contracting management model and how quickly skill sets atrophy," King explained.

"The model that was very in vogue at the time was alliance contracting, and so when I joined the department I got a few files of studies about what ship might work, some early decisions on some other matters, and that we would be completing the program under an alliance contract."

King said this model, while perhaps suitable in the civil construction industry, presents problems within the defence industry when it comes to sharing the risk.

"Let's say we're going to make a civil construction, a building, steel and concrete. And the steel and concrete supplier form an alliance. And the concrete supplier comes up with a way to halve the amount of steel, but everybody gets a better profit. Well, they'll probably do it because the steelmaker's still making steel for a thousand other sites as well, not just that one site," he said.

"The problem in alliance contracting in the defence environment, it's much more complicated. The shipbuilder is the shipbuilder, they own everything about that ship, and all the combat system integrator, and so on. So that adds a complication, because how can the shipbuilder give up shipbuilding, you know what I mean, because that's his one job they have."

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The former DMO head added that, under this model, the designer Navantia was less involved under the contracting arrangement, a key reason for the AWD project falling onto the projects of concern list, with a review by the Australian National Audit Office identifying this as one reason for the projects' increasing commercial, schedule and cost risks.

"The second complication was that the designer, that was Navantia, only had about, would have been, a tenth of the work that the shipbuilder and the combat system integrator, Raytheon, had," King said. "Not even a tenth. They believed at that time they had a proven design, which they did, and so why would they put at risk ... In terms of the total profit share of the project, 1 per cent let's say. Why would they put that at risk against the other two big players who'd had so much more work, so much more influence? At that time Navantia had said there's no commercial sense to be part of the alliance, and that was a fundamental flaw.

"I thought we'd overcome it by the way we'd contracted them, but in reality if you don't have the designer ... A designer sounds a bit hands-off, 'I just do a design, I walk away'. But actually, in shipbuilding the designers actually know how to make their product, so they're more than just the designers. They are actually the intellect in how to build the product. So that was a really powerful lesson, and I think you can see that in SEA 5000. The department is going down the prime contractor model, basically led by the designer. And I just fully support that approach."

The Navantia Australia chairman also raised the loss of talent within the shipbuilding industry, which occurred after the wind down of the Anzac frigates project, as crucial factor in the struggles the AWD project encountered, calling on the government to start the Future Frigates project before history repeats itself when the Destroyer project wraps up.

"The second thing that we learned, which is really, really critical for SEA 5000, is that it would only [have] been a couple of years since the last Anzac had been built, so I had assumed that the residual skills and knowledge, and by that, I don't mean the people that just weld, I don't mean 'just weld', I don't mean the people whose job is to weld, or people who run electrical wiring, but the blue-collar foreman, the supervisors, their skills had left the industry as well," King said.

"In reality, it's not that difficult to get really good welders in Australia, really good tradespeople. They are there and we can build more. They've always come through, in Collins and other places. Our tradespeople have always come through. What's failed us over and over again is middle to senior management, who either don't have the skills or don't have the background to effectively manage that workforce, and let them do their job well.

"So they'd be the two fundamental lessons. The first one, I think is addressed. SEA 5000 is being executed under a prime contract model. Fully support that. And the second one is, let's start work on the Future Frigate as soon as we can, because of course the Hobart Class construction is running down and the numbers of people are dropping off. I would very much like to see it started just as soon as possible."

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