AUSTRALIAN NATIONAL AUDIT OFFICE IDENTIFIES PROBLEMS WITH THE FUTURE SUBMARINE PROJECT

AUSTRALIAN NATIONAL AUDIT OFFICE IDENTIFIES PROBLEMS WITH THE FUTURE SUBMARINE PROJECT

Cynics might say that is what the ANAO always does – pick on a few problem areas and ignore all of the positives. However, this would overlook the fact that some of the criticisms go to the heart of the problem, dealing with matters of schedule, risk and accountability. The most important single point raised in the report released on January 14 is in the Executive Summary and – just in case anyone skipped that – repeated twice in the body of the text, saying:

The program is currently experiencing a nine-month delay in the design phase against Defence’s pre-design contract estimates, and two major contracted milestones were extended.

As a result, Defence cannot demonstrate that its expenditure of $396 million on design of the Future Submarine has been fully effective in achieving the program’s two major design milestones to date.

Defence expenditure on design represents some 47 per cent of all program expenditure to 30 September 2019.” The report has drawn the usual reflexive responses from both Defence Minister Linda Reynolds and the senior hierarchy of the Department – but no one has commented directly on this damning finding of a delay of nine months in the design phase, or that the $396 million spent to date might not have achieved its milestones. The media release of Minister Reynolds was particularly disingenuous, saying in part during a radio interview:

“It also says that for such a large and complex project, we have appropriate risk management strategies and, as you said, the first submarine is not scheduled for delivery until 2032. The report itself also confirms that there is no change to the delivery timeframe or budget… and since we’ve been in contract, we have a 5 week delay in two years.”

No, Minister – the report says no such thing. The ANAO simply records the fact that it is Defence that has told them that the schedule will still be met and that there is no change to in-service dates. All that the ANAO is doing is quoting Defence on this matter – they have not undertaken an independent review of the schedule – and no comfort can be taken from the report in this regard.

In a bit of slight-of-hand, efforts to downplay the significance of the ANAO report focus on where the program stands today – not in the future. At this stage it is worth reminding everyone of the cause of the problem: Naval Group asked for a 15-month delay, wanting to complete the design in September 2023, rather than July 2020. Part of the original rationale given by Defence for quickly down-selecting to a single designer was that this would get rid of competitive tension and would allow the development of a trusting relationship between the technical experts and the RAN. What happens when these experts say that a 15 month delay is necessary? They are over-ruled by their partner, who presumably knows better.

If Defence wanted to make the task for Naval Group far less costly and risky, they might want to change their approach to the layout of the torpedo tubes. The Barracuda has a 2 + 2 arrangement, but the RAN has a fixation on six torpedo tubes in a horizontal plane.

Why this is the case, no one knows – even experienced ex submariners believe that four torpedo tubes are adequate. That is what the USN Virginia class attack submarines have. It would also be a considerable cost saving, with two less active discharge systems, two less handling systems – and a lot more room in what is a very crowded compartment.

The front of the submarine is already the most engineeringly complex and risky part of the build, and Defence is adding greatly to the difficulty of what is involved for reasons that are opaque and might never have been questioned, let alone analysed in detail. If this were a firm, fixed price contract there would be plenty of scope for tradeoffs, such as the money saved on redesigning the front end could be better spent on a larger flank array sonar. However, when money is not a consideration there is no need to compromise on anything, which can also lead to requirements creep.

Responding to the ANAO, the Departmental release is also selective in parts, including:

“Through a robust and comprehensive selection process, Defence determined that Naval Group was the most suitable partner to design and deliver a regionally superior submarine that will best meet our demanding capability requirements.” With respect, this is also not completely true.

The RAN and Defence undertook a thorough evaluation of the three offers they received – but how those three entities were initially selected was anything but a robust and comprehensive process. It was an opaque mix of political skulduggery weaved in with Departmental scheming. Without rehashing the entire thing: in 2013 then Prime Minister Tony Abbott wanted Japan to build our future submarines for us, in Kobe – and he told the Japanese Government of his intention.

Being Japanese, they took the words of the Prime Minister to be a solemn bond, almost as good as a signed contract. However, that particular brainwave did not last long, with even members of the Government

questioning an acquisition strategy that would have minimal Australian content. Faced with the first, aborted, challenge to his leadership the PM compromised and announced that there would be a competitive evaluation process – not a tender – and the three selected designer/builders from Germany, France and Japan would have to commit to building all 12 submarines in South Australia. To people closely watching the space, this was a shock decision – excluding a Swedish-Australian New Generation Collins class as part of the mix.

Up until 2014, this had been the preferred option of most of the key players, including the Navy and ASC. However, behind the scenes a few powerful bureaucrats were plotting to make sure that never happened – and here the laws of libel strictly limit what can be written – and that the Swedes would be excluded from the competition based on very little more than personal prejudices.

For the very limited public debate that took place it was said that the Swedes were excluded because they had not built a new submarine in 20 years. This ignored the fact that Saab-Kockums had maintained their skill base and had been undertaking extremely complex engineering updates not only on Swedish submarines but also those of Singapore. At no time did the Department undertake any serious assessment of Swedish capabilities. They – and a New Generation Collins – were dismissed in a single sentence.

Not long afterwards, in the U.S., Northrop Grumman was selected for the B-21 new strategic bomber program despite not having built a bomber in the last 30 years. This is because the Pentagon understands something that a small number of Australian officials did not: what matters is the skill base of the company and what resources it can bring to bear on a project – not whether or not it has had a continuous production line in operation.

Unfortunately, the ANAO report is an indicator that all is not well – and if nothing else, history should teach us to be concerned. We have all heard the “on time, on budget” mantra before: Air Warfare Destroyer; Wedgetail; Seasprite (contract eventually cancelled after $1 billion spent); and to be fair, even Collins – particularly the combat system – a program which in its early years was considerably over-hyped.

What takes place is a form or project manager’s Emperor’s new clothes, where everyone wants it to succeed and so the positives are emphasised and the negatives are downplayed or ignored completely. This is not a peculiarly Australian syndrome: the F-35 program had to be re-baselined twice in 2005 and again, more seriously, in 2012.

The USN’s signature submarine program, the Seawolf, was serially delayed and only three of them were ever built. For SEA 1000, the French reference design, the Barracuda, is four years late, not because of vague new regulatory issues surrounding the use of nuclear power – as we were told by the French Defence Minister herself – but because of major technical issues in trying to make a reactor small enough to fit in the hull.

The ANAO also attempts to grapple with the cost of the program, trying to make sense of the original estimate of $50 billion in 2014, combined with the Defence terminology of out-turned dollars and inflation, concluding that the number now appears to be around $80 billion. This is what happens with developmental contracts without a firm-fixed price, a customer lacking in project management expertise and a fire hose of money.

But who is interested in ancient history? Any prudent planner would have been grappling years ago about what should be done if the future submarine program is significantly delayed. The ANAO found: “Defence has identified that a delay in the Future Submarine Program of more than three years will create a gap in Navy’s submarine capability.

Defence’s planning for a life-of-type extension for its Collins class submarines, to manage the risk of a capability gap, remains at an early stage.”

The LOTE is not scheduled to commence until the first full cycle docking, currently scheduled for 2026. Under the circumstances, it might be prudent to see if this schedule can be brought forward.

To date, around $835 million has been spent, of which $446 million (53%) has gone to Naval Group France. Since facilities are billed separately, this amount is presumably paying a lot of salaries, or very high salaries – or both. Part of this might be for the design of long lead time items. Spending for the current financial year is around $750 million – and this is before a detailed design has started.

On the combat system, which only receives a few references, the ANAO says that so far Lockheed Martin Australia has received about $148 million – and the indicators are that this part of the program is going well, which is a direct reversal of the Collins experience. In fact, it might soon be the case that this part of SEA 1000 has to mark time to allow progress on the platform to catch up. If the two activities continue along their current timelines, in the not too distant future the combat system will be about two years ahead of the hull.

With a completely new submarine design – there are now almost no references to the Barracuda – a highly evolved combat system, a new shipyard, a new workforce, and no competitive pressure, it is hard to understand how Defence believes that anything other than an alarming submarine capability gap will emerge towards the end of the decade. Ten years is the blink of an eye with large, complex, military technology programs.