SEA 1000

Speculation about the origins of Option J

Rex Patrick / Sydney


In 2012 the Senate’s Foreign Affairs, Defence and Trade References Committee published their final report into ‘Procurement Procedures for Defence Capital projects’. In it was a Future Submarine Project recommendation which involved ensuring “that the program is open and transparent – full disclosure throughout the program is necessary to obtain government, industry and public support”. The recommendation was accepted by Government.

But even before the Competitive Evaluation Process (‘CEP’) starting gun fired there were members of the public and industry suggesting the process was a sham, with Japan the pre-determined winner. Are we looking at ‘submarine-gate’? Surely not? This is a circa $50 billion program!

So, this month APDR investigates how Australia’s submarine capability procurement plans have got to where they are now and proposes where things might really end up. In approaching the challenge one might reasonably commence by talking about submarines and reflecting on 100 years of Australian submarining. However, it turns out that submarines are merely incidental to the future submarine story.

Sadly it is more instructive to examine the careers of four senior public servants and their geopolitical ideology.

Backdrop (2000 – 2007)

The story begins in the first half of the last decade. John Howard was Prime Minister and Alexander Downer was Foreign Minister.
Micheal Thawley filled Australia’s most important diplomatic post; Australian Ambassador to the US. He had been assigned the prestigious post after a long career in Foreign Affairs, including a posting to Japan, and a four year stint as Howard’s international advisor. At differing times throughout his five-year tenure he had a couple of energetic DFAT up-and-comers working for him at the Embassy: Mr Andrew Shearer and Mr Peter Baxter.

It was also during this period that the idea of a pseudo trilateral alliance between Australia, Japan and the US was first floated. The seed was revealed accidently during a July 2001 press conference in Parliament House when visiting US Secretary of State, Colin Powell, was asked a question about the possibility of linking together the separate US alliances in the region; “Could the US join together the series of bilateral alliances it had with Japan, South Korea and Australia?” Powell answered, “Interestingly, we were talking about this subject earlier in the day as to whether or not we might find ways of talking more in that kind of forum. I don’t think it would lead to any formal arrangement. Downer, sitting next to Powell, used facial expression to signal danger and then issued a caution with respect to such a move. Having successfully defused a diplomatic bomb, Downer headed back to his office and duly directed his staff to pursue the idea.

It took a number of years. In March 2007 Howard and his Japanese counterpart, Shinzo Abe, signed an Australia – Japan Joint Declaration of Security agreement. Interestingly, in amongst all the discussion on the Declaration, a Japanese submarine for Australia was mentioned in the Cabinet.
Re-enter Mr Baxter. He was heavily involved in the drafting and implementation of the Declaration. He had left the Washington embassy and was serving at First Assistant Secretary, North Asia Division inside DFAT. A Wikileaks cable ( reveals he was behind advanced briefings on the agreement to US officials in Canberra.

Baxter’s role would presumably have had the unequivocal backing from his colleague, Andrew Shearer, by then embedded in the PM’s office as Foreign Policy Advisor. Shearer had left the Washington Embassy to work in Defence Minister Robert Hill’s office as his Strategic Policy Adviser alongside a then little known staffer, Peta Credlin.
Thawley’s replacement as Ambassador to the US was Dennis Richardson – now Secretary of the Department of Defence – who logically would also have been in the picture.

Time in Opposition (2007 – 2013)
After the joint declaration, the Australia-Japan relationship advanced in background until, as inevitably happens in politics, the Government changed.
Andrew Shearer went to work for the Lowy Institute, where he wrote a number of pro US and pro Japanese papers, and then for the Victorian government in charge of the state’s overseas network of trade offices. He also wrote for a number of conservative think-tanks in Washington. Baxter remained within DFAT with the North Asia Division until 2008 and then moved briefly to head the Consular, Public Diplomacy and Parliamentary Affairs Division before taking on the role of Director General AusAID. Thawley was already in the private sector, working for Capital Group Inc, but maintained an interest in the international relations space as a board member at the Lowy Institute. Dennis Richardson stayed as Ambassador to the US until 2010 when he returned to Australia and took over the reigns as the Secretary of DFAT.

Shadow Submarine Planning (2009 to 2013)

Opposition Defence Spokesman, Senator Johnston and his Senior Advisor, Russell Stranger, were oblivious to this backdrop. They were dutifully challenging the moves of a number of passer-bys through the Labor Defence Minister’s Office; first Joel Fitzgibbon, then Senator Faulkner and finally Stephen Smith – the latter responsible not only to major cuts to Defence spending but complete inaction on vital projects such as SEA 1000.
One area of genuine interest for Johnston was submarines. In his position as Shadow he was to become the most informed member on submarines to have ever sat in Parliament. Little did he know the danger this would later present him.

Accepting advice and integrating it from a wide range of sources, Johnston and Stranger developed a solid policy on future submarines, whilst exposing and publicising the costly and unreliable nature of the Collins Class, in order that the submarine policy could be fast tracked once the Liberals were handed governing responsibility.
Their plan had been to kill off Kevin Rudd’s untenable proposition of Australia designing its own submarine. Instead a coalition government would compete the design task among the world’s submarine houses of pedigree who would then partner in an Australian build. If all went well, the submarine enterprise would have been built up to the point where it could have eventually taken over as the design authority to allow for Australian evolution within a continuous submarine build program.
Johnston was also thinking ahead with respect to a fully costed Defence White Paper that was to be a matter of priority for the Coalition in Government. Well before the election Johnston and Stranger had lunched in the Parliamentary member’s restaurant with his pick for the White Paper lead, Professor Alan Dupont. Dupont ‘signed up’.
In late 2012 Dennis Richardson moved from the head of DFAT to the Defence Secretary’s post.

All the Queen’s Men (mid 2013)
The first sign of trouble for Johnston, three months out from the election, was the news that Stranger would not be his Chief of Staff (COS) in government. This was despite Stranger’s decade of trusted service to Johnston and, before that, his experience as senior advisor to WA Premier Richard Court and COS to WA Leader of the Opposition, Matt Birney.
Stranger was not alone. In preparation for office, Peta Credlin – now Prime Minister Abbott’s Chief of Staff – had set about tapping all future Ministers’ trusted advisors on the shoulder signalling a demotion, such that her own appointees could be installed in Ministerial offices. All but one, Julie Bishop, went along with this requirement. Her well respected advisor, Murray Hansen, was to stay (but not before a long and arduous struggle to keep him there).

A DFAT Royal Flush (Sep to Dec 2013)

Six days after the Liberal Party won the 2013 election the Sydney Morning Herald ran with a story ‘Former Howard Advisor joins Abbott’s office’. Andrew Shearer was to become the Prime Minister’s National Security Advisor. The news piece ran through his past life, with only one paragraph devoted to his ideology; “Mr Shearer is strongly supportive of Australia’s ties with fellow democracies, including the US and Japan”.

Shortly thereafter Peta Credlin insert a former DFAT Assistant Secretary, Simeon Gilding, into Johnston’s office as COS.
As Johnston prepared to implement his White Paper plans, Shearer moved to assert his authority over the Defence Minister. At the same time Peter Baxter was moved into Defence and made Deputy Secretary – Strategy. In this role he was to oversee the writing of Defence’s defining document, the forthcoming White Paper. The person previously responsible, academic Alan Dupont – who had already carried a great deal of work on the document, was offered an assistant’s role – but gracefully declined.
And from that moment, Johnston was crippled.

By December Thawley was appointed Secretary of PM&C and the royal flush had been dealt. Shearer as National Security Advisor, with top cover from both Prime Minister Abbott and Thawley, now had control of the critical policy shaping area of Defence through Baxter, with top cover from Richardson.

Handshake Deals (Jan to July 2014)

It looks like Andrew Shearer then set about cementing a new level of co-operation between Australia, the US and Japan. The future submarine project was to be a clear and solid indicator of Australia’s invigorated commitment to the trilateral alliance plans and the US’ China containment plan.

In mid-February 2014, Warren King, head of the DMO, went to Japan saying the visit was on his own initiative. Senator Conroy’s Economics’ Committee questioning has revealed King went without the knowledge of Minister Johnston, but with the blessing of Secretary Richardson. King visited key players in the Ministry of Defense, including the Defense Councillor for Acquisition reform, Director General (DG) TRDI (the design authority for Japan’s submarines), DG Logistics, DG Technology and DG Equipment Procurement and Construction. He made a trip to the TRDI Naval System Research Centre and visited Kawasaki Heavy Industry in Kobe via bullet train. On his last night in Tokyo he dined with, amongst others, the former TRDI Chief Submarine Designer. He returned to Australia with advice that Japan would sell Australia a Japanese built submarine at a unit cost of $600 million.

King’s visit served as a precursor to the PM’s April visit. It was on this visit that Abbott did the handshake deal with Abe. In a joint statement, “The two leaders affirmed their intention to elevate the bilateral security and defence relationship to a new level, building on the 2007 Joint Declaration on Security Cooperation and reflecting the recent growth in defence cooperation”. Ministers’ Bishop and Johnston were to follow-up with a visit in June where they would “develop recommendations for Prime Ministerial consideration to enhance practical bilateral defence cooperation”.

About the same period, Stranger left Minister Johnston’s office, frustrated at the level of authority and control that Andrew Shearer, an unelected official, had been exercising over the Minister sworn in by the Governor General to take responsibility for national security. This was another wounding bullet for an already crippled Johnston.
Labor’s Estimates enquiries confirms that on 19 through 20 May a delegation of officials travelled to Japan for a series of high level talks, likely in preparation for Bishop’s and Johnston’s visit. Shearer was one of the attending officials.

It was about this time that tension and frustration in MINDEF’s office reached a peak. Johnston put his foot down and Gilding was replaced by Sean Costello. Costello, a former submariner, was already known and trusted by Johnston. More importantly, Credlin knew Costello, the two having briefly worked together in Hill’s office in 2005.
The June ministerial visit occurred as planned. Bishop and Johnston stood next to each other and announced the possibility that Australia could purchase an entire Japanese submarine (up to that point the public discussion had been constrained to submarine technology and components only).

In mid-July Abe reciprocated Abbott’s visit, travelling to Australia. The second joint statement in four months was made. “The two leaders signed the Agreement Concerning the Transfer of Defence Equipment and Technology. The Agreement will facilitate deeper cooperation between Australia and Japan through joint research, development and production of defence equipment and technology in areas of mutual interest, including hydrodynamics.”

Late August saw a Japanese delegation visit ASC in Adelaide in Perth. Baxter accompanied the Japanese as an honorary host.
With clarity emerging as to Government intent, the Labor party went ballistic. Few could forget Opposition Leader Bill Shorten visiting ASC in Adelaide in mid-September and trying to gee up workers on the back of emotional anti-Japanese sentiment. It did signal, however, that the gloves were off. The relatively influential South Australian cross-bench Senator, Nick Xenophon also weighed in.
September also saw another Australian visit to Japan. A Defence FOI release shows a delegation of personnel including Vice Admiral Tim Barrett, Chief of Navy, David Gould, General Manager Submarines, Rear Admiral Greg Sammut, Head Future Submarine Program and Captain Matt Buckley, COMSUB, visited Japan. Kylie Bryant from PM&C attended as well. The delegation was led by Peter Baxter. On 25 September the delegation met with what could only be described as the veritable who’s who of the Japanese submarine world. The way ahead was set.

Naughty and Nice (Jul to Nov 2014)

Only two tasks remained; a change to Japanese law and the execution of a plan to defuse the South Australian political ‘build’ issue (the Liberal’s had promised a local build in the lead up to the election).

The ‘build’ issue was to be addressed in two ways. Naughty and Nice.

Naughty: An attack was launched by Government on its own ASC. It was led by Johnston and Minister for Finance Cormann with the September release of a Winter White Report summary brief. The underlying tone was distinct and clear … ASC were not performing and its problems did not bode well for an Australian submarine build.
Nice: In September RAND was engaged to produce a report into Australian shipbuilding. The report would show that shipbuilding was a possibility; for geopolitical reasons, Japan was to build Australia’s future submarine, but the South Australian’s would be pacified by a commitment to a long term shipbuilding industry in Port Adelaide.

While ‘nice’ was being developed, ‘naughty’ was being played out. This included emotive exchanges in the Senate during one of which Johnston uttered that now infamous line “You wonder why I’m worried about ASC and what they’re delivering to the Australian taxpayer, you wonder why I wouldn’t trust them to build a canoe?” Johnston’s over-enthusiasm had done Shearer a big favour; Johnston had just fired the fatal bullet himself. His days were numbered.

Johnston was sacked on 21 December, sparking a cabinet reshuffle. Scott Morrison had been tipped to replace Johnston but was moved to the portfolio of Social Security and the incumbent, Kevin Andrews was moved to Defence. Although Abbott stated that Andrews “was a safe pair of hands”, he was inexperience on Defence (and submarines) and on the record as being disinterested in the portfolio. This was good for Shearer; he could run rings around Andrews by comparison to Johnston.
The coup was complete. Navy, DMO and the Minister were all irrelevant now – they were all now simply passengers on the future submarine ride.

Senator Edward’s Ultimatum (Feb 2015)

All was going well with Shearer’s plan until Abbott’s poll numbers stooped to unacceptable levels.
On 3 February 2015, with Abbott’s leadership under pressure, key Liberal Senator Arthur Sinodinos broke ranks and declared that his support for the PM was “not unconditional”. The same day MP Dennis Jensen (incidentally, a former defence scientist familiar with submarine work) called for a leadership spill. This fuelled speculation which ended on 7 February when a leadership ballot was called.

The day the ballot was announced South Australian Senator Sean Edwards issued a press release stating “The Prime Minister needs to make a commitment to me that South Australian shipbuilders will be able to compete on merit for the right to build the Future Submarine fleet in Adelaide if he is to secure my vote in any leadership ballot on Tuesday”.
On 8 February the Prime Minister assured Edwards the submarine would be chosen by way of a ‘Competitive Evaluation Process’. No-one had heard of a CEP, least of all those in Defence. Richardson has confirmed in the most recent Senate Estimates that Defence had never given advice to PM&C about a CEP up to the point of its announcement. Richardson did say that he had talked to the PM’s Office on the 8th, presumably to Shearer who likely concocted the CEP; a process invented to ensure South Australian backbencher support for Abbott’s leadership, not some merit based decision to do with selecting the right submarine for Australia.

The next day, when Minister Andrews visited ASC, he struggled to explain the term CEP. This led Xenophon to declare “It seems this ‘competitive evaluation process’ is the political equivalent of the Rorschach Test; that is, it means what you want it to mean depending on who you are”
Over the next couple of weeks Defence worked to reverse engineer a process that could be announced to the public. The CEP was announced on 20 February. Of dubious origin, the CEP was to be overseen by an expert advisory panel; oversight that was later elaborated to be one of CEP probity rather than CEP technical oversight (a retired Federal Court Justice, the Hon Julie Anne Dodds-Streeton QC, has been added to the team on account of her standing, undoubtedly oblivious to the backdrop).

The participants of the CEP were to be France, Germany and Japan. Mr Gould was put in charge of the team that would deal with France and Germany. The person put in charge of the team that would deal with Japan was the same person with oversight of the White Paper, Baxter.

CEP Cracks Appear (Mar to Jun 2015)

And so here we are. The CEP is underway with all participants having signed up to it.
Over the last two Senate Estimates Conroy and Xenophon have worked hard to determine the authenticity of the CEP. Cracks are appearing. A Xenophon question-on-notice elicited the criteria that would be used in the CEP assessment; platform systems, combat systems, cost and schedule, project management criteria etc. All good so far! But Conroy further elicited the fact that the data quality will be relatively loose such that proper evaluation will be difficult.

The largest revelation was extracted by Xenophon. When Minister Andrews made the February 20 CEP announcement he suggested that “key strategic considerations” would be carefully and methodically considered in the CEP. Yet they weren’t in the CEP criteria that Defence has listed in Xenophon’s question-on-notice. So Xenophon raised the issue at hearings. In response, David Gould stated, “What we need to go and do at the end of the stage is, having come to what may be a clear recommendation – it may be not quite such a clear recommendation – make sure that we reconcile that with the broader strategic considerations”. The answer was significant. It meant that the “key strategic considerations” would be made outside of the process. It would be made by the likes of the trilateral architects and advocates Shearer and Baxter. Decisions with respect to “key strategic considerations” would also be carried out beyond the purview of the Expert Advisory Panel.

Xenophon quickly pronounced in the media “It seems it doesn’t matter that you could build the best value, most capable submarine on Australian soil, ultimately you could lose-out on the vagaries of ‘key strategic considerations”. He went on to say “The Government won’t even say what these ‘key strategy considerations’ are, which means ultimately the Future Sub project will remain a ‘captain’s call’”.

Perverting the Course of Governance

As it currently stands, Australia will select Japan to build its future submarine; not for any reason to do with submarine capability. It’s about Geopolitics, full stop.
To be clear, this article does not allege a conspiracy; no-one is engaging in illegal acts or seeking to deliberately cause harm. This article is about ‘ideological conviction’, which in itself is not problematic … until it start’s rolling over Commonwealth procurement governance regimes and due process.

There are four problems with what is occurring.

Firstly, and particularly noting the shielding strategies applied by Peta Credlin with respect to Prime Ministerial access, there is no contestability in the advice the PM receives. No-one can get to the PM to alert him to the counter-idea that a Japanese submarine co-operation program risks economic retaliation from China. No-one can properly advocate the economic benefits that may flow from an Adelaide build; neo-con geopolitics may just unravel the economy of South Australia. This represents a perversion of governance, a most serious and dangerous situation, to which even the perpetrators are oblivious to.

Secondly, when the organisation and environment it is operating in are taken into consideration, there are grounds to call the process a sham. Australian Ministers and senior officials with whom we repose trust and confidence may well be unknowingly misleading foreign counterparts and foreign industry players. In addition, if the Japanese pick has already been made, the European companies will suffer the reputational damage of losing in what is being presented internationally as a fair and open competition. The Swedes, who were advised of their removal the evening before the CEP was announced, may have already suffered in this regard.

Thirdly, and an extension of the point above, is that the population of Australia is being misled, by the very people they entrust to look after their interests. They have been told there will be a fair evaluation process with openness and transparency, but are then not given any detailed answers to questions asked about that process.
Finally, our submariners might not get the capability they deserve and the taxpayer will get short changed on national security.

Derail the Process
There are now forces in play to derail the entire process.
The most obvious is the Labor Party’s June Senate Estimates pursuit of Sean Costello, who took up the role of CEO DCNS Australia only four months after departing the Minister’s office alongside Johnston. The Costello dilemma can be viewed from two different but valid perspectives. The first viewing angle is that of the punter; seeing a man of integrity dumped alongside his Minister from his well-paid COS position, taking up employment with one of the CEP participants who seeks to benefit from his skills. The second viewing angle is that of an informed fair minded observer (or probity officer); cognisant of the advantage that Costello possesses, having been exposed to internal government deliberations and competitor’s information which he simply can’t ‘unknow’ when making judgement calls and providing direction, as a CEO must do. It is interesting to note that The Australian recently reported that the French camp have floated the idea of co-operating with Japan on the basis that “it was believed the Australian preference was, for strategic reasons, to award the contract to Japan”.

Second is the plan to expose the CEP as a sham; an activity being conducted with vigour by Labor and Senator Xenophon (who is clearly backing South Australia, but has a nose for seeking out and exposing irregularity; most recently with FIFA).
Third is a plan to use South Australian Federal seats as a catalyst to replay a revised and more robust ‘Sean Edward’s” ultimatum to Abbott.
But there are others forces at play too; forces too sensitive to publish details of. The reader is just going to have to watch to see what comes around the corner.

A Proper Submarine Selection Process

All that aside, one must not lose sight of the fact that the Japanese build good submarines. The Soryu would need to be up-spec’ed and the Japanese have never exported submarines – both issues that introduce risk. But the French and German solutions are not without risk either.
The future submarine project is one of national importance. The capability must be acquired in an open and transparent manner and in an environment of contestability. It must be decided upon by competition conducted under fair and equal terms, and on the merits.
It’s not too late to do that.

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