Australia appears to be hurtling headlong down the path of buying a Japanese submarine without a proper tender, continuing a sorry history of self-inflicted defence procurement cock-ups stretching back decades.

Former Western Australia Labor Senator Mark Bishop was deputy chair, then chair, of the Foreign Affairs Defence and Trade committee as it completed a landmark review of defence procurement in Australia.

The inquiry’s final report, released in 2012, recommended a break-up of the Defence Materiel Organisation (DMO) responsible for procurement and demerged from the Defence Department in 2005, and greater service involvement in procurement decisions. The inquiry, which toured the US and Europe (but not Japan) including meetings with equivalents of the DMO, Audit Office, finance houses, naval establishment and submarine manufacturers and plants. Among its members were then shadow defence minister David Johnston and Australia’s former chief test pilot David Fawcett, a South Australian Liberal senator, now deputy whip. It was a well-credentialed committee whose recommendations were unanimous.

Here are some highlights taken directly from the executive summary, all relating to the Department of Defence. The inquiry said the organisation:

  • Seems incapable of learning from past mistakes … if the organisation cannot or will not apply lessons from previous projects to current and future ones then it is destined to repeat them.
  • Has a culture of non-compliance with policy and guidelines; where personnel get “bogged down” with too much paper work, produce a “certain amount of nugatory work” and “miss the important things going on”
  • Its accountability is too diffuse to be effective — the organisation is unable or unwilling to hold people to account.
  • Has a poor alignment of responsibility due to an excessive number of groups and agency functions, which gives rise to unhealthy management and organisational relationships — for example capability managers sidelined from active participation in an acquisition.
  • Has little understanding or appreciation of the importance of contestability and a mindset that simply cannot, or refuses to, comprehend the meaning of “independent advice”.
  • Has difficulty attracting and retaining people with the required level of skill and experience to support acquisition activities, particularly engineering, which over the past 15 years or more has atrophied most notably with the hollowing out of technical skills in Navy.
  • And has yet to engage actively with industry as a collaborative partner in capability development and acquisition and to achieve the status of intelligent customer.

Chapter two of the report catalogues 11 defence projects gone wrong, from the Super Seasprite helicopters to lightweight torpedo replacement to the Collins class submarine reliability and sustainability project. Common problems included cost blowouts, schedule slippage and reduced defence capability. Finding the “facts speak for themselves” the committee listed the root causes of the recurring problems, including:

  • Risk not managed properly or inadequately described during the capability definition and planning phase — in general poor risk analysis in the early stages of a capability development, which in some cases carried through into the acquisition and delivery phase.
  • Risk identified by domain or subject matter experts but downplayed, misinterpreted, or ignored by more senior non-experts — important to ensure that risk remains visible all the way to senior decision-makers and remains so until the senior decision-maker is satisfied that is it being actively and appropriately managed.
  • Failure to appreciate the challenge of being a customer of a first-of-type program.

And on it went. Bishop, who left Parliament in mid-2014 and did not stand for re-election, told Crikey yesterday he had never seen a government move so quickly to respond to such a significant inquiry. “The procurement establishment moved on it as quick as buggery,” he said. The most contentious recommendations for structural reform were soon rejected. The result? “No change,” said Bishop.

Recognising he has been six months out of politics and without wishing to comment from the sidelines, Bishop said: “we’ve had a significant problems in defence procurement for at least the last 25 years”.

“If you don’t have openness, public scrutiny, and public review, it’ll be a mess”.

As Crikey wrote yesterday, it seems the larger the purchase, the more likely we are to throw due process out the window. Surely if there is one time to follow a proper tender process it is with Australia’s future submarine program, the largest defence purchase for the next half-century. The up-front, sustainment and maintenance costs over the coming decades could easily top $100 billion.

Instead, as South Australian Senator Nick Xenophon wrote in his additional comments to the Senate Economics Committee inquiry into the future of Australia’s naval shipbuilding industry, we are running a fraught and mismanaged process that appears “all at sea” with often contradictory and speculative backgrounding of reporters, apparently by well-placed government and/or Defence sources, leaving potential industry suppliers and their workers in a state of confusion.

“The regular appearance of conflicting and unsourced reports, often with damning ‘blind quotes’ unfairly critical of Australian industry, purporting to reveal facts about [the submarine program] only to be later disputed or ruled out by government or Defence, has made the work of this committee more difficult than it otherwise might have been,” Xenophon wrote.

An example of how damaging this can be to Australia came when the local head of German submarine designer TKMS, Philip Stanford, admitted to the ABC’s AM program in October last year that he wasn’t aware what tender process, if any, was being followed. He “believed” a competition was going to be held, however this has not been confirmed by the government publicly and was contradicted in the same story by the reporter, who said she had received background information to that effect from a government source who declined to be identified.

We are going down precisely the wrong path — a rushed, non-transparent, uncontested purchase from an unproven supplier.

Peter Fray

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Peter Fray
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