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Dumb Ways to Buy: Defence “shambles” unveiled – former submariner and senator Rex Patrick

by Rex Patrick | Dec 26, 2022 | Comment & Analysis, Featured, Government, Latest Posts

“The AUKUS nuclear submarine project will bleed the Australian Defence Force white”, topping the billions in Defence spending waste each year. And there’s no one watching anymore, reports former serviceman and senator Rex Patrick

Anyone with kids will know the song, ‘Dumb Ways to Die’.

Set fire to your hair
Poke a stick at a grizzly bear
Eat medicine that’s out of date
Use your private parts as piranha bait

Dumb ways to die
So many dumb ways to die

With 300 million views, it’s the world’s most shared Public Service Announcement. Launched in November 2012 by Metro Trains Melbourne to promote rail safety, it went viral through YouTube, quickly being shared all over social media.

Like many parents, I’ve suffered relentless annoying renditions of the song courtesy of my two, otherwise wonderful, daughters.

But that suffering is nothing like the suffering inflicted on Australian taxpayers and our national security by the Department of Defence as it has repeatedly bungled major Defence procurements. I’m not a songwriter, but what follows are all the elements needed for someone more creative than I to write a Defence procurement ‘Dumb Ways to Buy’ jingle.

Costly failure after failure

Defence procurement is a shambles and national expenditure disgrace. Project after project blows out in cost and schedule, with some projects being cancelled all together.

Every year the Auditor-General releases a Major Projects Report into Defence’s major projects. The most recent report covered 21 projects worth $58 billion dollars. Across those 21 projects, there had been $18.5 billion in cost increases – that’s 18,500 million dollars for those that can’t easily grapple with the large amounts of money with which Defence plays.

Across those 21 projects the schedule slippage was 405 months – 34 years. A number of projects, excluding the future submarine project for the moment, have either been binned or did not meet capability requirements. They are:

  • The Multiple-Role Helicopter program – $3.8 billion wasted.
  • The Sky Guardian medium altitude long endurance attack drone program – $1.3 billion
    wasted.
  • The Army’s Battle Management system – a billion wasted.
  • The Spartan battlefield airlift aircraft – $1.4 billion wasted.
  • The Tiger helicopter program – another billion wasted.

That’s eight and a half billion dollars of taxpayers’ money just thrown away. That’s eight billion dollars of new capability our brave front-line Defence Force members don’t have.

What’s worse, there’s no-one watching Defence anymore. The Labor Party aren’t too interested in shining a light on Defence’s failures now they’re in Government. And the Liberal Party, having just left Government, are to blame for many of the programs. They’re happy to stay silent too.

And that leads us to the Future Submarine Program. It’s been in the news a bit last week after the United States offered, without any detail, to plug the capability gap that will be left by a first nuclear submarine only being delivered until in 2040 – the gap that the Rudd/Gillard/Rudd and Abbott/Turnbull/Morrison governments all pledged wouldn’t happen.

The Future Submarine project is the quintessential example of how not to buy a capability for the Australian Defence Force. Let’s examine that purchasing disaster.

Dumb ways to buy – delay the start

Sensibly, the future submarine project was first stood up in 2009. The plan was to work through the purchase options and commence construction of the first futures submarine in 2016, with the first boat hitting the water well before 2025, when the first of the ageing Collins Class submarines was due to retire.

Figure One – the 2009 Defence Capability Plan Schedule for Submarines

But by the time we got to 2016, incredibly, we had only just selected a future submarine French partner and we were already talking about a life-extension to one of the Collins submarines. By the time we cancelled the French Partnership in 2022, Defence needed to life-extend all six Collins class submarines, at a $6 billion dollar cost to the taxpayer.

Dumb ways to buy – pick partners using their views of themselves

In February 2015, the Government commenced a Competitive Evaluation Process, not to select a submarine, but to select an international partner to design and build our future submarines. The taxpayers forked out $8 million to each of France’s Naval Group, Germany’s TKMS and Japanese Industry: $24 million to listen to each potential partner tell Defence how good they thought they were.

At the time I was writing extensively on submarines for a Defence magazine. My business experience made me take a different approach to Defence. I jumped on a plane and went to talk to other navies, not about their submarines, but about their experience with their French and German suppliers.

I went to Chile who had both German and French submarines. I went to Portugal who had switched from French to German submarines. I went to Israel who had German submarines, India who had French, German and Russian submarines and Malaysia who had French boats. It seemed sensible, when trying to select a partner, to make inquiries with others who had experienced a partnership with them.

The Chileans had had a good experience with the French. So too had the Portuguese. The Indians, whose project was a mess, took a different view:

“The program’s difficulties centred about a contract which was not well defined and involved relatively small margins. When a dispute arose as to a contractual ambiguity, we almost always lost on account of a national imperative for the submarine capability to fall on the Indian side of the ambiguity.”

The Malaysians has a similar tale:

“Make sure the contract was watertight. If it is not clear … the discussion starts … and the French win. The contract must include everything explicitly; if it is not in the contract they will not do it [without a costly contract amendment].”

We proceeded to select the French as a partner, in taboo circumstances, where we didn’t have a comprehensively articulated contract.

After the partnership selection, Defence spent two and a half years trying to put in place a Strategic Partnering Agreement with the French, an agreement that was originally schedule to take 13 months; a first sign of trouble.

In the end, the whole partnering approach turned out much like a bad marriage. The engagement had gone well, the wedding was a hoot, but problems emerged when the two parties moved in together. Thankfully there was divorce before the children were conceived.

My worldwide submarine partnership investigation cost all of $15,000 dollars and gave me a much better answer than the $24 million taxpayer funded investigation.

Dumb ways to buy – sign before you know what you’re buying

Would you go into a Peugeot dealership and say “I’m going to buy a Peugeot. I don’t know exactly what I want and I’m not going to entertain any other brand, or buy it elsewhere. Now, can we talk about price”?

You would only do that if you’re spending someone else’s money.

But that’s exactly what Defence did. Unsurprisingly, they copped severe criticism from the Auditor-General in his 2017 first program audit:

The approach taken by Defence for the Future Submarine program removes competition in the design phase, and removes incentives for the international partner [Naval Group] to produce a more economical and efficient build.

Defence snookered itself on cost before it even knew what it wanted to build.

And Defence hasn’t learnt anything. They’ve now just signed up to an AUKUS nuclear submarine program without knowing the ultimate solution and with competitive tension lacking.

Dumb ways to buy – risk it up

Would you take an electric vehicle and ask the dealer to change out the battery and electric motors for a petrol tank and a petrol engine, not for the market, but just for you?

That’s the equivalent of what Defence did when it asked the French to take its nuclear submarine design and replace the reactor and steam turbine with diesels and main batteries. And the ultimate irony in relation to this was that the 2021 decision to cancel the French submarine contract was to enable Defence to switch to a nuclear submarine solution.

Defence

Defence bureaucrats chat with weapons executive. Image: ADF

The least of any Project Manager’s worries is contract performance, schedule and project resources (schedule and resources = cost). Rather the thing that keeps experienced project managers awake at night is ‘risk’. Risk causes reductions in performance, schedule blow-outs and increases in resourcing needs.

A couple of reports to Defence, one by Kinnaird in 2003 and another by Mortimer in 2008, warned Defence officials about the risks of departing from off-the-shelf solutions. But Defence has ignored them, at taxpayers’ – that is your – expense.

Underlying this is the embarrassing fact that Defence employs Admirals, Generals and Air Marshals and senior Defence bureaucrats, with very little practical knowledge of project risk, to make procurement recommendations to Cabinet members who have no knowledge of project risk.

Instead of buying 20 off-the-shelf submarines, which could be built here in Australia, for $30 billion, we chose the ‘special’ and risky solution that gets us twelve ‘special’ submarines for $90 billion; Defence’s decision came at a $60 billion cost premium to be borne by taxpayers.

Dumb ways to buy – compensate for contractor lateness

When the Auditor-General did his second audit of the program in 2020 he noted that the signing of the Strategic Partnering Agreement was 16 months late. He also noted:

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.

And yet, when Australia decided the marriage was over, it didn’t terminate it for lack of performance, rather for convenience. The cost to the taxpayer of that approach was $830m in compensation.

Dumb ways to buy – switch to a costlier solution

When Prime Minister Scott Morrison announced on September 16, 2021 that the Government was walking away from the French solution, he did so with great fanfare and gusto, announcing we were purchasing a nuclear-powered submarine solution. He made no mention of cost, or schedule. Irresponsibly, those details were not known at the time.

And then opposition leader Anthony Albanese irresponsibly signed up to the solution with 24 hours’ notice, principally because he and his shadow ministry were politically too scared to have a fight about Defence policy in the countdown to the 2022 federal election.

Our political leaders would have us think that we are special because the US has agreed to share its nuclear technology with us. But that’s simply incorrect. In 1958 the then US Chief of Naval Operations, Admiral Burke, supported the export of nuclear knowhow within NATO. Britain, Canada, Denmark and Italy started down the nuclear pathway. Denmark is on the record as terminating the idea because it was simply too expensive. All but the UK abandoned the nuclear path.

It’s only now we know that the cost of purchasing eight nuclear submarines will be at least $170 billion and the solution won’t arrive for two geo-strategically tense decades.

It’s like we’re hunting for the most expensive and best football team, but planning for it to arrive after the grand final has been played.

The AUKUS nuclear submarine program will bleed the Australian Defence Force white. The opportunity costs are huge in terms of other capabilities, for the Air Force, for the Army and indeed for the Navy, that won’t be affordable because of massive over-investment in one project with a delivery date close to two decades away. This will unquestionably jeopardise our national security. Sadly, Defence Minister Richard Marles is out of his depth and drinking the Defence Department’s Kool Aid.

Dumb ways to buy – no nuclear industry

There are only seven countries that have nuclear submarines or a nuclear submarine program. They are the US, the UK, France, Russia, China, India and Brazil. 

All have substantial nuclear power industries.

The United States amortise their nuclear safety and regulatory regime costs over 90+ naval reactors and 90+ civilian reactors. They have 185+ reactors with which to build up and maintain their nuclear engineering and safety experience and expertise.

Australia has just one nuclear reactor operated for scientific research and the production of radioisotopes for medical purposes. We don’t have a civilian nuclear industry, and the Labor party has ruled it out. That will make for some very expensive ongoing costs for our Navy, which really means ongoing costs for the taxpayer.

A huge effort will have to go into building up a pool of nuclear experts – across engineering, physics, mathematics, chemistry, reactor operations and safety, and environmental monitoring. The Navy, Defence, our small nuclear regulatory agency and industry will all be scrambling to recruit experts from a very small pool that will only grow slowly and at great expense. Still, the Albanese government proceeds with reckless indifference to the taxpayer.

Strategic concerns – stop being dumb

I’m very sympathetic to the idea that we need to spend more on Defence in the current and near future geo-strategic situation. There is a compelling case to improve our modest capabilities, especially in the short to medium term. 

Part of me says, yes, it’s absolutely necessary we hand more money over to Defence.

The bigger part of me says, no, not until they abandon their dumb ways to buy.

AUKUS was a tough sell already, and now it seems local industry will miss out

Rex Patrick is a former Senator for South Australia and earlier a submariner in the armed forces. Best known as an anti-corruption and transparency crusader - www.transparencywarrior.com.au.

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