Mark Bishop (WA, Australian Labor Party, Shadow Minister for Defence Industry, Procurement and Personnel) Share this | Hansard source

As the Senate is aware, the Senate Foreign Affairs, Defence and Trade References Committee is currently inquiring into Australia’s naval shipbuilding industry. This inquiry was prompted by a concern on both sides of this chamber about the government’s decision to build three air warfare destroyers in South Australia. The concern of the committee is that both the economic interests of Australia and the strategic needs of our national defence need careful consideration. This is in the context of fears that some of the ships might be built offshore. The consequences of this would be the loss of future ship repair and maintenance capacity within Australia. With that, the stimulus that such projects would provide to Australian industry would clearly be lost.

I think it is fair to say that all members of the committee agree about the need to explore these two very important considerations. The committee wants to make sure that, whatever decision is finally made, it is well founded and defensible in both fact and policy terms. The terms of reference of the committee, which were drafted jointly by the government and me, are therefore very particular. First, we want to know whether our current industry base is capable of constructing large naval vessels over the long term on a sustainable basis. This is important because the worst thing for any economy and for particular industries is stop-and-start development.

Second, the committee wants to benchmark Australia’s industry with comparable overseas industries. The background for this is that often we hear that it is cheaper and more efficient to buy overseas and off the shelf. But, as we also know, it is not that simple. Third, the committee wants to establish the comparative costs of maintaining, repairing and refitting large naval vessels throughout their service lives if constructed here rather than overseas. The reasons for this are defence related during times of war and the need for self-sufficiency within that context. But we also need to establish the real costs of that option, and, if work is going to be sourced here as opposed to overseas, we need to know what realistic premium would need to be paid to locate the work in this country as opposed to sending it offshore for a marginally lower price. Finally, the committee wants to examine the real flow-on benefits and costs for our economy of any decision about where to build ships.

These are highly relevant terms of reference. The indicative cost of the three air warfare destroyers is around $6 billion. From bitter experience in the last 10 years, we know that this cost is guaranteed to double. The cost of two additional large heavy-lift amphibious ships, which could weigh up to 40,000 tonnes, is also considerable. The government has only recently announced the design and tendering process. Putting aside any defence considerations, this will probably be the single largest financial commitment of any government in Australia’s history—the cost of engaging in war aside. Accordingly, we need to get it right.

Might I also add that this inquiry has nothing at all to do with the strategic decision to build these ships. There are indeed many questions to be asked about those two sets of decisions. They go to defence policy, to our long-term view of peace in the world and to our role in maintaining or contributing to the maintenance of that peace. That debate is for another time, but for the committee’s purposes with respect to our defence industries, it is a given. As I have said, our sole focus is to test the short- and long-term capacity of Australian industry to do the job and the real costs and benefits—if any—to the economy throughout the build task. In that way, we hope that the final decision as to how and where to build these ships will be based on the very best available analysis.

Further, and most important, we in the parliament who approve the expenditure of money need to be confident that the money will be spent well. Experience in recent years in the Defence portfolio gives us little confidence that that will be the case. Despite assertions to the contrary, naval shipbuilding has suffered all the cost overruns and delays that have occurred in many other projects in recent years.

Having set out the background, I do not intend to explore the substance of the issues flowing from the terms of reference being examined by the committee. The real issue is the attitude of the Department of Defence—and from this, I suspect, the government policy which might underpin the approach adopted by Defence in this inquiry. Fears have been heightened as a result of the minister’s recent announcement of a review of defence procurement policy and processes. To be very blunt, the Department of Defence submission to this inquiry is living proof of the poverty of defence industry policy. The review announced by the minister is therefore overdue. There has been extensive navel-gazing by the government over the last 10 years in this area, and it continues to be a mess.

The Defence submission, as interesting as it might have been, simply ignored the terms of reference. If its quality is representative of the manner in which the department has approached the whole consideration of the project in its submissions to government then we have a major cause for concern. I would like to think that that is not the case, but there are indications in the submission—borne out by questioning at public hearings—which indicate at least some major confusion in policy. It is easy to think from any literal reading of the submission that the Department of Defence believes that any decision to build these ships can be made only on the basis of a contestable market. There simply are no concerns about any shipbuilding industry beyond maintenance and repair. The bottom line, as clearly stated, is that, once these ships are built, the long-term responsibility for the costs of the inevitable boom-and-bust cycle would fall on industry and the taxpayer. That is the thrust of Defence’s submission in a nutshell. Defence quite simply sees itself as having no responsibility for the future of the shipbuilding industry, whether military or commercial.

Those in industry who struggle day by day with defence industry policy will not be surprised at this. Many of us receive representations from industries dependent on defence for their livelihood. Their concerns are the practices engaged in tendering and the commitment to retaining efficient and productive businesses. The cavalier, pure market approach expressed by the department in its submission is further evidence that something is amiss within Defence. Or is it confusion about government policy? Whichever it is, I must say it is highly unsatisfactory and it needs to be resolved.

Of course, from past experience we all know about the difficulties of defence procurement in a small indigenous domestic market. We know that the defence industry is a monopsony, as it is described—that is, a single-purchaser industry. We know there are significant problems with client capture and the protection of patents in a necessarily secret, or commercial, environment. We also know the history of alleged shady dealing, bias, conflict of interest and all the bitterness that ensues from disappointed tenderers. We also know that the DMO, under Dr Gumley, is on the record as being committed to cleaning up that history. We wish them well.

But these are not the issues for this inquiry. The single issue is the policy of the government with respect to industry development in the long term. Is it really one of a pure contestable market for everything, as Defence would have us believe, or is the government dancing to the tune of the pure market economists in the bureaucracy? Are there other national interests at stake? To what extent has the government, for example, received advice from Defence on the very matters that are the subject of the committee’s terms of reference? What advice did Defence provide in its analysis of the capacity of Australian industry before it made its decision to build a brand new dockyard in South Australia for the three AWDs? What then is the policy with respect to public investment in privately owned infrastructure? What analysis was provided of the relative costs of building overseas, in whole or in part? What consideration was given to overseas experience in naval construction? And what detailed consideration was given to the cost benefits for the Australian economy of doing the work here? From the Defence submission to the committee, the innocent reader would say none. But that cannot be true; in which case one asks: why are we being treated like fools?

I think it is fair to say for the record that most senators on the inquiry expressed the same disappointment in the Defence attitude as I have. In fact, it is quite a contrast to read the excellent submissions by the governments of Western Australia and South Australia, as well as those from Victoria and major players such as the ASC and Tenix. Their interests clearly reflect the substantial nature and seriousness of this inquiry, and we are grateful for that evidence. One can only question why Defence insists on being so recalcitrant. As I mentioned, surely it cannot be because the work has not been done. It beggars belief that any government would make such a momentous decision on the two contracts involved in building those two sets of ships without that sort of advice being sought and received by the appropriate subcommittee of cabinet—the same sort of advice that the Senate committee is seeking. While I do not wish to make a political play of this, is it possible that such laxness has spread to government decision making? There are certainly signs of such adhocery elsewhere at present.

The current state of play is that the Department of Defence has been sent off by the committee to have another go. The committee has put to the department a whole lot of questions on notice derived specifically from the terms of reference. We hope that, at its next appearance, the department will at least come prepared to be more expansive on the relevant issues, notwithstanding that many decisions are yet to be made. Some clarification on industry policy would be a good start. Representation of the department by those actually responsible for this area would also be appreciated. We are making no criticism of the department’s witnesses at the committee’s first hearing but are criticising the fact that so many questions were deferred to others who either chose not to attend or were simply not present. Whether this is indicative of broader and more contemptuous attitudes towards the Senate is difficult to say. But, as I have indicated on other occasions, the department is often inclined to flick Senate interests into the ‘too hard’ bin. That is not the accountability or the responsibility that we seek.

In conclusion, I repeat that this is a most important inquiry. It is fundamental to the future of our defence industry, and our concern, on current indications, is that that policy is a mess. Industry deserves better, and so do our national defence interests.