Stephen Parry (President) Share this | Link to this | Hansard source

Senator Xenophon, did you still wish to seek an explanation from the minister?

Nick Xenophon (SA, Nick Xenophon Team) Share this | Link to this | Hansard source

Yes, I do. Pursuant to the order of the Senate, I ask the Minister representing the Minister for Defence Industry for an explanation as to why documents relating to the future frigate program have not been tabled in response to the order for production of the documents, agreed to by the Senate on 5 September 2017.

Marise Payne (NSW, Liberal Party, Minister for Defence) Share this | Link to this | Hansard source

In responding to Senator Xenophon's request for an explanation, there are some very important observations that I want to place on the record this afternoon. I want to be very careful in making those observations, because what we are talking about here today—and what Senator Xenophon and his colleague Senator Carr have raised with the Senate by way of this order for production of documents—is a $35 billion active tender in relation to the procurement of future frigates for the Royal Australian Navy.

Before I make specific comments on the government's public interest immunity claim, which relates to order 449, I want to make some general observations. The future frigate RFT was issued to three companies selected by the government, based on their significant world-class experience as both ship designers and builders. The selection of these companies was based on analysis undertaken by the RAND Corporation, and the decision was made well in advance of the RFT. This is public information. It is well known, and it has been discussed in a number of fora, not least of which includes the Senate Economic References Committee and other parliamentary fora.

The businesses, ASC and Austal, referred to in the order to produce documents, are well known to the three tenderers. The three tenderers are not precluded from engaging with ASC and Austal. The future frigate tenderers are all highly experienced, world-class ship designers and builders, and they will bring, whomever is chosen, this expertise to bear in using and developing the existing shipbuilding workforce in Adelaide. Indeed, they have all explicitly said they will be utilising the existing workforce in Adelaide. I placed a number of their quotations on that matter on the Hansard record in the chamber earlier in the week.

The competitive process seeks for the three tenderers to maximise the use of the Australian workforce. They are best placed to determine how to engage and utilise the shipbuilding workforce, including the resources of ASC and Austal. However, to mandate that the successful tenderer use a particular shipbuilder or workforce would significantly undermine a key advantage of the prime contractor model, which is key to this procurement process, which is to provide a single point of responsibility. Similarly, to allow the successful tenderer to subcontract significant aspects of the work to a third party would ultimately mean that the Australian shipbuilding industry wouldn't obtain the benefit of the world-class experience, expertise and know-how of the successful tenderer. It is also vital to ensure that we avoid the issues associated with separating design and build responsibilities. We've been down that road before.

The future frigates are the next generation of naval surface vessels and a critical component of the government's commitment to a continuous build of naval ships in Australia. The government are absolutely committed, in everything that we have done, to maximising Australian industry opportunities and participation. This project will contribute substantially to building a sustainable Australian shipbuilding workforce. One of the primary goals is to be able to generate a sovereign capability to design and build ships into the future. Actions such as this, which could cause delays to the SEA5000 procurement—the name of the project—could jeopardise this critical component of the government's shipbuilding strategy, including the ability to ultimately develop a sovereign design and build capability.

Now I turn to the public interest immunity aspects of the resolution. Officials from the Department of Defence have already briefly outlined to the Senate Economic References Committee that there is—one would have thought self-evidently and quite obviously—a need to maintain confidentiality during tender evaluations and negotiations, a need to observe all probity requirements. Release of tender information and related information at this time in the process of an active tender could adversely affect Defence's ability to negotiate a contract that protects the interests of the Commonwealth and achieves best value for money. Surely that is a priority for the Senate, a priority for Senator Xenophon and a priority for Senator Carr.

I want to specifically address each part of the order for the production of documents—general business notice of motion No. 449—that was agreed to last week on 5 September. Paragraph (2)(a) refers to:

Gateway Review briefs and decisions in relation to the Future Frigate project to the extent that those briefs and decisions go to Australian Industry Capability, the partnering or use of Australian shipyards, and how Techport and other Australian facilities might be used in the program …

In relation to the request for gateway review materials, I'm advised—and I also assume—that this most likely relates to what are known as 'gate reviews', which are routinely undertaken with major projects within Defence. Defence conducts a very large number of internal reviews and senior Defence committee reviews as part of its decision-making processes. Of course it does. Many of those internal reviews are classified. Many of them form part of cabinet preparation documentation.

Paragraphs (2)(b), (2)(c) and (2)(d) relate to correspondence between Defence and ASC, Defence and Austal, and Defence and the three prospective design partners in response to the announcement that Australian shipbuilders Austal and ASC would partner to win the contract to build the $35 billion future frigates in Adelaide. I say in relation to paragraphs (2)(b) and (2)(c) that this material contains discussions of an ongoing, active procurement—a tender process—that may have the potential to prejudice the integrity of the future frigate procurement. Paragraph (2)(d) relates to discussions of an ongoing procurement that may also have the potential to prejudice the integrity of the procurement process that is currently underway. Paragraph (2)(e) states:

any other documentation held by the Future Frigate project that discusses Australian Industry Capability, the partnering or use of Australian shipyards, and how Techport and other Australian facilities might be used in the program.

That part of the order is particularly concerning. It refers to such a broad range of documents:

Any other documentation held by the Future Frigate Project that discusses Australian industry capability, the partnering or use of Australian shipyards and how Techport and other Australian facilities might be used in the program.

Effectively, it is the view of Defence and legal advisers that that order would require the government to release parts of the tender responses themselves part way through an active tender—that is, those parts of the tenderers' submitted responses that pertain to Australian industry capability and the partnering or use of Australian shipyards, all of which are 'held by the future frigate project'. The release of that sort of sensitive material would not only adversely affect the tenderers but undermine the integrity of the entire procurement process. Moreover, the information that is requested—that is, any other documentation held by the future frigate project—would include documents that contain sensitive information with regard to Defence's negotiating position in relation to a variety of issues, including Australian industry capability, a negotiating position of the Commonwealth government in respect of any future contract. Frankly, it is beyond belief that a sensible person in this place would support the government being required to table our negotiating strategy part way through a tender process—unless the outcome you seek to achieve is actually to delay the project. I remain to be persuaded.

Defence has also advised the government that substantial public commentary on the Australian industry capability and continuous naval shipbuilding aspects of the RFT content could also affect commercial arrangements that are able to be achieved during negotiations with any successful tenderer. I understand a number of these issues were discussed in the context of the hearing last Friday.

I want to make a few observations, if I may, in response to the claims made to reject public interest immunity in the motion itself. They are set out further down the motion. As I understand it, we have claims from Senator Xenophon that, because only documents that have not been 'marked with national security markings' were requested, somehow a claim by the government for public interest immunity is not valid. Let me be very clear about this: a derailed procurement process of the magnitude of a $35 billion future frigate program would damage Australia's national security, our defence and our international relations. That's exactly what the release of sensitive material relating to the tender would do, because it would adversely affect the tenderers, it would adversely affect the government's position and it would jeopardise the current tender process.

Let me speak about the national security implications. From the perspective of Australia's security and the future challenges that we need to be prepared for, we're intimately tied to developments in both our regional environment and our global environment. As a result of military modernisation in our region, we have a large number of regional forces who'll be able to operate at much greater range and with more precision, especially in the maritime and air environments that are supported by more advanced intelligence, surveillance and reconnaissance networks. To respond to those developments, from Australia's perspective, we have to increasingly develop capabilities which can protect our forces when they're deployed across a large geographic area. The future frigate program is a key enabler of Defence's military modernisation program.

Defence has projected our capability needs to meet future emerging threats and to respond to regional and global modernisation. An action of this nature, which has the potential to prejudice, delay or derail the acquisition of a vital capability, does have a significant effect on Defence's ability to meet its national security goals and to defend our national interests. If this material, particularly part of the tenderers' responses, were to be made public, why would these tenderers or any future international tenderers have confidence in Australia's procurement systems and processes? How do you suggest that Defence—or, for that matter, any other major government agency—would be able to attract world-class designers and builders for significant projects of national importance?

The integrity of our procurement system is important to the engagement of international expertise, which assists us in delivering vital military capability now and in the future. If Defence can't draw on international expertise, it's ultimately Australian industry that will suffer from the loss of opportunity to foster the development of a wide range of skills that will not only directly support the construction of the future frigate program but will also contribute to the creation and the sustainment of a continuous, sovereign shipbuilding industry in Australia, which is the government's objective.

Releasing tender information at this time could also adversely affect Defence's ability to negotiate a contract that protects the interests of the Commonwealth and achieves the best value for money for Australian taxpayers. Frankly, what this order of the Senate would have us do is to damage the future frigate tender process, to allow it to be derailed, and to damage our professional reputation internationally. That's why the government has claimed public interest immunity. That's why the release of the documents would have the potential to damage our national security and defence interests and our international relations. I think, in a resolution of this nature, an order of this nature, it is very important for those who have supported the resolution and the order to consider the scale and the complexity of such an important tender process, for a tender that is currently active. But it would seem to the observer that the pursuit of these matters when the government has responded as to why we are not able to provide the information, is largely aimed at delaying the future frigate program, and delaying the thousands of jobs in South Australia and around the nation that will come with it.

To sum up, in relation to order 449, it is my contention, on behalf of the Minister for Defence Industry—that the release of this sensitive material would adversely affect the tenderers and would also jeopardise the current tender process. Even if the procurement could be salvaged from a probity perspective, it would result in a significant cost to the Commonwealth, a significant cost to the tenderers and a significant delay in the delivery of the frigates. A derailed procurement process of this magnitude would, as I have said, damage Australia's national security, and our defence and international relations. We as a government are not prepared to risk a $35 billion project in this way. We are not prepared to risk the thousands of Australian jobs that will come with it.

It would perhaps be remiss of me not to make a couple of observations about the history of naval procurement in Australia in recent years. For example, it would be remiss of me not to point out that, in the period between 2007 and 2013, those who sit opposite did nothing to commission a single naval vessel from an Australian shipyard—from any shipyard—for those six years. Nothing. They allowed the Australian naval shipbuilding industry to enter a downward spiral by not supporting it with the order book that was necessary for it to retain its workforce and invest in the future. And now they want to compromise this government's position. Those who sit opposite us now and criticise the government for commissioning 12 future submarines, nine future frigates and 12 offshore patrol vessels, and for currently engaging in a build of over 20 Pacific patrol boats, all to be built in Australia, with an Australian shipbuilding workforce, as part of a sovereign, continuous naval shipbuilding commitment—those who sit opposite and criticise that have a very warped sense of priorities.

In fact, it's worth noting for the record—Senator Carr and I have been in this chamber together for a very long time—that Senator Carr sat over here for four years in the Rudd cabinet as the minister for industry—and did what, exactly, to support the Australian naval shipbuilding industry?

If I recall, Senator Carr also served as Minister for Defence Materiel for a short period in 2011 and 2012. And did what, exactly? Nothing. The Labor government did nothing. That is the complete opposite of what this government is doing.

We are establishing a sustainable, long-term sovereign naval shipbuilding industry that will learn from the best in the world while we build on our own world-class existing naval shipbuilding workforce. We are getting on with the job of delivering the capability that our Navy needs and building the sovereign industry that we need to support that. We are the ones who have made the decisions that are necessary to create at least 5,200 direct jobs in Australia's naval shipbuilding industry by the mid-2020s in this country, with another 10,000 created across the supply chain. This is a threefold increase on the workforce we already have.

We have moved to address the mess that those opposite left us by bringing forward the construction of naval vessels and implementing a continuous naval shipbuilding program. We will see the offshore patrol vessels commence in South Australia in 2018. We will see, without it being derailed, the commencement of the future frigate program in 2020. We have commenced upgrading the Osborne shipyard in Adelaide with an over $500 million investment, which will support our continuous naval shipbuilding plan for decades to come and will support a potential export industry as well. We have released a request for tender to establish a naval shipbuilding college to ensure that we have a future workforce with the skills it needs to deliver on this program. We have released a comprehensive naval shipbuilding plan which sets out our strategy for a sovereign continuous naval shipbuilding industry, which supports our 2016 defence white paper. All consistent, all proactive, all front-foot—the exact opposite of those opposite. We have set in train a process that means each of the three shipbuilders who are participating in our request for tender is conducting extensive consultation with Australian industry to develop a sovereign supply chain in this country, creating more Australian jobs and investment. Every single thing that we have done demonstrates our commitment to creating a sovereign naval shipbuilding industry in Australia. Every single thing that Labor didn't do let the industry die.

The government is not able to provide the sensitive documentation that relates to the future frigate program, for the reasons that I have set out, because to do so would adversely affect the tender process and the tenderers and would potentially derail the entire thing. I don't understand why the only people who seem to want to jeopardise that tender process—and to delay the future frigate program—are the Labor Party and Senator Xenophon. They apparently want to cause havoc with our international reputation, with our national security. They want to deny, apparently, the thousands of shipbuilders in Adelaide the chance of a job. They want to deny the many thousands of workers in SMEs across the country additional future work. This government won't risk this $35 billion project and the thousands of jobs that come with it. We just won't.

Nick Xenophon (SA, Nick Xenophon Team) Share this | Link to this | Hansard source

I move:

That the Senate take note of the explanation.

I fundamentally repudiate what the minister said at the conclusion of her speech. This is about ensuring accountability, about transparency, about making sure we maximise Australian industry involvement and making sure that our national security and sovereignty are not in any way compromised. To say that I, and Senator Carr and others, are somehow trying to jeopardise this program—on the contrary, we are trying to ensure its utmost success. The matter we're dealing with today is a serious national security and sovereignty matter involving $35 billion of public expenditure. I'll speak to this, but, before I move to my substantive concern, I wish to spell out to the minister my reservations in respect of the public interest immunity claim that she has made in relation to the tender and other documents that are subject to the order.

As a starting point in this discussion, government should be transparent in their policies—in the execution of their policies and in the way in which they spend taxpayers' money. Consistent with the need to be transparent, the Commonwealth Procurement Rules normally require tenderers to be published on AusTender, which any Australian citizen can gain access to. When I say 'normally', I'm talking about the default procurement method, being open tender. The minister makes a claim that tabling tender documents will affect the probity and integrity of a tender. That claim cannot stand, in my view. If that were the case, then all open tenders would be compromised. The Commonwealth runs tenders with the tender documents public all the time.

The future frigate tender released on 30 March 2017 was a limited tender; I acknowledge that. A limited tender occurs when an agency approaches only a limited number of suppliers. There is nothing in the Commonwealth Procurement Rules that prevent limited tenders being published. Indeed, the Commonwealth Procurement Rules certainly permit limited tender documents being published. Again, I do not believe that is a credible claim by the minister. The fact that all three designers have access to the tender documents—as does Defence—means that the release of the tender documents cannot disrupt the process. It simply lets the public see what the designers already have—not the responses, but what the designers have been given.

The minister also makes a claim that release of the documents relating to industry will cause damage to Australia's international relations. It beggars belief that details of how Australian industry will be used, how ASC might be used and how facilities at Techport might be used could in some way affect international relations. I've sought the same details from Defence under FOI. After consideration by officials, no claim of harm to international relations has been advanced by the department. Again, that is a claim that is not credible.

Finally, the minister makes a claim that release of the documents will harm national security. The order for production of documents only sought unclassified information which, by definition, cannot harm national security if released. The minister made a claim about an unclassified future frigate document in the chamber on 16 July that 'sensitive tender information has been released'. The minister needs to understand that in this case we're talking about unclassified documents. 'Unclassified' means exactly that: unclassified are not harmful to national security. It may be embarrassing, but it is not harmful to national security. So I think that there is a duty for these documents to be tabled—and I again urge the minister to table the documents.

I now move to the more substantive issue of the future frigate program and why it is most reasonable for the Senate to require examination of the program. What we have learnt of the government's plans, through the brave actions of a whistleblower, who only has regard to the proper implementation of sovereign continuous naval shipbuilding program, is, I believe, scandalous. Two Australian naval shipyards, ASC and Austal, have been locked out of any leadership and management role of Australia's $35 billion future frigate program.

When it comes to ASC and Austal, let's put this on record: ASC are a world-class shipbuilding operation. They've been building some of the most complex steel-hulled surface combatants in the world. They have deployed significant expertise and capability, with robust skills in engineering, planning, supply chain manufacturing, tests and activation. The company did have some problems with the first air warfare destroyer. That is not surprising. The AWD build was commenced from a greenfield site. However, learning from the experience, ASC have come ahead in leaps and bounds. From testimony at May estimates, ship 2 was 89 per cent complete and was 40 per cent less expensive for ASC's scope of work than ship 1. Ship 3 was over 50 per cent complete and was travelling at 38 per cent less expensive than ship 2.

ASC have been recently benchmarked by Booz Allan Hamilton and are approaching worldwide benchmarks on major elements of their shipbuilding value stream. The European shipbuilding industry took 100 years to get to that point. The American shipbuilding industry has taken 50 years to get to that point. In this regard, ASC's achievements are nothing short of remarkable. It's a credit to the management at ASC, the workforce and the supply chain. ASC Shipbuilding are continuing to deliver value to the Commonwealth and for the wider Australian industry and economy.

Austal are the largest aluminium shipbuilder in the world. Last year, Austal delivered 10 ships all around the world. They have 14 other ships in construction right now. Some of these ships are as big as, and bigger than, the ships being proposed by the Navy for its future frigate program. In the United States, Austal are the only company since American independence that has ever designed and built ships for the United States Navy that is not a US based company. In fact, they design and build two classes of ships for the United States Navy. No-one else in the world has ever done that, whether they be British, Spanish or Italian.

So, I just don't get it. We have these two experienced, efficient and highly regarded naval shipbuilders in this country, and yet the government has decided specifically that the management and supervision of the $35 billion future frigate program is to be given to either BAE of the UK, Fincantieri of Italy or Navantia, in Spain. I believe it shows a totally unwarranted lack of confidence in Australia's industrial capacity and is, frankly, just not right. That's not what the tender says, but we found out on Friday that Defence doesn't seem to know what `sovereign' means. At Friday's economics committee hearing into the future of Australia's naval shipbuilding, Defence, in response to a question from Senator Carr, said:

Later on this year the government will be releasing its defence industrial capability plan, which includes the Sovereign Industrial Capabilities requirement, in which the government will make some choices about what sovereignty means in terms of a sovereign Australian company. I am not in a position to give you an answer on that until such time as the government has had a chance to consider advice from the department and make some choices about that.

The reality is that foreigners will take the lead and control the future frigate program in terms of filling the key management positions, determining Australian industry involvement, controlling the intellectual property and determining the shipyards' strategic direction. For instance, will Australia export from the Australian yards? I've got no problems with foreigners contributing to this program, their input is both necessary and welcome, but this is an Australian naval shipbuilding program and Australians must be at the helm.

One of the four core strategic industry policy goals mentioned in the Naval Shipbuilding Plan is to 'promote a highly resilient, sustainable, and innovative industry through defence exports, growth and employment'. This is a critically important aim point. European and US defence industries are dedicated to this aim. In Europe, on average, 50 per cent of their defence industry is dedicated to exports. In Italy, which has a defence procurement budget very similar in size to Australia's, 80 per cent of their industry is dedicated to exports. This is only achievable because they have a strong sovereign local capability. Apart from a strong sovereign local capability, it is a critical pre-condition for defence exporting to have the imprimatur of the home government.

When the CEO of Austal travels, he is often asked, as came out last Friday, 'What is the credibility of Austal to build these ships?' He says two things to them. One is, 'I sell ships to the United States Navy that meet the full and exacting demands of the United States government.' The other is, 'I build and design ships for the Australian government that meet Australian demands as well.' In many countries that's as big a tick as you can possibly give. Austal are currently building our Navy's Pacific patrol boats for the Commonwealth. They are, it now turns out, getting interest from Hong Kong. In a recent visit to Hong Kong, representatives told Austal:

If it's designed in Australia under the guise of the Australian government, if it's accepted by the Australian neighbours … then for us in Hong Kong that is acceptable.

Having procurement backing from the Australian government through the Australian shipbuilders gives Austal the imprimatur and confidence to promote export opportunities overseas.

Exports create many more jobs for Australians than the Royal Australian Navy programs alone. These programs are the bedrock on which the industry will continue to build. Austal has created thousands of jobs, and thousands of apprentices have gone through Austal over the last 30 years—not based on Australian programs, which have been a relatively small part of their business, but based on their industrial success in exports overseas. At the committee hearing last Friday I asked Austal:

What is at stake here in terms of sovereign shipbuilding capability, having the ability to be the primes, unlike the RFT, which basically shuts you and ASC out? You're saying that what is at stake here are literally thousands of additional Australian jobs in this country.

Their answer was between 8,000 and 10,000 jobs. History shows we can do this. The Navy's Fremantle class patrol boats, its Durance class supply ships, the Antarctic Division's icebreaker—Aurora Australisthe Anzac class frigates, the Armidale class patrol boats, the Collins class submarines and the air warfare destroyers were all built in Australia by Australian companies as primes. I'm concerned that we're casting aside that history—our supply ships build has been exported to Spain; our icebreaker is being built offshore in Romania; our Future Submarines are being built by a French company, albeit here; and our future frigates will be built by a British, an Italian or a Spanish company. That offshoring, in terms of the primes, is very concerning. This is not acceptable. We are supposed to be building a world-class sovereign shipbuilding base which will support thousands of long-term, high-quality jobs directly and thousands more through the supply chain. More importantly, we are supposed to be building an industry base that supports our sailors at sea in times of peace or conflict.

From an Australian industry perspective, this decision will see the two local shipbuilders placed in the shadows of new invitee foreign shipyards. I fear that ASC will wither away as a result. Austal may survive, but certainly it will not thrive as much as it could have. Strategically this is a big deal. This is about $35 billion dollars of taxpayer expenditure, it is about national security, our sovereignty, and it is about an extra 8,000 to 10,000 Australian jobs. We have not asked the minister to table the response of BAE Systems, or Fincantieri or Navantia. We are simply asking the government to be transparent as to how the program will be managed and how sovereign capability will be achieved. There is an urgent need for Defence Industry Minister Pyne and the federal government to re-initiate the future frigate tender to permit Australian shipyards to take the lead role in the ship build. The future frigate tender is fundamentally flawed in its current form. I believe it is strategically inept, and it compromises our sovereign capability. It is certainly not Australian to lock out our own industry from taking a lead role in what is being claimed to be an Australian sovereign program.

Kim Carr (Victoria, Australian Labor Party, Shadow Minister Assisting the Leader for Science) Share this | Link to this | Hansard source

I thank the minister for her detailed response and I'd like to place on the record a couple of points in response. Firstly, let me deal once again with Labor's record on shipbuilding. The minister asked what I had done during the period when Labor was in office. I was part of a government that kept our shipbuilding yards absolutely full. A number of yards that are currently closed were at full capacity. Williamstown in Victoria was at full capacity. A number of yards across the eastern shores of this country were full. That is absolutely the case, Minister.

While you can well point to your discovery of the importance of Australian shipbuilding very late in the piece—and we'll come to that in a moment—let me point to the specific repudiation that needs to be made again and again. The Labor Party is not about derailing a naval tender worth $35 billion, nor are we seeking to produce an outcome for a particular preferred bidder, whether that be any one of the three foreign limited invitees or, for that matter, one of the Australian shipyards—Austal or the ASC—or to endanger in any way Australia's national security. What I think needs to be understood here is that the government is seeking to wrap itself in the flag to avoid accountability for a failure of public administration. The government has once again fallen victim to a department that travels on its own merry way, establishing its objectives irrespective of what government wants and in a manner which we have seen time and time again throughout the history of this Commonwealth. What we're seeing here—and I think the evidence is mounting through the work of this Senate committee—is an extraordinary gap between what the government says it's doing and what actually happens. Frankly, an important role for this parliament is to appreciate the difference between the stated policy of the government and the actual administration.

In regard to the minister's proposition that the Senate asked for the disclosure of the bidders' particular commercial-in-confidence details, that's just not true. You're seeking to assert that proposition, but that is not what this return to order actually asked for. If the government thinks that, how are you going to be able to produce the capability documents later this year, which the public servants have said they will be able to produce? They can't tell us at the moment what the word 'sovereignty' actually means. They can't tell us what the policy objective actually says at this time, because the government hasn't signed off on it. However, they're enacting a series of policy decisions, which suggests to me that in their mind they have clear policy preferences.

I've outlined the approach that was taken through the committee process, but the need for a sovereign capability with regard to naval shipbuilding is absolutely critical. It goes to the issue of this country being able to not just design its own naval vessels but build them, sustain them and export them. To do that, we have to make sure we have the skills in this country across all of those areas. We have to be able to carry out those capabilities in the good times and the bad.

My concern with the documents the committee has actually seen is that the department seems to have a different view. The tragedy here is that the government signs off on those procurement documents. In particular, I'm anxious when I read where the tender documents say:

The successful Tenderer will not be directed to utilise any particular shipbuilding workforce or engage any particular provider of shipbuilding services. In particular, the Commonwealth is not mandating that the successful Tenderer use the workforce—

and I emphasise the word 'workforce'—

of ASC Shipbuilding Pty Ltd currently working on the AWD Program.

It says:

The Commonwealth has selected the Tenderers on the basis of their Reference Ship Designs and their ability to undertake both the design and build of the Ships. The Commonwealth's intention is that the successful Tenderer will (itself or through its Related Bodies Corporate) directly manage and supervise the workforce undertaking the shipbuilding work. The responsibility for build management and supervision should not be subcontracted in its entirety to a third party entity.

So the government is quite deliberately, quite prescriptively, making arrangements that have the effect of excluding Australian companies from that arrangement. But it's not just the bit about Australian companies. The use of that word 'workforce'—not 'company' but 'workforce'—suggests to me that the workers at those plants could rightfully be very concerned that it means them, the individual workers at that plant. So when the preferred tenderers make the statement that they'll employ everyone, you won't necessarily be able to have any confidence in that, because the statements in the documents themselves contradict that proposition.

On top of that, the documents also reveal that the Commonwealth has, at its discretion, the capability to change its mind at any time—at any time! It doesn't actually have to accept these words at any time. It can change its mind. You can have no confidence necessarily that these words have any great value, so therefore we must look to the words and the actions of the people that are actually administering the tender, and this is what really troubles me. What we heard is that Department of Defence's Deputy Secretary, Capability Acquisition and Sustainment Group, Mr Kim Gillis, personally phoned the three international tenderers to tell them to disregard Austal and ASC's teaming agreement and remind them that the arrangements that the government had entered into stood.

What was this teaming agreement? On 8 June 2017 Austal and ASC Shipbuilding announced an agreement for the purposes of building the future frigate program. In their joint statement, the two Australian shipyards indicated they would:

…act as one in support of the program, pooling their complementary strengths, skills and experience.

Austal's CEO, Mr David Singleton, further stated:

The Austal/ASC Shipbuilding teaming arrangement offers a compelling, low risk, Australian shipbuilding solution for each of the three shortlisted international designers.

He said:

This partnership will bring Austal's unparalleled record in aluminium shipbuilding, exports and operational efficiency to combine with ASC Shipbuilding's expertise in steel warship manufacturing.

ASC Shipbuilding's CEO, Mr Mark Lamarre, stated that the ASC/Austal teaming arrangement was:

… a powerful partnership that not only achieves the Government's objectives for a sovereign and sustainable shipbuilding capability in Australia, as set out in the recent Naval Shipbuilding Plan, but confirms to all those in the industry that there is a bright and successful future ahead.

That doesn't sound particularly radical. It doesn't sound particularly dangerous to our national security. In fact, what we were told at the Senate hearing—both by Mr Singleton and Mr Lamarre—was that there had been constructive and detailed negotiations with each of the three preferred tenderers up until the point that the tender documents were provided by the Department of Defence. Then those discussions were closed down. Stopped—stopped dead!

And I think we are entitled to know why, certainly in relation to the question I asked.

First of all we asked: 'Did Mr Gillis make this unsolicited call?' The answer from the deputy secretary of the department was yes. What was said? We couldn't speculate on what was said exactly, but it was clear in the minds of the committee members from the evidence put to them that there had been a substantial change in the response from the three international tenderers to the Australian shipyards prior to this event, the phone call and afterwards. But it doesn't end there, because there was a further matter confirmed to us. A two-week extension was provided to the three international preferred bidders and no explanation given—not even requested. We were told, yes, the explanation was perhaps as a result of the disruption in the industry caused by the extraordinarily radical statement by ASC and Austal. The disruption, I think, is this: the defence department's plans had come unstuck. The government may well be pursuing one policy but the department is pursuing another. We're entitled to know what the consequence of that is.

I ask a simple question. Minister, you have before you questions from that hearing. Is there anything technically wrong with actually asking the bidders to provide additional information as to why they couldn't include involvement with the Australian shipyards? Further, would there be any delay in the process? We will wait for your answer. That's a technical question that's got nothing to do with national security. You won't be able to wrap yourself in the flag over that one. It's a simple matter. Is there a capability there or not? Is it going to be squandered? You might ask yourself and you might ask your colleague there, Senator Cormann, what you are doing to that asset in Adelaide—an asset that you are driving into the ground. We know what happens in 2019. That shipbuilding asset, ASC Shipbuilding, has no orders on the books come 2019. Its single value is the workers on the books. The only question will be how much you have to pay out in redundancies, and I will want to know the answer to that.

We know what the consequences are. We know that there will be hundreds of job losses coming through the system at ASC over the coming period. We know that ASC will be shedding 250 jobs by Christmas. We know that there will be 500 more by the end of June next year. We're entitled to know, Minister, what you are doing about it. After all, aren't you the senior minister in this outfit? Aren't you the senior minister who is supposed to get all this under control? Or are you just there to do the bidding of Minister Pyne—who is responsible not for a naval shipbuilding program but for a national marginal streets campaign for the Liberal Party? That is what is happening here now. We're not getting a national naval shipbuilding program; we're getting a government preoccupied with its own survival. So you may try to wrap yourself in the flag, but you're not dealing with the fundamental questions here about the consequences of a policy process which you have lost control of. You have fundamentally lost control of it.

I want to know why it is that suddenly the government got so interested in naval shipbuilding. Did it have anything to do with the destruction of the automotive industry? Remember, the automotive industry that this federal government decided to drive out of this country? Remember, it cost us too much? We couldn't possibly sustain an automotive industry in this country. We couldn't possibly sustain the hundreds of thousands of jobs in the automotive industry. It cost us too much. But now we're prepared to spend $90 billion on a national shipbuilding program.

When will we cut steel for that? It will be 2022 for the first; that's the submarines. When will we do that? That'll be real good for the auto workers—won't it? They'll have to wait around for several years, hoping that there might be a job. But they won't get one at the ASC, will they? The ASC will be driven into the ground as well. Ask your colleague, the shareholder minister: what are you doing about the value of ASC? How do you deliberately rundown the value of the ASC and treat it in such a manner?

There is a simple matter here. Is the member for Sturt there to service the building of our national shipbuilding capability, or is he there to service the Liberal Party's short-term political objectives? We know they're terrified of losing seats in South Australia. It's a hell of a price to pay, though, in terms of our national security to play those sorts of games. It's a hell of a price to pay for the lives of auto workers and their families. It's a hell of a price to pay for the lives of workers and their families in the shipbuilding industry in South Australia. But it isn't limited to that.

What about the workers and their families at Austal in Western Australia; not to mention what's happened at the shipyard in Victoria or what's happened in Newcastle? This is a government that has a very limited view of the capabilities of Australian industry—incredibly out of date. We have the situation where Austal has the capacity to build vessels for navies all around the world. It can build them competitively, without subsidies and on time and on cost. It is a highly effective operation. But it doesn't seem to be good enough to build for the Australian Navy. It can build them for the American navy, but it can't build for the Australian Navy. How is that? How do you account for that? We don't have to mandate anything; we just have to ask a simple question: how does that situation arise?

We have the situation where a former minister in this government stood in this place and said, 'We can't be trusted to build a canoe' and then they wonder why hundreds of jobs are flushed into the harbour. How is it that this government chooses to sign off on documents which are now before the Senate committee, where it appears that Australian companies are being treated with such contempt? Why is it that this government relies on such outdated notions of what we are capable of? Why is it that this minister wants to try to pull the wool over our eyes and suggest that we are somehow breaching national security to ask questions like this? That's the issue that's before us. What we have is a government that is preoccupied with its own security; a Prime Minister preoccupied with his own tenure in office—preoccupied over whether or not he'll be able to get through to the next election and stay in office.

The Senate committee will need to meet again. We will need to ask Mr Gillis why he made those calls. I'm sure he'll be looking forward to having a talk to us about that! We'll need to understand why the extension of time was provided. Remember, there is such an urgency about these matters. I think we'll need to understand why it is that Australian companies have been treated so shabbily. Why is it that good discussions were being held between ASC and Austal right up until the point that the documents were made available and suddenly closed? Why is it that this shoddy, shameful behaviour has gone on for so long? There is a deep mystery here, Minister, and I believe the Senate's entitled to pursue it.

We want to know why it is that this government has treated Australian manufacturers in such a shameful and contemptuous manner. Whether you like it or not, Minister, we will be pursuing those matters. Whether your government finds it embarrassing will not change the fact that this has nothing to do with national security and everything to do with the government's political security. Frankly, that's not an excuse that washes within this chamber. Thank you.

Alex Gallacher (SA, Australian Labor Party) Share this | Link to this | Hansard source

I too rise to make a contribution in this debate on an order for the production of documents in relation to shipbuilding. The first thing I want to say, as the chair of the Foreign Affairs, Defence and Trade References Committee, is that we get notified every year, every estimates, of the projects of concern. It's intriguing to note that all the projects of concern currently listed by the department are a result of limited tender. If you look at the projects of concern, they are all limited tender projects. So what we're asking for here is more clarity, more transparency, more openness, about the expenditure of billions of dollars worth of taxpayers' money, because we do not want to end up with another project of concern. I will give one example of a project of concern: the OneSKY project, which Defence is a huge partner in. It ended up with one preferred tenderer, at a cost deemed not to be value for money for the Commonwealth. That was the outcome of $400 million-plus of Defence's expenditure.

Marise Payne (NSW, Liberal Party, Minister for Defence) Share this | Link to this | Hansard source

Not a tender run by Defence.

Alex Gallacher (SA, Australian Labor Party) Share this | Link to this | Hansard source

I take the minister's interjection. It was not completely run by Defence. But it would be no surprise to those people in Defence that the chairman of Airservices Australia is a former Chief of the Australian Defence Force; so they have a fair bit of sway in all areas of Airservices. Anyway, I will get back to the point of concern. I sat through the contributions from Senator Xenophon and Senator Carr. I'm not going to repeat the statements they made, but it's really intriguing to note that, out of all the First World navies, we are the only one to ask foreign shipbuilders to build in country without requiring a local partner to lead the program. There are countries that do that—Belgium, Saudi Arabia, the Philippines, New Zealand, Norway, Indonesia.

Senator Payne interjecting—

Look at First World navies. We are a First World navy, and we are asking a foreign shipbuilder—we accept that the foreign design is probably applicable—for a local build. All the nations that have local design, local shipbuilder, local build have moved from foreign design, local shipbuilder, local build. So that's where you should start. But Australia's going to be an outlier, in that we're not requiring the people who have capacity to build ships in Australia to be part of the process. It is astounding that the RFT actually writes them out. We're going back to the days pre-Senator Payne, to the former minister, who did say in this chamber that he wouldn't trust ASC to build a canoe. That came around after an Australian National Audit Office report said that there's no lack of productivity with the workers at ASC; it's the fact they have to do the job three times—not once, not twice but three times—because Navantia and the other people who gave them the plans weren't giving them to the workforce in a way that they were able to do it once, on time. The Australian National Audit Office said there was no lack of productivity amongst the workforce; they simply had to do the job multiple times.

The government does not realise that we've gone on from that stage and that people are skilled. There is tremendous learning vested in ASC. You've paid the price. You've got management right. You've got them on track doing a good job. But you actually wrote to or rang three of the preferred tenderers and said, 'You don't have to engage the workforce and you don't have to talk to them.' That seems me to be quite astounding. And we wouldn't have known about this unless someone had leaked a document.

Let's go to Austal. Senator Carr more or less said it all. This is a company that sells ships to the Vikings! It sells ships to Denmark. It is building ships in the United States. The evidence we had before the committee was very explicit and clear—there was tremendous engagement with all of the preferred contractors. There was tremendous engagement with both ASC and Austal until Mr Gillis made those phone calls. As Senator Carr says, the committee will have to ask Mr Gillis about the intent of those phone calls.

But what's really tragic here is that there is probably a one-off opportunity—I accept the jobs will be in South Australia. I don't think anybody's arguing that there's not going to be a lot of jobs created and sustained for generations in South Australia. But what we really want is someone who's going to take charge of the export potential. If we're really serious about our sovereign shipbuilding potential, we should use this enormous investment of taxpayers' money to expand the skill, to get the people into the training college, to get the design capability, to build ships and sell them to other people. Despite all the criticisms of the motor vehicle industry, we know that, as it's approaching its closure—$1.2 billion worth of cars into the Middle East. When the dollar was 72c, we were building Camaros for the American market. The California police would order stuff from Australia. That was because they had design capability built out of investment in manufacturing.

We have an opportunity to do that in shipbuilding now. We can not only make these ships with an Australian workforce; we can get that Australian workforce to such a place that they will be making, designing and exporting. And that's the vision—and I have to say this in this chamber—that the CEO of Austal is selling. And he sold me. Without any taxpayer subsidy, they can build big ships for the American navy. Without any subsidy, Austal and Incat, a Tasmanian company, lead the world in design and sale of aluminium ships. I'm up for the challenge. They wanted to team with ASC, cut steel and make steel ships. That's what this is about. With $35 billion going in, what you get is a fully productive industry in Australia capable of exporting to the rest of the world and making $10 for every dollar that goes in. That's the challenge here, which I don't see either Minister Pyne or Minister Payne taking up.

When you have that RFT leaked, it looks as if you want to write out Austal and write out ASC. If their evidence to the committee is that all discussions ceased forthwith, well, there are, seriously, some questions to answer about an incredible opportunity for Australia and an incredible opportunity for manufacturing in Australia. I don't think that politics should have anything to do with this. Where practical and possible, we should be able to contribute as an opposition, or Senator Xenophon as a participant in this Senate, for a good outcome for Australia. The way we're going at the moment, we're going to end up, I fear, with another project of concern. A lot of those on the other side—and I don't include the minister in this—who are relying on the bureaucrats in Defence have ended up with projects of concern. When we were in government, we ended up with projects of concern.

So what we need to do is have as much transparency as absolutely practical and possible, recognising there is always commercial-in-confidence. But someone needs to answer to the committee and the taxpayers why we're not looking at this export opportunity. It may need to grow in the three, five or 10 years. Why are we saying we can only have BAE or Fincantieri? The reality is: where is their interest going to lie at the end of this? Their interest is going to lie with their nation. Why don't we have sovereign capability in Adelaide or in South Australia. The supply chain which grows from that would be enormous. It really is quite mystifying that we have ended up in this situation. What we have been asked to believe is: 'Don't worry; there'll be lots of jobs.' Well, I think taxpayers are entitled to more than just jobs; they're entitled to an export opportunity which should be grown out of this project in the whole of Australia.

Question agreed to.