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The British government is employing diplomatic pressure over a $35 billion warship contract, despite the design existing only on paper. By Karen Middleton.

Britain lobbies Defence to take risk on warships

In the late 1960s, after the Australian government abandoned plans to buy new military fighter jets from the British Aircraft Corporation and opted for the American F-111 instead, a young Australian naval officer visiting Britain was taken to a hangar on Salisbury Plain.

There stood a prototype of the British jet, the TSR-2 – the only one, as it turned out, that would ever be built.

The BAC’s pride and joy had become a white elephant after test flights revealed it couldn’t meet its design specifications without significant modification. The dramatically escalating costs prompted the incoming British government to cancel its purchase order.

Fifty years on, the now-retired Australian officer recalls his British host turning to him at the time and saying, bitterly: “The reason it never got built is because you Australians bought the American one.”

The Australian order was to have defrayed some of the British government’s costs. In other words, without the Australians acting as guinea pigs and funding the fixes for inevitable first-run mistakes, the British could not afford to proceed.

The young visiting officer, Chris Barrie, would eventually rise to the rank of admiral and, 30 years later, become chief of the Australian Defence Force. He hasn’t forgotten the exchange.

“When we went off and bought the F-111, we torpedoed the whole project,” Barrie told The Saturday Paper this week. “They never forgave us for that.”

Barrie is reminded of these events as the Australian government of 2018 prepares to sign one of Australia’s biggest defence contracts, worth $35 billion, with one of three international tenderers to build nine new warships, known as the SEA 5000 Future Frigate Program.

In the contest are British manufacturers BAE Systems, Spanish shipbuilders Navantia and Italian contenders Fincantieri. The British bidders are offering the most modern and technologically sophisticated ship, but it is also the only one that has not yet been built.

Once again, the British government has also placed an order for the new vessel, known as the Type 26 global combat ship, signing an initial contract for three. BAE cut steel on the first of those last year and the British government plans to order another five.

Britain’s defence minister, Gavin Williamson, said when the bid was launched that it was best able to meet the Australian Navy’s needs.

“It will further strengthen the close relationship between our two countries and support the continued development of an enduring national shipbuilding capability in Australia,” he said.

The Australian government has mandated that the winning bidder must have sophisticated anti-submarine capability and must incorporate particular specific elements, including the Aegis combat management system.

All three bidders have set up Australian offices and employ Australian staff. BAE can boast it has been here the longest, having had a presence in Australia for 65 years, now with a workforce of 3500.

The Australian government has a lot to weigh up. The frigate program is part of an $89 billion upgrade of the naval fleet and the government wants it to boost plans to establish a national naval shipbuilding industry. However, it needs to ensure there is enough work spread out at the right intervals to keep the workforce engaged and the vessels rolling off the production line.

A bad decision could see a rerun of the disastrous cost-blowouts and delays that have dogged shipbuilding projects in the past. It quite literally cannot afford to make a mistake.

The bidders have been lobbying furiously, spruiking their ships’ designs and capabilities and seeking to use every other advantage to win the massively lucrative contract.

As decision time approaches with no clear frontrunner, the lobbying has reached frenetic levels.

As well as their in-person persuasion, all have also been advertising strategically – especially in the airports through which the Australian decision-makers pass regularly – and have now started running television ads on Sky News, the network of choice in the offices of many cabinet ministers.

During the past year, key defence industry journalists and influential commentators have been flown to the bidders’ home countries to see things firsthand, and there have been detailed background briefings on the bids’ design strengths.

The British government has laid it on especially thick, using its existing diplomatic and defence ties with Australia through the so-called Five Eyes network to advocate for the BAE bid.

The minister, Gavin Williamson, visited Australia in January.

The next month, Britain sent one of its existing frigates, HMS Sutherland, to Australia on a rare visit to participate in anti-submarine exercises with the Royal Australian Navy off the coast of New South Wales.

Defence Industry Minister Christopher Pyne toured the Type 23 ship – the forerunner to the Type 26 – and issued a statement to mark the occasion.

“As we are developing a sovereign Australian naval shipbuilding industry it is crucial we seize opportunities like this to exchange expertise with other leading maritime states,” Pyne said at the time.

“As we embark on the $35 billion Future Frigate Program to build nine anti-submarine warfare frigates in Australia, seeing the full capabilities of all nations helps inform the Australian Defence Force and our industry partners.”

The British campaign has put a few noses out of joint.

There are even mutterings in defence industry circles that the bid has had royal treatment, with Prince Charles attending Australian commemorations of the 100th anniversary of the battle of Villers-Bretonneux in France – perhaps overlooking that His Royal Highness also attended the Anzac centenary commemorations at Gallipoli in 2015.

The yet-to-be-signed free trade agreement between Australia and Britain is also in the mix. In contrast, the completion of Australia’s free trade deal with Europe was announced this week.

Industry insiders observe that the looming Brexit and its potential to harm British access to European markets is making Britain even keener for the Australian contract.

Each bidder is promising to involve Australian industry in the build and offers possible future opportunities for access to the global supply chain to varying degrees, though an accurate assessment of these prospects is impossible in advance.

The challenge for the nation’s security ministers is to eschew all the schmoozing and strongarming and untangle the grand promises to apply a clear-eyed national-security, national-interest test.

Each bid has its particular strengths. An Australian Strategic Policy Institute (ASPI) analysis published last week rated the Spanish bid for Navantia’s F-5000 vessel the least expensive and BAE’s Type 26 global combat ship likely to be the costliest, based on publicly available information.

It found the Italian Fincantieri’s FREMM frigate was designed with the capacity to carry two anti-submarine helicopters but the other two could each have their single capacity upgraded.

ASPI rated the Italian and Spanish designs proved, because their ships already exist, while the British one does not. Theoretically, that makes the British ship the riskiest.

The institute noted that the Spanish ship is compatible with another Australian Navy ship, the Hobart-class air warfare destroyer, which Navantia has already been building in South Australia.

Navantia and its supporters argue this is an advantage, because the workforce at Adelaide’s Osborne shipyard, where the frigates will also be built from 2020, would not need extensive retraining.

But its opponents point out that the design is older, the workforce has already begun to wind down as the destroyer build nears its end, and the shipyard is being upgraded to what will effectively be a whole new facility, reducing the advantage of familiarity.

Fincantieri has never built ships in Australia.

ASPI also points out that BAE’s ship has advanced quietening measures built in, while Navantia’s ship is potentially the noisiest, without an electric drive. Again, modifications could be made.

Both BAE and Navantia are also in the running for a Canadian frigate contract.

Navantia and Fincantieri are shortlisted for a United States contract and have their ships already in service in several NATO countries.

It’s a complicated, high-stakes decision due any day.

Defence chiefs will be asked for their collective assessment, which may involve recommending one if they believe it is a stand-out, or eliminating one and proposing two options.

In the end, the politicians will decide.

Fincantieri’s Australian director, Sean Costello, told The Saturday Paper: “This tender is about which is the proven ship, built on time and on budget with an industry plan that makes us sovereign as a shipbuilding nation. And only Fincantieri delivers that.”

Warren King, chairman of Navantia Australia, said: “We are fully committed to the federal government’s objective of nine highly capable ships and a sovereign Australian shipbuilding industry with a complete design production and delivery capability, by an Australian-owned company.”

The soon-to-be-retired vice-chief of the Defence Force, Vice-Admiral Ray Griggs, has twice offered a public, personal view that defence procurement should shy away from untested technology and hardware. He argues that we should “step back from the bleeding edge” – the colloquial industry slang that amalgamates “leading” and “cutting” edge to illustrate the risks attached. Instead, he says, Defence should reap the benefits of “commonality”.

But the pressure on the government to go with the British ship has been mounting.

The British government is backing in the BAE bid with the full force of the diplomatic relationship.

BAE’s Australian chief, former colonel Gabby Costigan, has irritated opponents by publicly running down their bids, rather than sticking to the protocol of just talking up her own.

She had another dig this week in an interview with Sky News, which leaned heavily on highlighting the strategic bilateral ties.

“The relationship, obviously, between the Royal Australian Navy and the Royal Navy, with that Five Eyes strategic alliance, is something that my competition can’t match,” Costigan said.

“There’s a huge opportunity for the Australian Navy to leverage that Five Eyes partnership. There’s an opportunity for technology sharing, for interoperability, for lessons learnt between our nations, to share intelligence, to build capability together. It’s a fantastic opportunity for the Australian Navy.”

The British bidders are playing down their biggest disadvantage – that their ship exists on paper only – and playing up its component technologies instead. The Royal Navy has effectively become part of the bid team, spruiking the Type 26.

“De-risking as much as you can now by using known technologies that are world class – that’s the one thing that we’ve got and we’ve got it right this time, absolutely right on the button here in the UK,” Royal Navy captain Tim Green told the Defence Connect website recently.

“We are going in with technologies we know work and are at the very top of the game and have got many years’ life ahead of them.”

Australian defence analyst and retired rear admiral James Goldrick does not believe diplomatic factors will count for much in the end.

“The relationship with the British can survive us saying, ‘No, we aren’t going to buy your ship,’ ” Goldrick told The Saturday Paper.

He believes it’s a genuine three-way race: Spain, Italy and Britain – but not necessarily in that order.

Goldrick believes whichever is chosen, New Zealand should be approached to buy another one or two ships off the Australian production line, offering the potential for a reduced-overheads deal and keeping the local Australian workforce engaged to avoid what’s known as the “valley of death”, losing and having to retrain skilled workers in between major shipbuilding projects.

Relationships aside, a key focus of whichever design is chosen will be its ability to engage in anti-submarine warfare.

After 17 years engaged in a series of land-based operations in Afghanistan, Iraq and Timor-Leste, the Australian Defence Force is turning its attention back to its maritime capabilities.

The number of submarines cruising the oceans to Australia’s north and west has increased exponentially in the past two decades, from a range of countries – friendly and otherwise – including North Korea.

These are equipped to do all kinds of things, including, potentially, interfere with the undersea cables that keep Australia connected technologically to the rest of the world.

That makes detecting them and preventing any hostile action a crucial capability.

Adding to the general pressure on cabinet’s national security committee, an Australian National Audit Office report published two weeks ago warned the overall naval shipbuilding program was at “high to extreme risk” of delays and cost blowouts.

It also warned about the potential impact of compressing decision-making and bringing forward program start times to avoid losing the workforce.

It quoted a 2016 internal Defence review that found it was not going to be possible to begin the frigates’ construction in 2020 as planned.

“Schedule compression presented such extreme risk that cost and schedule overrun was likely,” the review had said.

“To proceed on the current schedule had the potential for severe reputational damage to Defence and the government.”

It described the decision to insist on the installation of the Aegis combat system as a key risk because of modification costs – something that contravened the principle that adaptations should be kept to a minimum. And while it found Defence was meeting its milestones in naval construction at present, it had not updated its old cost assumptions.

The government’s decision involves a lot more than dollars and deadlines.

In choosing a tenderer, it is weighing up design, capability, cost and production schedules, alongside future export and other commercial opportunities and local employment.

Tender documents obtained by former senator Nick Xenophon under freedom of information laws show the “local build” requirement is at least 50 per cent – a level some say should be higher.

Australia’s security relationships will likely be a factor, as will the domestic geopolitics of a government facing voters again soon.

But the ultimate test is one of protecting Australia’s national security and putting Australia’s interests first. Whichever it chooses, that will be the argument the government puts to the people.

Chris Barrie believes Australia should make sure it can build the Future Frigate Program entirely in Australia, in the event of another general war within the next 20 years, which he fears is a possibility.

He is somewhat cynical about all of the foreign bidders.

“I would imagine at this stage, these guys aren’t in this game for our good offices,” Barrie says. “They’re just here to sell things to us.”

For all the depth and breadth and history to the special relationship with Britain, he says, the British “are not an exception”.

This article was first published in the print edition of The Saturday Paper on May 26, 2018 as "Allies lobby Defence to take risk on ships". Subscribe here.

Karen Middleton
is The Saturday Paper’s chief political correspondent.

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