A View from Canberra: Notwithstanding thy capacity... | ADM July 2011

A Special Correspondent | Canberra

Every now and then the government makes a major decision on a defence matter and that’s fortuitously followed not long after by hearings of the Senate estimates committee at which defence officials get to explain what’s really going on.

So it was with Defence Minister Stephen Smith’s announcement of problems in the $8 billion Air Warfare Destroyer (AWD) program.

Smith rose in parliament on 26 May to reveal that this major project was running a year late. That was the good news, as the program would actually have been running two years late were it not for a major rescheduling of work on the

various hull modules. That will see work taken from BAE Systems in Melbourne and distributed to Forgacs in Newcastle and ASC in Adelaide and even back to Navantia in Spain.

Central to this was the BAE Systems yard where once Anzac frigates were assembled by what was then Tenix. BAE Systems initially missed out on any AWD work, with construction of 90 hull sections to have been performed by Forgacs in Newcastle, NQEA Australia in Cairns and ASC in Adelaide.

Each vessel actually comprises 31 blocks - the extra three house the sonar and are now being constructed in Spain and UK. Under the initial plan, NQEA was to build 36 blocks, Forgacs 30 and ASC 27.

But in June 2009, the government announced that BAE Systems would replace NQEA which had advised that it was seeking to restructure its business and needed more time to meet financial obligations.

The AWD Alliance reopened negotiations with NQEA and BAE, concluding, as then Defence Materiel Minister Greg Combet announced on 29 June, that BAE had demonstrated its ability to meet Alliance requirements and would take on NQEA’s work. Alas, as Stephen Smith’s announcement on 26 May this year amply attests, bringing BAE back into the fold doesn’t seem to have been a great call.

However problems were evident last year when BAE encountered problems with AWD keel blocks and the AWD Alliance reallocated construction of nine blocks from Melbourne to Newcastle.

Smith said BAE Systems’s problem was that it was also constructing 14 superstructure sections for the new Landing Helicopter Dock (LHD) vessels and was hard-pressed, and without help there would have been a two-year delay with ship number one, Hobart, arriving in late-2016. That will now be December 2015.

Post-budget defence estimates hearings fell the following week, allowing the Defence Materiel Organisation to explain just what happened. DMO deputy CEO Warren King, who joined the organisation in

2004 as AWD project manager, viewed the big picture.

“What we are talking about now effectively is an issue created by industry capacity,” he said. For AWD, much was done to minimise risk at the outset, staring with the choice of a modified existing ship design. The delivery timetable, unchallenged up to now, emerged from consultations between DMO and industry.

The decision to build the LHD hulls offshore stems from industry acknowledgement that building two new ships in Australia was too much. But it has to follow that everyone was confident that AWD would not be a problem.

“I do worry about our capacity as a nation to take on these challenging projects,” King said, pointing however to substantial achievements in standing up an all new yard in Adelaide, hiring a skilled workforce and much else.

King said the problem was known and even with the 12-months delay, the project was in pretty good shape. A key element, the Aegis combat system is proceeding well, he said.

That raises the intriguing prospect that a major project has run into strife for reasons to do with cutting and welding steel rather than with the usual problems of software development and integration. Maybe that’s ahead, although Aegis is a well-developed system.

King said he performed the initial analysis of shipyard capacity ahead of the 2009 announcement of the preferred suppliers of hull modules. BAE, he said, was quite firm in insisting they had the capacity for all this work, outlining plans for investment to expand the site and to acquire new plant and machinery.

“We analysed all of that. We did think it was tight but not unreasonable,” he said.

That was a fair call as the yard, when run by Tenix Defence (taken over by BAE Systems in 2008), had been the successful builder of 10 Anzac frigates, laying down ship number one in 1993 and launching the last in March 2004.

“The obvious truth is ....they don’t have the capacity,” King concluded. “It is a relatively small yard by today’s standards. It’s demonstrated now that that can’t all come together in the required timeframe.”

“So my advice to government at the time was wrong.”

At one time it might have been tempting for all concerned to hope everything could be quietly made well - although there’s the absolute certainty it would eventually have produced embarrassing headlines.

DMO chief executive Dr Stephen Gumley said the company had acted with great maturity in ‘fessing up to the problem and developing a remediation plan.

BAE put its side through The Australian newspaper, blaming the delays on  Navantia’s technical documentation in which it identified 2,400 assorted faults, incorrect dimensions and dodgy welding guides.

Alas, that didn’t wholly convince the DMO. Gumley said on any big ship project there would be a large number of technical clarifications and 2,400 wasn’t exceptional. As well ASC and Forgacs were working from the same documentation without complaints while Navantia had turned out four ships with a fifth on the way.

“Frankly I think it’s just that BAE took on a little bit too much work for the number of skilled people they have and they have done the right thing by everyone in preparing to distribute it,” Gumley said.

AWD may not be out of the woods. King said DMO remained concerned about the amount of work ASC was facing in putting the modules together. Forgacs is now doing an excellent job but there was worry that they would take on one module too many.

BAE also faces one more big challenge when the LHD hulls arrive and they have to assemble the superstructure and put it on a ship. So why not send some work to NQEA, which was after all judged good enough in the first round? Unsurprising, this was avidly promoted by Liberal Senator Ian Macdonald, a champion of things north Queensland.

That would only involve work on ship three.

King didn’t slam the door but wasn’t wildly enthusiastic. He said there was no restriction on who might be engaged for the last ship but US research indicated involving too many companies could lead to cost and schedule problems, especially where the latecomer lacked production experience on the particular project.

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