Sea Power 2010: Home port advantage? | ADM Apr 2010
What does this mean for the batching of ship repair and support contracts?
Katherine Ziesing | Canberra
Competition between government owned yards on Garden and Cockatoo Islands in NSW and Victoria's Williamstown yard began over two decades ago.
Since that time, naval shipbuilding and support for both the surface fleet and submarines has expanded around Australia's coastline.
These yards have gone through significant changes over the period.
Australian Defence Industries at Garden Island off Sydney and Williamstown were both sold off to industry with Thales finding a home at Garden Island and Williamstown going to Tenix, now BAE Systems, both under lease arrangements.
While the Williamstown yard is under a 99-year lease, Thales only has a home on Garden Island until 2013 and its future there has yet to be decided.
Cockatoo Island, which had been home to naval shipbuilding and support since the 1850s (with a convict workforce, mind you), closed in 1992, when machinery was sold off and about 40 buildings and several wharves demolished.
Work had begun to move elsewhere; Newcastle yards for mine hunters and more recently Air Warfare Destroyer (AWD) blocks, Osborne in South Australia for the construction of the Collins class and WA's Australian Marine Complex (AMC) managed CUF have all made major gains, predominantly in support-related work.
AMC
Almost a decade ago, the WA state government set aside $100 million, with the federal government chipping in $80 million under the millennium funding program to upgrade the site for not just Defence (22 per cent) but also oil and gas (31 per cent), marine (18 per cent) and resource (28 per cent) sectors business, with work split quite evenly across the board.
This $180 million has also been supplemented by $60 million worth of investment by various companies on site including ASC's dedicated submarine support facility and Chevron gas plans for a roll-on/roll-off and land-backed wharves.
The surrounding business and technology parks have also seen huge growth with businesses from all these sectors taking space in the development that is serviced by a high wide-load road system to other heavy industry areas in the region.
The CUF approach aims to maximise return for the state-owned enterprise by sharing time and space on AMC-managed facilities like the floating dock, transport system and sheds.
Access decisions are made on a case-by-case basis, with sections of the area fenced off for individual company use for specified times.
With companies using the site on a strictly ‘user pays' premise, they are able to expand their capability for specific projects riding the peaks and troughs of workflow.
AMC answers to a unique state government structure, in that both the Commerce and LandCorp portfolios have a stake in the project.
Service company AMC was contracted to manage the facility, acting as a liaison between the various companies on site and the government owner.
"This is a strategic national asset on the West Coast," Jonathan Smith, AMC's Marine and Defence manager, told ADM.
While the site did miss out on LHD and AWD-related work, AMC is keen to showcase the facility on numerous fronts.
The latest addition to the facility is the floating dock and transport system, commissioned in February this year.
The floating dock is based on a Clark and Scotland design that was evolved by Henderson-based Strategic Marine who built the dock modules at their Vietnamese yard and performed final assembly here in Australia.
The floating dock now means that the BAE Systems shiplift is not the only game in the area for businesses looking to get their craft out of the water.
The transport system is a German design, allowing the transport of a craft almost anywhere on the AMC site.
AMC has an expansion plan in place with six phases covering the eastern wharf, floating dock, transfer system, dredging, blasting and civil works, and electricity upgrade.
Future plans for the floating dock would see it expanded, under another two phases, to be large enough to cope with the 27,000-tonne LHD.
Initial costings for this second stage are done but no firm plans are in place at this stage, ADM understands.
On the Defence side of the house, HMAS Perth is alongside the BAE Systems facility undergoing the ASMD project (see P58 for more), while HMAS Farncomb is currently at ASC's facility after experiencing generator issues earlier this year.
The site was also used by BAE Systems to convert MS Delos into HMAS Sirius between 2004 and 2006.
Austal also has a home at the Henderson site and hopes to leverage off their US Navy successes, on the Littoral Combat Ship and Joint High Speed Vessel programs, into the Australian market.
"Our business is split at roughly 40 per cent military and 60 per cent civil at the moment," Bob Browning, Austal CEO, said.
"But that ratio could easily swap in the next few years."
Techport
The SA Techport site has seen $400 million invested by the SA state government, $120 million from ASC (the anchor company of the site with their shipbuilding business and submarine business separated by the new CUF) and other major developments in the facilities and associated areas with the 14-hectare supplier park more than half sold.
Babcock, Raytheon, Pacific Marine Batteries and Ferrocut are all among the companies to situate themselves near the shipbuilding hub.
The Maritime Skills Centre and AWD Systems Centre are at Techport, as is the Collins submarine program office that opened last month, co-located at ASC's submarine facility.
In February this year, Techport opened its own CUF, with a number of companies coming together to help fund the shiplift, a Rolls-Royce-built Syncrolift.
"The new Syncrolift installation is an important part of the Techport Australia development and was delivered on time and on budget," Andrew Dudgeon, CEO, Rolls-Royce Australia, said.
The 156-metre-long Syncrolift, which includes a ship transfer system from Norwegian company TTS that will move vessels between the Syncrolift and maintenance/build berths on shore, can accommodate a future increase of the Syncrolift to 210 metres, with capacity for Panamax-size (or LHD-size) ships.
Other Syncrolifts are already operational within Australia at ASC, adjacent to Techport Australia, at the RAN Naval Base in Darwin and at the Darwin Ship Repair and Engineering Company.
The site is also well placed for work on the AWD, LHD and Future Submarine programs with the 2009 White Paper guaranteeing that the Future Submarine will be assembled in Adelaide.
"The AWD project alone is estimated to deliver more than 3,000 direct and indirect jobs and an estimated $1.4 billion to our state over the next 10 years," SA Premier Mike Rann said at the opening of the CUF.
"Techport Australia includes the largest shiplift in Australia, capable of lifting a 9,300-tonne vessel out of the water; a 230-metre-long wharf designed to be lengthened if necessary; and a shipyard that has room to grow for future needs.
"This state government made the decision to go in hard against other states for lucrative defence contracts," Rann said.
Garden Islands
The creation of Fleet Base East at Garden Island (Sydney's HMAS Kuttabul) and Fleet Base West at Garden Island (Fremantle's HMAS Stirling) as home ports and the concept of home porting for classes of vessels has become increasingly important in Defence and the industry that supports it.
Sites have been rationalised, with both government and companies concentrating on creating a hub-like mentality.
However, this consolidation has not gone far enough, as the government has moved to reform how ship repair and maintenance is carried out.
"The principal element of the reform program is the establishment of long-term performance-based contracts for repair and maintenance activities in lieu of the current arrangement that is based on awarding a contract under a panel arrangement on each occasion," Greg Combet, minister for defence personnel, materiel and science, outlined at Pacific2010 earlier this year.
"This will lead to the batching of our requirements.
"This will affect the maintenance and repair of the Major Fleet Units - the eight ANZAC class frigates, the four Adelaide class frigates, the two Amphibious Landing Ships and the Heavy Landing Ship.
"The batching concept will be based on ship class and/or the home port for the ship; that is, the East or West Coasts.
"We also propose to extend the maintenance concept to new ship classes such as the Air Warfare Destroyers and the Landing Helicopter Dock Ships when they are introduced.
"An Invitation to Register Interest (ITR) was released by the DMO last December.
"The responses to the ITR will be used to gauge the level of interest in providing the services needed, down select the companies with the capacity, capability and understanding to undertake the contract, and inform potential primes about potential sub-contractors."
"Navy has made it clear during industry engagement sessions that they have a preference for staying near their home port," Jason Beer, BAE Systems general manager through life support, told ADM.
The cost savings are not just from steaming from port to port but also the personnel costs associated with having an entire crew away from their home base and families.
"On average we spend $150 million per annum on major surface ship repair and maintenance," Combet said.
"We would expect to see significant savings from this reform because the companies who win these three large, long-term contracts will be able to invest in their infrastructure, capital equipment and their workforce.
"This initiative will also provide better notice to Navy and ships' crews of the planned location of maintenance and maintenance patterns.
"As Minister for Defence Personnel I am pleased that this will also have the added benefit of improving retention."
But what does this mean for local shipbuilders and repairers, given their facilities and locations?
Would only two contracts, one in the east and one in the west like the home port concept, be considered?
"The December ITR looked for companies to describe their skills and competencies backgrounds in providing refit/maintenance services for the Australian fleet," Chris Lloyd, Thales Australia's naval vice president, told ADM.
"It then asked them to clarify what aspects of the total package they would be interested in bidding for.
"It's not a tender per se as no prices are being mentioned, but more about options [for the RAN and DMO]."
"The shift to batched contracts along with recognition of the home port issues represent a big step forward because it acknowledges that efficiencies of scale, and efficiencies in relation to crew retention and travel, are highly significant in getting the best deal for the Commonwealth."
"My expectation is that, around the middle of the year, they will identify a number of selected contractors to move forward on a more formal tendering process."
Thales has a home at Sydney's Garden Island, but as mentioned earlier, this is a lease arrangement through until 2013.
The NSW government has assured the RAN that it plans to keep Defence-oriented businesses on the site, but details of the state-run Maritime Hub capability are still coming together in the wake of a report into the site last year.
Thales currently has access to the site for numerous parts of their business, not just maritime elements, at rental rates well below commercial norms but this could change post-2013.
"Garden Island here in Sydney is a particular focus [for batching] but there is nothing to say we wouldn't be interested in support activities out in WA at the CUF, though we acknowledge that undertaking it in that fashion may be less optimal," Lloyd said.
"We're not great fans of the open CUF concept.
"We think it leads to inefficiencies and a lack of commitment to resources in terms of a skilled knowledge base.
"While a company is not paying for a facility that is not being utilised, it means that they're not employing people when they're not working.
"Where's the continuity of the workforce then?
"Our argument is that this will not provide maximum efficiency and productivity."
ITR responses
Responses to this ITR were due as ADM was going to press.
Industry briefings have given interested parties the impression that there could be a tender out in late 2010.
While members of the current DMO Ship Repair (Thales, BAE Systems, Forgacs and United) are expected to respond to the ITR, there is also the hope that new players will enter the market by responding.
This would leave the market open for the likes of Austal, ASC and others to join the competition for ship repair and maintenance.
"It's possible that some of the second tier companies will group together and try to come forward and we would welcome the options that they can bring to the table," Rear Admiral Peter Marshall, head of DMO's maritime systems division told ADM.
Some members of the panel have questioned this approach, as the four players already have excess capacity, given limited defence demand.
This leaves the door open for players that perhaps do not have a yard of their own, but have access to facilities through a CUF.
"These responses will help inform DMO on the contracting and tendering style they want to develop as well as shortlisted companies," Beer said.
"At this point in time there is no detail around the sequence of tendering [for the different ship classes] and the scope of the work.
"Most of our support work is conducted in WA and Sydney, where we have teams in place at the home ports.
"The batching concept is expected to provide more certainty for all involved."
"At the moment, we don't find out until potentially 10 to 15 days before the ship arrives that we've won the contract which impacts on the cost to mobilise the team and conduct the job, until the end of the job when you de-mobilise again," Beer explained to ADM.
"We are also able to leverage off some of the lessons learned in both our UK and US ship support businesses, particularly the US.
"The multi-ship multi-option contracting model in the US is where the USN batches up a series of ships and awards a three-year rolling contract.
"We've had local guys in that office looking at how this contract is delivered and what improvements the USN have seen in terms of both price and ship availability."
Facility upgrades
Both the SA and WA yards mentioned earlier have had significant government support to expand and update their facilities, while the likes of Forgacs have had no such support.
Forgacs has been actively engaged in a range of ship repair and maintenance activities at their sites in Newcastle, Brisbane, Sydney and Gladstone, covering most of the east coast.
In order to negotiate the peaks and troughs of Defence build cycles, the company works with the resource and marine sectors, for both construction and maintenance work.
"We do have a contract with ASC building AWD modules [29 blocks] and that keeps one of our shipyards busy up at Tomago," Tony Lobb, Forgacs Group General Manager, told ADM.
"The Newcastle floating dock is more suited to the batching concept support work."
"We have tremendous facilities for maintenance that are grossly under-utilised at the present time.
"We are doing what we can to make these facilities more attractive to the Navy.
"The NSW Government Defence Maritime Hub is part of that development.
"We believe that some of the Navy vessels should be based in Newcastle," Lobb said.
"We are making a case to Navy that basing their people here would make sense on numerous fronts.
"They need to bite the bullet and move some of the fleet out of Sydney and base them in other areas."
But whether or not Navy shares this view is up for debate.
ADM understands that Navy has no plans at the present time to change the current home basing arrangements.
"Home basing is very important to Navy's sailors," RADM Marshall said.
"If a sailor has been away from home for six months, the last thing he wants to do is come home, wake up the next morning and have to drive hours to another port for duty.
That is the Navy perspective and Navy is the DMO's customer.
The DMO must therefore consider this as a component of the total cost perspective of any contract."
The home port advantage would seem to be the key issue for the Australian ship repair industry as the community awaits the DMO's decision on how to proceed.
ADM understands that there would be an initial five-year contract with rolling options available but again, this will be clarified once the ITR responses are investigated.
But one thing is sure: with the AWDs, LHDs, future frigates and offshore combatant vessels entering the mix in the coming decades, current home ports will look a little crowded.