Senator the Hon Mathias Cormann
Minister for Finance
Senator for Western Australia
Senator David Johnston
Minister for Defence
Senator for Western Australia
Date: Tuesday, 9 December 2014
MATHIAS CORMANN: Good morning everyone. The Government has taken the next major step to put our $8.5 billion Air Warfare Destroyer program back on track to deliver critical capability for our Royal Australian Navy.
After a competitive tendering process, BAE Systems, Navantia SA and Raytheon Australia will take on increased roles in the Air Warfare Destroyer program for an interim period, which will go to the end of July 2015. The increased involvement will drive immediate further improvements in shipbuilding performance.
The Government has been working and is committed to ensuring that this important defence project is put back on track and we are committed to stop the growing schedule and cost overruns, which we have inherited from our predecessors.
The previous Government had advice back as far as June 2013 that at that point, the Air Warfare Destroyer program was 21 months behind schedule and about $360 million above budget. Our advice since then is that the schedule overruns are closer to 30 months for ships one and two and about three years for ship three. The work that is to be done over the interim period between now and the end of July 2015 will focus on really putting a final number on the actual cost overruns.
The focus for us from here is on resolving outstanding productivity issues and lift performance. The good news is that we have turned the corner. The decision that we are announcing here today is a turning point. We are observing now green shoots in the performance of the Air Warfare Destroyer program. But of course there is still a lot of important work to be done. Suffice to say that putting a project of this complexity back on track involves many complex legal, commercial and probity issues, which is why the Government has been determined to work through this process implementing the AWD reform strategy in an orderly and methodical fashion. This is now a major next step.
I invite my good friend and colleague Senator Johnston to further add to those remarks.
MINISTER FOR DEFENCE: Thank you Mathias, this is the beginning and the start of a three point plan that I am going to bring forward with respect to the future of naval maritime capability in Australia. The first step you have heard about this morning and that is the step in the remediation of the Air Warfare Destroyer program. The second is to build a sovereign industry around submarines, focussing largely and dominated by the need to avoid a capability gap. And thirdly to build an industry around future frigates in Australia, provided that we can get productivity and successful outcomes from the first three ships, that is the successful remediation of the Air Warfare Destroyer program.
So today means that we have a remediation program for Air Warfare Destroyer, the problems of which you are all fully aware, such that we will introduce skills, design function skills from Navantia, we’ll introduce shipbuilding management skills from BAE, we’ll introduce integration and contract management skills with reach back from Raytheon. This is a very significant turning point for the program, it is the third remediation. We have inherited a significant problem, and we are now setting about the very difficult and complex task of putting in place a solution to that problem that we’ll see arrest the productivity issues, the cost issues and the schedule issues.
JOURNALIST: Ministers, a couple of questions. Is this step in the Air Warfare Destroyer problems talking about identifying the problems and then move on to solve them? And second question is to Minister Johnston you said building a sovereign industry around subs, what does that actually mean?
MATHIAS CORMANN: I will take the first question and then Senator Johnston will take the second question. We announced late last year a process to get to the bottom of the problems that we have inherited with the Air Warfare Destroyer program from the previous Government. We commissioned the Winter Review, which put forward a proposal for a Reform Strategy. Implementation of the Reform Strategy in a project of this size and complexity involves a series of complex legal, commercial and probity issues. Our focus has been all the way through to ensure we protect and maximise value for taxpayers from where we started, bearing in mind that we didn’t start with a clean sheet of paper. Now this is the next significant step. It is not yet the end of the journey. We are now announcing significant additional management expertise joining the team. Over the next period until the end of July 2015 there is more work to be done to get to the bottom of all of the additional costs that have been incurred to re-baseline the project and to really draw a line in the sand for the future.
MINISTER FOR DEFENCE: Thank you for the question Lyndal. What we have already said is that submarines are a vital strategic platform for Australia going forward. What we are seeking to do is to set up the necessary foundations for us to have, as I say, a sovereign industry, now in the near future there will be further announcements as to exactly the nuts and bolts and the mechanics of what precisely what we intend for that. But may I say this is a very important front of mind issue for myself and for the Government.
JOURNALIST: Senator, if you are having submarines built in Japan, which is a possibility, how can you even claim to have a sovereign submarine industry in Australia? Is that not slightly Orwellian?
MINISTER FOR DEFENCE: Well you are verballing me, you’ll have to wait to see the announcement, you will understand the plan, the policy, when it is bought forward, but can I say a lot of the premises you put on the table in that question are not correct.
JOURNALIST: Are you not looking to get them built in Japan?
MATHIAS CORMANN: No decision has been made in relation to procurement of submarines.
MINISTER FOR DEFENCE: No decision has been made.
JOURNALIST: So is the purpose of setting up that sovereign submarine industry even in principle at this stage, is that to lay a pathway to the possibility of building them in South Australia?
MINISTER FOR DEFENCE: The pathway is dominated by our need to avoid a capability gap, and the announcement will come forward in due course and you will see it all very clearly laid out then.
JOURNALIST: Just to clarify something, could a sovereign submarine industry define both building a submarine in Australia or maintaining a submarine that may be built elsewhere or largely built elsewhere?
MINISTER FOR DEFENCE: Brendan I know that’s a very important question, you will just have to wait for the announcement.
JOURNALIST: One of the things you were examining was whether the Air Warfare Destroyer hulls would be appropriate for a frigate/destroyer that would have an anti-submarine role or whether it would be too noisy. Have you reached a conclusion on that yet?
MINISTER FOR DEFENCE: That work is ongoing and we have the benefit of assistance from Navantia in doing that, and the third leg of the three point plan that we have set out will be further defined in the White Paper as to where we are going in that project, we have some design capability assessment that need to be done, we have put $78 million on the table to do that, that work is now actually occurring so that you can see that we are seriously dinkum about getting on with the job of future frigates, now whether or not that hull, and this is the question, and it is a very good question, whether that hull meets our needs from an anti-submarine warfare capability going forward for the future frigate, that is what we are testing right now.
MATHIAS CORMANN: The key here is that it is critically important that we get the Air Warfare Destroyer program back on track so that we can demonstrate a capacity to deliver any future shipbuilding project competently, on time and on budget.
JOURNALIST: Just in regards to what you mean by successful remediation. Are you hoping that this reform strategy will meet that three year delay and that $600 million blow out? Is that the ultimate aim? Are you trying to prevent further cost and schedule blow outs or what do you define by success of this program?
MATHIAS CORMANN: Success of this program is to deliver the three ships that have been ordered in the most efficient and effective way possible, bearing in mind that we didn’t start with a clean sheet of paper. We did inherit serious problems with this particular $8.5 billion program. We don’t believe that we can make up all of the ground that was lost in the period of the previous government, but we do believe that we have a job to do to ensure that we do the best we can from where we are.
JOURNALIST: But do you have a target for that?
MATHIAS CORMANN: Our target is to deliver those three ships in the most efficient and effective way possible as soon as possible. Right now, we still don’t have all of the information we need. There is a body of work to be done between now and the end of July 2015 to ensure that we get to the bottom of exactly where all of the cost overruns are at. The key here is to find the bottom of the problem that we have inherited and then to keep moving forward to improve the performance and to ensure the ships are delivered as quickly as possible, as efficiently as possible and as effectively as possible.
JOURNALIST: But if there are more schedule and cost blow outs, does that mean it is not a success and that means Australia’s shipbuilding industry future is in doubt?
MATHIAS CORMANN: We believe that we have turned the corner. The leanings from ship one are being deployed to ship two and ship three. Ultimately we will make a judgment on where we go from here and it will be a judgement for the Government as a whole on the recommendation of the Minister for Defence as to what should happen in the context of any future procurement around future frigates.
JOURNALIST: If you’re using that as a success or otherwise, as a benchmark for future decisions for the shipbuilding industry, how are you actually defining success?
MATHIAS CORMANN: As I said there is still a body of work to be done to really get to the bottom of where the line in the sand actually is. We inherited a problem. We inherited a deteriorating position, when we came into Government last year. This is a very complex, significant project. If we are not able to put this back on track in an appropriately efficient and effective way, then obviously that is going to be a problem in terms of demonstrating our future capacity to deliver these sorts of projects. Our commitment is to ensure that we are able to demonstrate our capacity to deliver these sorts of projects in the future and that is why we are so committed to get this project back on track.
JOURNALIST: And getting it back on track requires bringing back some of that delay?
MATHIAS CORMANN: Getting things back on track means that you need to scientifically quantify the problem. The reason why we have inserted significant additional expertise from BAE Systems, from Navantia SA and from Raytheon Australia, is to help us improve performance further but also to help us get to the bottom of all of the costs overruns in some detail so that we can put a new baseline in place and put some new targets in place moving forward. All of that will be determined and announced sometime after July 2015.
JOURNALIST: Senator Johnston, on a slightly related topic, at least one of your colleagues has blamed your comments on the trouble that the ASC may have with canoe manufacture for difficulty the South Australian Liberals had in the by election on the weekend, were you partly to blame for the lower vote.
MINISTER FOR DEFENCE: Well Lyndal I think I would just I reject the premise of that, given that the Labor Party have a primary vote of 27 per cent, I just reject the premise that I had much to do with it quite frankly.
JOURNALIST: This is one of your colleagues that is making the comments do you, is there…
MINISTER FOR DEFENCE: Well I think I just answered that question.
MATHIAS CORMANN: Do we have any more questions on AWD, otherwise we might ...
JOURNALIST: Well related on submarines, Minister Johnston, you say that you are creating a sovereign submarine industry to avoid a capability gap, surely the most risk free of avoiding a capability gap would be to buy off the shelf submarines from overseas, how does creating a sovereign submarine industry actually help with that?
MINISTER FOR DEFENCE: Well if you are expecting me to give an announcement today as to what the exact route and way forward is, you will be a little disappointed. What we’ve realised is, is that if we are to have a highly capable submarine capacity that is regionally dominant, we must have the underpinnings of a successful, sustainable submarine enterprise or industry, and that’s the first step, to establish that, and that’s what coming announcement will deal with, the nuts and bolts of precisely that, and I don’t what to take it any further today because it’s an important announcement and you’ll have a lot more to hear and see in the near future.
MATHIAS CORMANN: Final question.
JOURNALIST: The Coalition promise very clearly before the election that it would build 12 submarines in South Australia, that’s, you’re saying now that’s clearly not (inaudible)
MINISTER FOR DEFENCE: Nick let me just clarify something which you and particularly the Labor Party fall into error on. When I was down in Adelaide I was given two options that were left on the table – son of Collins and a bespoke Australian design. I actually believed what the Labor Party was saying. I actually swallowed whole the complete disregard for honesty and truth that they had for the Australian people in saying there were two options still on the table, I thought there was something happening, I thought there may have been a contract, I said at the time, we will go with the Labor Party’s policy on these submarines unless it was a fantasy. For your benefit and for everybody listening to this I can tell you what Labor did with submarines was fantasy. The box was empty save for a cobweb in one corner, they did nothing. They didn’t even open the project, didn’t even commence to sign a contract, to do anything in support of our future submarine capability, that is why we are in a very precarious position over time, I hope I have made my position clear on that promise.
JOURNALIST: So you are blaming Labor for a broken promise?
MINISTER FOR DEFENCE: Absolutely, they misled the whole of Australia to say we are doing something on 12 Walt Disney style submarines set out in the 2009 White Paper, then did nothing, then did absolutely nothing and we are left to clean up the mess quite frankly. Thank you.