As a war breaks out between the Defence Minister’s Office and his Department, and as the Auditor-General hands down another scathing annual Defence Major Projects Report, Rex Patrick examines the Future Frigate Farce and explains why Richard Marles and the Defence Diarchy has to go.
"A shambles in Defence leadership
On Tuesday we saw media reports that the Future Frigate Program will likely be reduced from nine ships to three.
On Wednesday Senator Lambie stood up in the Senate chamber and sum up the Defence Department as a “very, very expensive basket case”.
On Thursday there were more reports in the media, this time triggered by the blame game that’s erupted between Defence Minister Richard Marles’ office and the most senior officers of the Defence Force and his department.
Competitive leaking has surged on both sides of Lake Burley Griffin, the likes we haven’t seen since Joel Fitzgibbon lost his job as Defence Minister back in 2009.
On Friday, the Auditor-General release his annual report into the 20 current major Defence projects revealing, “The total approved budget for the 20 Major Projects has increased by $22.8 billion (39%) since initial Second Pass Approval by government” and the “total schedule slippage was 453 months (23%) when compared to initial project planning”.
Something has to happen with the dysfunctional Defence leadership, and what’s required is not what happened on Australia Day with the award of the Order of Australia to the Secretary of Defence, Greg Moriarty, on Australia Day. For the past six years he’s presided, with a bloated salary of almost a million dollars per annum, over what can only be described a shambles. Talk about devaluing the honours system.
I’ll come back to what needs to happen.
Frigate trim
It’s an old joke from the BBC TV series “Yes Minister” that the ship of state is the only ship to leak from the top.
It’s nowhere truer that in our Defence Department.
This week another leak coming from inside Defence indicated that the Government may take the troubled nine ship future frigate program and chop it down to just three ships.
That could only be described as just plain stupid.
Most of the cost of designing and producing a new class ship comes with the first ship. Most of the cost of fixing problems with a new class of ship comes with the first second and third ship. It makes no sense at all to limit an order to three ships.
If Defence think that the future frigate ship design is good enough to buy three to put our sailors in and send it in harm’s way, then they should continue with the nine build program so that they can bring the unit cost down over a large build.
If Defence thinks the ship is a dud, it should cut our losses now and move to an off-the-shelf design, built here in Australia starting later this year.
Of course, such a decision would involve admitting to another massively embarrassing failure.
But it looks like dumb and dumber are again in charge.
Selection incompetence
It’s worth looking into the Future Frigate program.
When the program first became a topic of discussion inside Defence way back in 2014 (yes, to go from an initial thought to still having no future frigates at all has taken Defence the length of World War I and World War II and then some) the plan was to go with an off-the-shelf design – that is, a design that was already at sea working.
They set a budget at an eye watering $30 billion dollars.
When the tender came out in 2016 the position of the Department was clear – they wanted a military-off-the shelf design with minimal change.
Subsequent investigations by the Auditor-General and Senate have revealed that Defence departed from that tender requirement without any process. They selected a design, BAE’s Type 26 frigate, that was not off-the-shelf and involved significant engineering, weaponry and other technological changes (into what is now referred to as the Hunter Class).
We now know from an Auditor-General audit and formally Secret – Australian Eyes Only independent review, that the down selection process was fundamentally flawed. All the focus was on capability – paper capability as opposed to fielded capability – and, contrary to law, there was no value for money assessment.
Documents recording the decision making processes of senior defence leadership do not exist. Defence Secretary Greg Moriarty AO can’t explain any of this.
At down selection the program’s cost had risen to $45 billion – a fifteen thousand million dollar increase – and the program is now more than 18 months behind schedule. Even with a $45 billon budget, the Auditor-General has found a further bureaucratic shambles and run-away costs.
Overweight and other problems
One of the big problems with the Hunter Class is weight. It went from around 8,800 tonnes to 10,000 tonnes.
Significantly extra weight means the propulsion system can no longer achieve the planned top speed, and that for any given speed more strain will be put on the propulsion system, lowering the ships range and meaning that the ship is nosier. That’s not a good thing for an anti-submarine frigate.
The new Auditor-General’s report details the ongoing concern, “There is a risk that [the Hunter Class Frigate] design may exceed the naval architecture limits on weight and stability at the completion of the [design and productisation] scope, which may limit or provide in-service growth margins that substantially limit future capabilities.
There are a range of other technical problems that were discussed in the Senate in February 2022 after an internal Defence report was leaked to the late Senator Kimberly Kitching.
So far the project has spent $2.6 billion dollars and we haven’t started building a ship yet and by the time Defence gets a ship in the water, if one bravely assumes there will be no further delays, it will be after four World War timeframes.
While the taxpayer is now suffering, and national security has been harmed, the person who was instrumental in pushing the BAE option, Tim Barrett, has left his job as the Chief of Navy and taken up work as a paid advisor to BAE.
Groundhog Day - Including for AUKUS
So, Defence contracted BAE to build a frigate that was not off-the-shelf. The first was to be built in the United Kingdom and the second was to be built in Australia.
With all that has happened, have we not learned? Apparently not, our Defence leadership are true masters of the flat learning curve.
The five AUKUS SSN submarines Defence proposes to acquire from the UK are not even paper boats. The first will be built in the UK and the second will be built in Australia. The only difference is, with a budget of $368 billion, the outcome will be so much worse.
If Defence looked at the future Frigate program honestly, they’d cancel the AUKUS subs. But self-reflection and honesty are rare characteristics among our bloated Defence top brass.
Instead, they’ve doubled their bets again and again, each time hoping they have something that’s too big to fail, or at least that they’ll have moved to a cushy consultancy before the proverbial hits the fan.
No doubt some of our admirals, generals, air marshals and top Defence bureaucrats believe that AUKUS is too big to fail.
But rest assured in the real world of military strategy, conflict and international relations, failure can come fast and hard.
Services no longer required
Over and over Defence is failing the public when it comes to procurement.
The diarchy at the top of Defence needs to go, and so does the uninspiring Defence Minister. Services no longer required, gentleman!
We the need to bring project management discipline into procurement decision making. Right now, we have admirals, air marshals and generals with little project management experience making recommendations on procurement to cabinet ministers who have no project management experience.
The Defence Department often looks back to the First World War as the source of Australia’s military traditions.
But it’s not the Diggers of ANZAC that our Defence elite today resemble.
They have much more in common with the medaled fools of the creaking Austro-Hungarian Empire; incompetent marshals and generals, commanders who preened themselves in peace before leading to catastrophe a military force bereft of adequate munitions, equipment and logistics.
Without radial reform, our current Defence leadership will at best cost us dearly in procurement ineptitude and financial waste. They may well cost us much more than that.
Drastic change is needed, for the sake of servicemen and women who are being asked to defend us with aged and obsolete capabilities, and for the sake of our national security."
The Department of Defence hates people knowing how badly mismanaged its major projects are. But when it tried to stop the ANAO from checking, its moves backfired. The auditor-general has revealed that the Defence Department’s mismanagement of major projects has continued to worsen — as have its efforts to use national security to avoid accountability for maladministration costing taxpayers billions. And it’s in defiance of Defence Minister Richard Marles’ claim that Labor was bringing a new era of competence and transparency to the portfolio.
Two years ago the auditor-general revealed that Defence’s inability to manage projects designated as “Major Projects” meant it was running a total of 405 months late — especially as Defence drifted back to its bad habit of rejecting off-the-shelf purchases.
A few months after Labor was elected, Richard “call me deputy prime minister” Marles promised an end to the dysfunction that he blamed on the Coalition. “The problem under the former government was that defence ministers failed to provide the leadership needed to effectively manage those risks,” Marles claimed, promising that Labor would ensure “Defence can deliver the capabilities ADF personnel need, when they need them; and in doing so, to improve the defence of Australia” through greater accountability and monitoring of projects, including “providing troubled projects with extra resources and skills.”
An auditor-general report at the end of 2022 demonstrated the need for reform: it showed major blow-outs in the cost of Major Projects and Defence continuing to refuse to implement nearly a decade’s worth of recommendations from the Australian National Audit Office (ANAO) and the Parliament joint committee on public accounts and audit on better governance. Significantly, the report also revealed Defence was now using national security as an excuse to refuse to provide information, preventing the auditor-general from checking the extent to which project delays had worsened.
The latest ANAO report shows things have deteriorated further under Marles: the total project delay has blown out to 453 months and total budgets have blown out by 7.8% since final approval. Average project slippage has now gone over two years to 25 months.
While some of the cost blowouts are down to exchange rate movements, significant changes in scope or indexation, a major source of increased cost is Defence acquiring far more of some projects than originally approved. The F-35 is a good example. According to the ANAO, the F-35 project has had a “net increase of $13.7 billion, comprising $10.5 billion for 58 additional aircraft in 2013–14, $2.8 billion for exchange rate variation and $0.4 billion for price indexation”.
The F-35 will go down in history for its truly spectacular cost blowouts and delays — and for its poor quality. Nearly a decade on from Tony Abbott mugging and gurning in a cockpit, the plane continues to have a poor availability record and persistent maintenance problems, according to the latest Pentagon report. Just 9% of the US F-35 fleet is capable of performing the plane’s full mission capability. “The operational suitability of the F-35 fleet remains below service expectations and requirements,” the Pentagon report concluded. Similarly, here in Australia, the ANAO notes that the F-35 won’t deliver its purported capability as scheduled.
The F-35 is one of a dozen projects for which Defence refused to provide publishable information to the ANAO on the basis that it would “cause damage to the security, defence or international relations of the Commonwealth”. In 2021-22, Defence withheld information for just four projects. As the ANAO notes, this “provides a reduced level of transparency and accountability to Parliament and other stakeholders”. But Defence turned out to be too clever by half — because so many of the projects now had non-publishable slippage data, the ANAO was able to compile an aggregate assessment of project slippage without enabling individual projects to be identified.
Far from rectifying the Defence mismanagement of major projects that characterised the Coalition’s years in power, Marles has presided over both a decline in Defence’s performance and an increase in its eagerness to cover up its incompetence with claims of national security. Meanwhile, Labor is handing the department responsibility for Australia’s biggest-ever defence procurement and the introduction of nuclear-powered vessels for the first time.
Will Defence invoke national security to hide cost blowouts and delays likely to result from AUKUS?
Today (20 February 2024) the Albanese government is blaming the former government for a $20bn black hole in Australia’s naval shipbuilding program, as a review finds Coalition announcements to fund new frigates were unfunded.
Labor, pointing to the findings of an independent analysis of the navy’s surface combatant fleet, claims the former Coalition government’s $45bn commitment to build nine new Hunter-class frigates for the Royal Australian Navy will actually cost $65bn.
It notes the $20bn funding gap is on top of $42bn in announcements without funding allocated that were identified in the defence strategic review released last year.
Today, the government will release the review into the surface combatant fleet, as well as its response to the findings, which will include a commitment to increase the overall size of the fleet and hasten the delivery timeframes.
The defence minister, Richard Marles, in a foreword outlining the government’s response to the review, noted the new review found “the current and planned surface combatant fleet is not appropriate for the levels of risk we now face and that cost pressures already existed in the program”.
Of the government’s commitment to expand the overall size of the fleet, Marles said:
"This will see navy equipped with a major surface combatant fleet twice as large as planned when we came to government – and with more of these new surface combatants in the water and operational sooner."
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