A recent lesson: the AWD experience
Australia’s present procurement system is modelled on the recommendations of the Kinnaird Review. Projects are approved in a ‘multiple pass’ process in which significant investment (up to 10% of project costs) can be made before final approval in order to identify and, hopefully, retire risks. This approach is designed to treat projects in business‑like terms, while including the military (the eventual end users) in the development of the proposal(s) that will go to government.
Projects are built in an iterative fashion, focusing on government engagement and buy‑in, preservation of the government’s commercial position and on developing an understanding of the risks and actual scope of its commitment. This gives the National Security Committee of Cabinet multiple opportunities to consider proposals working their way through the system.
One of the first major tests of the Kinnaird process is the AWD project, which went through the two‑pass process and saw hundreds of millions of dollars invested in design and risk reduction work before the final approval in 2007. In many ways it is simply too early to tell whether the project will go on to be a success. Some of the risks identified in the approval process won’t be retired until the ships are at sea conducting trials and being accepted into service. But it is worth exploring some aspects of the pre‑approval phase to see what they might portend for the submarine project.
In re‑visiting the recent history of the AWD project, the first observation—and a valuable lesson in itself—is that commonly‑held preconceptions about the AWD program did not stand up to scrutiny when tested. The ship design and the shipbuilder outcomes were not those identified as the ‘early favourites’ by industry observers. Had that ‘group think’ become accepted wisdom, the AWD project would look very different from the one currently underway.
In particular, on announcement in May 2005 that the Navantia F‑100 frigate would be retained as a design option, many people simply dismissed this option as a benchmarking exercise, or worse still as the creation of a ‘stalking horse’—an option retained in order for the illusion of competition to be maintained while the ‘preferred’ evolved Arleigh Burke ship made its way to final approval. History now shows that the stability, and hence lower risk, of taking an existing design into the build phase was a consideration that overrode other (mostly capability‑based) concerns for a project with no shortage of other ‘firsts’.
Indeed, many considered the whole project to be the ‘wrong‑way‑around’, with sequential selection of a combat system, systems integrator, shipbuilder and, finally, a ship designer. But in reality this was the most appropriate path when weighed against our unique circumstances. For example, the early purchase of the Aegis system by government through a US Foreign Military Sales contract bought precious time, delivered the core capability, enabled design and builder selection (but not at the exclusion of competition) and retired a key risk.
The original 1999 vision (which was reflected in the 2000 Defence White Paper) was for an essentially ‘off‑the‑shelf’ build of an existing European frigate design. But in 2000, Navy put forward a requirement for a ship capable of firing the Standard‑2 missile. This change of scope saw the estimate of $3.5 billion in the White Paper become ‘between $4.5 billion and $6 billion’ in the 2004–14 Defence Capability Plan. As we now know, that figure was still optimistic.
The Kinnaird process revealed the true cost of the project and proved that a commercially contracted cost is more credible than any earlier estimates. There are two chief observations about the final $8 billion price tag for three ships. Firstly, costing as an exercise is plagued by a culture of (misplaced) optimism in Defence and industry. (This is by no means unique to Australia.) Secondly, although it was well over the original budget, the Kinnaird process preserved the option to either re‑scope or re‑tender the project before a contract was signed—albeit with the loss of over five years.
Finally, the Kinnaird process demonstrates to the broader body‑politic that a robust process is behind their taxpayer funded investment. This is especially important for avoiding opaqueness and politicisation and for building confidence in the decisions affecting the program. The future submarine project, which is likely to run well into the 2030s, will be presided over by a succession of governments, probably of both political persuasions. So it must be politically bi‑partisan—or run the risk of modification or even cancellation at some later stage.
