Sub decision should be divorced from industry policy as choice presents taxpayer risks

The latest submarine controversy illustrates that the vital task of equipping our defence force is fraught with very great risk to the taxpayer.

For many Australians the Collins Class submarine, for better or for worse, stands out as perhaps the household-name example of public sector major project failure.

With government body the Australian Submarine Corporation awarded a contract to build the submarine in 1987, the fleet of six diesel-powered Collins Class Boats have been in operation since 1996.

But the performance of the submarines have endured critical scrutiny over many years, with several maintenance problems, such as offline repairs for serious engine defects, meaning the Collins Class has consistently underperformed against operational targets.

In 2012 an independent report by defence services expert John Cole found "the availability performance of the Collins Class has been slightly over half that achieved by the comparable international programs".

With initial expectations that the Collins Class fleet would operate more quietly than its predecessor Oberon Class, tests subsequently uncovering excessive noise as the sub passed through water added to the diminishing esteem attached to the entire project.

And given that each sub costs more than $110 million per annum to maintain, with the Collins Class estimated to absorb almost a third of the Navy's annual sustainment budget, naturally the existing submarine program has been questioned on value for money grounds.

But seemingly demonstrating an inability to heed the basic lesson that Australia simply needs the best submarine, from whichever source, we are potentially setting up both our defence interests and taxpayers for another fall in the shape of the grandiose Future Submarine Project.

One of the great threats is that "picking winners" industry policy objectives would be smuggled into matters of defence procurement and so it has been the case these last few years.

The 2009 Defence White Paper canvassed a significant expansion of our maritime defence capabilities, doubling the Australian submarine fleet size to 12 fitted with new weapons, enhanced weaponry range and tasked with additional roles.

Some defence analysts have previously described the government as ambitiously seeking the capabilities of a US nuclear-powered vessel in a diesel-electric boat, and for this to be assembled by Australian industry needing radical upskilling to perform the task effectively.

The subsequent White Paper, presented in 2013, went one step further to prop up the sub-making establishment in Adelaide by ruling out the acquisition of already existing "off-the-shelf" submarine designs from other countries.

Policies are always subject to change upon the election of a new government, and the Abbott government previously made overtures to the Japanese government to acquire a version of their Soryu Class submarine with combat systems and weaponry fitted out in Adelaide.

But it seems that confusion has now set into the Future Submarine Project, thanks to some apparent political undertaking to South Australian politicians that some kind of "open tender", inclusive of a local designed and built sub option, would proceed.

While the government has tried to sop up this latest mess by insisting that procurement of a new submarine fleet will be made through a "competitive evaluation process" (spot the difference?), the underlying principle of efficient, sound procurement policy remains as vital as ever.

And that is Australia should simply seek out the best military capability, to defend the realm, for the least available cost, to the advantage of the taxpaying public.

With the automotive manufacturing industry bearing the brunt of tariff reductions and global competition, and more recently economic slowdown, successive federal and state governments have sought to create new "make-work" ventures to absorb retrenched labourers.

For a union movement wanting to sustain membership, and political parties ideologically wedded to the idea of manufacturing autarky, the answer is to substitute defence industry protectionism and subsidisation for car industry assistance.

And the prospective costs of a local submarine project might well be quite steep, with some estimates of taxpayers lumped with subsidising an Adelaide workforce of about 700 to 800 people at a cost of up to $15 million per job.

Given the globalised nature of the defence industry, and the significant repository of equipment manufacturing research and expertise in other countries, it is impossible for Australia to aspire for naval shipbuilding self-reliance.

That the Collins Class submarine is fitted with American combat control systems belies the perception that we are capable of building a wholly home grown product for our maritime conditions.

In many other areas of defence procurement, such as the provision of aircraft and tanks, Australia has been satisfied with purchasing infrastructure from our allies abroad.

Taxpayers could not be inspired with any great confidence that an Australian future sub will not encounter the cost overruns, design flaws and operational problems besetting the Collins Class, as well as the likes of the F-35 Joint Strike Fighter and Seasprite helicopter.

Some experts indicate designing and building a new fleet of subs in Australia could cost at least $40 billion, and this would be undertaken over a 15-20 year period in which the federal Budget is projected to remain under intense fiscal pressure from non-defence portfolios.

In such circumstances, and in recognition of the lack of scale economies in relatively high-cost Australian manufacturing, a better option appears to be to acquire a new sub fleet from overseas.

Certainly there are reports French, German and Swedish interests have been showcasing their wares to Australian defence authorities behind the scenes, and there is also an adaptation of the Japanese Soryu on the table.

Others have preferred Australia go down the route of purchasing American nuclear-powered Virginia Class submarines, with leasing and establishment costs in the order of $15 billion less than the Future Submarine Project high-end price tag.

But the Defence Department should also be cognisant of a fixation upon larger boats, with global submarine manufacturers also offering smaller vessels which may merit some consideration.

It is true that defence procurement decisions are rife with instances of dashed efficiency and wasted value, almost wherever one may look, and that observation is critically driven by the monopolistic position in which national defence interests everywhere are held.

But even in the highly imperfect world of defence equipment purchasing and maintenance, there is still room for judicious policy choices to be made.

Australia would be very well served by not rolling costly and ineffective industry objectives into an otherwise rather clinical decision to improve our submarine capability with minimal fiscal exposure to taxpayers.

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