Naval support - industry implications

One of the contracts Defence awarded recently went to BAE Systems Australia, for in-service support of the upgraded FFG frigates.

You have to feel sorry for Thales, which is just completing the much-delayed FFG Upgrade project. Nobody knows these ships better than Thales and one would have thought they'd be a shoe-in to win the through-life support contract. The company also lost out recently on the AWD sonar contract, and this seems likely to have a significant effect on its payroll over the next few months.

What this shows is that nobody can take defence contracts for granted in these uncertain times, and with contracts now in place for the AWDs and LHDs, there probably won't be too much new ship building work over the next few years. That means the naval contractors will be fighting for market share in the sustainment and support markets on both the east and west coasts, and the first battle has been fought and won already.

Defence repeatedly tells industry to invest in recruiting more people with higher skill levels; many long-established Australian defence contractors such as BAE Systems and Thales have been doing this for years, and have invested also in research and manufacturing facilities as well as in-service support capabilities. They won't continue to make such investments unless they can be sure the workload and opportunities are there to justify them.

The delicate balance Defence must make is between seeking value for money by opening tenders up to all comers, including new entrants to the market whose local footprint is small or non-existent, and honouring the commitments and investment made by long-term players. Plenty of local companies believe Defence doesn't understand the concept of 'value for money', nor the concept of 'sustainability' as it applies to important industry capabilities: I've seen industry executives shake their heads in despair when it appears contracts are going to the lowest bidder, regardless of quality and local employment.

That's not to say the AWD sonar and FFG support contracts want to the wrong companies, more an observation that some Defence planners believe they can treat Australia's defence industry base like an old-fashioned Stalinist-type command economy: that they can turn industry capabilities on and off like taps, and mix and blend colours and temperatures at will. Industry capability is like Defence capability - and I mean REAL capability, not just sheds on industrial estates and bodies in overalls or uniforms: real, effective, enduring capabilities take time to create, they are vulnerable to neglect and are very expensive to resurrect if allowed to atrophy.

It's not clear to me, nor to many industry observers, that Defence pays more than lip service at times to this fundamental truth.