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Economics References Committee
20/06/2017
Future of Australia’s naval shipbuilding industry

CLARK, Mr Brent, Chief Executive Officer, DCNS Australia Pty Ltd

Committee met at 16:30

CHAIR ( Senator Ketter ): I declare open this public hearing of the Senate Economics References Committee in relation to its inquiry into the future of Australia's naval shipbuilding industry. This is a public hearing and a Hansard transcript of the proceedings is being made. This is the committee's third public hearing for this inquiry in the 45th Parliament. Before the committee starts taking evidence, I remind all witnesses that, in giving evidence to the committee, they are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage a witness on account of evidence given to a committee, and such action may be treated by the Senate as a contempt. It is also a contempt to give false or misleading evidence to a committee.

The committee prefers all evidence to be given in public, but, under the Senate's resolutions, witnesses have the right to request to be heard in private session. It is important that witnesses give the committee notice if they intend to ask to give evidence in camera. In addition, if the committee has reason to believe that evidence about to be given may reflect adversely on a person, the committee may also direct that the evidence be heard in private session. If a witness objects to answering a question, the witness should state the ground upon which the objection is taken and the committee will determine whether it will insist on an answer, having regard to the ground which is claimed. If the committee determines to insist on an answer, a witness may request that the answer be given in camera. Such a request may, of course, also be made at any other time.

On behalf of the committee, I would like to thank all those who have made submissions and the representatives here today for their cooperation in this inquiry. I welcome Mr Clark. Information on parliamentary privilege and the protection of witnesses and evidence has been provided to you. I invite you to make a brief opening statement, should you wish to do so, and then we will open it up for questions.

Mr Clark : What I intend to do is read part of this opening statement and then table the rest for the committee to read in due course. Thank you very much for the opportunity to appear before the committee today. When this committee of inquiry was formed, industry was awaiting the way forward for naval shipbuilding in Australia via the government's national shipbuilding plan. In DCNS's view, the release of the federal government's long-anticipated national shipbuilding plan provides an overarching framework to create a sustainable maritime industry and bolster the Australian economy for generations.

For my own part, as chief executive of DCNS Australia, I can now talk to how this impacts the Future Submarine program. Of particular importance is the commitment of the Commonwealth to develop a modern submarine construction facility at Osborne north in Adelaide. With the Commonwealth, we are currently working on a costed detailed design for infrastructure to build the submarines, with shipyard construction to begin from next year. In that plan, the Commonwealth also reinforced its commitment to a rolling acquisition program for submarines which creates certainty not just for DCNS but for the many hundreds of Australian suppliers who will be involved in the program in planning for future investment and workforce needs. The establishment of the $25 million naval shipbuilding college in Adelaide will also assist DCNS in recruiting talented workers to take on the program.

There is a simple message I want to convey to this committee today, and that is that the Future Submarine program is a national one. Though hull construction and assembly of the Future Submarine will take place in Adelaide, parts and component suppliers will come from across the country. Australian industry has begun embracing the program, as evidenced by the hundreds of companies that have attended industry briefings held prior to and after the completion of the bid process. These industry briefings run in concert with the Commonwealth and combat system integrator, and our partner, Lockheed Martin Australia. They have been staged in Adelaide, Sydney, Melbourne, Brisbane and Perth and so far have attracted more than 1,400 attendees from companies and educational and research institutions. Of particular relevance, I feel, is that there have been some 875 requests for information, which we have sent to 234 firms nationally. These include 76 firms from Victoria, 71 from New South Wales, 37 from Western Australia, 36 from South Australia and 14 from Queensland so far. There are more briefings to come, in Darwin and Hobart and at the Pacific 2017 naval conference in Sydney. Regarding all the systems and parts that go on the submarine, they will come from all over Australia, whether it is Broome, Burnie or Bundaberg.

The Future Submarine program aims to deliver to Australia a regionally superior submarine capability. The Future Submarine will be constructed in Australia and will be operated and sustained with sovereignty. It is a Commonwealth requirement that all 12 submarines will be built in Adelaide. Additionally, regarding production of the submarine, the pressure hull, systems and all the ancillary equipment that goes into the submarine, this will all achieve a very high percentage of Australian industrial involvement. The program must ensure that the Australian industrial capability necessary to build the Future Submarine and support its operations and sustainment is established. This will involve maximising the involvement of Australian industry in all phases of the program without unduly compromising capability, cost or schedule. This is at the forefront of the DCNS decision-making process. I propose to table the rest of my statement. I feel that the committee would probably be much more interested in asking questions than listening to me read a prepared speech.

CHAIR: The committee is happy to receive that. Thank you very much. You mentioned 14 Queensland companies that expressed interest in the project. You may not be able to tell us a great deal, but I am interested in the nature of that interest.

Mr Clark : Of course. I could give you a list of the Queensland companies that are involved—in fact, I can give you a list of all the companies involved nationally; I have that information. Essentially, in Queensland we have people who manufacture parts, pumps, componentry, electrical equipment, cabling and that sort of thing. We are seeing that all around Australia. Queensland companies are supplying to ASC already, but they also supply into other shipyards around Australia. Having come out of Williamstown in Melbourne and Garden Island in Sydney, I have used Queensland suppliers on that front. As you would probably expect, they supply the kinds of things that you would think would go into a warship—cables, componentry and that sort of thing.

Senator KIM CARR: Mr Clark, you are new in the job. How are you enjoying it?

Mr Clark : I love it.

Senator KIM CARR: That is good to hear. DCNS initially made a public comment that the Australian content for the submarines would be 90 per cent. What is it now?

Mr Clark : I might clarify that comment from the previous CEO. What the previous CEO was talking about at the time was the level of production and assembly activities in Adelaide. He was not talking about the overall Australian industry content. To answer that question, what we are doing at the moment with the department is sitting down and going through the submarine system by system, looking at all the components that go into the submarine and trying to make sensible decisions as to how we move forward so that we do not affect the cost, schedule or capability.

Senator KIM CARR: I am surprised you say there is a clarification needed. I remember the statement was quite clear—it was 90 per cent. Are you saying that was just incorrectly interpreted?

Mr Clark : No, I am not saying that at all. The previous CEO certainly mentioned the figure 90 per cent, but he also said, to clarify that, that the 90 per cent figure pertained to the assembly and production activities only, not the overall content of the submarine.

Senator KIM CARR: When we discussed this matter on 4 April in Adelaide, the figure presented—it might have been by the minister, actually—had been reduced to 60 per cent. What is the figure now?

Mr Clark : As I previously answered, we are working with the Commonwealth, with the Department of Defence, at this stage. It is a complex program that we are going through, and we are taking them through system by system to look at what can be done on the submarine from an Australian industry capability perspective.

Senator KIM CARR: So, you cannot give us a figure?

Mr Clark : Not at this stage, no.

Senator KIM CARR: Why not?

Mr Clark : We have not done that body of work yet.

Senator KIM CARR: The previous CEO could give us a figure, even if you have redefined it, but he could give us a figure. You cannot give us a figure at all?

Mr Clark : Not at this stage, no.

Senator KIM CARR: When will you be able to give us a figure?

Mr Clark : The aim is to complete that body of work over the next period of time. So, we would be looking at being able to refine some sort of figure by the end of the year or the start of next year.

Senator KIM CARR: There was also a provision within the original scoping arrangements that there would be extensive union consultation. The Naval Shipbuilding Plan, the NSP, for instance—4.57 on page 76—clearly states that provision. What steps have you taken to actually consult and work with the ACTU and the unions on this program?

Mr Clark : Thank you for that question. I have been involved in at least three discussions with a variety of trade unions. We have another set of meetings scheduled to take place next week with the ACTU, the Electrical Trades Union and others. We have a draft MOU that has been submitted to us by a collection of trade unions which we are currently reviewing. So, we have a reasonably open dialogue, I believe, with the unions.

Senator KIM CARR: You mentioned the ETU. How many other unions?

Mr Clark : There is going to be a variety of unions, as you would understand, from the work site. But at the moment we have specifically sat down with the ACTU, the Electrical Trades Union and the professional workers' union, to name three. But, again, it is a slow process, and we want to get it right.

Senator KIM CARR: Metal workers: they are the main union onsite, aren't they?

Mr Clark : Yes.

Senator KIM CARR: When did you speak with them?

Mr Clark : We spoke to Glenn Thompson from the metalworkers' union twice. He is also part of the—

Senator KIM CARR: When was that?

Mr Clark : The exact dates?

Senator KIM CARR: Yes.

Mr Clark : I would have to take that on notice, but I can provide you with exact dates.

Senator KIM CARR: Yes, because I understood that there were some discussions with your predecessor but there have not been any with you. Is that the case?

Mr Clark : That is not the case. I have spoken to Glenn on two separate occasions since my predecessor left. He submitted to me the draft copy of the MOU, and I have arranged to have a meeting with him and three other unions on 29 June, I believe it is.

Senator KIM CARR: And that was recently, was it?

Mr Clark : I will get you the exact dates, but I would say that it was either last week or the week before.

Senator KIM CARR: Can you explain what is involved with the Australian Industry Participation Agreement signed between yourselves and the Defence Materials Technology Centre?

Mr Clark : We have a memorandum of understanding, an agreement, in place to work cooperatively with the DMTC to try to promote and ensure that the Australian level of industry and Australian involvement can be maximised. That is the overarching intent of that agreement.

Senator KIM CARR: When will the agreement commence?

Mr Clark : The exact date of commencement of that agreement I will take on notice and get back to you and provide as a separate answer.

Senator KIM CARR: What are the financial implications of that agreement?

Mr Clark : There are some financial implications in terms of in-service support. We will be funding a graduate into that program to assist. But it is in-kind support for both parties.

Senator KIM CARR: Exactly how will Australian industry be involved in that process?

Mr Clark : Are you talking about the process with the DMTC?

Senator KIM CARR: Yes.

Mr Clark : Basically the synopsis of the agreement is for DCNS and the DMTC to work together to bring Australian industry into the view. What we have agreed with the DMTC is that we feel that they are best placed to look for particularly SMEs and smaller Australian industry involvement, so anyone that is part of that process can actually get access to and be part of that process with us.

Senator KIM CARR: Have you provided a copy to the Department of Defence?

Mr Clark : Yes.

Senator KIM CARR: And to the minister's office?

Mr Clark : I would have to check. We have certainly given it to the Department of Defence. I do not know whether we gave it to the minister. But I can take that on notice.

Senator KIM CARR: Presumably there were two ministers' offices. So, have either of the ministers' offices received a copy?

Mr Clark : I would have to take that on notice.

Senator KIM CARR: Thank you. And have you briefed the minister's office?

Mr Clark : On the DMTC?

Senator KIM CARR: Yes.

Mr Clark : No, I have not.

Senator KIM CARR: Why not?

Mr Clark : At this stage it is a very early agreement. We are still working out that relationship. We have advised the Department of Defence on what we are doing in that case. But we did not think we were in a position to be fully able to brief either minister at this stage.

Senator KIM CARR: Have you provided a copy of the agreement to anyone else?

Mr Clark : I certainly have not.

Senator KIM CARR: I presume you are speaking on behalf of the company.

Mr Clark : Yes.

Senator KIM CARR: In regard to the use of Australian steel, what arrangements have you made?

Mr Clark : At the moment we are conducting a process with both BlueScope and Bisalloy to look at a certification process and review how they do their product manufacture and that sort of thing. We have been engaging quite heavily with them. We have had at least half a dozen meetings with both those companies on this matter. We have had our French steelmaker come across and assist us in that process. The outcome of that entire process is to produce a business case for submission to the Department of Defence, and then the Department of Defence will take that to government.

Senator KIM CARR: In previous evidence before the JSCOT committee you indicated that there was some disappointment in the take-up of Australian companies in the project. Do you stand by that?

Mr Clark : No, I would say that after my comments at the previous committee Australian industry has stepped up quite strongly. And, as you would not be surprised by, they took some measure of umbrage to my commentary and have really stepped up to the plate.

Senator KIM CARR: There were 86 companies identified. Is that right? Is that the number of companies that were identified in the prequalification process?

Mr Clark : Yes. I can give you that exact figure. At the moment, as of today, we have 106 companies.

Senator KIM CARR: And how many French companies?

Mr Clark : None.

Senator KIM CARR: How do you see the Australian industry capability plan working in regard to what the Department of Defence has asked you to revise or amend before they are prepared to approve it?

Mr Clark : We have engaged at quite a high level, as you would imagine—a series of workshops—with the department to fully understand and appreciate their requirements. In fact, there is a three-day workshop going on in Adelaide as we speak. The intention is for DCNS and the Commonwealth to work together to come up with a document that the Department of Defence is happy with and that they are happy to take to government.

Senator KIM CARR: What is the role of the ASC in the project?

Mr Clark : Very little at this stage. As you would be aware, the government split ASC into three companies: ASC shipbuilding, ASC Collins sustainment, and the Australian national infrastructure company. We are working with ASC, and they are assisting us with looking at facilities requirements and upgrades. We are working with ASC with respect to a controlled measure of transfer of personnel from one entity to the next. ASC has obviously done a fair amount of work in terms of the ramp-down process for their workforce. We are obviously doing a lot of work with the ramp-up process, and we are working together with the two companies.

Senator KIM CARR: Is it your intention to actually act as the builder rather than just the designer of the vessels?

Mr Clark : Yes.

Senator KIM CARR: So, will ASC actually be involved as builders?

Mr Clark : No.

Senator KIM CARR: What role will they play in the Future Submarines program?

Mr Clark : Quite simply, from our perspective, ASC will be consumed by DCNS.

Senator KIM CARR: You will consume them?

Mr Clark : Yes.

Senator KIM CARR: It that the basis for your concerns as expressed in the Financial Review about companies raiding each other's workers?

Mr Clark : Obviously everyone in the community is aware of the fact that we have a submarine construction facility that is being built which will take a considerably large number of workers. We have a ship construction facility that is going to be constructed in Adelaide, at Techport. And we have the offshore patrol vessel. There is going to be quite a large workforce in that area, and it makes good business sense and good logical sense that all entities involved in that process come up with an ability so that we do not end up with having people hopping over the fence to get different pay rises or things like that. We need to work together to make sure that the resources are managed appropriately.

Senator KIM CARR: Are you advertising for people at the moment?

Mr Clark : Yes, we are.

Senator KIM CARR: In what sorts of areas?

Mr Clark : At the moment we are looking at some procurement people in particular. That is obviously a very large task with DCNS Australia. We are looking at the first group of Australian design engineers that will be transferred to France in November this year. There are some seven design engineers that we are looking for there. We are also looking at program management experts and engineer and technical type people, plus we obviously have a company to set up, so we need some administrative support and that sort of thing.

Senator KIM CARR: You have senior naval architects. I see here platform systems leads. Are these the sorts of positions?

Mr Clark : Yes.

Senator KIM CARR: Commercial managers and commercial advisers?

Mr Clark : Yes.

Senator KIM CARR: Are you talking to ASC about any of those types of things?

Mr Clark : Yes. I have had a very long relationship with Stuart Whiley, the acting CEO of ASC. One of the commitments that we have given to the Department of Defence is that we will not impact on Collins sustainment in any shape, manner or form. I have advised Stuart of any jobs that are advertised and, if any applicants come in with a Collins background, we seek their endorsement to proceed with them.

Senator KIM CARR: So people who apply for work with you, if they have worked on Collins, cannot get employment without the agreement of ASC?

Mr Clark : No, it is not that at all. There are some key resources that ASC has identified for the support of the submarine. If a person is a commercial adviser in the Collins program, there are no issues with that person transferring across.

Senator KIM CARR: When you say you are going to notify them of people with Collins background—

Mr Clark : It is a gentlemen's agreement that I have with Stuart, just to make sure that we are not taking anybody out of his organisation that he requires for Collins sustainment.

Senator KIM CARR: What other gentlemen's agreements do you have in regard to subcontracting arrangements with ASC for the building of the submarines?

Mr Clark : None.

Senator KIM CARR: So the only area of gentlemen's agreement covers workers who might want for you and have worked for ASC? Is that how it works?

Mr Clark : Yes. I think it is entirely appropriate that we do not strip capability out of ASC. We have a Collins class submarine that needs to be maintained and at sea. I do not think there is anything inappropriate in advising Stuart that we may be hiring one of his people.

Senator KIM CARR: But there are no other subcontracting arrangements with ASC?

Mr Clark : No, not at this stage.

Senator KIM CARR: Have there been any discussions with government about the policy implications of that?

Mr Clark : Which policy implications of that?

Senator KIM CARR: The policy implications of not involving the ASC in any subcontracting arrangements for the future submarines project.

Mr Clark : No.

Senator KIM CARR: Frankly, I am a bit surprised that the ASC has no role at all in the building of the future submarines. Is that a formal decision that has been made by government, or is it a decision that the company has made?

Mr Clark : There have been no formal decisions made by government at all.

Senator KIM CARR: So it was a decision by your company?

Mr Clark : Yes. We have been tasked with designing and building the submarine.

Senator XENOPHON: That is not a revelation.

Senator KIM CARR: Have the government indicated when they are intending to move the sustainment functions of ASC to Western Australia for the sustainment of Collins submarines?

Mr Clark : I am not aware of that.

Senator KIM CARR: You do not think it might have some implications for the ASC that they are not involved in the future submarine project? Is there some implication for the workforce of the ASC?

Mr Clark : Again, I am not involved in any discussions on the sustainment of Collins submarines.

Senator KIM CARR: But have you conveyed your decision to the ASC? Do they know that you have this view?

Mr Clark : Yes, we have had very frank and open discussions with ASC.

Senator KIM CARR: What are you paying your architects?

Mr Clark : I would have to take that on notice. I am not aware of all the wages we are offering.

Senator KIM CARR: If you wouldn't mind. You have these ads here and I would be interested to know what the salary ranges are.

Mr Clark : Sure.

Senator HUME: What sort of training does a naval architect require?

Mr Clark : Naval architecture is like any other architecture type degree but is specifically done from a maritime perspective; it is a full-blown university course. It is like anything: once you have your degree you move into the practical world of designing and working in an apprenticeship. It is quite a long process.

Senator HUME: They must be specific skills. There would not be too many of them out there.

Mr Clark : No. The world is not full of qualified submarine naval architects.

Senator HUME: I can imagine. I am surprised you managed to find six—or was it eight?

Mr Clark : Seven was the initial group. But to be very clear, we are taking that up, over the next few years, to something like 60, to form the design authority in Australia. So you understand the process, Senator, we will bring those people into DCNS Australia. We will then transfer them to France and they will spend a period of up to three years working with the French naval architects to learn the processes and skills. Then they come back to DCNS Australia to be part of the DCNS Australia Design Authority.

Senator HUME: Senator Carr asked some questions about what they were being paid, and there was an ABC report that suggested they were being paid $1 million each as private contractors by the Department of Defence. Whether that is correct or not, you have taken that on notice, which is fine. But if they get to 40, that sounds like an awful lot to pay 40 people.

Mr Clark : We will need up to 60 to maintain the design authority capability in DCNS Australia for the submarine, going forward.

Senator HUME: I assume they would be of various levels—not everyone is—

Mr Clark : Of course, yes.

Senator HUME: That is what I wanted to know; thank you. Tell me how the $89 billion is allocated between labour and administrative costs. I know you cannot give us great detail but can you give us a broad brushstroke of how the money is allocated?

Mr Clark : The $89 billion?

Senator HUME: Sorry, I should have said: the submarine contract allocation.

Mr Clark : I cannot go into too many specifics, but in the number that will be allocated for the submarine acquisition and sustainment there is a component that is acquisitioned—that is, buying the product; building the product—and there will be a component that is the long-term sustainment of the submarines. In that number there will also be the price that includes the facilities and infrastructure upgrades and that kind of thing. There are the requirements of the Commonwealth to fund their own project and that sort of thing. Without trying to break it down and give you percentages—because if I start giving you percentages I am going to get it wrong, in terms of real numbers—that is the kind of way it will get broken.

Senator HUME: I know I said a broad brush but that is very broad. Can you give me something a little bit more specific than that?

Mr Clark : The simple reality is that that body of work just has not been done. Rather than go on the record and give this committee a false statement I would rather come back to you when we have a sensible way of doing that.

Senator HUME: Fair enough; that is fine. You mentioned you have suppliers from all over the country and you were going to provide us with them. I would be very grateful for that from Victoria's perspective as well. I do not know whether we have officially asked you whether you could take on notice to provide that.

Mr Clark : I will take that on notice, yes.

Senator HUME: That would be terrific, thank you.

Senator KIM CARR: I am sorry if I misunderstood you. I asked you specifically about the question of union consultation, given the importance of this issue and given the importance that you have drawn our attention to this issue. You indicated to us you have a meeting next week with the ACTU.

Mr Clark : Yes, organised through Glenn Thompson.

Senator KIM CARR: Mr Thompson, I am told, wrote to you on 6 June, which was the last communication—

Mr Clark : Yes, he did.

Senator KIM CARR: and he has had no response to that communication. Is that true?

Mr Clark : Not that I am aware of. I asked for a meeting to be put in place and I have spoken to him on the phone.

Senator KIM CARR: Since 6 June.

Mr Clark : I would have to check my phone records.

Senator KIM CARR: If you would, please, because that is not my information. A specific communication with you on 6 June has not been responded to, about the level of union engagement around the whole workforce planning issue.

Mr Clark : I can take that on notice. That is certainly not the intent. When I spoke to him—

Senator KIM CARR: It may well be that there is some misunderstanding here. Your answer does not sit with what I have been told and I would just ask you to clarify that, please.

Mr Clark : I can clarify that, absolutely.

Senator XENOPHON: I am a bit disturbed—very disturbed—from the answers you gave to Senator Carr. You said that DCNS has not entered into any agreement with ASC, in terms of the Future Submarine project. Is that right?

Mr Clark : There is no formal agreement, no.

Senator XENOPHON: What is the nature of the gentleman's agreement that you referred to?

Mr Clark : What we have put in place with ASC is an agreement in principle.

Senator XENOPHON: Has that been reduced to writing?

Mr Clark : Yes, I have that in writing.

Senator XENOPHON: Can you provide a copy of that agreement to us, please?

Mr Clark : Yes. That provides a variety of topics. Manpower aspects is one of them; facilities and infrastructure is another. I can give you a copy of that.

Senator XENOPHON: Could I have a copy of that provided to the committee today, please?

Mr Clark : Yes, I should be able to.

Senator XENOPHON: I would appreciate that. I am trying to understand how many years you see before you start cutting steel for the Future Submarines, the time frame you are looking at.

Mr Clark : We are talking the mid-2020s.

Senator XENOPHON: So that is eight years away or thereabouts. Given ASC has the submarine-building capability in this country, do you not envisage a direct role for ASC to be involved in the construction of the Future Submarines?

Mr Clark : At this stage, we would be looking at a transition of the ASC workforce to DCNS.

Senator XENOPHON: You would be absorbing them.

Mr Clark : Correct. I am sorry if I did not make that clear. Yes, we would be assuming that we would be absorbing them.

Senator XENOPHON: So it would not be ASC; DCNS would be the employer.

Mr Clark : Yes.

Senator XENOPHON: You are not foreseeing entering into a contractual relationship with ASC.

Mr Clark : Not at this stage, no.

Senator XENOPHON: You have had a number of industry workshops in Australia and, I think, further to Senator Carr, you said you have had—how many pre-qualified Australian companies?

Mr Clark : As of June, recently, 106.

Senator XENOPHON: That is up from, I think, when I asked the question several months ago, 50. So it has increased, which is encouraging. That was out of 1,400 company interactions; is that correct?

Mr Clark : From the latest round of industrial engagements, yes.

Senator XENOPHON: You said that there are no French companies directly involved, at this stage; is that right?

Mr Clark : None that have been pre-qualified for this project, no.

Senator XENOPHON: I just want to understand this. There are hundreds of French companies already in the supply chain of DCNS; is that right?

Mr Clark : In France, yes.

Senator XENOPHON: Because they are already in the supply chain and are doing a good job, presumably, for you, they would be pretty qualified, would they not?

Mr Clark : No. They are qualified with DCNS France; they are not qualified with DCNS Australia.

Senator XENOPHON: But the fact that they are qualified with DCNS France and, presumably, if you are happy with their performance—DCNS France would not be using them unless they were happy with their performance and the sort of job they were doing—that would tend to give them some inside running, in terms of any work for the Future Submarine project.

Mr Clark : No, I do not think so. We have done no pre-qualifications with any French company. We have only be concentrating on Australian companies. What DCNS France does in France and what DCNS Australia does in Australia are different things. We will have a very similar process—because the process that has been used in France is tried and tested—but we are not involving French companies in this process in Australia, at this stage.

Senator XENOPHON: The fact that a company in France has worked well with DCNS may help them if they want to come to Australia or be involved with the Future Submarine project.

Mr Clark : One would say yes, of course, if you are used to working—

Senator XENOPHON: But, at this stage, we do not know what the precise percentage, both by value and content, will be Australian and what will be French; is that right?

Mr Clark : Correct.

Senator XENOPHON: Do you have any idea when we will know what the precise percentage will be?

Mr Clark : The plan, as I said, is to continue to work through with the department, to go through system by system, to look at all the things onboard the submarine.

Senator XENOPHON: How many contracts has DCNS already signed up with subcontractors here in Australia, today?

Mr Clark : As of today, DCNS Australia has signed—do you want the value with it as well?

Senator XENOPHON: Yes, please, that would be very helpful.

Mr Clark : As of today, we have signed approximately $11 million worth of contracts with 91 Australian subcontractors.

Senator XENOPHON: That is 11 million out of 91.

Mr Clark : That is $11 million to the 91 Australian subcontractors.

Senator XENOPHON: How much has been signed up with companies in France by value? You can give me euros, if you want, for that bit.

Mr Clark : I would have to take that on notice, because very few companies in France have been part of this program at all. It has been DCNS—

Senator XENOPHON: But, in terms of value of DCNS in France, what value would be attributed to the work done in France for the project? I understand the design is predominantly taking place in France, at this stage. Is that right?

Mr Clark : At this stage, yes.

Senator XENOPHON: If you could give us details of that—you have been very open; I appreciate that. In your Australian industry capability plan at paragraph 4.3.1, DCNS states: 'DCNS in collaboration with the Commonwealth of Australia will make an assessment of the system and activities that should be performed in Australia. The purpose of this assessment is to illustrate the extent of the AIC—the Australian industry content. In turn, this provides an indication of the extent of technology transfer that will be required and indicates where DCNS believes the gaps exist in Australian industry.' And then there is something that is redacted. And the plan also states, at 1.2.2: 'The AICP seeks to maximise the involvement of Australian industry without unduly compromising capability, cost, schedule or risk in all phases of the program.' I take it on face value that you will collaborate, but nonetheless from a commercial perspective I understand that means that DCNS ultimately has the final say based on capability, cost and schedule risks. Is that your understanding?

Mr Clark : No. That is not my understanding at all. The Commonwealth always has the final say in these matters.

Senator XENOPHON: That is not the case, though. The power seems to reside with DCNS.

Mr Clark : No, not at all. Our role is to provide advice to the Commonwealth, which we do, and the Commonwealth's role is to make decisions.

Senator XENOPHON: From a contractual point of view, that means that DCNS is subject to a final ruling or a final determination by the Commonwealth as to what the local industry participation will be?

Mr Clark : It may very well be, yes. Absolutely.

Senator XENOPHON: 'It may very well be'—or what?

Mr Clark : We have not got to that level of detail yet.

Senator XENOPHON: Who has the final say as to what the percentage of Australian industry content will be? Australian industry participation is something that legally, in terms of being binding, is still a matter for negotiation between the Commonwealth and DCNS.

Mr Clark : I do not think that is the case. I believe that the Commonwealth ultimately holds that responsibility. There will be no doubt in my mind that the Commonwealth will be absolutely involved in this process; and, if they are not happy with the performance of DCNS and what DCNS is doing, the Commonwealth will ensure that the necessary steps are taken.

Senator XENOPHON: I apologise. I have just been reminded that Minister Pyne in his correspondence with me—and we seem to write to each other all the time nowadays—has said that the Commonwealth of Australia has final say, and he references clause 1.6 and the statement of work to the conditions of contract. But, I presume, if the Australian government insists on a supplier against the advice of DCNS, there will be an additional cost imposed or a schedule alteration or the requirement for a waiver on performance, or all three. Would that be right? Because you have the important say in terms of capability, cost schedule or risk in all phases of the program.

Mr Clark : That may be the case, but it may not be the case every time. You are asking questions about the future, which I cannot fully give you an answer to.

Senator XENOPHON: I am asking you questions based on the documents I have in front of me.

Mr Clark : Sure—which are not approved at this stage.

Senator XENOPHON: Right. But that could be a hurdle, couldn't it? If the Commonwealth says, 'No. We want this particular component of the submarines being done here', you can say, 'Yes, we can do it, but it's going to cost you X dollars more and take X months longer, and it is going to involve certain risks', for instance?

Mr Clark : Absolutely. Of course it would.

Senator XENOPHON: So I presume you will get to the end of the design phase and offer the government a submarine. Is that at a fixed build cost for 12 submarines or a fixed sustainment cost?

Mr Clark : That is probably an area of the contract that I am not comfortable talking about at this stage.

Senator XENOPHON: Because it is commercially sensitive?

Mr Clark : Yes. We are still in negotiations with the Commonwealth.

Senator XENOPHON: Okay. But at that point you will have a list of Australian components and will be in a position to indicate local content build content, I presume?

Mr Clark : Yes.

Senator XENOPHON: How far away are we from that stage?

Mr Clark : As I said a couple of times, we are trying to work through our process with the department now, in terms of looking at the submarine system by system. And we are going to try and do that work as quickly and as feasibly as we can. But it is important we do not rush or make poor decisions.

Senator XENOPHON: I am not asking you to rush anything. I am just asking you to indicate: are we talking about three months, six months, nine months, 12 months? How far away are we?

Mr Clark : I would say it would be more in the vicinity of 12 months.

Senator XENOPHON: It is clearly not a binary process. You must be building up an idea as you go along—

Mr Clark : Sure.

Senator XENOPHON: with significant industry consultation. You must have some idea now as to the level of Australian content, or at least a ballpark figure, a percentage range?

Mr Clark : Clearly, Australian industry has capability to do a significant amount of work on this submarine. We have no doubt about that. We have obviously seen the figures that have been done with respect to the air warfare destroyer and the LHD, previous Collins and what they have got to in terms of Collins sustainment. So there is absolutely no reason we would not be achieving those kinds of figures. But it would be wrong of me to talk about something that we have not fully done the work for. I am happy, once we have done the work, to sit in front of you and answer your question. We just have not done the work now.

Senator XENOPHON: Did you go to the treaty committee to DCNS?

Mr Clark : Yes, I did.

Senator XENOPHON: Did not you mention a figure of 90 per cent?

Mr Clark : No, I never mentioned a figure of 90 per cent.

Senator XENOPHON: Did your predecessor mention a figure of 90 per cent?

Senator KIM CARR: We had this conversation—I do not know what it was actually for. Clarification is being sought on this matter.

Mr Clark : What I said to Senator Carr's question previously, Senator Xenophon, was that my predecessor had made a comment and used the figure of 90 per cent. But what he was actually talking about—my understanding—was the production, construction and outfitting—and therefore the workforce percentage—in the shipbuild in Adelaide.

Senator XENOPHON: Okay. But can you tell this committee a range of percentages in terms of—and Senator Carr might want to chip in on this—in terms of the value of the build in Australia. And can you break that down into South Australia and the other states. We want to know the content, the degree of Australian industry participation in terms of the project—in other words, the number of hours of work involved here and in France, and whether there is a comparator between the two, and how many hours would take place, for instance in South Australia compared to other states. I understand it is a national project. I am trying to get an idea of what the percentage would be, because at this stage it could be any percentage—can it not?—in terms of local build, local value and number of hours. And of course there is the issue of technology transfer and the value of that. And, I understand, the intellectual property now resides with DCNS with France, is that right?

Mr Clark : The background intellectual obviously resides with the company in France; the foreground IP obviously will reside with the Commonwealth. And there is an arrangement in place to transfer that IP. To answer your question, you quite articulately asked a very good question there. It is a complex question to answer and at this stage we have not done the work to answer that question to the satisfaction of this committee.

Senator KIM CARR: What troubles us is that your predecessor could give us a figure of 90 per cent, which you have sought to redefine, but it is still a figure of 90 per cent. You cannot give us a figure at all.

Mr Clark : I can only explain to you what we are doing since my predecessor left.

Senator KIM CARR: Is that the reason he left, because his figure was too precise?

Mr Clark : No, my predecessor left because he decided that he wanted to go off and do other things.

Senator KIM CARR: He was not forced out?

Mr Clark : No, not at all.

Senator KIM CARR: I thought he was very good at the job. He was actually communicating quite effectively. But, obviously, it was too effectively.

Mr Clark : Senator, I will leave that. I am not sure whether that is a question. All I can answer is that what my predecessor said about '90 per cent' referred to the production and build in Adelaide, not an overall industry content.

Senator KIM CARR: Let's take your definition of production and build. You cannot give us an equivalent of production and build of any description.

Mr Clark : I do not want to give this committee a figure that I have no basis of fact on at this stage. We are working through that process.

Senator KIM CARR: Where did your predecessor come up with the figure of 90 per cent? How did he get that figure?

Mr Clark : I cannot answer that question. You would have to ask him.

Senator KIM CARR: That is why I come back to the point: did you get rid of him because he put that proposition into the public arena?

Mr Clark : Not at all.

Senator XENOPHON: Does the undertaking of the previous CEO pass with his retirement of the company—that is, the undertaking of 90 per cent? Does the company—

Senator Kim Carr interjecting

Senator XENOPHON: No. Is that 90 per cent undertaking—in the way it was put by the former CEO—still a commitment that you make that you restate on behalf of DCNS?

Mr Clark : Until we have done all the work that is necessary, I cannot give you a percentage.

Senator XENOPHON: But your predecessor gave a percentage.

Mr Clark : Sure.

Senator XENOPHON: Do you stick by your predecessor's percentage?

Mr Clark : Again, the only way I can answer that question is to say that until we have done the work and completed the work to the satisfaction of the Commonwealth I cannot give you a percentage.

Senator XENOPHON: So the answer is no?

Mr Clark : Yes, the answer is no.

Senator XENOPHON: Was the 90 per cent figure that your predecessor mentioned an input to the cabinet decision made in respect of this?

Mr Clark : Not that I am aware of, no. He mentioned that well after—

Senator XENOPHON: Are you aware of any figure that was given to cabinet prior to the decision being made for DCNS to win the contract?

Mr Clark : I am not aware of any figure, although I would say, I think with some certainty, that that 90 per cent figure was not involved in that process at all and was said well after the submission.

Senator XENOPHON: Finally, can you provide a figure within a ballpark for the percentage of local content by value and the percentage of hours of work to be done here and/or overseas?

Mr Clark : Sure.

Senator XENOPHON: Can you provide us with a ballpark figure? Surely there must be some figure. Is it 90 per cent here in Australia—or 80, 70, 60, 50, 40 or 30 per cent? How much is it?

Mr Clark : I can only answer the question the same way. Once we have done the necessary work and we have facts to present, I will be more than happy to present those facts to you.

Senator XENOPHON: You cannot even say that it is going to at least be 50 per cent?

Mr Clark : It would be misleading for me to do that, because I cannot tell you the answer.

Senator XENOPHON: You cannot even give us a benchmark figure?

Mr Clark : I do not believe that I can give you a figure until we have done the work that is required—

Senator XENOPHON: Even a minimum figure of Australian content?

Mr Clark : I think it is a very dangerous thing for me to do, because I would be guessing that percentage right now.

Senator XENOPHON: You can have that caveat, but is there an aim point? What is the project aiming for in terms of Australian content and Australian value in this project?

Mr Clark : I acknowledge what you have just said there, and I know my words of 'maximising Australian industry content' are not going to mean terribly much to you, but from our perspective we would imagine that at least an aim point of greater than 60 per cent would be something that we would aim for. But we expect to achieve much better than that. But it still gets down to the simple fact that we have not done the volume of work, we have not worked with the Commonwealth and the Department of Defence, to determine everything that is required. It is not an unreasonable thing for us to take our time to do this properly, because I think that is what the Australian taxpayer, the government and this committee should be demanding of us. Once we have done that work, I will happily tell you what percentage it is and I will defend it, and I will give you the number of hours, the Australian spend and things like that. But we have not done that work yet.

Senator XENOPHON: But what I do not understand is that presumably the reason that DCNS won this bid went to a whole a range of factors. It was obviously a superior bid but, as part of that bid, there would have been undertakings given in terms of the level and the percentage of Australian industry involvement and content.

Mr Clark : Correct—absolutely.

Senator XENOPHON: So what was that percentage?

Mr Clark : You have to understand that during the CEP we were not able to do a robust analysis of Australian industry, which is what we are doing now.

Senator XENOPHON: You were not asked to do that during the CEP?

Mr Clark : We spent our time looking at the capability within Australia. The CEP was quite a short process, when you think about, in terms of doing an analysis of Australian industry capability. Since our announcement we have spent a considerable amount of time travelling around Australia and looking at Australian industry and the capabilities and understanding what exists. That is what we are doing?

Senator KIM CARR: Has the Commonwealth suggested to you a minimum figure that the Commonwealth would regard as satisfactory?

Mr Clark : Not at this stage. I am not going to put words to the Commonwealth, because that would be unfair and I understand that they are going to appear after me. But, again, what I will say to you is that once we have completed the analysis, working with the Department of Defence, we will then be able to determine the figure to give you.

Senator XENOPHON: This is obviously the biggest procurement in the nation's history. How long have you been in the job for now?

Mr Clark : About four months.

Senator XENOPHON: I compliment you on the fact that you have been as open as you can be. But I am still disturbed at the lack of precision—and this is something that precedes your taking on the role. I presume that there would have been figures given to the Commonwealth in the CEP process about the level of Australian industry participation. The fact that that cannot be answered today disturbs me. That is not a reflection on you; that is a reflection on the information that you have—and I am disturbed by that.

Mr Clark : I understand what you are saying, Senator Xenophon, and I accept that.

Senator KIM CARR: I presume your company will keep some records from the time of your predecessor holding the position?

Mr Clark : Yes, I would assume so.

Senator KIM CARR: Would you be able to provide the committee on notice the basis on which he made the assertion of the 90 per cent figure and, secondly, was that figure provided in any Australian industry participation plan documentation?

Mr Clark : I can certainly take both those on notice, yes.

Senator XENOPHON: I am advised, Mr Clark, that DCNS were required to provide an AIC plan as part of the CEP. That is something that the Australian National Audit Office, the Auditor-General's office, mentioned.

Mr Clark : Yes, absolutely.

Senator XENOPHON: So there must be some percentage somewhere.

Mr Clark : We absolutely provided—

Senator XENOPHON: But you are not going to tell us what it is?

Mr Clark : No.

Senator XENOPHON: Why not?

Mr Clark : Because the plans that were done during the CEP obviously involved a lot of assumptions et cetera. Since the announcement we have been working with the Commonwealth looking at how we can go around Australia and develop Australian industry capability. The driving thing here is to determine the capability within Australia.

Senator KIM CARR: But you have already provided to the Commonwealth a figure that you expected at the time. It is a point-in-time figure.

Mr Clark : Sure.

Senator KIM CARR: So I think it is a reasonable proposition for you to say, 'We've had a look at the capability and it is not there,' or that it has improved. But you have provided a figure and we would like to know what that figure is.

Mr Clark : Unfortunately, I am not in a position to be able to provide that at this stage.

Senator XENOPHON: I actually asked that question of Defence and I have been advised that they are consulting DCNS on DCNS's views about releasing it. Will you allow Defence to release it?

Mr Clark : I would have to—

Senator KIM CARR: Have to ask Defence?

Mr Clark : No, I do not have to ask Defence at all.

Senator XENOPHON: This is a tortuous FOI process that I am going through at the moment.

Senator KIM CARR: And it will go on for quite some time.

Mr Clark : Yes, I imagine that it will go on for quite some time.

Senator KIM CARR: So why can't you release it?

Mr Clark : I can only say again that I believe the process that we are following at the moment will provide a robust, defensible and justifiable percentage for the committee.

Senator KIM CARR: What was the ASC's involvement as part of the CEP process? Did you ever indicate to the Commonwealth, as part of the bidding process, that the ASC would not be involved in this project?

Mr Clark : We gave a variety of options to the Commonwealth in terms of how we might construct and build and commercial arrangements that were in place.

Senator KIM CARR: And the exclusion of the ASC was one of those options, was it?

Mr Clark : As I said, there was a variety of options.

Senator KIM CARR: Was that one of the options?

Mr Clark : That was one of the options, yes.

Senator KIM CARR: So the Commonwealth has known for some time that that is your view?

Mr Clark : As I said, there was a variety of options. I am not sure whether I can say that the Commonwealth has known for—

Senator KIM CARR: Presumably they would have known for some time. When was that submitted to the government?

Mr Clark : Are you talking about the CEP?

Senator KIM CARR: Yes.

Mr Clark : The final CEP was delivered in November 2015, from memory.

Senator XENOPHON: You are saying that it is commercial-in-confidence—correct?

Mr Clark : Yes.

Senator XENOPHON: How on earth that it be commercial-in-confidence, because you have actually won—and there is not going to be another CEP for future submarines for another 50 years? Senator Carr may still be in the Senate then and asking you questions about—

Senator KIM CARR: All my enemies think so.

Senator XENOPHON: How can it be commercial-in-confidence; you have won and there will not be another one like this for 50 years? And who knows what sorts of submarines we will have in 50 years time.

Mr Clark : Absolutely true.

Senator XENOPHON: About Senator Carr being in the Senate or—

Mr Clark : From my perspective there is information in there which we believe could advantage our competitors in an international market place—

Senator KIM CARR: Come on, that's a bit thin.

Mr Clark : It may be a bit thin to you, Senator, but that is what we believe.

Senator XENOPHON: Does another country want to buy submarines with the specific capabilities that Australia needs?

Mr Clark : No, but it goes to the heart of how the company makes its decisions.

Senator XENOPHON: The CEP is country specific.

CHAIR: We will have to ask a couple of follow on questions from that. At the time the 90 per cent figure was given by your predecessor, did the company envisage more active engagement by ASC in the construction?

Mr Clark : It is difficult for me to answer exactly the full process my predecessor had, but my belief would be no.

CHAIR: You are now the CEO, is that correct?

Mr Clark : I am on an interim basis.

CHAIR: But you have access to information and records of the company which would have supported that proposition that led to the 90 per cent statement.

Mr Clark : Yes, and I believe I have taken on notice for Senator Carr to have a look at that. I cannot guarantee that my predecessor had that as a written record.

CHAIR: My question then is: can you take that on notice?

Mr Clark : Yes, sure.

CHAIR: Secondly, and perhaps I am going up the same dry gully, but you have mentioned that the 90 per cent figure related only to the production and build component of the overall project. Based on your experience, what does that production and build component normally represent of the total project in terms of both the cost and the work involved?

Mr Clark : I will take that on notice.

CHAIR: I am interested in your considerable experience in this—

Mr Clark : Yes, and I will get you an exact—

CHAIR: I would like you to give me an exact figure, but I am also interested in your industry experience. I would be interested in you telling me, in rough terms, what that production and build component is in terms of the total project.

Mr Clark : Sure. I am very happy to answer that, but I would rather give you a specific and correct answer.

Senator KIM CARR: I have indicated to you before that I am concerned about the question of consultation with the unions. I understand you are busy person and you did indicate in a series of answers but I have further information concerning the email. I draw to your attention that the first email was sent—I mentioned 6 June but it was actually sent—on the 5th, but there was a further follow-up email on the 14th—

Mr Clark : Yes, that sounds right—

Senator KIM CARR: that has not been responded to, either.

Mr Clark : I thought I had responded to that.

Senator KIM CARR: That is not what I am told—not even an acknowledgement.

Mr Clark : Okay. As I said, my understanding was that we were organising a meeting for the 29th.

Senator KIM CARR: I am indicating to you that the advice you provide to the committee seems to be at cross purposes with that advice. As I say, the significance of this is that what you have indicated at 4.57 in regard to the naval shipbuilding plan—and I will read it out so we are aware of that—is:

Real and sustained workforce change is best realised by cooperative and open change management processes, which involves consultation and cooperation with all parties, including managers, employees and employee representatives such as unions, advocates and associations. Consulting the workers on the workplace issues that may impact their welfare and productivity is a matter of best practice. This consultation can identify opportunities, assist decision-making and help ensure that new ideas or changes in policy and procedures may work effectively in practice.

If you can't get an email responded to, it seems to suggests that that may not have much substance.

Mr Clark : I would support what you just read out, and if there has been an issue with that response to the email that will be my fault. It could be my end, it could be a technology issue. As I said to you earlier, it was my understanding that we were having a meeting with a variety of unions on the 29th.

CHAIR: Thank you very much, Mr Clark.