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Wednesday, 13 September 2017
Page: 7169

Senator PAYNE (New South WalesMinister for Defence) (15:57): In responding to Senator Xenophon's request for an explanation, there are some very important observations that I want to place on the record this afternoon. I want to be very careful in making those observations, because what we are talking about here today—and what Senator Xenophon and his colleague Senator Carr have raised with the Senate by way of this order for production of documents—is a $35 billion active tender in relation to the procurement of future frigates for the Royal Australian Navy.

Before I make specific comments on the government's public interest immunity claim, which relates to order 449, I want to make some general observations. The future frigate RFT was issued to three companies selected by the government, based on their significant world-class experience as both ship designers and builders. The selection of these companies was based on analysis undertaken by the RAND Corporation, and the decision was made well in advance of the RFT. This is public information. It is well known, and it has been discussed in a number of fora, not least of which includes the Senate Economic References Committee and other parliamentary fora.

The businesses, ASC and Austal, referred to in the order to produce documents, are well known to the three tenderers. The three tenderers are not precluded from engaging with ASC and Austal. The future frigate tenderers are all highly experienced, world-class ship designers and builders, and they will bring, whomever is chosen, this expertise to bear in using and developing the existing shipbuilding workforce in Adelaide. Indeed, they have all explicitly said they will be utilising the existing workforce in Adelaide. I placed a number of their quotations on that matter on the Hansard record in the chamber earlier in the week.

The competitive process seeks for the three tenderers to maximise the use of the Australian workforce. They are best placed to determine how to engage and utilise the shipbuilding workforce, including the resources of ASC and Austal. However, to mandate that the successful tenderer use a particular shipbuilder or workforce would significantly undermine a key advantage of the prime contractor model, which is key to this procurement process, which is to provide a single point of responsibility. Similarly, to allow the successful tenderer to subcontract significant aspects of the work to a third party would ultimately mean that the Australian shipbuilding industry wouldn't obtain the benefit of the world-class experience, expertise and know-how of the successful tenderer. It is also vital to ensure that we avoid the issues associated with separating design and build responsibilities. We've been down that road before.

The future frigates are the next generation of naval surface vessels and a critical component of the government's commitment to a continuous build of naval ships in Australia. The government are absolutely committed, in everything that we have done, to maximising Australian industry opportunities and participation. This project will contribute substantially to building a sustainable Australian shipbuilding workforce. One of the primary goals is to be able to generate a sovereign capability to design and build ships into the future. Actions such as this, which could cause delays to the SEA5000 procurement—the name of the project—could jeopardise this critical component of the government's shipbuilding strategy, including the ability to ultimately develop a sovereign design and build capability.

Now I turn to the public interest immunity aspects of the resolution. Officials from the Department of Defence have already briefly outlined to the Senate Economic References Committee that there is—one would have thought self-evidently and quite obviously—a need to maintain confidentiality during tender evaluations and negotiations, a need to observe all probity requirements. Release of tender information and related information at this time in the process of an active tender could adversely affect Defence's ability to negotiate a contract that protects the interests of the Commonwealth and achieves best value for money. Surely that is a priority for the Senate, a priority for Senator Xenophon and a priority for Senator Carr.

I want to specifically address each part of the order for the production of documents—general business notice of motion No. 449—that was agreed to last week on 5 September. Paragraph (2)(a) refers to:

Gateway Review briefs and decisions in relation to the Future Frigate project to the extent that those briefs and decisions go to Australian Industry Capability, the partnering or use of Australian shipyards, and how Techport and other Australian facilities might be used in the program …

In relation to the request for gateway review materials, I'm advised—and I also assume—that this most likely relates to what are known as 'gate reviews', which are routinely undertaken with major projects within Defence. Defence conducts a very large number of internal reviews and senior Defence committee reviews as part of its decision-making processes. Of course it does. Many of those internal reviews are classified. Many of them form part of cabinet preparation documentation.

Paragraphs (2)(b), (2)(c) and (2)(d) relate to correspondence between Defence and ASC, Defence and Austal, and Defence and the three prospective design partners in response to the announcement that Australian shipbuilders Austal and ASC would partner to win the contract to build the $35 billion future frigates in Adelaide. I say in relation to paragraphs (2)(b) and (2)(c) that this material contains discussions of an ongoing, active procurement—a tender process—that may have the potential to prejudice the integrity of the future frigate procurement. Paragraph (2)(d) relates to discussions of an ongoing procurement that may also have the potential to prejudice the integrity of the procurement process that is currently underway. Paragraph (2)(e) states:

any other documentation held by the Future Frigate project that discusses Australian Industry Capability, the partnering or use of Australian shipyards, and how Techport and other Australian facilities might be used in the program.

That part of the order is particularly concerning. It refers to such a broad range of documents:

Any other documentation held by the Future Frigate Project that discusses Australian industry capability, the partnering or use of Australian shipyards and how Techport and other Australian facilities might be used in the program.

Effectively, it is the view of Defence and legal advisers that that order would require the government to release parts of the tender responses themselves part way through an active tender—that is, those parts of the tenderers' submitted responses that pertain to Australian industry capability and the partnering or use of Australian shipyards, all of which are 'held by the future frigate project'. The release of that sort of sensitive material would not only adversely affect the tenderers but undermine the integrity of the entire procurement process. Moreover, the information that is requested—that is, any other documentation held by the future frigate project—would include documents that contain sensitive information with regard to Defence's negotiating position in relation to a variety of issues, including Australian industry capability, a negotiating position of the Commonwealth government in respect of any future contract. Frankly, it is beyond belief that a sensible person in this place would support the government being required to table our negotiating strategy part way through a tender process—unless the outcome you seek to achieve is actually to delay the project. I remain to be persuaded.

Defence has also advised the government that substantial public commentary on the Australian industry capability and continuous naval shipbuilding aspects of the RFT content could also affect commercial arrangements that are able to be achieved during negotiations with any successful tenderer. I understand a number of these issues were discussed in the context of the hearing last Friday.

I want to make a few observations, if I may, in response to the claims made to reject public interest immunity in the motion itself. They are set out further down the motion. As I understand it, we have claims from Senator Xenophon that, because only documents that have not been 'marked with national security markings' were requested, somehow a claim by the government for public interest immunity is not valid. Let me be very clear about this: a derailed procurement process of the magnitude of a $35 billion future frigate program would damage Australia's national security, our defence and our international relations. That's exactly what the release of sensitive material relating to the tender would do, because it would adversely affect the tenderers, it would adversely affect the government's position and it would jeopardise the current tender process.

Let me speak about the national security implications. From the perspective of Australia's security and the future challenges that we need to be prepared for, we're intimately tied to developments in both our regional environment and our global environment. As a result of military modernisation in our region, we have a large number of regional forces who'll be able to operate at much greater range and with more precision, especially in the maritime and air environments that are supported by more advanced intelligence, surveillance and reconnaissance networks. To respond to those developments, from Australia's perspective, we have to increasingly develop capabilities which can protect our forces when they're deployed across a large geographic area. The future frigate program is a key enabler of Defence's military modernisation program.

Defence has projected our capability needs to meet future emerging threats and to respond to regional and global modernisation. An action of this nature, which has the potential to prejudice, delay or derail the acquisition of a vital capability, does have a significant effect on Defence's ability to meet its national security goals and to defend our national interests. If this material, particularly part of the tenderers' responses, were to be made public, why would these tenderers or any future international tenderers have confidence in Australia's procurement systems and processes? How do you suggest that Defence—or, for that matter, any other major government agency—would be able to attract world-class designers and builders for significant projects of national importance?

The integrity of our procurement system is important to the engagement of international expertise, which assists us in delivering vital military capability now and in the future. If Defence can't draw on international expertise, it's ultimately Australian industry that will suffer from the loss of opportunity to foster the development of a wide range of skills that will not only directly support the construction of the future frigate program but will also contribute to the creation and the sustainment of a continuous, sovereign shipbuilding industry in Australia, which is the government's objective.

Releasing tender information at this time could also adversely affect Defence's ability to negotiate a contract that protects the interests of the Commonwealth and achieves the best value for money for Australian taxpayers. Frankly, what this order of the Senate would have us do is to damage the future frigate tender process, to allow it to be derailed, and to damage our professional reputation internationally. That's why the government has claimed public interest immunity. That's why the release of the documents would have the potential to damage our national security and defence interests and our international relations. I think, in a resolution of this nature, an order of this nature, it is very important for those who have supported the resolution and the order to consider the scale and the complexity of such an important tender process, for a tender that is currently active. But it would seem to the observer that the pursuit of these matters when the government has responded as to why we are not able to provide the information, is largely aimed at delaying the future frigate program, and delaying the thousands of jobs in South Australia and around the nation that will come with it.

To sum up, in relation to order 449, it is my contention, on behalf of the Minister for Defence Industry—that the release of this sensitive material would adversely affect the tenderers and would also jeopardise the current tender process. Even if the procurement could be salvaged from a probity perspective, it would result in a significant cost to the Commonwealth, a significant cost to the tenderers and a significant delay in the delivery of the frigates. A derailed procurement process of this magnitude would, as I have said, damage Australia's national security, and our defence and international relations. We as a government are not prepared to risk a $35 billion project in this way. We are not prepared to risk the thousands of Australian jobs that will come with it.

It would perhaps be remiss of me not to make a couple of observations about the history of naval procurement in Australia in recent years. For example, it would be remiss of me not to point out that, in the period between 2007 and 2013, those who sit opposite did nothing to commission a single naval vessel from an Australian shipyard—from any shipyard—for those six years. Nothing. They allowed the Australian naval shipbuilding industry to enter a downward spiral by not supporting it with the order book that was necessary for it to retain its workforce and invest in the future. And now they want to compromise this government's position. Those who sit opposite us now and criticise the government for commissioning 12 future submarines, nine future frigates and 12 offshore patrol vessels, and for currently engaging in a build of over 20 Pacific patrol boats, all to be built in Australia, with an Australian shipbuilding workforce, as part of a sovereign, continuous naval shipbuilding commitment—those who sit opposite and criticise that have a very warped sense of priorities.

In fact, it's worth noting for the record—Senator Carr and I have been in this chamber together for a very long time—that Senator Carr sat over here for four years in the Rudd cabinet as the minister for industry—and did what, exactly, to support the Australian naval shipbuilding industry?

If I recall, Senator Carr also served as Minister for Defence Materiel for a short period in 2011 and 2012. And did what, exactly? Nothing. The Labor government did nothing. That is the complete opposite of what this government is doing.

We are establishing a sustainable, long-term sovereign naval shipbuilding industry that will learn from the best in the world while we build on our own world-class existing naval shipbuilding workforce. We are getting on with the job of delivering the capability that our Navy needs and building the sovereign industry that we need to support that. We are the ones who have made the decisions that are necessary to create at least 5,200 direct jobs in Australia's naval shipbuilding industry by the mid-2020s in this country, with another 10,000 created across the supply chain. This is a threefold increase on the workforce we already have.

We have moved to address the mess that those opposite left us by bringing forward the construction of naval vessels and implementing a continuous naval shipbuilding program. We will see the offshore patrol vessels commence in South Australia in 2018. We will see, without it being derailed, the commencement of the future frigate program in 2020. We have commenced upgrading the Osborne shipyard in Adelaide with an over $500 million investment, which will support our continuous naval shipbuilding plan for decades to come and will support a potential export industry as well. We have released a request for tender to establish a naval shipbuilding college to ensure that we have a future workforce with the skills it needs to deliver on this program. We have released a comprehensive naval shipbuilding plan which sets out our strategy for a sovereign continuous naval shipbuilding industry, which supports our 2016 defence white paper. All consistent, all proactive, all front-foot—the exact opposite of those opposite. We have set in train a process that means each of the three shipbuilders who are participating in our request for tender is conducting extensive consultation with Australian industry to develop a sovereign supply chain in this country, creating more Australian jobs and investment. Every single thing that we have done demonstrates our commitment to creating a sovereign naval shipbuilding industry in Australia. Every single thing that Labor didn't do let the industry die.

The government is not able to provide the sensitive documentation that relates to the future frigate program, for the reasons that I have set out, because to do so would adversely affect the tender process and the tenderers and would potentially derail the entire thing. I don't understand why the only people who seem to want to jeopardise that tender process—and to delay the future frigate program—are the Labor Party and Senator Xenophon. They apparently want to cause havoc with our international reputation, with our national security. They want to deny, apparently, the thousands of shipbuilders in Adelaide the chance of a job. They want to deny the many thousands of workers in SMEs across the country additional future work. This government won't risk this $35 billion project and the thousands of jobs that come with it. We just won't.