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Naval shipbuilding: moving forward.



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MEDIA RELEASE SENATOR THE HON ROBERT HILL Minister for Defence Leader of the Government in the Senate SENATOR THE HON NICK MINCHIN

Minister for Finance and Administration Deputy Leader of the Government in the Senate

Thursday, 27 May 2004 95/2004

NAVAL SHIPBUILDING: MOVING FORWARD

Defence Minister Robert Hill and Finance Minister Nick Minchin today announced a series of decisions relating to the future of the naval shipbuilding and repair (NSR) sector.

The key decisions, which flow from the Government’s consideration of commercial advice provided by independent expert Mr John Wylie of Carnegie, Wylie & Company, are as follows:

• Given the significant increase in NSR sector expenditure resulting from the Defence Capability Review, a competitive model is the preferred approach for contracting in the NSR sector with intervention by Government only in exceptional circumstances.

• The $4.5-$6 billion Air Warfare Destroyers (AWD) build contract will be brought forward and let before the $1.5-$2 billion amphibious vessels contract while maintaining the in-service dates for these projects set out in the Defence Capability Plan.

• It is planned that tenders for the AWD build will be issued later this year with a preferred tenderer to be identified by early 2005. It is planned that tenders for the Amphibious vessels build will be issued in early 2005 with a preferred tenderer to be identified by late 2005.

• Tenderers for the AWD contract will be asked to bid on the basis of an alliance relationship with the Commonwealth. An alliance contract will reflect all of the key commercial principles that will govern the relationship and will rely on providing incentives to the parties to minimise costs. Mr Wylie will assist Defence in the development of the detailed terms of the alliance relationship.

• The sale of the Australian Submarine Corporation (ASC) will be deferred until after the AWD and Amphibious vessels are in contract to allow shipbuilding industry - including the ASC - to focus on tendering for these projects. As a result, it is unlikely that ASC will be sold until 2006.

• While ASC will be permitted to tender for major naval shipbuilding contracts, it must do so on an arms length basis from Government. To ensure this occurs, ASC will be established as a Government Business Enterprise under the Commonwealth Authorities and Companies Act, which will require the company to operate efficiently, earn at least a commercial rate of return and observe a more standardised and transparent reporting framework. Strict procedures

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governing the relationship between ASC, Defence and Finance will also be put in place.

These decisions mark the commencement of what is perhaps the most challenging naval construction program in Australian history.

The tenders for the naval shipbuilding contracts will be conducted through competitive processes in a fair and open manner and it is the Government’s stated preference that they be built in Australia.

With an estimated $6-$8 billion to be spent on the build of AWDs and Amphibious vessels alone, these projects will provide massive opportunities for Australian industry to participate at both the prime and subcontractor level; create new Australian jobs and skills; and strengthen Australia’s strategic industrial base.

There is no doubt that all of Australia’s naval shipbuilding capability will be fully utilised in the delivery of these projects.

Today’s decisions underline the Government’s commitment to implementing the $50 billion Defence Capability Plan to ensure the Australian Defence Force receives the capabilities it needs on time and on budget, thereby delivering security outcomes for all Australians.

Ministers Hill and Minchin thanked Mr Wylie for his work.

Media contacts Catherine Fitzpatrick (Senator Hill) 02 6277 7800 0405 351 245

Jen Eddy (Senator Minchin) 02 6277 7400 0419 432 664