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Economics References Committee
22/07/2015
Future of Australia’s naval shipbuilding industry

WHITE, Dr John Douglas, Private capacity

[12:30]

CHAIR: I now welcome Dr John White from TKMS Australia. Dr White, thank you for coming and participating in our inquiry, again. Your contribution has always been well valued and meaningful. I believe this is the second or third time that you are appearing before our committee.

Dr White : Third—but in a different role.

CHAIR: I understand you are here to finally table the Winter-White report!

Dr White : Yes, if you wish!

CHAIR: Sorry. That is an in-committee joke.

Dr White : If you give me permission!

CHAIR: Do you have any comments to make on the capacity in which you appear?

Dr White : I have appeared previously as an independent witness, and I am happy to do so again. However, I have taken up the role, as of 1 April 2015, of Chairman of ThyssenKrupp Marine Systems Australia. So I am happy to appear in that capacity as well.

CHAIR: Very quickly—because I just want to get my head around this—we just had Mr Costello as a CEO; when you say that you are chair, does that mean that you are chair of the board or that you are in an executive CEO/chairman role?

Dr White : I am chair of the board of ThyssenKrupp Marine Systems Australia.

CHAIR: Do you mind if we just refer to it as TKMS? For the rest of us, I think it is probably going to be a little bit easier. How long has TKMS been incorporated in Australia for?

Dr White : ThyssenKrupp has been in Australia since 1865.

CHAIR: But this particular entity, for the purpose of this—

Dr White : I have to take on notice exactly when ThyssenKrupp Marine Systems Australia was incorporated, but it bought AMT. It was the derivative of Blohm + Voss Australia, which was the entity that helped with the technology transfer from Germany for the Anzac frigates.

CHAIR: In just getting to the point, unlike DCNS, which created an Australian operation for the purpose of participation in this evaluative process—and it is not like there is anything wrong with that—TKMS has been here for other purposes prior to that?

Dr White : Yes.

CHAIR: And you started with them on the first day of—

Dr White : April 2015—this year.

CHAIR: And I just have one very quick question before we go on: you have a confidential contractual arrangement, as was already kind of discussed—and I do not want to go over old ground—that DCNS has with the department. Is that correct?

Dr White : Correct.

CHAIR: Sorry. I am sure these are things that are on the public record. Do you know when that was signed?

Dr White : It was in May; it was during one of the workshop sessions. I think it was probably 10 or 12 of May, but I am not exactly—

CHAIR: That does not matter. But at the moment, to get it clearly on the Hansard record, you are participating in the competitive evaluation process. You are one of the three entities participating in that process?

Dr White : Correct.

CHAIR: And that is a capacity in which you are here. But, as Mr Costello was, you are prepared to provide broader evidence based on your long-standing experience within the industry?

Dr White : Correct.

Senator CONROY: I have many similar questions that you would have heard me put to Mr Costello from DCNS. I do not want to bore the committee by going through them all—

CHAIR: Sorry. My apologies. It is completely my mistake. I did not give Dr White the opportunity to give an opening statement.

Dr White : I do not wish to give an opening statement.

Senator CONROY: I do not wish to bore you, but are there any of those questions where you think you have a different answer to when you signed, such as, 'What are you required to build?' To save me having to go through about 20 or 30 questions, is there anything there where you believe the process you are involved in is different to the process Mr Costello is involved in?

Dr White : I am confident that we have signed up to a process similar to the one for DCNS, because they are a commercial company, albeit partly French government owned. I am not confident—meaning I just do not know—about what the process is with the Japanese party given that that is a government-to-government relationship. We are not particularly concerned about that. We have been assured that this is an open competition—that is to say, there is no predetermined outcome. We have confidence and trust in that, so we are participating in a full-blooded fashion.

One point is that I believe we have been given a number for submarines on which to base our various proposals for a build in Germany, a hybrid and a build in Australia. I have been told that number is classified, so I am probably not at liberty to tell you that number of submarines here.

Senator CONROY: It is classified until the moment it is decided? I assume that at the end of it there will be an announcement that we are building x number of submarines.

Dr White : That is a government decision.

Senator CONROY: I appreciate that. I am just trying to ponder why it would be classified. Admiral Sammut is here. We might be able to press him on this further. But, given that we will be announcing that are going to build x submarines at the end of the contract, it seems perverse that it is classified between now and that point.

Dr White : We are in a competitive evaluation process. As Mr Costello said, we are not required to provide a tender with any obligation to meet a fixed price or any type of price at the end of this process.

Senator CONROY: So you would confirm what Mr Gould indicated at estimates: that there is no final time line and no fixed-price contract that you are required to submit.

Dr White : Not in the competitive evaluation process. We as a company, however, have indicated—it is on the public record—that in due course, when we have done enough work with the government, we would be prepared to give a fixed price for construction either in Germany or in Australia or in a hybrid.

Senator CONROY: If the process had been another 12 months longer, would you have been able to come up with those sorts of details? I am just wondering why there is such a time frame. It is a decision that has been made, but if you had an extra 12 months do you think you would have been able to provide that sort of information?

Dr White : Yes, we would have been able to, provided we could reach clear agreement on the requirements of the Department of Defence.

Senator CONROY: Mr Gould indicated that the design would not be sufficiently mature by December. You have some expertise in this area, like Mr Costello. I will ask Admiral Sammut what an immature submarine design looks like. Does it float? Does it sink? Does it have holes? I will ask him that rather than torture you with that.

Dr White : Okay.

Senator CONROY: Would you concur with Mr Costello's evidence that the unit costs per submarine would be greater if there were only eight rather than 12 submarines?

Dr White : There will be up-front, non-recurring costs in setting up the project, establishing the project management team, doing training, and building new jigs, rigs and some new facilities, regardless of whether it is done overseas or in Australia. Those up-front non-recurring costs tend to be amortised across the full number of submarines, so inherently there is likely to be a lower unit cost when you have more submarines. Also, in all naval and other shipbuilding—indeed, any industrial process—you come down a learning curve. The learning curve and the rate at which you come down it depend on the skill and the experience of the manager of the program. But that is not to say you come down a 92 per cent learning curve, meaning each subsequent ship is done for 92 per cent of the hours of the previous one. Clearly, units at the back end of an extended program come a little bit cheaper, but the learning curve flattens out as well.

Senator CONROY: In an article on 8 July that was called 'In the depths of a submarine dilemma', Brendan Nicholson wrote:

TKMS is offering a design for a new submarine of about 4350 tonnes (submerged) which it has designated the Type 216. It says it can deliver 12 such submarines for $20 billion and can build them in Germany or in Australia or it can do a mix of both.

Are you familiar with that article?

Dr White : I am.

Senator CONROY: I know you have not been with TKMS for a long period of time, and I do remember that that figure was touted probably about six months ago—maybe even longer—which may have been, I suspect, prior to your starting with TKMS—

Dr White : Correct.

Senator CONROY: Can you confirm that that was an offer made to the government?

Dr White : I understand it was in a letter written to the government. It was based at that stage, I am told by Dr Atzpodien—I had a discussion with him a couple of weeks ago when I was in Germany—on TKMS's own interpretation at that time of what they expected the requirements of the Australian Department of Defence, of RAN, to be. So that was before the top level requirements were issued for the CEP. They based it on their evolved design at the time, being the 216, evolved from the 214. They used their experience to calculate what the price of that vessel would be if it were all built in Australia.

Senator CONROY: So it was not based on the information subsequently supplied in the competitive evaluation process?

Dr White : No.

Senator CONROY: It was prior to that process?

Dr White : Yes. One can assume there might be some margin in it.

Senator CONROY: Mr Costello indicated that a build of fewer than 12 submarines, not talking specifically here about this process, probably would not be described as a continuous build. Is that an unfair characterisation?

Dr White : We have done quite a lot of work in the last three months to analyse how we could make a continuous build out of different numbers of submarines. We find some difficulty in arriving at a continuous build from, for example, eight submarines, even if we include planned refit and potential upgrades in the time frame. It becomes quite an easy thing to contemplate with more than 10, and preferably 12. You can always get a continuous build program by extending the time you take to build each submarine, but there is an old saying in the construction industry that time is money, and a quickly built project is the lowest-cost, most profitable project, so it is not prudent to just achieve a continuous build, necessarily, by extending the build schedule.

Senator CONROY: Okay. You would have heard me ask previous witnesses about the government's statement that there will be 500 new jobs as part of this process. Has TKMS given any information to the government that there will be 500 new jobs as part as part of this process?

Dr White : We have not formally given information regarding the number of jobs that would be created in Australia under our three different build options that we—

Senator CONROY: This was a claim made back in February or March. So has your company provided any information to the government? I appreciate, again, that it is slightly before your time. You are not aware of any information being provided to say, 'TKMS gets the build; there will be 500 extra jobs'?

Dr White : When Minister Andrews visited Kiel, we gave a presentation very similar to the one I have here. And then we took him for a walk around the shipyard and he saw nine different submarines of four different classes.

Senator CONROY: When did that visit take place?

Dr White : That was just before Anzac Day in April.

Senator CONROY: So that would have been after the announcement of the 500 jobs?

Dr White : I presume so. And he was so impressed to see so many submarines of different classes in different stages of construction, refit and repair alongside. He actually asked us could we replicate that level of efficiency and productivity and calmness in an Australian submarine building yard. Not surprisingly, we assured him and the board of ThyssenKrupp Marine Systems that is our business to do that and we could do that. He asked us to give him the indicative idea of how we might do that based on the ASC facilities in Adelaide. So we did prepare a document at his request which looked into that. In that document we did predict the number of designers, the number of managers, the number of trades and non-tradespeople that would exist in that facility should it be constructed and should we be managing it to build submarines.

CHAIR: Is that a document that can be tabled?

Senator CONROY: Dr White seems to be indicating that at least a sanitised version may be able to be tabled.

Dr White : It is a document that we have provided to the minister and the minister asked us to have a meeting with the Minister for Finance, which we did. We have provided that document to both ministers. It is not an offer to buy ASC, it is an indication of what it would look like if the government wished to sell ASC and wished us to use those facilities.

CHAIR: From a process question, is that a document you are prepared to table or would you like to take that on notice?

Dr White : I would say it is commercial-in-confidence.

Senator EDWARDS: It is so close but so far away. I can see it but I cannot read it.

Senator CONROY: He can almost taste it.

Dr White : Senator Edwards, I will talk to you later in confidence.

Senator CONROY: But in February or March, your company had not provided the government with any information about 500 new jobs in Australia?

Dr White : Not to my knowledge.

Senator GALLACHER: Is that there a proposal to take over ASC?

Dr White : It is a proposal of how we would utilise the facilities at ASC and the tech port. It indicates what additional types of facilities we may need given that some of those facilities are for a different diameter of hull and submarine and are currently and will continue to be utilised for Collins sustainment. It is a requirement that we do not interfere with or disrupt Collins sustainment as we commence construction.

Senator GALLACHER: Does your competitive evaluation process include an assessment of ASC's capability, particularly at management level, to interact with the proposal you eventually put on the table?

Dr White : The response needs to detail how we would build all submarines in Australia and, under hybrid, a certain number of submarines in Australia. As such, we are doing a complete review of infrastructure and company availability and capability right across Australia—Western Australia, Victoria, New South Wales and Queensland—as well, of course, Adelaide—the site tech port and at the ASC.

We are in very useful and constructive discussions with ASC management. They have visited our site, our yard in Kiel, and we have had experts visit theirs. We are doing an assessment of what additional facilities we would need should we be able to gain access either by partnering, by subcontract, by lease or by acquisition of the appropriate part of ASC.

Senator GALLACHER: After the ANAO audit report, the various comments by a former Defence minister about the capability of ASC and the comments this morning, if you heard them, from Mr Lemar, are you of the view that all options are open with ASC or is it an either/or?

Dr White : We are making no assumptions about the availability of ASC because that is a government decision. The most recent comment from the Minister for Finance was that there is no consideration at the moment of selling ASC. So prudently and not unexpectedly—so I do not think this is commercial-in-confidence—we are assessing how to build submarines in the event that ASC facilities or resources are not available to us. We are also looking at the maximum utilisation we could make of ASC should the government tell us that we can subcontract, partner, lease or buy the appropriate parts.

Senator GALLACHER: I will summarise it in my brutal way. We appear to have very good facilities, substantial infrastructure and investment. We appear to have a very good blue-collar workforce, which, we heard in earlier evidence, is compatible with North American and European shipyards. The only thing that I am a little unclear about is whether we have world-leading capable management at ASC to deliver this project. What you are telling me is that you can deal with that if that is deficient. You have a proposal to deal with that. If it is up to speed, you have a proposal to do with that also.

Dr White : That is correct. I am on record many times over many years saying that from my experience of tendering for the Collins the first time around, privatising the Williamstown government owned dockyard, building FFGs and Anzacs, I have absolutely no problem in my experience with the skill, the productivity and the cost of Australian tradespeople, non-tradespeople, engineers and project managers. They are amongst the best in the world and they are no more expensive, providing they are put in a suitable structure where they can get the material and information and direction and training they need.

By about the fourth Anzac frigate, the parent company in Germany did an audit of the performance of Transfield Defence Systems and they actually put in writing that they had could not have built the Anzac frigates to meet the Australian requirements any cheaper than they were built in Australia. My view is that has not changed. A reduction in our currency actually helps us and we need to look forward to what the currency movements might be in the future when we commit to a large amount of overseas purchase.

So we are completely confident that the people there, given proper information and direction, are world-class. Our company is on record saying we are prepared where we have enough information—and that will not be by December this year; it would be another nine or 12 months—that we will be prepared to give a fixed price to build an agreed designed capability of submarine. That means we have great confidence in the Australian workforce and management, properly supported with technology transfer and production system transfer systems from ThyssenKrupp to Australia. We have done that before with the Anzac frigates, so we know it is possible.

Senator XENOPHON: I asked questions of Mr Costello; it may come as no surprise to you. Has there been any consideration given even in broad terms of what the difference in costs will be for a local build, a hybrid build or a foreign build? Is that something that you could provide further information on or should I speak to TKMS?

Dr White : We are naturally halfway through a very compressed program for the CEP. We are analysing the reality of how we could do the three different build options with equal concentration and force. I am on record many times in the past as saying that based on my experience of heavy engineering, offshore oil and gas, resources, infrastructure programs and the Anzac frigate program, if you engineer and plan one of these long-term complex infrastructure projects—and the submarines are an infrastructure project—from the outset to be done most efficiently with proper training and technology transfer and experience from a competent overseas party with experience, the project will be done at a lower cost if you plan from the outset to build all of the units in Australia than if you try and set up two projects. You need one project to build the first couple overseas with its own project management and its own facilities and its own workers. At the same time almost, you have got to set up a parallel team to start building the infrastructure that you additionally need in Australia, recruit a workforce and a project management team. I have been on public record saying if you do that properly, it will be the lowest cost, most efficient way to build these projects in Australia.

What the Chief of Navy wants is a submarine that is reliably and cost effectively able to be sustained through its life. When you get into the through-life, there are a great flow-on benefits from having engineered, designed and worked with the Australian supply chain from the beginning for all submarines, including the first ones, in Australia. So I personally have assured the Chief of Navy that in my experience that will deliver, done properly, the best lowest cost sustainment of his submarines.

Senator XENOPHON: In terms of your last comment, that is consistent with what Mr Akio Murakami, the senior vice president of Kawasaki Heavy Industry, basically said through an interpreter—that participation in construction and design makes maintenance easier depending on the area of maintenance. That is pretty axiomatic in this, isn't it? If you build it subject to a number of other variables in terms of technology transfer, you should be able to also more easily maintain or sustain it?

Dr White : That is correct. I said that with great confidence and great openness having been involved in major projects of complex design and capacity and capability in the civilian sector and in the naval sector. But we have got to remember that in designing, building and delivering a submarine, really only about 20 per cent of the cost of that is labour in the shipyard and the module yards. We would logically in Australia do what we did for Anzac frigates and utilise multiple sites to make best use of all the skilled labour located around Australia. Eighty per cent or thereabouts, depending on the pricing of the combat systems and some other things beyond our control because it will be government nominated, is supply chain cost price.

My experience of the Anzac frigates, where we offered a fixed price to build all the Anzac frigates in Australia with around 80 per cent Australia and New Zealand industry participation, was that because we did the design and the detail from the very beginning for that, we involved the Australian supply chain from the very beginning for all vessels. We got 1,000 or more and that led to great efficiencies and great supportability through the life.

Senator XENOPHON: It is very helpful what you have said. If it is easier to maintain and sustain something here if you build it locally, does that mean the Australian Defence Force, the Australian government and the Australian tax payers are asking for trouble if you build something overseas? The logical corollary of what you are saying is that there will be more problems in sustaining subs here if they have been built overseas in the first place?

Dr White : I am sure that submarines can be built overseas and information transferred and training provided and supply chains set-up. I am sure that can be done in a fashion that delivers submarines able to be reliably sustained.

Senator XENOPHON: But it is potentially more difficult, isn't it?

Dr White : My point is that I think it will be more expensive.

Senator XENOPHON: So what you are saying is quite significant. You are saying that a foreign build will, in all likelihood, lead to a more expensive Australian sustainment.

Dr White : Through the life of the program? I am sure.

Senator XENOPHON: And that is something that you put to the Commonwealth government and to the Navy?

Dr White : We have not submitted our response.

Senator XENOPHON: They know about it now, don't they?

Dr White : Look, I have been on record as a shipbuilder in this country many times in the past. I am simply repeating what I have always said.

Senator XENOPHON: In terms of the numbers of submarines, I know that it is confidential—it may be less confidential after we have spoken to the department and to the navy in a few moments—but you said earlier in your evidence, and I do not want to misquote you, that anything below 10 would make a continuous build more problematic. Is that right?

Dr White : Correct.

Senator XENOPHON: So if the Australian government, as has been speculated in the media, is talking about only building eight submarines, contrary to the 12 promised before the last election, that would make it more marginal in terms of the continuous build? It would make it more difficult?

Dr White : It makes it very hard to see how to plan that. Of course, there are other ways to maintain a workforce. I have also argued on the public record previously—including to this inquiry, I think—that it is my view that if Australia wants to have a long-term, sustainable, competitive, world-class naval industry, we need to plan to build both future frigates and future submarines in this country. In the nineties, we built two FFGs, 10 Anzac frigates, six Collins and a number of other minor vessels, including minehunters. We did not run out of capacity. In fact, the work was almost essential to have a good industry.

Senator XENOPHON: I will put a number of questions on notice, which I put to Mr Costello. I think that, in fairness, the same questions should be put to you about the process, but I think that they can be best dealt with on notice. Given your evidence, which I find incredibly revealing, about the benefits of a local build in terms of sustainment—because that is where most of the cost is, in that it would in all likelihood be better to build locally and it would save money for taxpayers—can you offer a view as to why, also given South Australia's unemployment rate, the government, as part of the competitive evaluation, is still going down the path of even considering a hybrid or overseas build?

Dr White : Look, I think that at one level you can say a prudent approach to such a major acquisition is to canvass the market and see what is available, including from overseas. We used to have a two-pass process, where you had to put a MOTS up against a product uniquely for Australia. However, we went through these sorts of debates in the eighties for the Collins class the first time around and for the Anzac frigates, and, with due consideration at the time, it was decided to base both of those projects on all build in Australia for good, logical, argued reasons. Frankly, most of our allies simply adopt the approach of engineering and running their programs to be done in their own countries. I think that the lack of confidence—

Senator XENOPHON: Other first tier navies around the world build their ships and their subs locally?

Dr White : Yes, they do. I think that a lack of confidence has crept in because there have been some well publicised so-called problems in Collins. I have been on record before saying that, if you analyse those carefully, they have been driven by decisions well beyond the control of Australian industry. It is the partner that you pick and whether they have the experience in transferring their technology successfully to Australia. It is the components—for example, the combat system and the diesel engines—chosen from overseas that have caused the problems in Collins, not the Australian workforce or management. In fact, the Australians have fixed them up.

With AWDs, I am constrained in what I can say because the Winter-White report is still cabinet confidential, but we did analyse—

Senator XENOPHON: You're not going to give us a copy, are you!

Senator CONROY: That's two documents you just won't hand over!

Dr White : We did analyse the root causes. I am sure you can talk Professor Winter. The root causes are to do with decisions about the overseas parties chosen, their experience, the structure put in place and the management thereof. It is not to do with the workforce. I am on public record previously saying, 'Let's have a clear view of what has actually caused the so-called problems in Collins'—which I say is a highly successful program internationally—'let's look at what has actually caused the current, much-publicised problems in AWD and let's just make sure we avoid those, as we did in Anzac frigates, as we did in minehunters and as was largely done in LHDs.'

Senator GALLACHER: Would that scenario you have just described apply equally in a sustainment, if the technology transfer is not there and you buy overseas and need to sustain in Australia? Would those problems still exist?

Dr White : Clearly you need very good disclosure of all IP. You need very good disclosure of design philosophy, which is a bit deeper than just having drawings delivered. There is nothing like kicking the tyres. There is no replacement for doing something to actually understand it.

Senator GALLACHER: The same principle would apply if you bought a submarine and wanted to sustain it in Australia—you would still need to have that good understanding?

Dr White : You would have to have very good understanding, yes, to sustain it reliably and cost-effectively, especially in time of conflict or emergency, when all forms of communication can become stressed or even cut off.

Senator GALLACHER: I do not want to put words in your mouth, but logically you would pick a successful bidder, if you like, who had a proven record of actually delivering that type of outcome?

Dr White : That would be my approach.

Senator GALLACHER: Thank you.

Senator EDWARDS: Dr White, it is good to see you again. As you know, on 13 October last year you provided some evidence to this long-running committee inquiry which led me to form a view on 14 October and come out and ask the government which I am a part of to open up a—at that point the word I was using was 'tender'. And we are now involved in a competitive evaluation process. Obviously that came at some political risk for me, but I am pleased to say that we are actually in this process now and it seems to be getting some momentum. I want to take you back to the point that you have just made in your answer to Senator Xenophon. I think I have got it right. You said, about the competitive evaluation process, that it is a prudent approach, in what is such a major acquisition, to canvass the market. Indeed, this is the biggest acquisition in our nation's defence acquisition history, isn't it?

Dr White : That is my understanding.

Senator EDWARDS: This competitive evaluation process has been rolling out since 9 February, and we are now at 22 July. So we are a fair way into the process, and so is the company which you represent here today. Do you believe that this process is a fair one?

Dr White : We have been assured that the competition is open to the three parties and that there have been no predetermined decisions. We believe that and we trust that. We are putting full force into it. We have got 190 different people—not all full time—working on it between Germany and Australia, so we are very pleased to be a part of it.

Senator EDWARDS: I should have posed this question to Mr Costello, our earlier witness, but I can put it on notice to him: do you have any involvement with the expert advisory panel—the four people that have been appointed to that to oversee the process?

Dr White : I clearly know a couple of the individuals. I have not been in contact with those individuals since their appointments were announced. There is a process now of lining up a day—I think it is in early September—when we are going to have a meeting with them. Probably one of our board members from Germany will come out for that meeting with them.

Senator EDWARDS: You have a profound corporate history in Defence building and infrastructure projects—so much so that you referred earlier to the Winter-White report, in which the White is you.

Dr White : That's a secret!

Senator EDWARDS: Not everybody in Adelaide knows the complexities and history of the inquiries.

Therefore, you are held in fairly high regard by this government. You have been asked to conduct an audit, which you have done. Since that time, there has been demonstrable improvement in productivity and efficiency at the ASC. My point is that you are now in a position where you are leading a bid by one of the three foreign companies. The integrity of this process now is at the very core. People in South Australia and, indeed, Australia want to know that this is just a fair go. All I have ever asked for is a fair go at building submarines in Australia. Given that you know the four people who have been appointed to that oversight of the competitive evaluation process, is there any likelihood that they are going to put up with any nonsense in this?

Dr White : I find all of those people to be people of great reputation and integrity.

Senator EDWARDS: Beyond reproach?

Dr White : I would assume so, yes.

Senator CONROY: What do you expect him to say to that?

Senator EDWARDS: The process has been brought into question, but now we have oversight from a group of four people, but there has not been a light shined on that. These people are not pushovers, are they?

Dr White : I would hope not.

Senator EDWARDS: That is their long-term corporate history. I have just outlined your corporate history. You have no concerns about those people's ability to influence the fairness and equity of this competitive evaluation process?

Dr White : I do not think there is any doubt that this CEP is being run with rigour and due probity and process. It is good to have that oversight group. Frankly, in industry we assume that the process is being run well, and our experience of it as one of the parties is that it is being run rigorously with a high attention to probity.

Senator EDWARDS: So much so that there is in actual fact another layer with this oversight committee of four.

Dr White : Yes. I think they will have a fairly easy job, because it is a well-run process.

Senator EDWARDS: That is heartening to know. I can infer from your answer to Senator Xenophon that you believe that this is a thoroughly appropriate process for Australia to be undertaking. Your CEO, Dr Atzpodien, seems to agree that this process is normal—certainly for Europe.

Dr White : I do not shy away from previous public statements I have made to this committee and publicly that my previous experience of major naval programs has been to run a competitively funded project definition study to get close enough to a design definition that at least two parties could then be asked to submit prices of fixed or target nature. That was my previous advice for a way to go through this process when I was not even thinking about joining the Germans. This is not that process. This does not yield an opportunity for a competitive fixed price from a number of parties, so the government will have to make a decision that it can really trust the party it gets to. I am sure all three parties are trustworthy, but a pricing arrangement will be a later stage. As an old industry person, I am a great believer in competition, the fine tuning and the pressure that that brings from the market. But the process is the one that has been decided upon in the time available, and it is not for me to question the government's decision to do that. Our company continues to stress that, if we are fortunate enough to be selected as the design partner, we would be prepared to go forward and establish a fixed price and we would be prepared to have that open to scrutiny from the German government, who can advise that this is the sort of price for which ThyssenKrupp would deliver submarines to the German navy against certain KPIs and complexity parameters.

ACTING CHAIR ( Senator Edwards ): Thank you very much. I have many more questions; but, given that we are an hour late now, I will defer back to—me, actually, given the chair has disappeared.

Senator CONROY: I actually thought he was going to ask a couple questions.

ACTING CHAIR: Before you do go: you are in a different role now from when you appeared before. You are no longer independent, which I freely accept. But I did ask the ASC earlier—so perhaps take your TKMS hat off—where they felt that the genesis of the valley of death has come about. Do you want to comment on that?

Dr White : I think you can look at the reduction in labour force and track back how long it takes to get a program up and running. Programs can be fast-tracked at the front end, but clearly it is because there has been a lack of shipbuilding contracts contracted.

ACTING CHAIR: The last one was in 2005, and now we are talking about the next contract, effectively.

Senator CONROY: So we are overdue.

ACTING CHAIR: We are 10 years since the last decision was made, which is the genesis of the valley of death, isn't it?

Dr White : There have been methods available even within that time frame. Yes, it is the genesis of the valley of death that contracts have not been awarded, but work could perhaps have been better distributed between sites to mitigate the valley of death. We also need to a continuous shipbuilding program and a continuous submarine building program, and two programs that interface and share resources is a very good thing to do. My advice as an independent person has been that we should not be too pessimistic that we are heading into a reduction in workforce. I remind people that in 1988, when I was privatising Williamstown dockyard, we could not reach agreement with the painters, dockers and various other contrarian parties. Regrettably, we had to lay off the entire workforce in Williamstown, and we could not re-employ any of those, because they were all given very large redundancy packages and were quite happy. We rebuilt from zero a new workforce from the oil and gas, heavy engineering, automotive and resources sectors within months, and they performed beautifully. Within six to nine months we had achieved recorded levels of productivity some 600 per cent greater than what had been achieved in the three-to-five years previously on the FFG.

We are able in this country to build workforces for complex infrastructure projects. With the fact that we have not managed to maintain continuity in this time frame, I counsel that we should not get too pessimistic. We should not use that as an argument that we cannot build submarines, for example, in this country, because there will be three to four years after one of us gets selected next year to plan, train and rebuild the workforce, as was done on Collins, as we did for FFGs and Anzacs. I simply say that Australia is very good at putting complex projects, building project management teams and building the workforce, and we can do it again. We will no doubt some time in the future face another valley of death. Let's hope it is a mini valley of death rather than a big one.

Senator XENOPHON: Grand Canyon.

Senator EDWARDS: You made a point about the unions. The point that I have always made since coming out so strongly in advocating for an Australian build is the issue of the unions and the workforce at ASC to mobilise themselves and to get—

Senator CONROY: I know you guys think they cannot build a canoe down there.

Senator EDWARDS: No, that is absolutely not true, Senator Conroy. Obviously, I reinforce the words that you and I have both been saying for over 12 months that we can build them, but they have to organise themselves with EBAs and things like that that are competitive on the world stage.

Dr White : When we took over Williamstown, we established a world-class EBA that was multiskilled and demonstrably highly productive. There is always an opportunity with a new project, especially one that has high national and international recognition, to make the next leap. It is my personal commitment—and I look forward to this—to establish the next generation of workplace framework agreement which is highly cooperative and highly committed. Our commitment—because we are committed to building all the submarines in Australia if the government wishes us to—will be that we have the same level of productivity here in Australia at the assembly site and at the module building sites as is achieved in Germany. ThyssenKrupp are confident, with their experience of transferring their technology to seven countries, that that can be achieved, but we do have to be able to control the means and methods of production and management thereof.

Senator EDWARDS: It will be the challenge for my Labor mates here to sort out their union buddies.

CHAIR: Dr White, I will be very brief because I am very conscious of time. I just want to get my bearings around what you have said today, because I think it is very significant. Perhaps you can elaborate on this. You are obviously here representing a German firm—

Dr White : I am chairman of their Australian subsidiary.

Senator EDWARDS: But the point that you are making is that, not only is it the requirement as part of this process that there be Australian components but your view as the chairman of the firm is that it makes economic sense from a commercial perspective to do the build here.

Dr White : That is my position. That is my advice. I am sure that if we truly analyse all aspects of the project we will have a lower cost to the government from an all-build in Australia, and, if you go on to analyse the through-life support, the convenience of having that complete supply chain designed from the outset and participating, you will make major savings through life. Then of course there are the economic flow-ons of tax recovery and—

CHAIR: Effectively, what you are saying is, wearing the corporate hat that you are wearing: parking to one side the arguments for security interests, national interests and industry interests, solely from a commercial perspective of a participant, it makes more financial sense for an Australian build than an international build?

Dr White : That is my view.

Senator EDWARDS: Sorry, Chair. That was all being said while you were out of the room. Dr White has been advocating that for some time and did again while you were out.

CHAIR: Dr White, thank you for your time.

Dr White : It was a pleasure. Thank you for inviting me.