In February, the Albanese government’s Deputy Prime Minister (and Defence Minister) Richard Marles announced that Defence would be taking delivery of the first of 11 new ‘general purpose frigates’ this decade, with three of the ships to be delivered to the Navy by 2034 after spending $11 billion.

He announced that Defence had ‘down selected’ four ship designs from four builders – the Spanish Navantia company’s ALFA3000, Germany’s Meko A-200 frigate built by TKMS, South Korea’s Daegu class FFX Batch II and III built by Hanwha and Japan’s Mogami 30FFM frigate built by Mitsubishi Heavy Industries. (That was actually 5 ships – two Korean ones made by two shipbuilders – a confusion in the surface combatant review that was the input to the minister’s announcement.)

And that’s when the trouble started. Mr Marles handed this framework over to Defence to turn a beer coaster sketch into a multi-billion dollar government project, delivering ships on a timeline that Defence struggles to achieve when buying office furniture, let alone 11 missile-equipped warships.

And Defence is doing what you would expect it to do in these circumstances: running it as a large, but standard major acquisition process involving Commonwealth requirements and company responses and proposals.

So, what’s already going wrong?

It looks like Defence has not learnt much from recent procurement debacles in the Navy surface and submarine world. The failed Attack Class submarine program has some big lessons, and not learning them is a path to certain trouble.

Back then, Defence ran a ‘Competitive Evaluation Program’ that considered submarine bids from the Germans, the Japanese and the French and chose the French Naval Group’s design (which was later cancelled because it was apparently going to deliver a submarine that was obsolete from the time it arrived).  

A key problem in the submarine process was that two of the three bidders – the French and Germans – were ruthless and successful commercial exporters of submarines and more than match fit for competitive evaluation processes, with documentation and data available to meet evaluation requirements.  One of the contenders – the Japanese – had not exported military equipment let alone sold a submarine to anyone besides the Japanese Navy and had no experience or knowledge about commercial tendering or working with a foreign government on such a proposal.

In other words, the design of the process put the Japanese at an inherent and large disadvantage, whatever the merits of the Soryu class submarine they offered to Australia. It was as if a process to choose a chess master involved each contender running a 100m sprint as a core requirement.

Unsurprisingly, one of the commercial submarine builders – the French – won the contract (temporarily, it turns out).

Back then, Australia had the same issue it has with the general frigate contenders now: the four different countries and four different frigate designs offer very different potential partners and any evaluation that starts with Defence’s standard procurement processes, however accelerated, has the flaw of treating them as if they are the same.  Unfortunately, the Spanish, German, South Korean and Japanese offers are more like that Sesame Street song: ‘One of these things is not like the others.  One of these things is not the same’.  A program that fails to understand that difference and take account of it in the design of the evaluation and selection process is destined to give poor outcomes.

The different offer is from Japan.  It’s possible that each of the 4 (or 5) – frigate designs on Defence’s list are all capable small frigates that are viable technical replacements for the retiring ANZAC class ships.  But the fact that the Japanese Government and Mitsubishi Heavy Industries are keen to win the program tells us something essential about the Japanese offer: it is at heart a strategic partnership at government and industry level that Japan is offering. That’s because Japanese naval shipbuilders do not export warships to anyone, and even with Japan’s recent increased flexibility in defence exports, there is no move to turn them into international exporters.

The situation now is just like that back at the time of the submarine decision –  then, Japan didn’t want to sell Australia a submarine, it wanted to share the crown jewels of its military technological knowledge as the start of a broad and deep strategic and technological partnership with Australia.

The Germans, Spanish and South Koreans are all export-orientated companies, and Australia is one of several important potential markets for them as commercial enterprises.  They are out to win a big contract that will keep their shipbuilder in business.  Understandable and all good.  South Korea also wants to deepen its defence industrial partnership with Australia – because as numerous South Korean officials and corporate people have said over recent years, South Korea wants alternative sources of supply should conflict break out with North Korea on the Korean Peninsula and Australia could be helpful there.

So, it’s almost tragic that the Japanese government is still willing to make this strategic industrial partnership offer given the appallingly narrow and short-sighted process the Australian government used in the failed Attack Class submarine program.  The Japanese are genuine in their assessment that a deep strategic and industrial defence relationship with Australia makes sense for their national interests and for collective deterrence of an aggressive China. Their motive isn’t about funding their own shipbuilding industry or using Australian supply chains for their own military in a time of conflict – it’s about making Australia a more credible military power and so a more capable strategic partner working on the common challenge of China. 

That the Japanese Government and Mitsubishi Heavy Industries (who also build Japan’s Soryu subs and so endured that recent searing, bewildering, almost humiliating experience of dealing with Australian ministers and defence officials) are willing to build Australia’s frigates and transfer key technology to Australia as part of this shows the depth of the strategic partnership on offer and foreshadows it broadening into every technology area relevant to defence – including Pillar 2 of AUKUS.  That’s quite a thing.  Japanese leaders no doubt hope that Australian ministers and officials are making the same assessment and will factor this into their decision making. 

My judgement, unfortunately, is that this is unlikely to happen without ministerial or prime ministerial intervention.  Because Defence has been handed the general frigate baby and asked to make things happen fast, it will turn to its existing business processes and run as fast as it can using them.  So, it will conduct a procurement process applying as much of the Capability Acquisition and Sustainment Group’s normal processes as feasible in the time it has – and that means running a pretty vanilla if abbreviated tender and tender evaluation process. 

Consideration of the very different natures of the government-industry packages on offer is unusual, hard and outside the standard procurement process.  Under pressure, the hard, novel, and out of normal scope is simply unlikely to get done.  Only a restive, insightful minister for defence or prime minister’s insistence would change this.  Unfortunately, Richard Marles has proven to be more like an absentee landlord than a ministerial leader at a formative time for Australia’s military power and security.  Anthony Albanese has promised to roll his sleeves up and get involved in the big Defence decisions, but has yet to show he means it.

So, an essential step for Defence and ministers on the general purpose frigate program is just understanding what each of the participants is actually offering and making Australia’s decision with that knowledge at the core.  That would require the processes used to analyse the offers to get beyond the technical and commercial issues and also evaluate the strategic elements in each offer as key criteria for the decision. Defence is not good at this. And any tender requirements to the bidders must take account of the fact that for Japan this is not a commercial activity by a shipbuilder’s well-oiled salesforce but a government-led strategic offer.

The second problem with the program is a self-inflicted one.  The government recently announced that Austal was its strategic shipbuilding partner in Western Australia, giving it a future order book building patrol boats, small and medium landing craft for the Army and more than signalling that Austal will be the builder of whichever frigate design is chosen for the general frigate program. That’s all good, because Austal is the obvious shipbuilder for the chosen foreign designer to work with in the West and Austal have deep experience building other companies’ designs.

But after this government announcement, South Korea’s Hanwha Ocean shipbuilder made a bid to buy Austal.  Austal initially rejected the offer and noted the need for a government decision, with Foreign Investment Review Board consideration, before any sale to a foreign company could happen.  That all made sense. Austal is a publicly listed company so its shares can be bought on the open market.  The sale would be over the FIRB threshold so would need review and approval.  And from Hanwha’s point of view, buying Austal makes sense for three reasons: it buys the existing strong forward order book Austal has from the Australian government and buys the company that will build the $11 billion general purpose frigate – and building the first three frigates offshore, as the Australian government plans, gives useful work to its home shipyards in South Korea.

Richard Marles’ reaction to Hanwha’s bid for Austal was simple and clear: “Ultimately this is a matter for Austal. They are a private company”. “From the government’s perspective, we don’t have any concern about Hanwha moving in this direction.”

That sounds a lot like a green light to Hanwha to proceed with the bid and for Austal to get serious and do all the due diligence a takeover offer requires.

So what’s the problem? There are two big adverse consequences to Hanwha proceeding to bid for and take over Austal right now and neither is something that will get solved by leaving it to Austal to deal with the bid on commercial grounds.

The first issue is that Hanwha owning the builder of the Australian Navy’s general purpose frigate probably creates road blocks for at least two and probably all three of the other potential contenders for the program. Navantia and TKMS know they are now in ruthless commercial competition regionally and globally with Hanwha for naval ship projects.  No amount of clever Chinese walls around Austal will convince them to share key intellectual property about their designs and industrial secrets with Hanwha.

And the Japanese and South Korean governments may well be moving to closer cooperation in the military and security realms because of China, but they are still light years from simply handing over the jewels of their naval industry to each other.  So, waving through the Hanwha bid, as Mr Marles seems to be doing, could reduce the possible contenders to one – Hanwha – well before any Defence process congeals to an outcome. That’s something to understand as the Hanwha takeover offer proceeds.

The second adverse consequence is about what the South Korean bid might mean for the biggest, most profitable part of Austal – Austal USA.  The US arm of Austal is working  on over a dozen US government programs, including building cutters for the US Coastguard and command modules for Virginia Class nuclear submarines.  So, US Pentagon and government equities are large in who owns Austal and how it is governed.

Before waving through a takeover, it’s probably wise for the Australian government and Defence department to think things through from the alliance perspective and do that thing Australia didn’t do when we leased Darwin Port to a Chinese company for 99 years – talk with the Americans before we announce an outcome. 

To cries about sovereign decision making, the reply is obvious: Austal is building modules for America’s nuclear submarines.  Who owns it is a US interest as well as an Australian one (it may even be a three nation AUKUS issue if the supply chain for the SSN AUKUS involves Austal).

Maybe the simple path is to slow any takeover activities and decisions until after the future frigate winner is decided, so that the outcome of the selection can feed into decisions on Austal.  The best path, though, would be to provide clarity on the customer – Defence’s – requirements for the relationship between the Australian shipbuilder and the foreign company that wins the program well ahead of any selection decisions.

Separate to these industrial and strategic issues, the team that has to run the project and do it fast starts without a clear foundation when it comes to the Navy’s requirements for the ships. Richard Marles and Pat Conroy  have quoted the Strategic Review’s ‘minimal viable capability’ mantra and insisted there will be “minimal or no change to the actual design that’s already in existence” of the down selected ships. 

Unfortunately, that means that no one – including the potential shipbuilders – knows whether they are expected to modify the ships to use the same weapons as the rest of the Australian Navy, or whether the combat system heart of the ships is just to be whatever they fitted for their home navies or the Australian Navy’s SAAB 9LV system. It’s also not clear whether CEA radars are to be fitted, or even whether Australian regulatory standards for things like grey water discharge and ladders and other safety elements are to be applied. 

The idea there will be no changes sounds great – but there’s an interoperability and armaments issue, and the legal problem of not complying with Australian law and regulation to be faced, along with whether Australian crews will need to understand German, Spanish, Korean or Japanese to operate unmodified ship systems. I wouldn’t be the only one that remembers the Hunter frigate program also having the guidance of minimal changes to an existing ship. Lack of clarity is the enemy of speed.

The big takeaway from these issues around the general frigate program for Richard Marles and the Defence leadership is for them to start by understanding the scope of the issues in front of them and design a decision-making process and delivery plan that takes account of the icebergs and opportunities that surround what they are doing.

The experience of the failed Attack class sub program and the statements out of Defence and portfolio ministers so far on the frigate program don’t give any confidence this is happening. There’s still time, just not much of it.