NDDN Committee Meeting

    I call the meeting to order.

     I'd like to welcome Peter Jennings from Australia. He is the executive director of the Australian Strategic Policy Institute. We're just winding down our look at the Royal Canadian Navy, naval readiness, and the defence of North America.

    Australia has come up a number of times throughout our study. It looks as though the timing is good. We heard you were in town, and it was timely that you would come to give us your perspective on how your country does things. Best practices would be appreciated, and certainly you can share with us things that maybe haven't worked out so that we can perhaps avoid some pitfalls that we may face in what we're trying to achieve.

    I want to thank you very much for coming. I apologize for being late. You have the floor for your opening comments.

     Mr. Chair, thank you very much indeed. It's an honour to be able to address the committee. This is the first evidence I've given in front of a Canadian parliamentary committee. I've spoken many times to your equivalent in Australia, and it's a pleasure to be here.

    I should apologize to some members of the committee. Like most Australians, I speak only English—some people would say badly—so forgive me if I make my presentation in English.

     I'm speaking in my capacity as the executive director of the Australian Strategic Policy Institute. We are a non-partisan think tank in Canberra, set up about 15 years ago, to provide government independent and contestable advice on matters of defence and national security. We have been heavily involved in the public debate around Australia's plans for new naval platforms, such as the next-generation submarines and the plans for new surface combatants.

    I understand Canada is planning to build a new class of up to 15 frigates to replace the Halifax and Iroquois classes. It makes a lot of sense, Mr. Chairman, for Australia and Canada to compare notes on our respective shipbuilding strategies and our common maritime environment, so I'm pleased to be able to contribute today to what I hope will be a continuing and closer discussion between two countries on the subject.

     I will state for the record that the opinions I express here are my own and don't represent the positions of the Australian government.

    Mr. Chair, as part of the Australian government's plans to modernize and expand the capabilities of the Australian Defence Force, the Australian navy is at the beginning of a very significant recapitalization. In the last few years the navy has commissioned two Canberra-class landing helicopter dock/amphibious assault ships. These are the largest vessels our navy has ever operated, at 27,000 tonnes. Later this year, the first of three new Aegis radar-equipped air warfare destroyers will enter service with the navy, with two more scheduled for delivery by 2020. The Australian government and the Department of Defence are now planning the next stage of the navy's recapitalization, which includes a new class of nine frigates with an anti-submarine focus,12 new offshore patrol vessels, and a new submarine fleet, which is doubled in size from the current six to 12. All of these platforms are now expected to be built in Australian shipyards.

    In Australia we have had two broadly distinct but connected conversations regarding the next generation of naval vessels. The first is a debate about what kind of capabilities the navy needs to be an effective force in the coming decades, given our rapidly changing strategic environment. For example, the decision to double the size of our submarine fleet was made in 2009, in response to the proliferation of submarines in the Asia-Pacific and to maintain our capability to project power into contested areas, as we saw increasingly sophisticated sea-denial capabilities proliferate in the region.

    It would be preferable if there were more focus in Australia on those driving strategic issues, because they are the things that should shape our future naval capabilities and also give us some sense about the urgency of the task, but our national attention focuses more on the second conversation, which is around how to establish a program for continuous and enduring naval shipbuilding within Australia. This marks a quite decisive departure from the boom-and-bust cycle of past years, in which the shipbuilding industry atrophied between major shipbuilding projects. Over the past century Australia has alternated between acquiring vessels from overseas suppliers and building them ourselves, but the mood at the moment in government and in the wider Australian community is for local build. Most if not all of the major decisions about improving the Australian Defence Force over the coming years have had bipartisan support in Australia's Parliament, which includes our plan for a strong domestic shipbuilding industry.

    The strategic challenges we face and the industrial challenges we face are significant in and of themselves, but they're entwined in ways that can complicate planning. What I mean here is that the sense of strategic urgency we have in the Asia-Pacific region has increased significantly in the last 10 years, and that seems to be accelerating.

     This is the urgency that informed decisions to expand our submarine and surface fleet. However, that has to compete with the desire to establish a stable shipbuilding industry against a delivery timetable that is well spaced in order to sustain production. The strategic urgency I'm suggesting, Mr. Chairman, is at odds with a shipbuilding program that, for example, expects to deliver our 12th submarine around the year 2050, which means that the crew of that boat are not even born yet.

    There are also short-term challenges in standing up the industry program, which requires starting design and construction of three new ship classes in the next 10 years. The Australian government has planned to begin construction of new offshore patrol vessels of about 2,000 tonnes in 2018, and then to begin construction of the future frigates, of about 6,000 tonnes, in 2020. This is a very tight time frame, and it was intended to reduce the impact of reducing shipyard workforces in Adelaide, South Australia, following the end of the construction of our air warfare destroyers. The loss of shipyard jobs has acquired the politically unpalatable label of the “valley of death” in the Australian press.

    The 2018 start date for patrol vessels, I'm afraid, is already slipping, because we have yet to select a design partner from any of the three contenders. The future frigate is also likely to suffer delays due to the significant engineering work required to confidently lock in the final design before construction commences.

    The Australian government has said that it will develop a plan for a continuous or rolling production of naval vessels. A sustainable construction program for Australia's surface combatants would suggest a roughly two-year production rate and a 24-year service life for each vessel. The same could be true for the fleet of 12 submarines.

    What that means, Mr. Chairman, is that these fleet sizes are probably the smallest numbers that we could maintain to be consistent with rolling continuous production, and then only marginally. With any fewer vessels, either the production rate would have to be inefficiently slowed or we would have to shorten the lifetimes of the vessels in service.

     Because of the minimalist nature of this program, it's highly likely that one single shipyard will perform all of the shipbuilding work for major vessels, and that brings with it challenges associated with monopoly supply.

    The Australian government currently owns its own ship and submarine yards in the form of ASC Pty Ltd. in South Australia, which it has recently split into three business entities. What it will do with these entities remains to be seen, but it has quite a lot of flexibility in terms of selling or retaining these various components.

    My view, Mr. Chair, is that strategy should drive policy rather than industry policy driving strategy. On the strategic front, we're in a period of rapid change in development in the maritime domain that is particularly striking. Regional militaries are modernizing and expanding, and submarines are proliferating. These trends are especially visible in China. The Obama administration's pivot to Asia has only partially delivered, and the Trump administration's plans for engagement in Asia are not yet clear.

    Like Canada, Australia has responsibility for a great deal of maritime territory. In order to augment our naval platforms over the coming years, defence is also receiving new air capabilities. It's worth mentioning that they include P-8A Poseidon anti-submarine warfare and maritime patrol aircraft. Our air force will also be the first service, other than the U.S. Navy, to operate the unmanned Triton drone, a high-altitude, long-endurance maritime patrol aircraft.

    The air force capitalization is occurring on what is an appropriate time scale for our strategic circumstances, but then we're not building the aircraft in Australia; we're buying them from overseas. The committee may also be interested to note that we are acquiring at least 72 F-35 joint strike fighters for our air force, and we will soon take delivery of 12 Growler-equipped Super Hornet aircraft.

     This is worth mentioning because of the significant joint and allied capability effect of employing all of these systems. However, one of defence's biggest challenges remains working out how to integrate these various platforms into a single fighting capability.

    Mr. Chairman, I'll move through some of my other comments here, and end by saying to members of this committee that I've long thought Australia and Canada could only benefit by developing closer relations in terms of defence strategy, planning, acquisition, and sustainment.

    We have the great benefit of organizing and running our defence forces in very similar ways. They are also of a comparable scale, which means that our acquisition problems and successes can offer useful lessons for each of us.

    We have substantial defence ties, but these are actually mostly around military training and secondments. I think we could do better in terms of strengthening our engagement on strategic thinking and on sharing best practices around equipment acquisitions and industry engagement.

    With that, I'll conclude my comments, Mr. Chair. I'm very happy to take questions.

    Thank you very much for your testimony today.

    Just for committee admin, we'll do one lap of formal questions—that takes about an hour—and then we'll have 30 minutes for committee business administered by the staff here. That will be enough to get through the drafting instructions. Then, of course, there's my paper. If you get the paper, it means you have 30 seconds to wrap up your thoughts so that I can keep everybody on time. It seems to be working, so I'll continue with my paper strategy.

    The first seven-minute question goes to Leona Alleslev.

    You have the floor.

    Thank you very much, Mr. Chair.

     Mr. Jennings, thank you very much for being here. I couldn't agree with you more that there's a lot we can learn, and what a privilege it is to have you here to help us with that.

    You highlighted a sense of urgency in the recapitalization of the navy. You also highlighted the importance of military industrial capability as part of sovereignty and being able to make this a success. Could you give us some more insight into the value and importance and how you are ensuring that you have that domestic capability for the navy?

    Thank you for your question.

    I think the Australian government had a threshold moment in about 2014-2015 when it concluded decisively that it wanted to maintain a domestic shipbuilding capability for the navy. There had been a decades-long debate about the merits of offshore purchasing versus onshore construction. Now, I think for the first time in 30 years, we have a largely bipartisan agreement that onshore construction is the right way to go.

    I think it is acknowledged that this can come at a price, because we are, comparatively speaking, a very small manufacturing base relative to other large producers of warships.

    One of the challenges for government and for the defence organization is how to do this in the most cost-effective way possible. The answer seems to be through a process of continuous construction, which allows you to gain efficiencies with pretty much every platform you produce. You can expect something like a 5% saving against each platform as it comes off the production line.

    Would you say that it's limited to shipbuilding, or does it also extend to the command-and-control combat systems?

    In our case, we have a mixed defence industrial base. This enables us to do some elements of systems integration and produce high-level radar capability indigenously, and that is now featured on a number of our warships, but we have tended to go to the U.S. for combat systems and weapons systems. For example, our torpedo is actually a joint Australia-U.S. Mk 48 torpedo.

    The real challenge for Australian industry is how to integrate all of these capabilities onto one platform. In the case of a submarine, for example, the new submarine, a French design, will have American weapons systems integrated in Australia. That's quite a challenging task.

    Where our industry needs to be really strong at the high-tech end is in those integration capabilities, rather than in the weapons system design, for which we're quite happy to go overseas.

     You would argue that there's a value to systems integration as a sovereign capability for weapons systems.

    I'm a little cautious about the use of the term “sovereign capability”, because in my mind at least—

    Domestic.

    —the best capability we can have is being part of international value chains, which link Australia into the capabilities of other countries.

    An example, not in the maritime domain, is in the joint strike fighter. We manufacture components of the joint strike fighter for the entire fleet, not just for our own. I would call it being a part of international value chains, but I think there is enormous value for us to have capabilities resident in Australia that we know we can draw on even during times of crisis. I would want to buy more to the higher end of systems and systems integration rather than the metal-bashing involved in hull construction.

    Perfect.

    Now can we go over to procurement a bit? With sole-source procurement, you're looking at keeping those costs down and keeping that timeline working. Our system is a little different from yours, so could you share with us some of the relationships and the roles and responsibilities of each of the players in that scenario? I'm personally very interested in your acquisition and support group.

    I don't know that we've necessarily cracked this nut terribly successfully in the past. We have had examples of significant cost overruns and time delays, for example, in the construction of our air warfare destroyer.

    The current approach is to argue for a new type of relationship between defence and industry. For shorthand, we refer to as industry as a fundamental input to capability. Inherent in that idea is that government and industry have much closer conversations that enable spiral development of technology to take place, so that in a 12-submarine build or a nine-frigate build, you expect the improvements to happen as you go with each platform.

    It's a subtle difference, but it's actually an important one compared to the old way of doing business, which was really about delivering on the contract on time, and it didn't matter if the specifications in the contract were now 10 years out of date; just deliver on that. That's the relationship that industry has had with the defence organization in the past.

    Now we're looking for a closer form of engagement. I think the key to delivering this is the building of trust among the defence department and the navy and the industry environment. That can only happen over a period of time.

    Who does the acquisition support group report to?

    They report to the Minister for Defence, or they report to the secretary of the defence department and the chief of the defence force. They are an organic part of the defence department. Then at the political level, we now have two ministers. We have a minister for defence and a minister for defence industry, both of whom sit in cabinet, and through a magical process of osmosis, reach agreement on priorities in industry construction.

    Could you give us an idea of the responsibility—

    I'm going to have to cut you off on your time there.

    Mr. Paul-Hus, you have the floor.

    Thank you, Mr. Chair.

    Welcome to the meeting, Mr. Jennings.

    I would like to get back to the shipbuilding system you use.

     Australia is currently able to deliver its ships fairly quickly. We talked about weapons systems from other countries. That is to be expected since you purchased systems from the United States or other countries. I would like to know, however, whether ships are assembled at the same yard from start to finish.

    If not, do you assemble turrets or other parts that are manufactured elsewhere?

    The first thing I can say is that you're being too kind. In terms of the judgment about the quick delivery of our vessels, we have had some significant delays on major construction projects, including the largest one under way right now, the air warfare destroyer.

    Up until now, we have used a strategy of modular construction. Modules are constructed in a number of yards around the country, and then the final assembly takes place in Adelaide in South Australia. I think as we move into the future, though, we will see a consolidation of the shipyard numbers down from the two main yards at the moment to one, that being in South Australia, with a smaller capability for offshore patrol vessels operating out of Western Australia, so we will sort of have a base of one and a half shipyards. Adelaide will become the sole source of construction for the submarines and the new frigates and for sustaining those vessels through their life.

    Okay.

    In the committee's study of shipbuilding in Canada, we have noted that there are some major players that share contracts and others that would like to get contracts.

    You are here today to tell us about how you have improved your approach. You said that shipbuilding contracts are now divided up among a number of shipyards. As you pointed out, however, the government tries at times to concentrate work in one or one and a half shipyards. Shipyards are private companies and therefore belong to private interests. Will the shipyards that are at risk of losing contracts have to close? If not, are there other options for them? In short, how do you manage the awarding of contracts to just one or two shipyards, given that others would like to get their share?

     In Australia, this is the central political challenge of allocating contracts. I think that the government, as well as our opposition, has finally bitten the bullet on the realization that if we are going to maintain a viable shipbuilding industry at all, we will have to consolidate the overall number of yards. That's clearly painful for some local areas, but I think it does reflect a realistic approach to understanding whether Australia can maintain this capability at all.

    I think the future layout of our shipbuilding industry will be a big yard in Adelaide with two construction lines—one for submarines and one for frigates—and a smaller yard in Western Australia that will concentrate on vessels below the 2,000-tonne size. There will be opportunity for subcomponent work for a smaller number of manufacturers around the country, but we will see some consolidation, most likely in the state of Victoria. It's very hard to see how that can be avoided, if the government follows through with this path of a long-term sustainable industry base in the country.

    You have another couple of minutes.

    Our perception and information is that policy considerations were disregarded in the Australian process. I note, however, that the decisions are still being made at the political level and by departments. We are trying to understand this.

    Let's suppose, for instance, that Australia decides to build four submarines. Two or three years later, could a new government cancel that contract? That is the type of thing that is problematic. Does Australia have a policy to prevent the cancellation of a contract so it can plan for construction in the long term?

    Yes, it has mostly been the story that governments have continued with past contracts, but every fresh government has a chance to redesign and rethink how it wishes to proceed.

    I don't know how it works here, but certainly one of the biggest challenges we face now is the lobbying influence of state governments seeking to attract work to their states. That has become a much stronger feature than we've had in the past in Australia—somewhat unhelpful, I must say, from a federal perspective, because it often means that the decision gets taken on the basis of which state government needs the most help before a state election.

    We don't have that problem here in Canada.

    Voices: Oh, oh!

    I'm encouraged to hear that.

    However, we are now locked into future shipbuilding being centred on South Australia, with a little bit in the west, and that's going to be very hard for any future government to reverse.

    Don't worry. We are facing the same situation, but instead of states, we have to deal with the provinces.

    As to the work of the Royal Australian Navy, at the tactical level, as regards weapon systems, do you work a lot with the United States? Canadians work a lot with NATO. On the tactical level, does Australia work more with the British navy or with the United States? Who is your main partner?

     We have quite a diverse range of partners in shipbuilding construction in particular. The French company DCNS has won the design contract for our future submarine. The government has already stated that we will use an American combat system with that, the AN/BYG-1 combat system, which is a U.S. design. We will—

    My question pertains more to operations, to the operational and tactical levels.

    As regards strategic communication, your ships have to be in contact with certain countries. Who do you work with primarily, the United States or Britain?

    The Americans would certainly be our closest ally in terms of operational activities. We have an incredibly close relationship with them.

     We also work very closely with your navy, the British navy, the Singaporeans, and, increasingly, the Japanese. We have a navy that is actually very interoperable with navies in the region, but the U.S. is by far the largest and closest of our allies.

     I'm sorry, Mr. Paul-Hus, but I'm going to have to cut you off there and give the floor to Mr. Garrison.

    Thanks, Mr. Chair.

     Thanks very much, Mr. Jennings, for being with us today.

    Part of my background is work in Asia-Pacific areas. I think there are some interesting parallels, as you say, in size of military and the way we operate.

    I'm from the west coast, and I think one of the problems we always have in Canada is people's Atlantic focus. One of the interesting things in your written remarks is pointing out that Canada is as close to most of the Asia-Pacific as Australia is. I'd like you to talk a bit more about the strategic challenges in the Asia-Pacific region right now for both Canada and Australia.

    That's a big canvas, of course, Mr. Garrison, but I think we're going through a period of rapid and fundamental strategic change in the Asia-Pacific region.

    People are very credibly claiming that there is an arms race under way in north Asia in conventional weapons systems. I don't think that is an exaggeration.

    Of course, the lead in that race is China, with a most remarkably fast and sophisticated expansion of all of its military capabilities, but particularly its maritime capabilities. What I would say to the committee in that regard is, don't worry too much about the Chinese aircraft carrier. The things to be focusing on are the developments around missiles, around supersonic anti-ship cruise missiles and all of that technology that is designed to push the U.S. and the allied navies as far away from the Chinese mainland as they possibly can.

    This is a dynamic and changing region and one where there is increasing risk for all countries, but particularly for countries such as Canada, which has a significant borderline on the Pacific Ocean. It would be probably rude of me to come here to this committee to talk about Canadian strategic perceptions, but I think inevitably Canada's interests will draw it more into engagement in the Pacific with its military, which is something Australia would welcome.

    I guess most people from the west coast would point out that as much of our trade goes across the Pacific as it does across the Atlantic, so we have an interest in stability in that region.

    Can you talk a bit about submarines? You raised the question of submarines as part of that arms race that's going on in the Asia-Pacific or Indo-Pacific region.

    I think the most significant thing that's happening in terms of the Asian arms race is the growth of submarine capability, with a massive expansion on the part of the Chinese.

     It's almost easier to list the countries that are not developing submarines than countries that are. They include new and unlikely players such as Bangladesh. You have a number of the southeast Asian countries deciding to double down on their own submarine capabilities, with Vietnam, for example, acquiring more submarines from Russia, and Malaysia, Thailand, Singapore, and Indonesia all either getting into the submarine business for the first time or renewing their fleets.

    Then there are all of the things associated with submarines, including underwater drones and listening devices implanted in the seabed. The next war in the Asia-Pacific will be a war primarily around anti-submarine warfare, and the country that is best able to do that will be the winner.

     I know you've already indicated you think it might be somewhat rude to talk about Canadian capabilities, but let's talk about Canadian submarines. Would you have any comment on the current submarine fleet versus what's going on in the Asia-Pacific and the need for replacement?

    The first thing to say is that Australia is becoming an extremely competent manufacturer of submarines, and I would commend that to Canada when it thinks about where its next submarines should come from. I really don't mean that flippantly. I think the more we could achieve in terms of commonality of design around sensors and weapons, the better that would be.

    There are many people who would say that the future of navies is all going to be underwater. There's the odd joke that “There's submarines and there's targets”. I don't completely subscribe to that view, but I have to say that I think submarine capability is an essential part of a mature first-world navy.

    Thank you.

    Moving along, I am going to give the floor to Mr. Spengemann.

    Thank you very much, Mr. Chair.

     Mr. Jennings, thank you for being here.

    I want to pick up on the exchange you had with Mr. Garrison. How do you see the Chinese strategy? Is this a long-term strategy? Is this catching up and quickly getting out front? How sustainable is it? How do you place it into the context of China's equally growing commercial interests and maintaining commercial shipping access to its territory and from its territory?

    Thank you.

    There is, I think, a publicly well-articulated expression of China's long-term strategy and that's the one belt, one road strategy that is about building infrastructure by road, rail, and pipeline across to central Asia and then down south by building port infrastructure in a range of countries all the way up through to Pakistan and the gulf.

    I think it's important not to see this just as a commercial play, because with it comes a sense of stronger Chinese strategic, political, and military influence. There's a lot of writing in the Chinese press about how the People's Liberation Army will become the underwriter of the success of the one belt, one road strategy, and with commerce follows military.

    I do think that in the grandest sense, that is the Chinese strategy. My own view is that this is also something that can't easily be seen as complementary to the current international order, if I could put it that way, and that in many ways China sees this development as its replacement for that order. It rather regards the order as something that's been designed to keep it down and put it in its place. Increasingly, it sells the one belt, one road strategy as the alternative to how China can realize its international position.

     I think this is something to track very carefully. My message to the committee would be to say there is no such thing as a purely commercial arrangement when it comes to China. There is always a strategic concept behind that arrangement.

    That's extremely helpful.

    To go to a slightly more fine-grained level than you had the opportunity to in the exchange with Mr. Garrison, what is the real race? Is it hulls in the water, hulls under water, or is it weapons systems? How do we get out in front of the largely Chinese-based sea denial that you spoke of in your written submissions?

    The real race is that China, based on generations of its strategic thinking, is looking for ways it can exploit weaknesses and vulnerabilities in western capabilities. This is the idea of asymmetry, that it hits at our weakest points. I think hulls in the water are less important than the missile and cruise missile capabilities it's developing, and then very closely behind that is the immense investment it's putting into cyber capability.

    You can think of cyber as really being the first punch that will come in a conflict, and it is not necessarily designed to be aimed at armed forces. It could just as easily be designed to take down your electricity grid or your health system, and I think that's very much a part of Chinese strategic thinking. Clearly, they're not the only ones doing it, but they are actually perfecting these skills.

    As I say, things like aircraft carriers are enormously politically important. They carry weight in terms of domestic opinion in China, but they're less militarily significant than some of these other developments that I've mentioned.

     Again, that's very helpful.

    Would you agree, then, with the proposition that for Canadian domestic defence purposes, both physical domain awareness and cyber domain awareness would be of paramount importance for our study?

    Yes, I would, sir. That's critical for all modern forces. It's actually the ability to get these platforms talking to each other, sharing the same threat picture, and being able to use one platform as a way of firing and aiming weapons that might be on a second platform altogether.

    On the cyber front, we're in a constantly accelerating race here to invest more into that capability, because what looks adequate one year turns out to be woefully inadequate 18 months later. You just have to stay on top of this particular challenge.

    Thank you for that.

    Switching to Australia's domestic setting, how important is Australia's commercial shipbuilding strategy—non-defence, non-public, private sector—as a synergy for keeping overheads low, but also keeping a labour force employed, sharp, and active, and making sure that you don't go through boom and bust cycles?

    I'm afraid it's not really existent in terms of any significant capability at all for large-scale vessels. It's there for extremely small-scale commercial-type fishery vessels, pleasure craft, and things of that nature, but all of the large-scale construction is really now around naval construction, military construction. There is almost no cost-effective argument for civil construction in an economy the size of Australia's.

     Do you have challenges with respect to the labour force, or do you have a labour force that will meet your increasing demand as projected in your—

    No, there are some serious challenges, certainly, to ramp up to the anticipated construction that we'll have in four or five years' time with the multiple projects under way.

    The government has a good development plan around how we can build those skills through training and education across the Australian tertiary education sector, which is very necessary. It's a tough fight for skilled labour, because things like the mining and extractive industries are highly competitive in taking people with those types of—

    Mr. Sven Spengemann: Transferable skills.

    Mr. Peter Jennings: —so we're always going to be struggling.

    Mr. Chair, I have one more question, but I'll wait for the next round, given that my time's almost up.

     We'll go to five-minute questions now.

    Mr. Robillard is next.

    Thank you, Mr. Chair.

    Thank you for your testimony, Mr. Jennings.

    Industry and academic experts who have appeared before the committee have stated that there are too many federal departments involved in the defence procurement process. In their view, this makes it difficult to establish a clear and direct chain of responsibility through government and the departments.

    What do you think of the multi-departmental process in defence procurement in Canada? What in your opinion are its successes and failures?

    Mr. Robillard, I'm hesitant to buy into the Canadian debate, because I'm seriously not familiar enough to really understand the details and finer points about it. Let me answer your question by talking quickly about the Australian context.

    We have had success where there has been clarity of responsibility for projects. That operates at a number of levels.

    One is for the project itself, and the consortium of industries that will come together to produce the full capability, the platform, the weapons, the sensors, and so forth.

    Second is responsibility within the defence department. There, there have been some quite significant changes to pull separate organizations back together into one organization and specifically clarify those lines of responsibility.

    The third thing is responsibility at the government level and ministerial responsibility, which in our system are ultimately exercised through the national security committee of cabinet. Less is better, in terms of what's required.

    Certainly my observation, having been a career public servant, is that the more entities you have playing the game, the slower the decision-making process. You end up playing interdepartmental football rather than focusing on the need to have sharply defined objectives.

     Thank you, sir.

    I will share my time with Ms. Alleslev, please.

    Thank you very much.

    I would like to take that one step further. I understand that the Capability Acquisition and Sustainment Group was started in 2015. I'm interested in knowing what three key challenges that move was made to address.

    It has a prehistory, of course. The group was the Defence Materiel Organisation before that.

    There are three key challenges, I think. One is the continued need for upskilling of the workforce within the group. We now have an organization of several thousand people who are responsible for multi-billion-dollar contracts, so the shipbuilding contracts that I described—

    The whole budget is something like $12 billion. Is that about right?

    No, our defence budget is now in the order of—

    No, but for the Capability Acquisition and Sustainment Group.

    Yes, that's this year, but if you look at the shipbuilding package I described, it's $91 billion. The last defence white paper announced $261 billion worth of new capability acquisition. With a billion dollars here and a billion dollars there, pretty soon you're talking big money. I think that managing the skill base that's necessary for project management is one of the key challenges the group faces.

    The next one is actually getting the decisions put through cabinet. In any one year, we need to take around 40 decisions to the national security committee of cabinet in order to be able to spend our budget. When I say “we”, I mean the defence organization. That is an enormously difficult challenge. It's a high workload for cabinet. It forces that football game I mentioned to think hard about when you slow decisions down. I think a critical vulnerability for our system going forward is whether we can get government to make the decisions fast enough to spend the budget.

    The third issue would be the technical risk associated with some of these integration challenges I've mentioned. For example, just to pick one, the submarine design that we selected is based on a nuclear-powered submarine, but our current policy says we will have a conventional drive system, so there are some quite tricky design challenges associated with taking a nuclear design and turning it into a conventional drive. Can we do that, and can we do it in the time frame that lets government make the decisions it wants to make? It's very difficult.

    Thank you.

    Mr. Bezan is next.

    Thank you, Mr. Chair.

    Mr. Jennings, it's great to have you at committee. I think Canada and Australia have had very similar types of histories. We've stood shoulder to shoulder in many conflicts going right back to the Boer War, and right now today in Iraq. We do lean on each other for best practices and for how we can get better, and we look at what you're doing. I do appreciate you coming and sharing the information you have.

    I agree with you that there is a need to expand upon what we do through the Five Eyes now. What we can do through Canada, Australia, New Zealand, the U.K., and the United States, I think, only enhances our national security interests and our collective security as global partners.

    Like Ms. Alleslev, I want to dig more into how you were able to come together under a defence industry minister as somebody taking the lead in making sure the procurement works and getting the politics out of the way, although you're facing some of the challenges that we are with our own shipbuilding strategy and delivering projects on time and on budget. Can you talk to that political window of how they were able to all come together? Was it just bipartisan, or were Labor, National, and Liberal all able to come together, and do the Greens support it? Were you able to get everybody on side, or just the main governing bodies?

     Probably not the Greens, because they would not want to see this investment into these particular capabilities.

    Look, I think there was strong common ground for the major centre-left parties and centre-right parties to accept the idea that defence industry policy did need to be seen as a subset of broader Australian government attempts to grow the economy and grow jobs in the economy. It wasn't much of a fight to get the parties to sign up to that. There's still an enormous—and appropriately so—amount of political fight over particular issues relating to contracts and those sorts of things, and that's a healthy function of the system. However, it is very useful to have that broad sense that now we can put the debate over offshore versus onshore behind us, and I really hope we stick with that for the time being.

    On the defence industry minister, it is a useful thing for the committee to consider. I think that the government came to that view partly as a workload function between what the minister of defence and the industry minister could do and partly in the realization that the acquisition program set out in our last defence white paper is the biggest risk. It's the one thing that needs the government's closest attention, and it's also some of the biggest expenditure that this or any other Australian government will ever undertake.

    Was that worth a cabinet minister's position? I think it was, and I think the government came to that view.

    You, as a country, made a decision to keep your destroyers. You're building the first of your Hobart-class destroyers, and I guess you're looking at the risk factors of the proliferation of all the hypersonic cruise missiles that are out there.

     Are your destroyers in the traditional sense, or have they a lot more new technology? Are they maybe not as big as previously, but ships that still have all of the capabilities and then some of a traditional destroyer?

    It is a very capable ship, and it is biased toward air defence. Its most capable weapons system is a missile box launcher at the front of the vessel, which is designed to be able to shoot down a range of aircraft and missile systems. It has an upgrade capability, should the government wish in the future to give it an anti-ballistic missile defence capability as well.

    Then the hull is a lot bigger than what you're doing with your frigates.

    Yes, it is. Well, actually, that's not quite right. It potentially could be the same hull, because one of the bidders for the new frigates has been the constructor of the air warfare destroyer, which was based on the Spanish F100 design,

    Again, the hull is less relevant than the weapons systems that are inside. You can think of this as a ship that could operate very effectively as part of an allied component. If we found ourselves doing something off North Korea with the U.S. and Japan and perhaps yourselves, that ability to operate as part of an allied fleet would be important, creating a screen of protection around a number of vessels doing different tasks.

    That's your time. Thanks very much.

    Go ahead, Mr. Fisher.

    Thank you very much, Mr. Chair.

    Thank you very much, Mr. Jennings, for being here and sharing your perspective.

    It's probably no surprise that I'm going to speak about the GDP and the commitments we have both made to come toward 2%. My belief is that in some countries it's kind of apples and oranges. I'm interested in Australia. The U.S. includes the Coast Guard in its budget, but Canada doesn't. Do you include the coast guard in your budget, and do you arm your coast guard?

    We have solved that problem by choosing not to have one, Mr. Fisher.

    The navy undertakes most of the traditional functions associated with a coast guard. There is also a much smaller level of patrol boat capability that is maintained by the navy as well, which I haven't actually discussed this evening.

    That said, we do have an increasingly capable border force, which is part of our immigration and border protection department, which is—

     You have no border, though.

    We tend not to see it that way. We have a border, which we guard very assiduously.

    They are now operating eight vessels, modestly armed, that can undertake civil policing tasks.

    They're included in your budget.

    No, they're quite separate.

    Our defence budget is pretty much what you see. It does not include veterans entitlements or pensions paid to retirees. It is dedicated to the acquisition and payment of the current force and the sustainment of its operations. That is what the defence budget amounts to.

    You stated that the current intent in Australia is to build the ships in Australia. Is there a premium involved in that? Does it cost significantly more? If so, can you give me a rough estimate, percentage-wise?

     It's a hotly argued issue. There are claims that say the premium we've paid on the air warfare destroyer has been perhaps 20% on what might have been achieved out of an American—

    The economic benefit, though, would more than make up 20%.

    There would be economists who would say that's not right, but I wouldn't agree. I'm a person who is happy with the idea of the local build. In past construction, for example, with what we call the Anzac frigates—because the New Zealanders were also involved—we were able to take down a notional 20% premium to zero by the time the final ship was constructed.

    The key point there is it's now clear that as you build a number of vessels, you will get a learning curve and a saving against each of those new ships as they come forward. The aim should be to bring the premium down to zero, or as low as you can make it competitively.

    About procurement delays, I don't want to paraphrase and say you're well known for it. Would that be cultural? Would it be mostly political?

    No. Each unhappy procurement program is unhappy in its own unique way.

    In the case of the air warfare destroyer, for example, which has suffered some significant delays, it came down to a perennial problem. We're always producing the first of class, and then we're never building enough to actually give us the learning effect as we go along. The first air warfare destroyer was a pretty rough experience in terms of learning how to construct the vessel. The third one, which is under construction now, is going along brilliantly.

    The challenge for countries like ours is that we're always dealing with small builds. We've been through a history of penny-packet decisions. We'll build two; then we'll wait for a while and lose the workforce, and then we'll come back and build more. Hopefully this idea of a continuous build is the solution to start to get us into a routine of being on time and on budget.

    You spoke about, up until currently, building ships in a modular design. Do you have any examples of a ship or a vessel built with different modules in different shipyards in Australia?

    Yes. The air warfare destroyer, based on the Spanish F100 design, was built in modules in South Australia and in Williamstown, which is in Victoria near Melbourne. I think we might even have had some modules constructed in a small yard in Queensland.

    That's been a success, for the most part?

    It was more successful as the build went on.

    They were finally assembled in Adelaide. It's quite technically possible to do that with a significant amount of work. The more work you put into a module before it gets into a ship, the faster and cheaper it is. Modular construction is sensible. Even if we're building all of them in Adelaide in the future, it'll still be done by modules that are then fitted together.

    Thank you.

    I'm going to have to cut it off there.

    Ms. Gallant, you have the floor.

    I'll be sharing my time with Mr. Bezan.

    When you were asked, Mr. Jennings, whether or not there were any procurement projects we could do jointly, you suggested we could do the submarines. Well, that really wouldn't be jointly, because we don't build them at all.

    In your submission you state that you have a strategic urgency and that your 12th submarine is expected to be built around 2050. How would you fit a Canadian order into that, or is it another type of submarine and another submarine shipyard?

     I think this is one of the greatest problems we face. It's in the mismatch between what we know we need because of strategic circumstances evolving now, as compared with the idea of an 18-month or two-year steady drumbeat in the production of ships into the future. I cannot think of a way that we can reconcile those competing challenges right now. Whether that changes in the future I think will be driven entirely by the shape of the world in the Asia-Pacific region in the coming years. If we find ourselves in greater urgency, then we may have to rethink the plan.

    In terms of combined work we might do with Canada, I don't imagine we would ever get to a stage where we would actually be building hulls for your navy in Australian yards. Where I think we have good opportunities would be in the construction of subsystems, particularly at the high-tech end of of sensors and weapons, and looking for ways we could share in each other's value chains so that our industry and your industry could have a more interchangeable involvement in both the Canadian and Australian procurement systems. I think there are great opportunities for us to do that.

    Are your systems interoperable with the NATO fleet?

    Yes.

    Thank you.

    You've been talking about the influence of China and their proliferation in nuclear submarines and how Vietnam is now buying submarines from Russia, and you also mentioned that you're co-operating with Singapore, yet Singapore is also doing more business with Russia all the time.

    How do you view the Russian influence in the Asia-Pacific region, and could you tell me whether Australia is at all concerned about it?

    I think we're certainly concerned about Russian behaviour generally, the somewhat destabilizing way Russia chooses to act internationally, and we're very worried about the prospects for Asian security if Russia becomes more involved.

    Last October the Russians and the Chinese held a maritime exercise in the South China Sea, which was the first time that the Russians had returned to the South China Sea since they quit Cam Rahn Bay in Vietnam in 2001. The last ship left Cam Rahn Bay in 2001, and they kept an intelligence-gathering facility there for a couple more years.

    I think the Russia-Vietnam relationship is something to watch, because it's still incredibly close. As we've seen, once again Russia is now positioning itself as a supplier of choice to the Vietnamese military, which I don't think is productive for the security of the Asia-Pacific region in a longer-term strategic sense.

    You have another minute for a question or a response, if you want.

    Part of the study that we've been doing here often involves the Coast Guard and the integration of the Coast Guard with our navy. What's the relationship between the coast guard and the Royal Australian Navy?

    We don't have a coast guard in Australia.

    You have none at all?

    We have none at all.

    At least twice in the last 20 years, it's been considered, but given our scale, the decision has always been that we're better off to maintain one highly capable maritime enforcement capability in the navy. Personally, that's a decision I'm very comfortable with. Therefore, the navy does perform a large part of our coast guard functions. It is actually the training ground for junior naval officers before they move into more capable vessels.

    The one footnote to that is that our customs area does maintain a small maritime capability, now called Border Force. That's taking on a range of civil policing roles directed against drug movement and illegal people movements, the things that are well short of the serious conflicts that navies deal with.

    Go ahead, Mr. Gerretsen.

     Thank you very much, Mr. Jennings, for being here today. I've appreciated listening to what you've had to say. It's a breath of fresh air to understand that we're not the only ones who have a lot of the challenges that we think are unique to Canada.

    One thing I found particularly interesting in your discussion and in your submission, which I read in advance, is that it seems that in Australia, the public will is perhaps a little bit more behind defence than what we're experiencing in Canada—at least, that's the way it came off in what I read.

    You also talked about bipartisan support, a point Mr. Bezan raised. If you go around this table, with three different political parties sitting here, we will all tell you that, yes, we believe in defence; yes, we believe in sovereignty; yes, we have to defend. It's the degree to which we do, because some of us will say, no, it's more important to invest in this than it is to invest in that one. It's about where you fall on the spectrum.

    Do you find that there is strong public support for defence and building up the navy, as you've been talking about? In particular, I noticed in your comments that you spoke briefly about our “proximity” to the U.S. I quite often feel as though perhaps a lot of the political will in Canada is lacking as a result of our proximity to the U.S., but this is obviously my personal opinion.

     Could you comment on that?

    My sense of it, Mr. Gerretsen, is that there is a more ingrained sense of threat in terms of Australian community perceptions. It was once explained by a former Australian foreign minister when he said that Australia feels “the hot breath” of Asia on its neck. I think that kind of goes to our different strategic geography and an ingrained Australian sense of there always being some potential vulnerability on the strategic front.

    Is that a general feeling among the public, do you find? Does that resonate with the public, or is it just folks like us, sitting in this room?

    It resonates with a significant part of the public. I would explain that by saying that if you look at opinion polls, the support for our alliance relationship with the United States routinely gets 80% support.

    Mr. Mark Gerretsen: Wow.

    Mr. Peter Jennings: Maintaining defence spending at 2% of gross national product, which is roughly double yours, doesn't have quite that high a level of support, but it has a high level of support in that 60% of Australians would say that it was about right, or that indeed we should spend more.

    I think in Canada we've been trying to sound the alarm, so to speak, with respect to the activity in the north. With the opening of the Arctic and the more sophisticated vessels that can travel through there now, that sovereignty becomes more and more questionable in terms of what's needed to retain it. However, it's interesting to hear you say that.

    You talked about the bureaucratic football passing between departments and the 40 or so recommendations that had to go to cabinet per year. I didn't hear you talk about how you would streamline that. Is it about delegating more authority? How do you get away from that?

    I would agree that it's just a recipe for stalling things over and over. How do you move beyond that?

    I'd suggest two strategies, which government is looking at to one degree or another.

    The first is deciding sensibly what threshold of dollar value a government should take to cabinet. In our case it's been very low. It's been $200 million. If you look at defence expenditure, that is, I think, a ridiculously low level of expenditure to require a cabinet decision, so you can lift the threshold. We call it “two-minister approval”. The Minister for Defence and the Minister for Finance can themselves take on a lot of the decision-making, which would free up cabinet time.

    There's a second thing that I think is worth mentioning. A lot of that football comes down to warfare over cost estimates. What the defence department is trying to do now is maintain a much stronger capability for realistic costing of defence projects to undercut the football matches that they then play with the Department of Finance and others when costing is called into question. You do that by having stronger engagement with the private sector on cost analysis and an almost permanent standing capability of defence and finance officials who fight the fight before you get into the lodging of cabinet submissions.

    I think those two things could help streamline the process somewhat.

     Thank you.

    Thank you.

    Mr. Garrison, you'll have the last question. The floor is yours.

    Thanks very much.

    I guess if we cast back to Ms. Gallant's comments about what we could do together, if I were doing Let's Make a Deal, I'd ask you to build our submarines and we'd build your icebreakers and replenishment ships.

    That leads to my question. You talk about some things being built offshore, an icebreaker and replenishment ships. Are those contracts already let? Are those under way, and who are they with?

    Yes, they are. They've gone to Korea, and they're based on civilian designs. They're soon to be delivered.

    They're not being based on military designs.

    Mr. Peter Jennings: That is correct, yes.

    Mr. Randall Garrison: That leads to my second question. It's another remark that you made, and I couldn't quite find it—

    Sorry, can I perhaps slightly correct the record? There are two navy vessels, which are basically fleet oilers, being built in Korea. We have a requirement for an icebreaker, which will not be part of the navy; it will be run by our Antarctic establishment. I'm not able to tell you where that is being constructed, I'm afraid.

    Okay.

    Somewhere in your presentation you talked about the tendency of somebody—and we're never quite sure who's responsible—to keep redrawing the plans before you start building and to keep changing the design and modifying it further. Certainly I understand that people want to do the most current thing, but at some point that defeats actually getting things produced. I think you've had experience with that in Australia.

    Absolutely. The government's sacred icon is this idea of off-the-shelf military procurement, which I don't think is really deliverable in terms of Australian requirements.

    With the navy in a situation of wanting a French design, an American weapons system, and Australian radar, as soon as you start talking about those things you blow off-the-shelf military procurement out of the water. I think there is partially a solution here through this idea of spiral development, so that every ship of a new class comes along with some degree of improvement.

    Then I think it's also that you just have to put the absolute laser demand on the navy and on the capability developers in the defence department not to get carried away with aspiration—the idea that if you can have one hangar, why not two, because two helicopters are always better than one in a ASW ship, for example. It's actually having the discipline to say, “No, we're not going to do that. We'll save the $600 million and just go with one hangar.” They are tough discussions, but I think defence is now much more accepting that you need to do that in order to get projects actually ticking through on time.

    This is my last question. When you talk about opportunities for co-operation in the systems part of things, are there also opportunities for more co-operation in training?

    Absolutely. I think the big challenge is getting to each other's locations. Of course, one hears that all the time, but it seems to me that both our armed forces are increasingly using simulators, which ought to deal with a significant amount of that.

    Ultimately, the challenge for the Australia-Canada defence relationship is that if we think it's worthwhile, we have to be prepared to put in the effort; otherwise, let's not fool ourselves. My own sense, particularly in these troubling times, is that it is worth the effort, but it will require some people sometimes to get on an aircraft and make the long journey.

    All right; thanks very much.

    Mr. Jennings, thank you very much for spending some time with us today and sharing your perspective on how Australia is conducting its way forward with its navy and naval recapitalization.

    I'm going to suspend, say goodbye, and then we can resume with committee business.

    [Proceedings continue in camera]