The Maritime Domain - Re-evaluating Navy’s surface combatant fleet

Key recommendations and themes (Maritime)

In the Maritime domain, the DSR recommends that:

• the Navy is optimised for operating in Australia’s immediate region to secure our sea lines of communication and maritime trade;
• the Maritime domain force structure is designed to complement and support our future conventionally-armed, nuclear-powered submarines; and
• Australia’s future fleet composition should be larger in terms of raw numbers, but consisting of smaller Tier 1 and Tier 2 surface combatants to provide for increased strike, air defence, presence operations, and anti-submarine warfare.

A separate review of Navy’s surface combatant fleet capability requirements is currently underway.  This review is due in Q3 2023.

What does this mean for Defence procurement?

• Defence may need to consider the scoping and variation provisions in its current commercial arrangements, and the terms which may be required to be incorporated in any new commercial arrangements, or order to allow the greatest flexibility and agility during contract administration and delivery.
• Further emphasis may be placed on Foreign Military Sales, Military Off-the-Shelf (MOTS) and Commercial Off-the-Shelf (COTS) capabilities to expedite procurement processes and ensure the timely delivery of capability.
• To streamline the procurement process, projects delivering critical Naval or amphibious capability may need to be conducted through limited tender approaches.

Securing our Northern Approaches through a military strategy of denial

As an island nation, securing Australia’s sea lines of communication is paramount to national security.

The announcement of nuclear-powered submarines has caused a sea-change in Australia’s naval strategy, with the conventionally-armed, nuclear-powered submarines to serve as Navy’s tactical foundation for effecting a military strategy of denial, and which is particularly focused on our northern approaches.  This will be further discussed in our forthcoming article on the Nuclear-Powered Submarine Pathway.

Although there were no specific recommendations made for the re-prioritisation of current Naval projects (ie, to accelerate or re-scope any current programs), the following themes were addressed.

A re-organised surface combatant fleet, with enhanced lethality

Through the acquisition of conventionally-armed, nuclear-powered submarines, Australia will acquire a capability which requires a holistic evaluation of our current fleet and future force structure. The DSR suggests that the optimal composition of our future fleet is to posses a larger number of Tier 1 and Tier 2 surface combatants.  What this means, specifically, is expected to be set out in the more detailed Navy review due in Q3 2023.

As a critical part of the future amphibious joint force across the ADF, this is expected to emphasise a focused integrated force structure for Navy by delivering the following enhanced capabilities:

• long-range maritime strike;
• air defence;
• presence operations; and
• anti-submarine warfare.

Independent analysis of Navy’s surface combatant fleet

To evaluate Defence’s current capability requirements, the DSR recommends the Government conduct an independent analysis of Navy’s current surface combatant fleet to ensure it is fit-for-purpose and positioned to support a nuclear-powered submarine capability.  The re-structuring of the Naval force around the support required by the nuclear-submarine fleet marks a significant change in the Naval force strategy.  It is expected that the analysis will consider the cost, schedule, risk of each option.  Importantly, a key consideration in this analysis will be the extent to which each option supports Australia’s continuous naval shipbuilding efforts (eg, workforce, industry, supply chain, and infrastructure).

Commitment to continuous naval shipbuilding

The DSR highlights the importance of the National Naval Shipbuilding Enterprise and calls for the Government to confirm its commitment to continuous naval shipbuilding as a sovereign industrial capability.  It recommends updating the National Naval Shipbuilding and Sustainment Plan (last delivered in 2017) in accordance with the recommendations of the DSR and the outcomes of the future fleet independent analysis.

Legal and contractual implications for Defence

Due to the lack of specificity around individual capability recommendations in the maritime domain, it is difficult at this stage to pinpoint tangible legal and commercial implications for Defence. However, as canvassed in the DSR, there is a need to streamline the acquisition process to prevent “overwhelming Defence’s capability system, its limited workforce, and its resource base”.

Shifting capability priorities

With the recommendation to increase the overall number of Tier 1 and Tier 2 surface combatants and a shifting of priorities toward a support role for the nuclear-powered submarine capability, other capabilities within the maritime domain may come under scrutiny.  This may require officials to consider the acceleration, re-scoping, and off-ramping provisons in their existing contracts.  In our recent article, we explore options which may be utilised in a Government contracting context to address a change in strategic priority.

Foreign military sales (FMS)

With a more pressing need to acquire a ‘minimum viable’ capability quickly and efficiently (and with a less rigid focus on Australian expenditure), FMS may become a more attractive option for Naval procurement activities into the future (ie, for the new surface combatant fleet hinted at in the DSR).  The extent to which FMS is required as part of any re-structure to the surface combatant fleet is expected to be described in the independent Naval review due in Q3 2023.

Our recent articles on the DSR (Air and Space) and ITAR and export controls provide insight on the commercial, legal and regulatory considerations when conducting a procurement activity involving FMS.

Streamlined procurements

The DSR recommends streamlining the acquisition process to better reflect our strategic circumstances.  This could be implemented through a combination of the following:

• emphasising top-down direction for capability proposals;
• determining the minimum viability capability required;
• considering what capability is readily available; and
• minimising design changes and modifications over the life of the capability.

Relevant factors to consider when streamlining a procurement process include:

• Requirements definition
• Prior to approaching the market, officials often (and should) undertake comprehensive market testing (ie, scoping studies) to ensure that the project has a thorough understanding of what capability is available and whether readily available solutions satisfy the minimum viable capability requirements.

This process is often facilitated by consideration of other, more immediately available, COTs or MOTs capabilities in the market - assuming no further design changes are required.  Through minimising scope-creep, ‘nice to have’ requirements, and design delays, an existing off-the-shelf solution could eliminate high risk design and development activities that commonly delay procurement activities.

• Open tender vs limited tender
• If a market-testing activity concludes that only a handful of suppliers (or fewer) exist to deliver a particular operational requirement, a limited tender may be a practical and pragmatic approach for procuring that capability in an expedited manner.  Of course, this would require consideration of the Commonwealth Procurement Rules (CPRs) - particularly, validating value for money - and any relevant Accountable Authority Instructions that may apply under Paragraph 2.6 of the CPRs.
• However, an expedited procurement process may not lead to an expedited project.  Contractual mitigations should be included to manage potential risks in delivery (eg, cost and schedule).  Then, these should be actively utilised throughout the delivery phase of a project.
• Advice should be sought on balancing the risks of a limited tender against the requirements of the CPRs, and for the mitigation of project delivery risks which may arise in any attempt to expedite the procurement phase.

The independent analysis of Navy’s surface combatant fleet due in Q3 2023 is expected to provide more clarity on specific capability priorities for the Navy, including the scope and structure of existing projects.

Further information

If you have any questions or would like further information on the commercial and legal impacts of DSR in the Maritime domain, please feel free to contact us.

Authors:

Rory Alexander, Principal

Brenton Lam, Associate

Tristan Croft, Associate

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