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Maritime Logistics Community News : Summer 2011
22 NAVY SUPPLY NEWSLETTER SUMMER 2011 MFU Ship Repair & Maintenance Reform Program The MFU Ship Repair & Maintenance Reform Program initiative aims to provide Industry and Navy with greater predictability, certainty and stability in the repair and maintenance of the Navy’s major fleet units through the use of group asset, long-term, performance-based contracting methodologies. BY DR BRUCE MCLENNAN AND LCDR SAMANTHA WOODS, RAN The program addresses well known shortcomings that were again identified in the Rizzo Report regarding maintenance contracting, and supports the Review’s recommendation to implement maritime contracts that are broader in scope and longer in term, to build deeper and continuing relationships with Industry. For Supply and Engineering personnel, the program will facilitate more efficient and effective maintenance planning by allowing activity packages to be finalised with longer notice to order required spares; and reduce the level of emergent work and associated unplanned stores demands. The Australian Naval Shipbuilding, Maintenance and Repair Industry The Australian Naval Shipbuilding, Maintenance and Repair sector is a monopsonistic market where Defence is the dominant customer. The sector is comprised of five major shipbuilding and repair companies - the contractual primes - supported by a large number of small-to-medium enterprises and a number of sophisticated electronic systems houses The sector is characterised by challenges arising from project-by-project major equipment acquisitions and Government sponsored privatisation trends of the sector’s infrastructure. Until the late 1980s, Defence was highly self-sufficient in the support services on which its operations depended. However, following the sale of the Williamstown Dockyard (1985), the closure of Cockatoo Island Dockyard (1992), the creation (1989) and later privatisation (1999) of Australian Defence Industries (subsuming the Garden Island Dockyard), and the future sale of the Australian Submarine Corporation, Government will have moved from owning all of the means of naval production, upgrade, repair and maintenance, to owning none. The Ship Repair & Refit Panel Agreement During this transition little attempt has been made to use strategic demand to shape and sustain the naval industrial base, or to influence market pressures through the responsible use of monopsony power. Nevertheless, repeated efforts to implement more efficient and effective processes for the conduct of business have been pursued, such as the establishment in September 2003 of a Ship Repair & Refit Panel Agreement (SRRPA) of prime-contractors qualified to tender for repair and maintenance of major fleet units. The Panel arrangement resulted in some measure of efficiency in that the assessment of the capability and capacity of the prime contractor for the repair and maintenance activity was somewhat simplified and there was no requirement to develop terms and conditions for each contract, as these had been pre-established. Under current practices, arms-length competition is the sector’s primary strategy in achieving value-for-money. This strategy is directed at, and limited to under the SRRPA, the major fleet unit repair and maintenance companies. However, individually competing each maintenance activity for each major fleet unit, encourages adverse Industry motivations: the Primes specialise as project and financial management institutions at the expense of their permanent trades workforce and the training development programs needed to sustain their strategic skill-sets; and short-term ‘cost’ commercial drivers (the need to secure every opportunity) encourages tenderers to under-bid their price, play-down risk and offer artificially shortened and unachievable schedules in order to win work. Current Contracting Practice The mechanism for engaging repair and maintenance services under the SRRPA is to request a tender for a significant maintenance event in a ship, thereby presenting constant opportunity and some chance of commercial viability to all of the SRRPA entities. Whilst outwardly purporting to present reduced cost through competition, this per-event tendering, tender response, tender evaluation, and contracting mechanism is inefficient and costly for all concerned, with the cost of this inefficiency being passed on to the Commonwealth in the winning tender (by the successful respondent) or in the next successful tender (by the unsuccessful respondents). Inefficiencies arise from constant re-competition at points that do not provide for the most cost effective packaging of work and the costs associated with learning curve for each new contract. The subsistence behaviour prompted by this engagement mechanism also affords no incentive to industry entities to invest in workforce or infrastructure to improve efficiency. The lack of investment in workforce often results in the successful respondent of the SRRPA engaging sub- contractors who may be less than familiar with major surface ship repair and maintenance. It can also be the case that the services of the same sub-contractor are being requested by more than one SRRPA ‘prime’ for the same event, resulting in the subcontractor being able to ‘name a price’ without fear of not being engaged to undertake the task. The Rizzo Review concluded: ‘When planning a ship’s maintenance availability, outstanding engineering tasks are described in a work package that is put out to tender as the Statement of Work. The subsequent tenders are evaluated and the contract awarded on a best value for money basis. Although this appears to be a sound strategy, it is inefficient when applied to frequently recurring maintenance work and has resourcing consequences in the SPO. In addition, it creates a short-term approach from Industry that does not encourage investment. Ship maintenance is a