DMMA

The competition to find a contractor for the Domestic Munitions Manufacturing agreement reached an important milestone on March 25 with four bids being submitted. This date was a slight delay over the original schedule.

8th Apr 2013


 DMMA

 The race is on.

Byline: Kym Bergmann / Canberra

Introduction

The competition to find a contractor for the Domestic Munitions Manufacturing agreement reached an important milestone on March 25 with four bids being submitted. This date was a slight delay over the original schedule. Four out five of the shortlisted bidders responded, with Poonsang from South Korea dropping out earlier, citing concerns about sovereign risk. They were part of the Raytheon Australia team and given the shabby treatment by Defence of South Korean companies – most notably for LAND 17 Phase 1C – their withdrawal was not a total surprise. Nevertheless, the four remaining bidders all have considerable merit.

The process

The Director General Munitions in the Defence Materiel Organisation, Air Commodore Bill Hayden, explained that the date for the first stage submissions was given a three-week extension for a number of reasons. The main one was that the Commonwealth made some changes to the RFT following its release in late November and companies needed additional time to respond.

Explaining the structure and intent of the process, Air Commodore Hayden said:

“In essence, we are looking for a change in the approach to munitions production and the operation of facilities in Australia. At the moment those facilities – Mulwala and Benalla – are operated and funded on a basis of maintaining a level of capability. This means that the incumbent – Thales Australia – has been paid to maintain the ability to manufacture munitions, whether or not the ADF actually requires them at any given time. Some capability-based contracts can work quite well, depending on the circumstances. However, Defence has found that conditions during the last few years have changed and that this approach no longer represents best value for money.

“We have indicated to all of the bidders that they are not precluded from submitting a capability-based arrangement. However, we believe that a commercial arrangement based on incorporating the Australian facilities into a worldwide or global supply chain system is likely to be more attractive for us.”

Australia is a relatively small user of munitions, while the international marketplace is huge – especially when commercial customers are taken into account. The ADF is actually reducing the amount of live ammunition it uses – largely for reasons of cost – and is replacing many field training activities with simulation. For example, looking at the Steyr rifle, the ADF now has 11 weapons training simulators in place, so apart from initial training and pre-deployment refresher courses, most other firing exercises are conducted without live ammunition. The consequence is that the use of live 5.56mm rounds is expected to become barely 1/10th of what it was just a few years ago. Looking at overall rates of ordnance use across the three services, Air Commodore Hayden calculates that this is between 25% – 30% lower than five years ago.

From here the Commonwealth is planning to downselect and then ask those successful companies to bid for two contracts. The first one will be to operate the facilities and to supply munitions to the ADF from them. The second contract will be for the sale munitions to the ADF from their broader operations – allowing the services to tap into the successful bidder’s global supply chains for a larger proportion of their requirements than has been possible so far.

In essence, the Commonwealth is looking not only for an operator of the facilities but also a strategic munitions partner, able to export Australian-produced ordnance to the rest of the world.

ATK - NIOA

The appeal of taking over the running of Benalla and Mulwala is demonstrated by the fact that the world’s largest munitions manufacturer US giant ATK is one of the bidders. They are teamed with local privately owned company NIOA, which is Australia’s largest ammunition supplier to the police forces and for the private market. The two companies will form a joint venture for the bid - to be known as NIOA-ATK Munitions - with ATK being the majority shareholder.

NIOA founder and CEO Robert Nioa is extremely enthusiastic about the opportunity, believing that ATK will be able to successfully integrate the Australian facilities into their global network, generating considerable export opportunities. Under the joint venture ATK will also be responsible for the management of the facilities – made easier by the fact that they are already on site undertaking the redevopment of the Mulwala propellant plant under an earlier modernization contract as part of JP 2086. NIOA will be responsible for sales, marketing and domestic distribution responsibilities.

Discussing the export potential of Benalla and Mulwala, Robert Nioa pointed out:

“ATK are not only the world’s largest ammunition manufacturer but they are represented in more than 100 countries – giving them the biggest distribution network on the face of the planet. They are also one of the main suppliers to the ADF – both directly and through their subsidiary American Ordnance. It is also important to take into account that ATK need to supply components and material to their US industrial base – and they could do that from Benalla and Mulwala.

“ATK also has co-production facilities throughout the world and there is no reason why in the future Australia could not be supplying those as well. An example is the supply of propellants – military and commercial - where ATK under the Alliant brand has to be able to continually deliver huge quantities of explosive powder. This is especially important for Mulwala, which under our bid will see a major increase in workload.”

Asked to comment on the closed nature of the US munitions business that favors domestic suppliers, Mr Nioa commented:

“It is true that you have to be a US company operating locally – and certainly ATK ticks that box. You also need to have existing supply contracts with the US Government – which is a second tick. However, if you carefully select products that don’t compete with those that are already locally produced then opportunities definitely exist. ATK is already sourcing product from around the world – not just from their US facilities. For example every year they buy 200 million rounds of finished ammunition outside the US for the local market – a huge amount that almost defies the imagination.

“It’s worth keeping in mind that the biggest market in the world for small caliber ammunition is not the US military – it is US civilian market. ATK is also the biggest supplier to this market, through the civilian and law enforcement brand called Federal. Australia could be part of this supply process”.

Mr Nioa is positive about the ability of NIOA-ATK Munitions to fully commercialise the operations of Benalla and Mulwala. He believes that the current involvement of ATK at Mulwala – as subcontractors to Lend Lease – means that the company has a good working knowledge of Australian technology as well as the workplace environment with its emphasis on industrial safety. He is confident that not only will the current workforce be retained under NIOA-ATK but that it will grow – especially to meet the needs of the US market.

BAE Systems

Australia’s largest defence contractor BAE Systems has also understood the importance of developing a convincing business case to support its DMMA bid. The company emphasizes their desire not only to incorporate Benalla and Mulwala into their global defence activities, but to include them in their commercial activities as well. This is one of the reasons why BAE Systems teamed with Spanish company EXPAL – part of the MAXAM group – who had until late last year been preparing to bid for DMMA in their own right and who are a major global supplier of commercial explosives.

BAE Systems business development manager, Kevin Kitto, explained that the heart of their strategy is to integrate the Australian facilities into their international network. Currently the company manufactures munitions and explosives in the United Kingdom, Europe and the US. Last year, BAE Systems successfully transitioned the Radford Army Ammunition Plant in to its US business, having won this Government Owned Contractor Operated facility use and supply contract from the incumbent, ATK. Benalla and Mulwala are ideally placed to provide products to the Asia – Pacific region as well as other markets. This is especially the case because many countries in this area are continuing to increase defence expenditure, while Europe and the United States are contracting.

The intention of BAE Systems – should they be successful – is to integrate the two facilities into the local company infrastructure. As a consequence these domestic operations will be able to benefit from technology transfer from the rest of the company – especially from the UK and US operations. In addition, Benalla and Mulwala engineering expertise will be integrated into the BAE Systems global R&D program – allowing access to leading edge technologies and research opportunities. This will allow the Australian part of the company to share information and technical developments with the rest of the group – including by processes such as staff transfer and exchange opportunities designed to maximize world’s best practice methodologies.

Mr Kitto explained that the BAE Systems team is also looking at establishing a number of centres of excellence for the munitions business in Australia, though the company is keeping those details confidential for the moment.

In addition to the export side of things, the company plans to better utilise the facilities and expand the range of products manufactured at Benalla and Mulwala for supply to the ADF and other customers. The extent to which this can be realised will depend upon future demand.

Turning to issues of workplace safety, Mr Kitto commented that this is on the “top of the list” in terms of priorities. He extended that to include safety of the environment as well, saying this is integral to the way BAE Systems operates in Australia. Added to that are the operations of its UK munitions factories – which have been recently re-built and upgraded by the company – which place a premium on both workplace and environmental safety (even to the extent of using clean energy).

Another factor that all companies have to bear in mind is workplace relations and industrial affairs. Partly because of their size and also because of the service nature of some of their existing defence business, BAE Systems already has experience in interacting with all of the unions represented at Benalla and Mulwala. The approach the company is planning to take with the workforce is to enter into a consultative process not only with those directly employed but also regional associations such as councils to explain how the company functions.

BAE Systems feel they have the potential to involve Australian industry in their very broadly based global munitions business – military and also civil, which is potentially a large market. The company believes it has the potential to bring in world leading technology not only for munitions manufacture but also munitions disposal using EXPAL Systems’ technology, which will be another important part of the DMMA contract.

Rheinmetall

A strong contender is the German heavyweight weapon and munitions producer Rheinmetall Defence. Together with its Swiss partner RUAG and their jointly owned company Nitrochemie, Rheinmetall is Europe’s largest manufacturer of ammunition and propellants as well as the weapon systems that fire them. The company is perhaps best known for the mighty L44/L55 120mm smooth bore tank gun, which is fitted to many of the Western world’s MBTs such as: Abrams, Leopards, Korean K-2s, and Japan’s Type 90 series. The Australia Army’s Abrams M1A1s carry the earlier L44 version of the gun. Other Rheinmetall products include armoured vehicles, air defence technology and simulation systems.

John Taylor, Senior Vice President for the Combat International part of the company, is overseeing the DMMA bid from Rheinmetall Defence. Speaking to APDR in Canberra, he emphasized a number of features of the company – including its customer focus, safety and environmental credentials and especially research & development. Every year Rheinmetall reinvests around 4% of its turnover into R&D and can justifiably claim to be a world leader in weapon and munitions technology and innovation.

Rheinmetall produces ammunition in almost all military calibers and John Taylor emphasized the capabilities that can now be designed into increasingly popular 40mm rounds, which are now an indispensable infantry weapon for many armies. The company not only makes the ammunition – including training rounds – but also manufactures grenade launchers themselves, giving them a thorough understanding of the technology. Improvements in ordnance are also flowing through to 60mm ammunition for mortars – a caliber once regarded as too small to be very effective.

The company operates more than 40 defense technology manufacturing sites around the globe; of which 20 are propellant and munitions factories. Rheinmetall Defence has licensed some of its technology to other manufacturers – including some of those also bidding for the DMMA. Should it be successful, Rheinmetall will incorporate the Benalla and Mulwala sites into this global network and plans to use Australia as a base for exports to the Asia Pacific region, filling a niche in their portfolio, as well as to the ADF.

Discussing relevant previous experience, John Taylor pointed to Rheinmetall’s success in modernizing South African munitions factories and rapidly turning them into export success stories. He attributed this to the positive management practices of the company, which seeks to work with customers to identify their needs in terms of technology, price, quality and delivery schedule. A bit like Australia, the South African workforce is heavily unionized, which has not presented the company with any particular difficulties – on the contrary, according to Mr Taylor.

Another factor of increasing importance to many military users is the environmental safety of the ammunition they consume. At first glimpse this might seem a little unusual when attempting to destroy or incapacitate a target – but in modern conflicts it is important to protect one’s own forces and civilians from the toxic effects of munitions residue. Rheinmetall is a world leader in developing technologies that minimize the possibility of causing unintended damage. This emphasis on safety also extends to the handling and storage of munitions. The company also has expertise in the safe disposal of old or expired ammunition – something that will be an important factor in deciding the DMMA winner.

Finally, on occupational health and safety, Mr Taylor said that this was the highest priority for Rheinmetall in the operation of its industrial sites. He says that workplace safety is a completely inseparable part of the company culture and takes priority over all other considerations. The approach of Rheinmetall is to instill a culture of safety and responsibility for the entire workforce so that everyone is fully aware of the importance of the issue and behaves accordingly. He describes the company’s safety record as exceptional.

Thales Australia – Australian munitions

Unlike the previous three bidders, Thales was not prepared to discuss their bid with APDR and instead supplied the following general response to a number of specific questions:

An Australian Munitions spokesman said:

“The Australian Munitions team is committed to working closely with its strategic partners to deliver a competitive offer for DMMA. This will build on the company’s experience in operating the Benalla and Mulwala sites, as well as its international reach via General Dynamics Ordnance and Tactical Systems, Nammo, and Winchester Australia, plus other munitions companies in the global Thales group.

“We have a longstanding and constructive relationship with the local communities in Benalla and Mulwala, and are working hard on preparing for future operations at the sites under the new DMMA contractual structure. We will continue to work closely with the Department of Defence to ensure the cost-effective delivery of munitions that provide a battlefield advantage to Australia’s warfighters.”

Conclusion.

Picking which companies will be shortlisted is not easy. Thales as the incumbent is in an awkward position. Sometimes incumbency can be a strength because the company knows the business and has an established connection with the customer. On the other hand in the event of customer dissatisfaction it can be a negative, especially when competitors can make attractive alternate offers.


 

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