Cabinet reshuffle delays $US25bn defence tenders

National defence tenders valued at $US25 billion have been delayed by the federal government's recent cabinet reshuffle

20th Jan 2015


Cabinet reshuffle delays $US25bn defence tenders

National defence tenders valued at $US25 billion have been delayed by the federal government's recent cabinet reshuffle -- a move likely to frustrate a suite of big overseas contractors eager to supply new state-of-the-art military hardware.

According to defence officials familiar with the matter, one delay is to an $US8 billion tender for new armored vehicles that was due to start in mid-January. Ministers are still hoping the process will attract bids from defence contractors from as far away as the US and Europe.

Among other projects forced onto the backburner, the officials said, are plans to spend as much as $US17 billion on a new fleet of up-to 12 submarines. A number of global defence firms -- including Germany's ThyssenKrupp Marine Systems and French naval shipbuilder DCNS -- are hoping to compete for the contract against Japan's Soryu submarine design, which has the support of the prime minister.

The main cause of the tender hold-ups is December's surprise cabinet reshuffle by Prime Minister Abbott ,which saw Kevin Andrews installed in place of David Johnston, a figure with a longer involvement in military-related affairs.

Senior defence officials said Mr Andrews needed more time to get acquainted with his duties, which include working on new strategic priorities in the wake of China's recent military muscle-flexing in Asia. They said they didn't know how long the delay might last.

"With a new minister, things are up in the air," said one official who asked not to be named because he isn't authorised to speak to media. "The minister needs time to make decisions on where things go," the official added in remarks closely echoed by other defence-industry figures.

Kevin Andrews, who was previously social-services minister in Mr Abbott's cabinet, has the job of overseeing a multibillion-dollar military-equipment overhaul, while forging a strategic blueprint to address shifting power balances in the Asia-Pacific region driven by China's more assertive foreign policy.

Australia's military is planning to replace many of its armed vehicles, some of which date back to the Vietnam War, and has invited proposals for a new-style combat-reconnaissance truck and new armored troop transports for its so-called Land 400 project -- in what would be the army's most expensive equipment acquisition to date.

"The minister is continuing to receive briefings," a spokeswoman for Mr Andrews told The Wall Street Journal. "When the government has more to say about Land 400, it will do so."

There is strong interest from overseas in Australia's plan to purchase more than 1,000 armed vehicles to replace its existing varied fleet, even more so since budget pressures last year prompted the Pentagon to cancel plans to upgrade its ground-combat army vehicles.

American defence giants such as Boeing and General Dynamics are expected to vie for the Australian contract with Lockheed Martin, along with France's Thales, Britain's BAE and Germany's Rheinmetall AG, whose MAN unit two years ago won a $1.6 billion ($US1.31 billion) contract to supply Australia's army with 2,500 new trucks.

Parts of Australia's current armored-vehicle fleet will become operationally obsolete over the next decade, putting pressure on the government to make a decision on procurements soon. Still, some industry analysts expect Australia's defence minister to introduce new budgetary restraints on the army as the nation's $US1.5 trillion economy struggles to adjust to the end of a long mining boom that has already forced the government to propose deep spending cuts elsewhere.

In an original 2011 tender-concept document, the army envisaged buying a fighting vehicle "capable of 'burrowing' into complex terrain," including in major cities. The proposal implied the need for heavily armored vehicles capable of withstanding close attacks like those faced by US forces in Iraq. Some analysts expect Mr Andrews will now want to encourage the purchase of less expensive, lighter vehicles.

"The original concept had the Australian army fighting 'Blackhawk Down', potentially in an Asian megacity," said James Brown, a security analyst with the United States Studies Centre in Sydney and a former army cavalry officer. "Given the budget situation, I imagine there will be a lot of interest in paring this project back and reducing overall vehicle numbers."

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