CHAIR —I declare open this meeting of the Senate Foreign Affairs, Defence and Trade Legislation Committee. I will shortly welcome back Senator Hill, Minister for Defence. I welcome Dr Hawke and officers of the Defence organisation. Yesterday the committee adjourned on output 3, Army, which was completed. Today the committee will move to output 4, Air Force. Before I call for questions, Dr Hawke, you have a question of the committee.

Senator Hill —I have an answer to a question asked yesterday. I think it was immediately after lunch, when I was not here, that Senator Faulkner asked who tasked Admiral Gates to conduct a review of intelligence advice relating to SIEVX et cetera. The answer is that my office, on my behalf, tasked CDF/Secretary task force to seek the formal advice. They did this to ensure that an answer that I had previously given to Mr Crean was accurate and complete. That brief is being finalised and I expect to get it in the next few days.

CHAIR —Thank you, Minister. Dr Hawke do you wish to ask something?

Dr Hawke —I have nothing further to add.

CHAIR —I thought you were going to raise a question about questions on notice.

Dr Hawke —I was going to raise that at the end, but if it is appropriate I will do it now. I wanted to raise with you whether it would suit you and the committee for the written questions on notice—because we probably will not deal with everything today—to be tabled by the close of business tomorrow when the committee finishes its hearings.

CHAIR —In view of the fact that the return date for questions on notice is 12 July, I think the secretary is concerned that if the questions on notice are not tabled at an appropriate time then the return becomes very difficult.

Dr Hawke —That is right, Mr Chairman.

CHAIR —In other words, if the committee's questions are tabled in two weeks time, having been flagged at this time—

Senator Hill —It becomes very difficult anyway. The earlier they are tabled the better.

Senator HOGG —I think we should do something similar to that being advocated. I understand your dilemma—and I do not see any problem with that; I cannot speak for the shadow minister and others—but the past practice of the committee has been to have those tabled about 24 hours after Defence appears. There is a need to go back and cull the things that do not need to be addressed.

Dr Hawke —This would accord with that practice. It is just that the last time around we got some questions lodged some four or five days after the committee had finished its hearings, which made it particularly difficult for us to meet the timetable we are required to meet.

CHAIR —We will meet your request, Dr Hawke. If it requires us to have a private meeting, we will do so.

Dr Hawke —Thank you.

Senator HOGG —I have a couple of broad questions before Senator Evans asks a few specific questions. On page 49 under the heading `Logistics' it states:

To maintain current levels of capability, including current ADF operations, training is being reduced in some key roles.

Can you explain to me why you would be reducing training in key areas to maintain levels of capability? That just does not seem to sit well together. I might be missing the point.

Air Marshal Houston —It really relates to the rate of effort on some of our aircraft. Because of logistical challenges there are a couple of areas where we have not done as much training as perhaps we would like to. It is a very complex issue because it relates to a very high level of operational tempo as well. I can go into that if you like.

Senator HOGG —What are the key areas where you have scaled back training because of the increased tempo to keep up the current levels of capability? Will that not impact upon your longer term operational capacity in those areas?

Air Marshal Houston —Right now we have a situation where in certain areas—if we take the maritime patrol capability as an example—just about all of the effort is going into operations. In fact, we have flown a very high rate of effort in that particular area. Some of the training that we would normally do has suffered as a consequence. For example, we have not done any of the normal warfare training that we would do—antisubmarine training and so on. There have been some problems in that area. We have flown above our planned rate of effort because of the government's requirements for operations.

Senator HOGG —Given that you have exceeded the rate of effort that you would have otherwise expected, how are you going to redress the lack of training in the longer term, because that must loom as a real problem for you?

Air Marshal Houston —When I talk about the P3 it is a very complex situation because we also have the transition to the new P3, the AP-C3. It is not usually a question of one factor; it is usually a whole web of factors. I will address the P3 issue. We are also going through the transition to the AP-3. We have a number of crews who are now trained on the AP-3. In the next few weeks we are sending a number of people on exercises to regain some of the antisubmarine warfare skills that have slipped by the wayside. Those sorts of skills are very perishable. You have to do it all the time, otherwise you lose your proficiency. In the short term we have this exercise set up, and next year, once we have the AP-3C in a more mature state, we will do more exercising and we will regain the capability. Another thing that will help will be to bring on the new operational mission simulator that has been running a bit late because of the project delays. Once we get that, that will also assist with the maintenance of those high-end war-fighting skills in the antisubmarine warfare, antisurface warfare areas.

Senator HOGG —In an effort to regain some skills and maintain some in the longer term, will it mean that there is a rate of effort that you will be committed to that you will not be able to sustain to achieve your goals?

Air Marshal Houston —Let me put it this way: I am totally confident that when the operational mission simulator comes on line we will be able to maintain those skills, together with a series of exercises that we normally run. The rate of effort we will be able to generate we will not have a difficulty with at all. That is provided of course that we do not have higher operational priorities. At the end of the day, the work that we are doing at the moment in the surveillance area—and we are doing a lot of surveillance—is not good for the maintenance of the high-end war-fighting skills. It is a little bit like the situation that Navy has with their capabilities and which COMAST spoke about quite extensively yesterday.

Senator HOGG —Yes, and I do not intend to pursue those with you, because I accept that that would be there for yourselves as well. On page 48 of the PBS you talk about key risks and limitations, and a number of personnel shortages are identified—air crew, engineering, medical, technical work. Can we get some idea of the rate of retention and the rate of separation in those areas and the gap between the actual that you have and what you really need to operate?

Air Marshal Houston —Certainly. The shortages come in a number of areas. I have got the specifics in all of those areas, but perhaps I will highlight the complexity of the issue by just talking about pilots. We actually have the right number of pilots—in fact we have more pilots than we probably need—but most of them are junior pilots, and where we have a problem is in shortages of fast-jet pilots and shortages of experienced people, particularly flying instructors. So, if I were to give you the overall figure and say, `Pilots? Actually with pilots we do not have a problem,' that would hide the fact that we do have some shortcomings in numbers of fast-jet pilots, numbers of instructors and so on. We will eventually get healthier: we have been very successful this year in recruiting a number of experienced pilots. We got 24 pilots from Ansett; we got another 10 fast-jet pilots from the New Zealand Air Force.

Senator HOGG —Sorry, how many from New Zealand?

Air Marshal Houston —Ten. We got three pilots from the airlines: one from Qantas, one from Alitalia and one from Cathay Pacific, and we got a couple of people back from the BAE Systems contract that is run in Saudi Arabia. That is a total of 40 pilots we have been able to recruit, and that has helped substantially with our shortages in the fast-jet and instructor area.

Senator CHRIS EVANS —Is that partly driven by the downturn in international air travel and employment for pilots in the market?

Air Marshal Houston —Not specifically, because over 50 per cent of them have come from Ansett. They are former Air Force people.

Senator HOGG —I was going to ask that.

Air Marshal Houston —They have come from Ansett—

Senator CHRIS EVANS —Out of the whole shake-up, yes.

Air Marshal Houston —and Ansett actually went bust a couple of days after September 11, so I think that was going to happen anyway and we picked them up. I might add that we have also, at the same time, had some people separate to go to Qantas. Qantas are still recruiting and we have had some of our middle-level people go to Qantas.

Senator HOGG —I understand that there was a stage in recent times when the number of pilots that were leaving exceeded the number that were being recruited. That was given in evidence before another inquiry that was conducted in the Senate last year. Are you now saying that you have basically arrested that situation?

Air Marshal Houston —That situation does not exist. In fact, I can give you the very precise figures—

Senator HOGG —No, no.

Air Marshal Houston —I can assure you that we have slightly over the number we require. The fact is, though, that a lot of them are in training of one form or another. As you know, and I think Admiral Shalders alluded to this yesterday, it takes probably five or six years to train a fighter pilot from scratch until the time that he is a fully proficient operational fighter pilot.

Senator HOGG —I accept that. There is a huge investment by Defence in the training of these personnel. To see some of these people reach a high level of proficiency and then leave is quite tragic indeed. That really brings in the other issue of their career management, which left a bit to be desired when there was an inquiry last year into the matter of retention and recruitment. On the retention side, there was a bit of dissatisfaction around about the way their careers were being managed—the attention and the detail given to the needs of various people in terms of transfers and promotion. There was criticism by some people that the one thing that they wanted to do was to get out there and fly a plane. They did not want to be sat behind a desk somewhere, pushing papers around the table, inserting paperclips and stapling things together. Can you make a comment on that?

Senator CHRIS EVANS —Are you alleging that is what Air Marshal Houston does?

Senator HOGG —No, I think he is beyond stapling.

Air Marshal Houston —All of our pilots are employed in very gainful employment. I think the point is, though, what we have to do and what we are doing. I tasked my DG personnel with coming up with a new way of doing personnel management within Air Force. You are probably aware that we did have a pilot sustainability project that was created by my predecessor, and that has revealed a few interesting facts. What we need to do is better align the requirements of the service with the requirements and the expectations of our people. We are now addressing that in detail, not just for pilots but right across the board, because the system we had was basically a very old system—it has probably been in existence since about World War II—and we really need to modernise the way we manage our people. So we are doing that.

The end result will be to push down the detailed career management of our officer force and our airman force to the lower level so that it is done at force element group level. Another end result will be that we have a much more realistic approach to the characteristics of our modern work force, where very often people have other requirements that relate to what their partners do, their need for locational stability and so on. I think we will end up with a system that is much more attuned to the requirements and expectations of our people, and I am getting good feedback on the fact that we are addressing the problem in the way that we are.

Senator HOGG —Thank you for that. I am not going to pursue this issue any further, except to ask whether you can give some later statistics to me on those areas—not now. If you have got a table, that will suffice. There is one group that you have left out that surprises me, and that is air traffic controllers.

Air Marshal Houston —We were established for 333 air traffic controllers. Right now, we are short of about 80 air traffic controllers. That is a big shortfall. We have arrested the rate of separation that we had 12 months ago with the bonus that we put in place. Twelve months ago, we were 82 short. So we are still in the same situation; we just have not lost any more this year. That is a direct consequence of the retention bonus that was put in place.

Senator HOGG —At the same time, you have an increase in tempo. Is that affecting the workload that existing air traffic controllers have? Have you had to cut back operations as a result of the increased tempo and the pressure that has been placed on the air traffic controllers?

Air Marshal Houston —What we have done is look at the whole air traffic control work force. We have obviously aligned the work force with our priorities and, yes, there have been areas where operations have been restricted because of a lack of air traffic controllers. For example, at East Sale there will be periods where we only have limited air traffic control operation and then the rest of the time, usually in the evenings and into the night-time, we might work with a mandatory broadcasting zone. Obviously we would prefer to have air traffic control services available at that time, but we have been able to operate safely with the MBZ set-up. So we have made those sorts of adjustments to cater for the lack of air traffic controllers and sometimes we have restricted our operations because of a lack of air traffic controllers. I would stress that we do not work them harder. We have very strict rules on how long air traffic controllers can work for, because the last thing you need is a fatigued air traffic controller controlling aircraft.

Senator HOGG —I look forward to the statistics that you can provide us with on those various categories.

Air Marshal Houston —I can give you all of them now if you wish.

Senator HOGG —I just think it might be easier—if you have them in a table—if you table it, and that saves you reading it into the Hansard.

Air Marshal Houston —I would stress that a lot of the shortages relate to some of our smaller categories and musterings. I suppose the big areas, as far as the airman force is concerned, are shortages in the communications and electronics area—communications electronics fitters and also avionics technicians.

Senator HOGG —The only other thing I want to know about before I hand over to Senator Evans is that on page 48, under `Logistics', there is a comment about `higher than expected costs of operating new platforms'. What platforms are costing more than you expected and are they covered in the budget?

Air Marshal Houston —We have two new platforms that we have introduced to service—the Hawk 127 and the C130J. I might take the C130J as an example. The C130J is costing us more than was planned during the project phase. Most of those costs relate to the maintenance of the software and also the need for more work on the engines than we anticipated. I stress that the C130J was in a very early stage of development when we bought it and you would normally expect the costs to be higher at the start of its life than they will be in, say, five years time. That is fairly normal. You normally have a few teething problems, a few unexpected problems, when you introduce an aircraft to service and then, once you get over those, things settle down. I might ask Air Vice Marshal Conroy to give you some specifics about the C130J.

Senator HOGG —Thank you.

Air Vice Marshal Conroy —I do not have a great deal to add to that, Senator. There was an expectation in the mid-nineties when the project was approved that this being a new generation, largely software driven aircraft there would in fact be an efficiency dividend by the introduction of the new aircraft. But the software support costs of the C130J have exceeded our expectations.

Senator HOGG —Can give me an idea of percentage? Is it 10 per cent higher, 20 per cent higher, double?

Air Vice Marshal Conroy —It is about double; I think that would be a broad proportion. However, we are in intensive negotiations—in fact, multinationally—with the other C130 users and we have some confidence that we can come to an arrangement with the original equipment manufacturer to substantially reduce our annual support costs of the C130J. We are working to get a substantial reduction in the way we do business.

Senator HOGG —When you say it is double, double of what? What was the original cost you were planning for?

Air Vice Marshall Conroy —Last year, it was looking as if we were short of the order of $40 million a year in our forward budgets for the C130J. However, the result of those negotiations I am talking about may well bring that shortfall down to something in the order of $10 million a year, and I believe that is probably manageable within my budgetary base.

Senator CHRIS EVANS —In reply to questions from Senator Calvert yesterday, you talked about the F111 wings issue and you canvassed that pretty thoroughly. I am interested in their longer term capability and the flying hours et cetera. Have you got figures for F111 flying hours for this year and last year? You used to publish the targets and then the accomplished. Have you got those?

Air Marshall Houston —Yes, I have. Last year it was 2,757 hours; this year we anticipate flying about the same again, 2,700 hours.

Senator CHRIS EVANS —That is your target for this year, is it?

Air Marshall Houston —No, the initial target was higher than that.

Senator CHRIS EVANS —What was that?

Air Marshall Houston —The initial target was 3,600 hours.

Senator CHRIS EVANS —But you think you will come in at about 2,700 hours, and that is for 2001-02?

Air Marshall Houston —That is for 2001-02, and then for 2002-03 our projections are that we will be back to over 3,000—about 3,200 hours—and what we want to do is get back to 3,600 hours further downstream.

Senator CHRIS EVANS —Can you explain the rationale behind the targets for the flying hours. Is the primary purpose of having target hours to keep the skills of your pilots and air crews up?

Air Marshall Houston —Yes, if we specifically talk about F111s, those hours relate to conversion training and then training to maintain all the skills that are necessary to operate the aircraft. Of course, we also have a flight simulator, which helps to maintain those skills. There are other requirements on us, like the support of exercises: for example, three of those aircraft were recently up in Malaysia on the fire power defence arrangement exercise—the air defence exercise run by headquarters integrated area defence system—and, as I said the other night, they maintained outstanding serviceability and flew about 110 hours over two weeks.

Senator CHRIS EVANS —Do those hours get counted in your targets?

Air Marshall Houston —Absolutely.

Senator CHRIS EVANS —All the hours get thrown in?

Air Marshall Houston —Absolutely, and then there would be other exercises that we are involved in, some of them to support the joint operations or, specifically, to maintain our own skills.

Senator CHRIS EVANS —The reason you strike the targets is effectively for your need to maintain the skills of your personnel. I assume the corollary is that, if you are not making your targets, you feel that you are not getting the hours that you want. Obviously you have the flight simulator, but what does it mean when you do not meet target hours?

Air Marshal Houston —What it means is that certain of the lower priority activities are not completed. In the circumstances we are in at the moment, we are maintaining our skills. The skills are suitable to meet all our preparedness requirements. So we still have a very good operational level of capability; it is just that we are not participating in as many exercises as perhaps we did in the past.

Senator CHRIS EVANS —Is that because of other demands on Defence resources or is it because of problems with aircraft or what?

Air Marshal Houston —Specifically it relates to problems with the aircraft. Instead of flying 3,600 hours, as we would like, we are flying 900 fewer hours and that means there are 900 fewer hours to support ADF and other exercises.

Senator CHRIS EVANS —So you are not rationed, but in terms of the exercise program you have to allocate that over the priorities?

Air Marshal Houston —Our first priority is to maintain the skills of our crews and also to train new people coming into the force. We are meeting all those requirements and, indeed, we are supporting quite a few exercises. It is just that we are not supporting all the exercises we were perhaps programmed for.

Senator CHRIS EVANS —So cost pressures are not impacting on these decisions at all?

Air Marshal Houston —Not at all. Going back a couple of years, you would be aware that we had some problems with the F111—another ageing aircraft problem—and we had some fuel leak problems. We also had some problems with maintenance of the fuel tanks, and that related to an OH&S problem. The consequence of all that was that we had a reduced rate of effort. Through all of that, we were able to maintain a good operational level of capability and, as you can see from the hours we are going to fly this year, we are actually maintaining the same level of effort and the same level of capability as we had last year.

Senator CHRIS EVANS —But that was considerably down on previous years. As I understand it, looking at the records, you used to plan for 4,400 hours per annum—you seemed to fall just short of that in 1996 and 1997 and 1998 but you were basically pretty close to the 4,400 mark. Now you are down to 2,700 hours. That seems a considerably lower level of effort.

Air Marshal Houston —It certainly is. I would like to be up at 3,600 hours. That is what we are aiming for in the medium term. I am confident that we will get back to that, once we have the wing problem sorted out. We have sorted out the fuel tank problem and I think we have a very good solution to the wing problem. Once that is sorted out, the F111 will be back up to historical figures in its rate of effort.

Senator CHRIS EVANS —As I say, 4,400 hours was the target for many years. You do not seem to be even contemplating getting back up to that sort of level. Is that because you do not think it is possible any longer?

Air Marshal Houston —We look at the hours we fly, and we have a certain amount of money and a certain quantity of resources to run the Air Force fleet. We make the necessary trade-offs to make sure we meet all of government's requirements and then we make the necessary adjustments in managing the flying hour program. So the fact that we flew 4,400 hours five years ago is not really significant. We have changed that mentality. We are now into a system of meeting a directed level of capability. My job as the output manager is to deliver the Air Force output for the government. One of the subsets of those outputs is the F111 output. I am not worried about how many hours I fly; what I am worried about is delivering the directed level of capability. If that takes 3,600 hours, so be it. The fact that we used 4,400 hours in the past probably did not mean that we needed that many hours to get the required level of capability. It is a very complex subject, and it also involves the way in which we manage the rest of the fleet, because I have to make the same assessments against each of the output's subsets.

Senator CHRIS EVANS —I appreciate that, but from my point of view as a layperson one of the things you look at is how you measure whether you are reaching that level of capability. One of the things that has been used in the past is flying hours. On first blush you say, `We used to plan for 4,400 hours, we did that consistently for many years; now we are flying 2,700,' and it begs the question of whether or not we are actually reaching that level of capability. You assure me that you are, but that is one of the ways we could test that, I suppose.

Air Marshal Houston —Let me just say that I really need 3,600 hours to deliver the full capability that I would like to deliver, but I am able to deliver a very credible capability with the hours that we are flying right now. Also, we have a very good simulator and that assists as well.

Senator CHRIS EVANS —Putting aside the temporary issue of the wing problem, is the reduction in the number of hours flown or in the capacity for flying impacted upon by the ageing of the aircraft? Is there the sense that you do not want to fly older aircraft as much?

Air Marshal Houston —Not at all. As I said previously, both of our recent problems, the fuel leak problem and the wing problem, are classic ageing aircraft problems. Once we have fixed those problems we have to come up with an assessment, and it is an airworthiness assessment, and we have the highest standards of airworthiness in the world; so we meet those standards and there are no problems with flying the aircraft once we have fixed the problem.

Senator CHRIS EVANS —But is it the case that the more you fly it the more problems you are going to develop? You indicate in the PBS, and I think you have indicated on the record previously, that the cost of maintaining ageing aircraft increases. Even a lay person like me can understand that. Obviously it then begs the question: is it that the more you fly it the more maintenance you require and the bigger are your costs? Is that a fair comment?

Air Marshal Houston —I put it in a slightly different way. Aircraft that are past a certain age, let us say 15 years, require more maintenance and more inspections. Similarly, once an aircraft gets to a high number of fleet hours—let us say we had an aircraft that was 10 years old and it had flown an incredible number of hours—that aircraft would also be regarded as an ageing aircraft. So it relates to the age of the airframe and also the number of hours that it has flown. That ageing aircraft will require more maintenance and more inspections. And you can anticipate that from time to time you will get a surprise. Let me give you an example: our Boeing 707 developed a crack in a place we had never seen a crack before—in the wheel well area. We had a look at the other 707s and we found another one with the same condition. We then had to come up with a repair scheme in consultation with the aircraft manufacturer. We sent the aircraft up to Amberley and had them repaired, and they are now flying again. They are now airworthy again.

The direct consequence of finding a crack in that place is that that is another place we have to inspect that perhaps we did not inspect thoroughly before, and there may be other additional maintenance requirements for similar problems. That is what ageing aircraft are all about. Even the Falcon 900s that we are about to get rid of have more servicings now than they had through most of their service life. That is a direct consequence of the age of the aircraft.

Senator CHRIS EVANS —And that obviously has huge budgetary implications for the cost of maintenance. For instance, do you have a cost figure for the F111s per hour of flying time? Is that how you work it out?

Air Marshal Houston —We can give you cost figures. In fact, I will ask my colleague Mr George Veitch to give you a run-down on the cost of the F111.

Mr Veitch —We use a full cost rate purely in a cost recovery sense. We recently updated the rate for the F111. It is about $125,000 per hour.

Senator CHRIS EVANS —Nothing in Defence is cheap, is it—and that is full cost recovery?

Mr Veitch —That is full cost recovery. That would include amortisation of the capital and all the overhead costs—the whole thing.

Senator CHRIS EVANS —How has that changed over the years, Mr Veitch? You said that you have just revised those figures. What was it before?

Mr Veitch —Yes, we revise those figures on an annual basis. Since we have kicked over to accrual budgeting, we have had to look seriously at the way in which we construct that rate, and there is still an ongoing debate within the department about how best to display those numbers. If you look at it consistently over a number of years, that cost recovery rate shows a steady increase and quite a significant increase in recent years. That goes to the heart of the issue that Air Marshal Houston was talking about—the steady rate of increase for ageing aircraft. However, because we calculate it on an annual basis and it relates to the actual hours flown, part of that increase does give the impression that it is unrealistically high because we have flown only about 2,500 hours in the last two years. That artificially increases it when you look at it on an annual basis rather than over the long haul.

Senator CHRIS EVANS —Can you give me the figures on how that has changed over time?

Mr Veitch —I could take that on notice.

Senator CHRIS EVANS —Thank you, but can you give me an indicative feel for how the graph would look? I think Air Marshal Houston talked about a 15-year period.

Mr Veitch —There is no doubt that the graph is exponential at the moment, but you have to take into account that the rates for the last two years are higher because we have flown fewer hours.

Senator CHRIS EVANS —If you discount that, though, and say that you are averaging the same sort of hours, what would the graph look like?

Mr Veitch —It would also show a steady increase, but it would ramp up more significantly in the last year.

Senator CHRIS EVANS —And that is not because of the flying hours issue?

Mr Veitch —I think it is to do with two factors. One is, as I said, the cut over to accruals and the way in which you calculate the full costs in an accrual sense. The other is that, because we flew only 2,500 hours, that has the effect of increasing it significantly in the current year.

Senator CHRIS EVANS —I appreciate those caveats. Taking those caveats out of it, what would you expect the graph to look like? Are we saying that, after 15 years, you would get a sharp incline?

Air Marshal Houston —What I would expect with any ageing aircraft is that the costs will gradually climb over time. There is a lot of debate about what that figure might be—and it varies from platform to platform and depends on the way the aircraft is operated, maintained and so on—but the figures from around the world are usually between three per cent and seven per cent compounding. The US Navy, for example, as you probably saw in the IASB report, uses four per cent. But it will vary, depending on the circumstances.

Senator CHRIS EVANS —But is it normally the case that in the early years it is more likely to be three and in the later years it is more likely to be seven?

Air Marshal Houston —No, I would not put it that way at all. I think it is just a gradual increase over time. Just to give you some feel for it, if we go back a number of years, a 707 servicing was done in a matter of a few months. I think about three or four years ago it was a 12-month servicing—this is the deeper level maintenance servicing. It is now up to 15 months.

Senator CHRIS EVANS —It is offline for 15 months?

Air Marshal Houston —So that means that servicing is now much more expensive than it was five years ago. That is the reality of older aircraft. It is just a function of the fact that aircraft, as they get older, get more difficult to maintain in an airworthy condition. We maintain very high standards of airworthiness. To maintain those standards we have to put the effort in in terms of maintenance, and it is going to cost.

Senator CHRIS EVANS —As someone who flies on your Falcons very regularly, I am very appreciative that you do, too. I take a keen interest in the airworthiness issues. Have you got global budgets for the F18s and F111s for this year and next year? Do you break them down like that?

Mr Veitch —If I could talk about the logistic support budget, which is the area we are concentrating on, the 2001-02 allocation is $132 million. We have currently got $109 million planned for next year, but there are a number of logistic shortfalls on that that we are working through the internal mechanisms of the department at the moment.

Senator CHRIS EVANS —So what does that budget encompass?

Mr Veitch —That encompasses the cost of repairable items, purchasing spares, the maintenance support contract, the contract that we have just outsourced up at Amberley and those sorts of things. That excludes the personnel budget—the crew and the support staff.

Senator CHRIS EVANS —That is just for the F111s?

Mr Veitch —That is for the F111s.

Senator CHRIS EVANS —So you are actually going to spend less next year?

Mr Veitch —We currently program for less because, to some extent, when you look at the F111, we had planned to buy life-of-type spares over the last couple of years. We are the sole operator in the world now and it is important that we get as many spares as we can.

Senator CHRIS EVANS —We are actually the sole operator now?

Mr Veitch —Yes. So if you look at some of our actual expenditure over the last couple of years and, indeed, this year, it is artificially high because we have been going through that life-of-type spares purchase.

Senator CHRIS EVANS —You have cornered the market in wings?

Mr Veitch —Yes. So it is natural that you would expect some falling off of the expenditure as we go through that life-of-type purchase of the spares. Having said that, though, the sorts of things that the Air Marshal talks about—the surprises—come on top of that. It is very hard to predict those and to budget for them. So what we tend to do is to try and address those on a case-by-case basis as they arise.

Senator CHRIS EVANS —So you have got conflicting things happening with your budget—the last few years you have been spending up on spares, effectively, which means that your costs should decrease in the next couple of years, but you have got the increasing maintenance costs driving it the other way?

Mr Veitch —Yes. But on an in-year basis you have some flexibility. The reduced level of effort this year, for example, gives you savings in fuel in the year in question. So you can redirect that money to look at some of these other issues.

Senator CHRIS EVANS —So your fuel costs are in this as well?

Mr Veitch —No, that is exclusive of the fuel costs.

Senator CHRIS EVANS —So 2001-02 is $132 million; 2002-03 is $109 million, and that is exclusive of fuel and personnel costs?

Mr Veitch —Personnel costs, yes, and general overheads and facilities support—those sorts of things.

Senator CHRIS EVANS —What is your fuel bill?

Mr Veitch —I do not have that with me but I can get it.

Senator CHRIS EVANS —I am just interested to get the perspective. What about the F18s?

Mr Veitch —The baseline funding provision for the F18 hovers between about $80 million and $90 million per year. That covers the same sorts of things.

Senator CHRIS EVANS —What is your budget for the coming financial year?

Mr Veitch —The budget for the current year is about $86 million and, for next year, about $83 million.

Senator CHRIS EVANS —Is that a similar effect? Have you been buying up spares for them, as well?

Mr Veitch —No, we have not started a life-of-type spares buy for the Hornet but there are some studies going on at the moment which are looking at it.

Senator CHRIS EVANS —Is that something you might be doing in the next few years?

Mr Veitch —I think it would be a prudent thing for us to look at, yes.

Senator CHRIS EVANS —You are doing an upgrade on the F18s, anyway, aren't you?

Air Marshal Houston —We are already under way on the upgrade program. If you want details, I can get Air Vice Marshal Conroy to give you a quick five minutes on it.

Senator CHRIS EVANS —Yes, if he could give me a couple of minutes broad description of what is happening with the upgrade, it would be good.

Air Vice Marshal Conroy —Phase 1 upgrade of the F18 is nearing completion. That is, if you like, an enabler upgrade that changes the computers and a lot of the basic systems. The replacement radar is proceeding. The main avionics upgrade, which is known as phase 2 of the Hornet upgrade, is at the stage of design contracts having been let, so that is in the active design phase. We expect soon to start letting contracts for the production of the phase 2 capabilities that will change the displays, insert a helmet-mounted sighting system for the new missiles, which are being fitted at the moment, and provide a new data link capability called Link 16, which allows information to be passed particularly efficiently between the AEW&C type aircraft. The intent of that is to bring the level of our F18A and B aircraft up to something equivalent, or slightly superior, to the US Navy's F18C and D configuration aircraft. Returning to the logistics issues that you raised before, the Boeing factory has ceased production of the F18C and D configuration and has moved to production of the F18E, which is a completely different and upgraded aircraft.

Senator SCHACHT —You are going to run out of letters of the alphabet.

Air Vice Marshal Conroy —They often go as far as G and H. I think the B52s are up to H.

Senator SCHACHT —Do not end up with a Z.

Air Vice Marshal Conroy —There is a helicopter that has gone to Z. Because the production lines have ceased, we have to look at whether it is more sensible now to make life-of-type buys on some equipment that we could otherwise order on a year by year basis. As Mr Veitch said, for the sake of efficiency we will be increasingly required to make some life-of-type spares buys for our F18 fleet.

Senator CHRIS EVANS —What is the timing on phases 1 and 2 of the upgrades—when do you expect them to be completed?

Air Vice Marshal Conroy —Phase 2 needs to be completed by the end of 2006. Phase 1, I think, will be completed this year or early next year.

Senator CHRIS EVANS —What does that mean in terms of operational capacity of the F18s? Are they offline for a long period?

Air Vice Marshal Conroy —Yes, there is a floor loading in the factory up until that period of 2006 that takes, from memory, something in the order of six to eight aircraft offline for the upgrade process.

Senator CHRIS EVANS —So you have six to eight offline at any one time and they rotate through as they go?

Air Vice Marshal Conroy —In the upgrade process.

Senator CHRIS EVANS —Out of a total fleet of how many?

Air Vice Marshal Conroy —The total fleet is 71.

Senator CHRIS EVANS —What life expectancy do you think that this upgrade will give the F18s?

Air Vice Marshal Conroy —The current upgrade is to improve the operational capability of the aircraft; its life is actually determined by structural matters.

Senator CHRIS EVANS —You are not going to bring the expert back in again?

Air Vice Marshal Conroy —We know we have to do some structural upgrades. They are known as phase 3 of the Hornet upgrade program. They are in the defence capability program. They are not totally defined as yet. We will have to do some preparatory structural work soon, and we are scoping that issue at the moment. There may be some major structural upgrade work that needs to be completed, starting in 2007. With that work done, we are aiming to have our F18 fleet viable through to the period 2012-15, on current plans.

Senator CHRIS EVANS —But you will not actually be starting the structural work until 2007?

Air Vice Marshal Conroy —We will start some soon, but the major work will start in 2007.

Senator CHRIS EVANS —Could you briefly describe what structural work is required, in layman's language? Basically, what do you have to do?

Air Vice Marshal Conroy —We have done extensive structural analysis—fatigue tests—at DSTO and in combination with our Canadian colleagues. We and the Canadians fly our aircraft differently to the US Navy, and so we want to know how the structure is behaving under our usage patterns. We have a good picture of that at the moment and we know the areas that need to be worked on. We correlate that with the wider US Navy fleet because they bring a lot of knowledge to this as well. The really extensive work that needs to be done—and we do not know how many aircraft we will have to do this to to get through to 2012 yet; we are still studying that—is to replace what is called the centre barrel of the aircraft. That is a piece of fuselage structure that carries the wing attachment.

Senator CHRIS EVANS —That sounds like the main bit of the plane to the layman.

Air Marshal Houston —That is correct. We have to do the analysis, but obviously we would prefer not to do that if we can get away without it.

Senator CHRIS EVANS —So basically you have to replace the fuselage?

Air Marshal Houston —That is correct. The centre barrel is the main part of the fuselage. There is a high technical risk associated with that, and we are looking at ways of managing the fleet so that we can avoid having to do that.

Senator CHRIS EVANS —No doubt the cost of that would be fairly high.

Air Vice Marshal Conroy —The cost in the forward projections is notional but it is something in the order of $300 million.

Air Marshal Houston —Yes, that is my understanding as well.

Senator CHRIS EVANS —And that would only get you another five to eight years of life for the plane?

Air Marshal Houston —We still have to work through all that.

Senator CHRIS EVANS —But in the broader planning, if you start that in 2007 and you are only hoping to get the planes through to 2015, that is a big investment for a fairly short time period, isn't it?

Air Marshal Houston —It certainly is. That is why we would prefer not to do it, also noting that there is a high technical risk there. The Canadians have already embarked on their program.

Senator CHRIS EVANS —So you at least will have the benefit of learning from their mistakes or experiences. What about the F111s? What is the program to upgrade or make structural changes on those?

Air Marshal Houston —The program in place for the F111 is to improve the survivability of the aircraft for operations in the next decade. We can go through that in detail if you wish, but all the projects are related to improving the capability of the aircraft to make it less vulnerable in the future.

Senator CHRIS EVANS —When you say `less vulnerable' do you mean vulnerable to attack or vulnerable to ageing?

Air Marshal Houston —I am talking about survivability. As we progress into the next decade we are likely to see much more capable air combat aircraft introduced into the region, and we need to upgrade the F111 so that it is more able to survive in that environment.

Senator CHRIS EVANS —I do not want you to take me through it all—I am sure you have figured out by now that I would not understand half of it—but, in general terms, what does that mean?

Air Marshal Houston —One of the main features of it is to improve the electronic warfare self-protection and there are a number of systems associated with that. They are all detailed in the defence capability program. We can take you through that, if you wish.

Senator CHRIS EVANS —I will have a look at that more closely. Are there any major structural issues, putting aside the wing debate?

Air Marshal Houston —No, not at this time.

Senator CHRIS EVANS —Is it more about their systems?

Air Marshal Houston —Yes; improving their systems to improve their survivability.

Senator CHRIS EVANS —You were talking before about the number of pilots and the fact that your recruitment had improved. How many F111 pilots are there? Do you categorise them as F111 and F18?

Air Marshal Houston —At the moment we can raise, I think, around 18 or 19 F111 crews. I can take that on notice, but it is in that order.

Senator CHRIS EVANS —How many in a crew?

Air Marshal Houston —Two: a pilot and a navigator.

Senator SCHACHT —How many of the crew are women?

Air Marshal Houston —We have two women navigators on No. 1 Squadron.

Senator SCHACHT —Many years ago at a Joint Committee on Foreign Affairs, Defence and Trade inquiry—in the early 1990s—into issues of service recruitment we got onto the issue of women being used in combat roles. At that stage the Air Force did not allow women into combat roles in the F111s and the F18s. To my astonishment, one of the pieces of evidence given to justify that was that Air Force was worried that any woman in a plane like that going through G forces could suffer a collapse of her uterus. Is there any evidence since we have had women in F18s and F111s that a woman has suffered a collapse of the uterus?

Air Marshal Houston —No.

Senator SCHACHT —I am pleased to hear it.

Air Marshal Houston —We can employ women in 97 per cent of the positions in the Air Force. They are employable in all flying positions. Having flown as copilot to a woman on several occasions I can say there is absolutely no difference between women and men when it comes to flying aircraft. The only positions that are denied to women in the Air Force are in the airfield defence guard area, and we are having a look at that at the moment.

Senator SCHACHT —I am glad you are having a look at that three per cent. Is that because they are not strong enough to carry the gun or because we do not like them being shot at?

Air Marshal Houston —It relates to physical capability more than we do not like them being shot at. There is a study under way that is being run by the personnel executive. If you want a more detailed response I can get Rear Admiral Shalders to come forward.

Senator SCHACHT —I have been through this so many times in so many inquiries over the last 15 years for the Joint Standing Committee on Foreign Affairs, Defence and Trade and the Defence Subcommittee that I have heard all the arguments. Is it because they cannot carry the weight of the pack or the gun? Is it the weight issue that prevents them from being guards on the airport perimeter?

Air Marshal Houston —Up until now it has related to their physical capability to do all the tasks involved with being an airfield defence guard or an infantry soldier. I think there are other people in the room who are probably more fully up to speed with this issue, and I can call them forward if you wish.

Senator SCHACHT —I do not want to interrupt Senator Evans.

Senator CHRIS EVANS —I have finished.

Senator SCHACHT —I would not mind someone coming forward, because I would have thought that some men would have had trouble. People like me would have great difficulty slogging it around with a pack on the back and holding a gun. There must be men, I would have thought, who would have trouble meeting the capability.

Air Marshal Houston —I think that is precisely the point.

Senator SCHACHT —If a woman can meet the generic test, why should she be precluded?

Air Marshal Houston —I will let Admiral Shalders take over at this stage.

Rear Adm. Shalders —Could I ask you to repeat the question, please?

Senator SCHACHT —I have been through this discussion so many times it is a bit like a long-playing record. I believe if people meet the generic test, they should take their chances just like anybody else, whether they are male or female. Why isn't there a generic test so that if either a woman or a man cannot meet the test they do not get the job? To say that women cannot do it per se and therefore they are all excluded seems to me to be a discrimination that is a bit irrational.

Rear Adm. Shalders —Senator, that is not the case. The study that Chief of Air Force mentioned is a study into physical competencies. So, as you have suggested, if the person—male or female—is physically capable of undertaking the tasks then they are able to undertake those tasks. That is the direction of the study at the moment.

Senator SCHACHT —That is where the study is going, but that is not yet policy.

Rear Adm. Shalders —That is correct.

Senator SCHACHT —At the moment, women are just excluded, full stop, from being on the—

Senator Hill —But the trend has been away from excluding them. You have heard in relation to Air Force—

Senator SCHACHT —I know; I understand that.

Senator Hill —Hang on. We have heard your side on this subject over the years, but you do not always listen to the response.

Senator SCHACHT —I do listen to the response.

Senator Hill —In the case of Air Force, 97 per cent are now open. In the case of the Defence Force as a whole, there is an examination to test whether there is any physical limitation in relation to the balance of the jobs. So you are winning the argument.

Senator SCHACHT —I know.

Senator Hill —You should claim success and let us move on.

Senator SCHACHT —Air Marshal Houston said that there were three per cent involved in protecting Air Force facilities—I am not talking about the general service.

Senator Hill —You could claim it as part of your legacy.

Senator SCHACHT —Maybe I will, but I am not so presumptuous as to claim too much. Many other people have looked into this argument in greater detail than I have. I am just wondering about the three per cent. At the moment the policy is, although it is under review, that women per se cannot be in the guard position in the Air Force units carrying out a protective role that some might equate to the infantry in the Army. Is that correct?

Air Marshal Houston —That is correct.

Senator SCHACHT —When will this review be completed?

Rear Adm. Shalders —The contract to examine the physical competencies required is about to be let. A request for tender was issued on 31 January—we have done part of that study already in relation to clearance divers in the Navy—and that study is expected to take about six months and will inform future policy directions.

Senator SCHACHT —That is good. Air Marshal Houston, what is the highest ranking woman in the Air Force today?

Air Marshal Houston —We have a one star, Air Commodore Julie Hammer, who is the commandant at the Australian Defence Force Academy.

Senator SCHACHT —Did she ever have flying experience?

Air Marshal Houston —No, she did not. She is a very distinguished engineer, and her background is in electronics and communications.

Senator SCHACHT —Which are very important. Is it true that, for the future career prospects for promotion to air marshal, it has always been an advantage to have been a pilot or to have had service in flying an aeroplane in some form or another?

Air Marshal Houston —I would put it this way: you would need to have an operational background. As we move into the future, that sort of experience might not necessarily be presented by a pilot. But, certainly, up until now that has been the case.

Senator SCHACHT —So by removing this restriction we can now say to women—to paraphrase the old saying that everyone can aim to be Prime Minister of the country or President of America—you now have a career structure that means that if you are good enough to be a pilot and rise through the system you can end up being an air marshal of the Air Force.

Senator Hill —That is not quite what he said.

Air Marshal Houston —Well, fundamentally—

Senator SCHACHT —Because clearly before if you were excluded from being in some of the operational areas—

Senator Hill —You do not have to be a pilot to be in operations.

Senator SCHACHT —As I understand it, and I am not critical of this in one sense, to be a pilot at that level of operation seemed to be an advantage toward gaining promotion to be head of the Air Force ultimately in a career. That is understandable and part of the culture of the Air Force. It is not the same problem that occurs I think in the other services—

Senator Hill —The culture is changing.

Senator SCHACHT —It is changing. I have been here for 10 or 15 years asking about this, and drip by drip it is changing. I thank you for that. In the Defence annual report for 1999-2000—the one before the one that just came out—the Air Force section listed aircraft capability and performance. Not only was a target set but also the rate of effort was put in percentage terms: what the target was and what was actually achieved. That list goes through the various types of aircraft: F111, F18, Pilatus, Orion, Hercules, Caribou, Boeing 707. I will come back to the figures in a moment, but in the Defence annual report for 2000-01 just out the actual achievement rates are apparently not reported. In the previous Defence annual reports of 1997-98 and 1998-99, although the targets were set the actual rate of effort and serviceability—the launch rate et cetera—were not included. It seemed to be a step forward that in 1999-2000 they were put in the annual report, but they have not been put in the annual report of 2000-01. Can you explain what might appear to be a revisionist or backward step in reporting from what seemed to be a good idea in 1999-2000?

Air Marshal Houston —I am actually not responsible for the presentation of the information in the Defence annual report—

Senator SCHACHT —I am sorry, I have come to the wrong section.

Air Marshal Houston —but I will get the chief finance officer or his representative to come forward. As far as I am concerned, I am quite happy to table that sort of information should you desire it.

Mr Veitch —We probably had this discussion on Monday with Senator Hogg and Senator Evans. We went through this very issue in terms of the presentation. I think that as a result of that discussion the secretary and the minister were going to consider options for how we might repackage the material that is presented in future years.

Senator SCHACHT —Senator Hogg was asking specifically about the same material?

Mr Veitch —The same sorts of questions, yes.

Senator HOGG —As I have done in the last four estimates hearings.

Senator SCHACHT —So there was an agreement that there would be discussion about either tabling more material or, in the future, putting it in the Defence annual report?

Dr Hawke —The minister agreed that he would give consideration to that for the next estimates hearings, yes.

Senator SCHACHT —In that case Senator Hogg has scooped my pool. I congratulate him on that.

Senator HOGG —I want some friends, not enemies, out there!

Senator SCHACHT —I will ask a couple of other questions. Again, tell me if Senator Hogg has already asked this. Compared with what was published in 1999-2000 and what was not published in 2000-01 but which now can be made available, were there any areas of significant reduction in performance levels of the rate of effort or the serviceability of the sortie launch rate for each of the aircraft types? You can take that on notice if it has not already been covered by Senator Hogg.

Air Marshal Houston —I have some information here which may help.

Senator SCHACHT —Take the F111. In 1999-2000 the flying hours target in the annual report was 4,400; the actual was 3,500. The rate of effort was 80 per cent and the serviceability sortie launch rate was 90 per cent. In both of those the target was 100 per cent. In the year 2000-01 were those figures maintained or were they improved closer to the target of 100 per cent? I presume the target was still set at 100 per cent.

Air Marshal Houston —I think you have been gazumped by Senator Hogg.

Senator HOGG —I recommend the Hansard to you.

Senator SCHACHT —Fine. It is all there. Thank you. I have to go to another estimates committee and I think by the time I come back Defence will probably have finished. I want to say to the minister and the department that I have been coming here for 12 out of 15 years and I have been a member of the Defence Subcommittee of the Joint Standing Committee on Foreign Affairs, Defence and Trade for 12 to 15 years, and sometimes in estimates some answers—whether I have been in government or opposition—have been rather oblique and obtuse, but I think that is only natural. All round I have enjoyed dealing with the services and in particular all the personnel. If I may say so, Air Marshal, you have got into some controversy recently. I think in the long term your record out of that will be well recognised as being superior to a lot of other things that have gone on. I congratulate you on that courage. To all the staff and to Dr Hawke, I have enjoyed working with Defence over all those years. Thank you.

Senator Hill —I am sure they have enjoyed working with you.

Senator SCHACHT —They may not have. Some of them may.

Senator Hill —Do not be so negative.

CHAIR —Thank you, Senator Schacht. That is your farewell speech. Thank you for your contribution.

Senator CHRIS EVANS —I have a couple of questions about the Salt Ash Weapons Range. There is a long history to this and I have not been involved, but could someone give us an update on it?

Air Marshal Houston —The Salt Ash range is currently going through an environmental impact process. We are in the middle of that. The draft has been circulated. There have been public meetings and they relate to the introduction of the Hawk aircraft and the fact that the Hawk aircraft will be using the Salt Ash range. So the process is under way; the community is being consulted and we will deal with the issues as they arise.

Senator CHRIS EVANS —What is the time line on this?

Air Marshal Houston —It is all to be finalised by July.

Senator CHRIS EVANS —By the end of July?

Air Marshal Houston —I will get the exact date for you.

Senator CHRIS EVANS —I want to understand where it is at.

Air Marshal Houston —If you would just bear with us, I do have the information here. We can get it for you in a moment.

Senator HOGG —Does this inquiry arise out of the longstanding difficulties surrounding the weapons range? Is it a response to that or is this a separate exercise altogether?

Air Marshal Houston —This is in response to the introduction of the BAE Hawk 127 aircraft. It is a lead-in fighter. It will be based at Williamtown and the aircraft will be using the Salt Ash range. We are doing the normal environmental impact work.

Senator HOGG —But it is not overcoming the difficulties that have been expressed in these proceedings on other occasions. This is a new situation, in effect. That is what I am trying to get to.

Air Marshal Houston —Absolutely. It is a new situation and we will deal with the issues that arise out of the work. Essentially the statement will be completed by 16 July and submitted to Environment Australia at that time.

Senator CHRIS EVANS —Does that go to the environment minister?

Air Marshal Houston —It will go to Environment Australia for advice.

Senator CHRIS EVANS —Who ends up with the decision?

Senator Hill —The Minister for the Environment and Heritage. That was part of the reform—the new legislation actually gave the environment minister responsibilities.

Senator CHRIS EVANS —Isn't there some argument as to whether the new legislation applies yet?

Senator Hill —No, it has triggered the new legislation and the environment assessment is taking place under the new legislation.

Senator CHRIS EVANS —The assessment is taking place under the new legislation; is it a decision for the environment minister alone or in consultation with you, Minister?

Senator Hill —Having just asserted that with great confidence, I will get advice. Is it under the new legislation? A decision has come back: it is under the transition provisions of the 1974 act. The process must have commenced before the new legislation was brought into effect. The difference is that, under the old legislation, the action minister makes the final decision, which is probably me. If it had been under the new legislation it would have been Dr Kemp.

Senator CHRIS EVANS —Is that your final offer on this question?

Senator Hill —It looks as if I made the decision that it would be under the old legislation. That fortuitously means that now I have to make the ultimate decision in my new role. I think it is a fair assumption that that will be in consultation with government as a whole.

Senator CHRIS EVANS —I want to be clear: we are certain that it is under the old legislation?

Senator Hill —That is what the note says.

Air Marshal Houston —It is under the 1974 legislation.

Senator CHRIS EVANS —And it remains so, whatever the timing on this because it was triggered under the old legislation. There is no cut-off date?

Senator Hill —There were transitional provisions in the old legislation dealing with a range of circumstances and I cannot remember why this one applied. In the most common instances where a process had commenced before the new legislation came into effect—

Senator CHRIS EVANS —That is what I want to be clear on: because it has been triggered under the transitional arrangements the whole decision making process will continue under the transitional arrangements, and those transitional arrangements make the decision one for the Minister for Defence?

Senator Hill —Yes, that is right.

Senator CHRIS EVANS —Does it go to Environment Australia or to the defence minister?

Senator Hill —The assessment process is much the same under both pieces of legislation. The substantial difference is that under the old legislation the so-called action minister determined the final approval. Under the new legislation the final approval is determined by the environment minister. The action minister is the one who instigated the process—whose project it is—and thus, in this instance, it would be the defence minister.

Senator CHRIS EVANS —The deadline you are working to is that it goes to Environment Australia by 16 July?

Air Marshal Houston —Correct.

Dr Hawke —Mr Chairman, Air Vice Marshal Conroy has a couple of minor amendments to what he said this morning.

Air Vice Marshal Conroy —Senator Evans, when I was giving an estimate of the logistic shortfall on the C130J, I mentioned a figure of mature shortfall of getting it down to around $10 million. I believe that that will oscillate for the reasons given by the Chief of Air Force, and it would be more accurate, in our current projections, to say that it will probably average out at about $15 million. I just want to correct that $10 million figure.

Senator CHRIS EVANS —Thank you.

Dr Hawke —We got a couple of answers together to questions that we took on notice.

Air Vice Marshal Titheridge —Some questions were raised yesterday, one of which was from Senator Faulkner, who asked the name of the DIMIA area that deals with intelligence. The question was really for DIMIA but we found the name: it is the Intelligence Analysis Section and it is inside the Border Protection Branch. There was also a question—I think from Senator Faulkner; I am not sure—on contacts between the embassy in Jakarta and Strategic Command with respect to SIEVX. There were two such contacts. On 22 October there was an email from the naval attache talking about information they had received from the Rescue Coordination Centre in Australia with reference to an overdue SIEV that was supposed to be inbound for Christmas Island. The naval attache was asking us what was going on, because he thought it was quite an unusual request. The following day there was a telephone call from Brigadier Millen, who heads up our Defence staff. He reported over the telephone the arrival back in Indonesia of a naval vessel with survivors on board. I will read you the transcript of the telephone call. It said:

An Indonesian naval vessel arrived in Tanjungpriok Jakarta port at approximately 14.45 Zulu on the 22nd October with approximately 45 survivors on board thought to have been on a SIEV that departed from Western Java a.m. Saturday, 20th October. It is believed the SIEV, which was thought to have as many as 400 PIIs on board, sunk in Indonesian territorial seas.

Senator JACINTA COLLINS —When was it that the boat arrived back in port?

Air Vice Marshal Titheridge —At approximately 14.45 Zulu on 22 October. The telephone call came in on the 23rd, just after midnight our time.

Senator JACINTA COLLINS —What does Zulu time equate to in our time?

Dr Hawke —At the moment, you need to add 10 hours to our time.

Senator JACINTA COLLINS —So it was just after midnight on the 23rd?

Air Vice Marshal Titheridge —Correct.

Senator JACINTA COLLINS —Can we be provided with a copy of the email you are referring to?

Air Vice Marshal Titheridge —There is some classified information in that email, which deals with other things that were not resolved with SIEVX. If I can take it back, declassify it and seek the approval of the minister at the table, I shall do so.

Senator JACINTA COLLINS —Is that something that could be done fairly quickly?

Air Vice Marshal Titheridge —Reasonably quickly—in fact, my staff are no doubt watching at this moment—

Senator JACINTA COLLINS —They are getting quite proficient at this process, despite a recent hiccup.

Dr Hawke —We are learning from the senators.

Senator HOGG —That is a real efficiency dividend.

Senator CHRIS EVANS —How to alter documents.

Senator JACINTA COLLINS —That is my next issue.

Air Vice Marshal Titheridge —There were some questions on Operation Coracle, the de-mining in Mozambique, from Senators Hogg and West. We are really not in a position to answer some of those questions. I will paraphrase the questions. One was: what was the cost of Operation Coracle? The additional costs in 2001-02 were $0.159 million. Another question was: what was the reason for Australia ending its commitment? I will read a short statement on that. The accelerated de-mining has gradually evolved from a UN operated and managed program, which we supported with our de-miners, to an independent project with minimum United Nations involvement. It is now in the process of being transformed to a national non-government organisation. It is also one of the most successful indigenous de-mining programs in the world. So it does continue. We were there supporting the UN and the UN is backing out so that is why we are withdrawing our contribution.

There was also the question: has there been a reduction in the number of mines left and who is there still de-mining? I think the latter half of that question was answered by the statement I just made. In terms of the reduction in the number of mines, they measure it in areas rather than mine reductions. I have some figures that in 2000 just under five million square metres of land was cleared, including over 317 kilometres of road. It is measured in areas cleared rather than the number of mines. There was a question on how well trained the Mozambique army is in de-mining. That is really a question that you would have to put to the Mozambique army. I suspect that Foreign Affairs would be in a much better position to answer or find the answer to that one than Defence. Similarly, the UN's timetable for completing the job would once again be an issue for the UN to answer. I suggest that question would be better put through our appropriate people in Foreign Affairs and Trade. There was a line of questioning, I think from Senator Faulkner, on the interface with strategic command in DIMIA and another committee.

Senator HOGG —It would have been.

Air Vice Marshal Titheridge —The only formal interface we had in committee terms was the people-smuggling task force or IDC or high level group that has been discussed quite regularly in various fora. Of course, we have a lot of informal contact with DIMIA and a range of other departments. I trust that answers those questions on notice.

Senator JACINTA COLLINS —Air Vice Marshal Titheridge, can I go back to the Jakarta matter?

Air Vice Marshal Titheridge —Certainly.

Senator JACINTA COLLINS —In case seeing the email does not answer these questions, I ask whether the email was a response to the embassy receiving a copy of the AMSA warning?

Air Vice Marshal Titheridge —It sounds like it was. I am reading through the email. I will read the relevant section of the email and that might solve the problem of getting it declassified. This part is not classified. The naval attache says in this email:

In regard to a fax I have just received from RCC Australia—

that is the Rescue Coordination Centre—

re an overdue SIEV bound for Christmas Island, I find it unusual, to say the least, that we are sending out such vessel overdue reports to BASARNAS for action based on our sketchy intel of boat departures.

It goes on to say:

Does RCC Australia want to do the same for every SIEV we think is departed and has not turned up yet?

He says, `I think this is a precedent we do not wish to go down,' or words to that effect. The email was in response to a fax from RCC obviously to the embassy.

Senator JACINTA COLLINS —So this naval attache is referring to sketchy information which we now know from Coastwatch was the subject of discussion back to the Federal Police. We are now told that at the time that fax went off there had in fact been confirmation of the departure. Was there no communication back to the naval attache indicating that there was now a confirmed departure and that the information was less sketchy?

Air Vice Marshal Titheridge —This was on the 22nd we are talking about? This was a couple of days after the sinking.

Senator JACINTA COLLINS —Yes.

Air Vice Marshal Titheridge —I cannot answer that question.

Senator JACINTA COLLINS —It was not a couple of days after the sinking, 22 October. You believe the sinking occurred earlier than 22 October?

Air Vice Marshal Titheridge —I am not sure of the date of the sinking. I would have to check that. It is not a question I can answer.

Senator JACINTA COLLINS —All I am asking is: there was no further contact back to the naval attache in relation to his concern?

Air Vice Marshal Titheridge —Not that I have a record of, no.

Dr Hawke —We were about to move to some answers to questions that Senator Collins asked yesterday. The inspector-general, Mr Claude Neumann, will respond to those.

Senator JACINTA COLLINS —Those questions were from the day before, I think it was.

Dr Hawke —The day before, sorry.

Mr Neumann —I can confirm that information supplied by Mr Byrne to the former Minister for Defence relating to Ridgewell Pty Ltd was passed to my office for examination and consideration in the context of findings made in a previous internal audit. Advice was given to Mr Luke Donnellan, of Mr Byrne's office, in January 2002 that this examination of the Ridgewell documents was not able to determine the claims of unfair dealing, unreasonable change of scope and undue delay. In regard to the issue of whether the Commonwealth should pay Ridgewell a debt that Ridgewell claims it is owed, the auditors found that `it is not clear whether any entity owes Ridgewell money'. However, it is not clear to my officers or me whether these documents are the same documents as those in your possession.

The two other questions related to the scope of the internal audit and the external audit. In terms of the external audit, in the media release by Minister Reith the first paragraph says:

In response to the continuing concern over facilities management at HMAS Cerberus, I have asked the Australian National Audit Office (ANAO) to conduct an independent investigation.

That leaves it wide open. At the bottom, in the last paragraph, it says:

Public accountability and the maintenance of public confidence in the efficient employment of resources by Defence is important. To that end I have now asked that the ANAO conduct an investigation into the matters associated with facilities management at HMAS Cerberus.

To that extent they are open. In terms of the original internal audit, they were similarly open. The secretary wrote back to a particular person saying:

I have referred your letter to the Inspector-General of Defence for his attention.

I actually wrote internally within the department asking my auditors to look at the matter.

Senator Hill —I suggested to Senator Collins, during the break, that perhaps she and the inspector-general should have a talk and make sure that they are talking about the same documents. I further suggest that, it seems to me, if there is an issue as to whether the inspector-general had all of the relevant documents at the time of his examination, that has now been somewhat overtaken by the opportunity to ensure that the Auditor-General has all of the documentation in order for the best possible examination by him of the same issues.

Senator JACINTA COLLINS —In terms of the original contract, the issue first comes as a concern in that, as I understand the process here, Mr Donnellan—whom you referred to—in Mr Byrne's office, was advised by Mr Scrafton that it was not possible to work out if there was a contract and that that matter should be resolved with SSL Asset Services. Is that an incorrect understanding from your end?

Mr Neumann —I cannot comment on that; I was not privy to that conversation.

Senator JACINTA COLLINS —No, but you referred to what you understood to have been communicated.

Mr Neumann —I can say a couple of things. Defence does not have—as I understand it; I am relying on information here—an original signed copy of the contract for the junior sailors galley project, if this what you are talking about.

Senator JACINTA COLLINS —Yes.

Mr Neumann —The original Defence project file is missing and key documents around these events have had to be provided by Defence's prime maintenance contractor which is SSL Asset Services. I think that goes to answering part of your question.

Senator JACINTA COLLINS —Is it missing from SSL Asset Services?

Mr Neumann —No, SSL Asset Services—as I understand it—have put together key documents, as they understand them, from what they have as the project manager. Defence does not have an original signed contract.

Senator JACINTA COLLINS —In part that goes to my concern, because I have a copy of a letter to the solicitors acting for Defence, from a Defence officer, referring to that original contract being conveyed to the solicitors acting. So my first question is: have you sought a copy of that contract from your legal advisers, to whom you forwarded such a copy?

Mr Neumann —I personally have not.

Senator JACINTA COLLINS —That is a question for Defence, then.

Senator Hill —What is the question?

Senator JACINTA COLLINS —The question is: I am aware that a copy of this original contract—

Senator Hill —It is interesting to know what you are aware of, but what is the question?

Senator JACINTA COLLINS —I will get to it. This is context for the question, Minister. A copy of the contract was forwarded to Clayton Utz on 13 April—the year must be wrong; it should be 13 April 2001—in a letter signed by Major A. McVilly.

Senator Hill —So what is the question?

Senator JACINTA COLLINS —The question is: has Clayton Utz been asked to provide, back to Defence, a copy of the existing contract?

Senator Hill —Do you know the answer to that, Mr Neumann?

Mr Neumann —No.

Senator Hill —We do not know.

Senator JACINTA COLLINS —I presume you have other Defence officers.

Senator Hill —No, he is the man. If you want him to go back and reresearch the records, we will do so. At the moment, we cannot give you an answer to that. That is why we tried to get from you yesterday as many questions as we could—so that we could research them.

Senator JACINTA COLLINS —The inspector-general is saying to me that Defence does not have a copy of it. I raised on Monday that I was aware that a copy had been provided to Clayton Utz.

Mr Neumann —I said Defence does not have an original, signed copy of the contract. We have a photocopy of the signed contract for the project as well as a copy of the agreed revised scope of works for the project that has been made available to Defence by Asset Services, Defence's managing contractor. This information, I understand, was supplied to the Australian National Audit Office in support of the investigation of the Cerberus issues.

Senator JACINTA COLLINS —Does the photocopy of the contract that you have include a variation initialled at clause 2.1?

Mr Neumann —I do not have a copy here so I cannot answer that.

Senator Hill —We will have to take that on notice.

Senator JACINTA COLLINS —Does it include amendments initialled on page 5?

Senator Hill —We will take that on notice.

Senator JACINTA COLLINS —Is there any indication in the copy that you have that the amendments have been equally amended by the other party?

Senator Hill —Have the amendments been initialled by both sides? Is that the question?

Senator JACINTA COLLINS —Yes.

Senator Hill —We will take that on notice.

Senator JACINTA COLLINS —It is clear now to me that the scope of the internal investigation and the Audit Office investigation appears focused on Cerberus. Are they also investigating broader issues in relation to the operations of SSL Asset Services Victoria-wide?

Senator Hill —Is the Auditor-General?

Senator JACINTA COLLINS —Both.

Senator Hill —Did you investigate matters other than Cerberus, Mr Neumann?

Mr Neumann —We had a look, because one of the things that the former minister asked us to do was to see whether it was systemic. The answer to that was no, it was not systemic.

Senator Hill —So they did look beyond Cerberus.

Senator JACINTA COLLINS —Did you look at the comprehensive maintenance contract between the Defence Estate Organisation and SSL Asset Services?

Senator Hill —We would have to take that on notice.

Senator JACINTA COLLINS —Is it still possible to provide me with a copy of your report once you have removed identifying information? That was a request from Monday.

Mr Neumann —Yes, I have the original.

Senator Hill —Is the report a public document, Mr Neumann?

Mr Neumann —No, it is not. What we have done with it is take out people's names, because we have not sent it back to people to make comments about. There are actually two sets of reports, and we would have to look at the second one as well, for the same purpose. We did one earlier on and then we looked at the Ridgewell paper separately.

Senator Hill —I would want to look at them and see if I have any objection to them being tabled. It would surprise me if I did have.

Senator JACINTA COLLINS —My concern was that this was discussed on Monday—and the inspector-general undertook to do that on Monday—in the context of me coming back later in this process, having had the opportunity to review those reports.

Senator Hill —I have not seen the reports.

Senator Jacinta Collins —And that is my concern. I can understand your concern from that point of view.

Senator Hill —We are doing our best. I will have a look at both those reports. Have your reports gone to the Auditor-General, Mr Neumann?

Mr Neumann —Yes, I believe so.

Senator JACINTA COLLINS —I want to move on to some issues broader than the Ridgewell contract, regarding SSL Asset Services. This pertains to the extent to which the Department of Defence satisfies itself of the accuracy and completeness of contracted maintenance services in accordance with the comprehensive maintenance contract. In the light of our earlier discussion on Monday, where the minister indicated that he understood these matters were being addressed by the Audit Office, it is not clear to me whether that issue is being addressed by the Audit Office.

Senator Hill —The question you have just asked was really generic and had nothing to do with the Audit Office. You said you want advice on the extent to which Defence checks that work that it has contracted to have done is done. Are you talking about contracts across Defence or are you talking about a specific instance?

Senator JACINTA COLLINS —I am talking about the specific instance of a comprehensive maintenance contract in Victoria.

Senator Hill —Has it applied to any particular work?

Senator JACINTA COLLINS —Yes. I can go to the particular work, but I was conscious of your comments on Monday that if these matters were being addressed by the Audit Office we could avoid duplication. But I am happy to put specific questions now.

Senator Hill —We do not know the scope of the Auditor-General's work. That is something you should take up with him.

Senator JACINTA COLLINS —I think it is clear from what has been alluded to earlier by the inspector-general that it is Cerberus focused.

Senator Hill —It would be a lot better if we stuck to Cerberus. Otherwise the answers you are going to get will be unhelpful. I suspect the answer will come back that the work gets checked from time to time—

Senator CHRIS EVANS —According to established practice.

Senator Hill —according to established practice.

Senator JACINTA COLLINS —Let me help you to be a bit more specific. You may well need to take this on notice.

Senator Hill —If you are talking about a specific issue you can ask whether Defence checked that the work done at Cerberus at a particular time was done in accordance with the overarching contract.

Senator JACINTA COLLINS —I will ask you some specific questions now. It will not surprise me if you need to take them on notice, but at least we will get down to some of these specifics. Firstly, did SSL Asset Services submit monthly invoices to a ballpark value of $6,680,000 for the period July 2000 to May 2001 inclusive, and a further $3,500,000 for the period June 2001 to September 2001 inclusive, totalling $10,180,000, knowing full well that at best only 60 per cent of the contracted maintenance was actually undertaken?

Senator Hill —Who knows `full well'?

Senator JACINTA COLLINS —SSL Asset Services knowing full well.

Senator Hill —How would we know whether they knew?

Senator JACINTA COLLINS —You may not or you may.

Senator Hill —We can find out whether we got the invoices—

Senator JACINTA COLLINS —Yes.

Senator Hill —and then what do you want us to do? Try to guess whether they were misleading?

Senator JACINTA COLLINS —I would like you to answer that question first; answer to your knowledge whether 100 per cent of contracted services had been conducted.

Senator Hill —Okay. Did we have any reason to believe that the work or any part of the work had not been done?

ACTING CHAIR (Senator Ferguson) —It looks as though Mr Neumann is taking these questions on notice.

Mr Neumann —I have to take these on notice because it is not part of the audit that we do.

Senator JACINTA COLLINS —That is what I am saying. This is not an issue for the inspector-general; this is an issue for Defence proper.

Senator CHRIS EVANS —I think this is not really a role for the inspector-general. I think these questions are directed someone in charge of—

Senator Hill —I am not sure whether it is believed that these issues were part of the examination by the inspector-general—or is it a different matter?

Senator JACINTA COLLINS —These are different issues.

Senator Hill —Okay. We will take that on notice and we will get you an answer.

Senator JACINTA COLLINS —These are all questions for Defence but in part some of them have been hived off to the inspector-general and—as per your reference on Monday—to the Audit Office.

Senator Hill —Okay.

Senator JACINTA COLLINS —To the extent that some of them are subject to review I am prepared to say, `Yes, fine, they are being reviewed separately and I am not going to pursue them here.' But there are specific questions about this contract which I do not understand to have been part of that process, so these are questions to Defence proper.

Senator Hill —All right. We will get an answer to that question.

Senator JACINTA COLLINS —Did Defence management pay the full contract monthly sum, including amendments to the contract sum, to SSL Asset Services for fixed plant and equipment maintenance services during the above period and any subsequent period, and have there been any reclaims for overpayments for services not rendered?

Senator Hill —We can get an answer to that.

Senator JACINTA COLLINS —How did Defence satisfy itself that those contract services were being fulfilled?

Senator Hill —Okay.

Senator JACINTA COLLINS —Did SSL Asset Services submit, as part of their monthly invoices for the periods March to July 2001 and December 2001 to April 2002, costs for key staffing positions totalling $70,300 when the positions concerned were vacant?

Senator Hill —No, split that question in two. Did we get an invoice for those services? Did we know that the positions were, in fact, vacant?

Senator JACINTA COLLINS —Yes, that is right.

Senator Hill —They are two separate questions.

Senator JACINTA COLLINS —My understanding is that there is a specific line within the contract for key personnel positions. There is a period during which the team leader position was vacant for five months. There was a vacancy in the service delivery manager position for about four months and my question is whether you were invoiced for those positions, which were not filled.

Senator Hill —We will get an answer on that. It is two different issues; were we invoiced and did we have any reason to believe the positions were unfilled.

Senator JACINTA COLLINS —Yes. We will leave it at that at this point. Did the department of defence management request or direct SSL Assets Services to employ additional resources to cover the additional equipment maintenance requirements under this contract at any stage?

Senator Hill —We will see if we can get an answer to that.

Senator JACINTA COLLINS —There is one other issue that I would like some explanation on in regard to practices dealing with subcontractors in this area, and that is the Commonwealth taking responsibility for indemnity of contractors.

Senator Hill —Indemnity for what?

Senator JACINTA COLLINS —Indemnity in terms of their work. It falls into the broader issue of the problem that occurred at HMAS Cerberus, which was poor workmanship not being pursued by the Commonwealth—we partly discussed this on Monday—and the Commonwealth simply paying for the job to be done again rather than going back to the original contract in terms of performance of that work.

Senator Hill —I still do not understand the question. Are you asking: did Defence agree to indemnify the contractor against poor workmanship? That does not make any sense to me.

Senator JACINTA COLLINS —I have a Defence document here discussing the `granting of indemnities to contractors providing professional service providers who will be registered as Defence Company ScoreCard system users'. I am interested in why Defence would be looking at indemnifying contractors essentially to the same level as an employee would be covered in relation to their work.

Senator Hill —I see. Are you speaking in general terms or are you again relating it to a particular contract?

Senator JACINTA COLLINS —It is obvious from the document I have of 21 December 2001 that this has been an issue of a policy nature addressed within Defence. What I am not clear about is whether this is a broader issue across the public sector possibly?

Senator Hill —Dr Hawke might be able to answer that.

Dr Hawke —I cannot answer it, but we will take it on notice. Do you have a reference for that document, Senator?

Senator Hill —Have we agreed in some circumstances to treat contractors as employees?

Dr Hawke —I think the distinction here might be professional service providers rather than contractors.

Senator JACINTA COLLINS —It may be. It is signed by J.T. Fitzgerald, Director-General Contracting Policy and Operations. It is dated 21 December 2001.

Dr Hawke —We can track it from there. It is in the Defence Materiel Organisation.

Senator JACINTA COLLINS —It also, though, refers to:

... legal advice received from the Australian Government Solicitor (AGS) and Clayton Utz, has considered the potential for a contractor to be exposed to legal liability where it provides a PSP to the Commonwealth under a contract and the PSP will be a Defence Company ScoreCard system user.

Dr Hawke —We will get you an answer.

Senator JACINTA COLLINS —What precisely is a PSP?

Dr Hawke —It is a professional service provider.

Senator JACINTA COLLINS —Does it limit the type of work we are talking about?

Dr Hawke —I do not know. Fitzgerald will be here for the DMO part of the meeting so we will get him across to answer that.

Senator JACINTA COLLINS —Okay. You obviously need to do this on notice, but what I am concerned about—and if possible I would like to see it—is the advice from AGS and Clayton Utz suggesting that it is necessary to provide indemnity of this character, and the rationale for it.

Senator Hill —If that is legal advice to us assisting us in the interpretation of our contracts then I will consider making it available but it would not be a usual practice. On the other hand, it would be a usual practice for us to provide it to the Auditor-General if that is what he wanted.

Senator JACINTA COLLINS —Yes, and in part this is a broader issue to the Auditor-General's issue. The Cerberus issue is this, in part: work has been done, it has been of poor quality—roofs have flown off buildings et cetera—and the original contractor has not been pursued in relation to that. The job has just been done again and paid for again.

Senator Hill —Yes.

Senator JACINTA COLLINS —I am trying to understand why the Commonwealth would be looking at indemnifying contractors and, in a sense, possibly making it even more difficult for the Commonwealth to pursue—

Senator Hill —Yes. And you are suggesting that in some circumstances Defence has agreed to indemnify contractors.

Senator JACINTA COLLINS —It looks as though there has at least been a policy consideration of doing that. I do not know if it has been acted on.

Senator Hill —No. What is a policy consideration is really irrelevant. What you want to know is whether there is any contractual limitation on the Commonwealth recovering and, beyond that, whether there is an existing policy that in some circumstances they do not recover and, if so, what are the limits of that policy.

Senator JACINTA COLLINS —Yes. And, if so, what is the rationale for those limits?

Senator Hill —Yes, I can get that for you.

Senator JACINTA COLLINS —And back further than that, what is the rationale to seek to indemnify contractors to the same extent one would indemnify employees?

Senator Hill —That is another way of saying the same thing.

Senator JACINTA COLLINS —No, because there are quite probably other indemnities in the contracts as well. This is one of a particular nature.

Senator Hill —I think it is the same question.

Senator JACINTA COLLINS —Okay. I think I might leave these issues here for now.

Senator Hill —Okay.

Senator JACINTA COLLINS —Am I to expect two inspector-general reports?

Senator Hill —There are apparently two and I will have a look at them and decide whether I can put them on the public record.

Senator JACINTA COLLINS —I will finish on that, thanks.

Dr Hawke —Mr Acting Chair, with your indulgence we could ask Rear Admiral Shalders to add something to what he said earlier.

ACTING CHAIR —Certainly.

Rear Adm. Shalders —I have the answers to some questions that were previously raised. Firstly, in relation to a question asked by Senator Schacht on the physical employment standards project, I indicated that the tender was released on 31 January. In fact, that tender was released on 24 April. I also indicated that the study will take six months; that six months is in fact for the first part of the review, which is to look at the infantry category. Depending on how quickly that particular part of the study goes, subsequent combat categories will be reviewed, hopefully in a shorter timeframe.

Secondly, on Monday I was asked the cost of the Reserve's advertising campaign. This is the campaign that was launched on 25 May. The cost for the current financial year is $2.2 million. For the next financial year it is currently budgeted at $2 million.

Senator CHRIS EVANS —Between April and the end of June you are going to spend $2 million?

Rear Adm. Shalders —A lot of that is related to developing the campaign: the research that goes into the campaign and the product development. There is quite an up-front cost. The media placement for the campaign will obviously be a lot less than the $2.2 million that I mentioned.

Senator CHRIS EVANS —I take it that the total budget for the campaign is $4.2 million?

Rear Adm. Shalders —We are currently allocated for another $2 million next financial year, but those allocations have not been made yet. While that is our budget we may well have to cut our cloth—cut our campaign to suit the allocation.

Senator CHRIS EVANS —The $2 million is for the year 2002-03. Is that right?

Rear Adm. Shalders —That is the current budget projection.

Senator CHRIS EVANS —You are spending $2.2 this financial year, 2001-02, and you have budgeted for a further $2 million next financial year?

Rear Adm. Shalders —That is correct.

Senator CHRIS EVANS —Why would you have to cut your cloth? Because of the reduction in the overall advertising budget?

Rear Adm. Shalders —Yes.

Senator CHRIS EVANS —What is the overall advertising budget for next year?

Senator Hill —It is about $25 million.

Rear Adm. Shalders —That is correct, Minister. We bid for $35 million but as you would have seen in the budget papers we have taken a cut of $10 million.

Senator CHRIS EVANS —There was some confusion about this earlier in the week.

Senator Hill —The only surprise is to find that the cut that the government had previously determined had not been implemented.

Senator CHRIS EVANS —I went back and had a look at the additional estimates, Senator Hill, and there was nothing in the additional estimates about a cut.

Senator Hill —You needed to read between the lines. It may not have been specified in the documentation.

Rear Adm. Shalders —I have another response to a question that was raised earlier in the week. In terms of media and advertising contracts, Senator Hogg asked me who the principal contractors were. We have three-year contracts which commenced in August 2000. Our advertising agency is Young and Rubicam Mattingly and the media buyer is Mitchell and Partners Australia Pty Ltd. I draw the committee's attention to the Defence annual report which lists all advertising and media purchase arrangements across Defence. In the last annual report there is a table on pages 299-300 which goes into extensive details on media and advertising placement.

Senator HOGG —It is extensive in the sense that it lists all of the various contracts, which I think is very healthy, but it is very difficult to understand what the individual contracts are for. Whilst I did not pursue that at the additional estimates, let me ensure you that next time round in the supplementary estimates I will be pursuing that issue.

Rear Adm. Shalders —We will be prepared for that, Senator.

Senator HOGG —I am sure you will.

Rear Adm. Shalders —I have two more answers. The next subject was family support programs. Senator Hogg asked some questions. Has the amount allocated to that program changed over the last five years? Broadly speaking, no, it has not. In 1997-98 the amount allocated was $1.3 million, which continued the next year. Since the 1999-2000 financial year, the amount allocated has been $1.25 million. A second part of the question was: how many people apply for the grants and how many are approved? The figures were: starting from 1997-98, 287 applications and 261 approved; for the next year, 280 applications and 243 approved; for the next year, 1999-2000, 243 applications and 228 approved; for 2000-01, 218 applications and 169 approved; and, for the current financial year, 201 applications and 128 approved. The next part of the question was: does demand exceed allocation? Yes, it does. A number of applications are normally rejected as they do not meet the requirements or the funding guidelines. The amounts of those applications rejected are: again starting from 1997-98, $500,000; for the next year, $400,000; for the next year, $400,000; for 2000-01, just over $1 million rejected; and, for the current financial year, $962,000 was not able to be allocated.

Senator HOGG —When you say `rejected', are you implying that they would have fallen within the guidelines but there were insufficient funds to finance them?

Rear Adm. Shalders —A little bit of both. Many do not fall within the guidelines and are therefore not proceeded with and in some cases the funds allocated are insufficient to meet all the bids.

Senator HOGG —The purpose of the question was merely to find out if there needed to be some additional funding. It is not a monumental amount, and it seems to me to be a reasonable cause for government to consider in years to come. I am not asking you to do that, of course. That is obviously a matter for the government. But I just wanted to get a feel for how many of those projects were being rejected because there were insufficient funds and the magnitude of additional funding that would be necessary if most of the funds were to be granted some sort of allocation in any one year.

Rear Adm. Shalders —I am sorry, Senator: was there a question there?

Senator HOGG —No. I was just making a statement.

Rear Adm. Shalders —I have one other answer. This relates to the Defence family financial emergency fund. Senator West asked some questions about that. This fund is currently allocated $100,000. Since this particular program has been in existence, which is only a short time, we have only had two applications for loans. Those two individuals were granted $1,000 each. The loans are interest free and repaid over a 12-month period. I believe that answers the questions that Senator West put on that subject.

[11.34 a.m.]

ACTING CHAIR —We move on to output 5, Strategic policy.

Senator CHRIS EVANS —I will start by asking about the annual review of Australia's strategic environment, which I gather did not take place annually because we did not do it the first time but has been given some prominence on this occasion.

Senator Hill —It is going to be an annual review but it is starting this year.

Senator CHRIS EVANS —So we jumped a year; does that make it biannual? I just want to get a sense of the time frame and the process, and whether it will be similar to the white paper process or more restricted.

Senator Hill —More restricted is the answer.

Dr Brabin-Smith —The strategic review will be less ambitious in its scope than the white paper in that it is a reading of the strategic entrails on how matters have moved on since the development of the white paper about two years ago. It will be done in a time scale to help inform decisions on the level of defence funding and the nature of allocation within the funding envelope. This will be a matter for ministers, but I would expect the work to be finished in the final quarter of the year. Given that this is a strategic review and not a white paper, basically we will not have a process for public consultation as such. Again it would be a matter for ministers, but I for one would be surprised if there were not some statement by the government as a consequence of the strategic review.

Senator CHRIS EVANS —Will there be any provision for public input in the way the white paper had, or for people to submit views?

Dr Brabin-Smith —No.

Senator CHRIS EVANS —What is the relationship between the strategic review and the capability plan?

Dr Brabin-Smith —The capability plan will be reviewed in the context of the observations on our strategic circumstances that the strategic review will deliver. There will be other factors, of course. I think the white paper contains a paragraph which refers to how changes in judgments on what is or is not cost effective will be reflected in the annual update of the defence capability plan. So there are several factors that will come to bear on the annual update of the defence capability plan.

Senator CHRIS EVANS —As a result we would see an update of the capability plan and that would become public as well, would it?

Dr Brabin-Smith —Again, it is a matter for ministers. There will be a classified version of the defence capability plan and I imagine there would be a declassified update as well.

Senator CHRIS EVANS —Part of the whole point of the capability plan was for industry planning and for—

Dr Brabin-Smith —Yes. I would be surprised if there were not. The custom of putting into the public sphere a version of what is now the capability plan goes back many years, so I would expect that to continue.

Senator CHRIS EVANS —Could someone flesh out for me the section in the budget papers which refers to Defence seeking to maintain access to United States military technology and intelligence in coming years and in particular the sentence:

As part of this engagement, Defence will progress a top-down strategic review of interoperability between the ADF and United States forces.

Could someone flesh that out as to what that means and how that will be progressed?

Adm. Barrie —At this stage we are, in conjunction with the United States, taking a look at our overall interoperability as we might operate a coalition. It flows out of a tasking that was given to us at the most recent Australian-US ministerial talks. We have a process of reporting back to those talks.

Senator CHRIS EVANS —It is a scoping study, is it?

Adm. Barrie —No, it is not a scoping study in the sense that it is simply going to confine itself to being a scope for work to be done; it is really looking at ways in which we might further enhance the way we operate in coalition with the United States.

Senator Hill —I think it is in part a recognition that there seems to be a greater trend than in the past toward a need for coalition operations, and such very basic issues as effective communication between coalition partners become critically important. Therefore, it is worth while to look at these issues in advance. I would not read any more into it than that.

Senator CHRIS EVANS —Do you mean things like language training?

Senator Hill —I have asked both sides on occasion if they can understand each other.

Senator CHRIS EVANS —I am just trying to understand what that means. I assume, given the ANZUS alliance and our traditional relationship with the United States, that that has always been a factor in what we do?

Adm. Barrie —I will go to the reason why it came on the agenda. When Australia led the coalition in East Timor, the United States for the first time was placed in the position of being a minor player in a coalition led by another country. That is quite exceptional in United States history. For that reason, there were quite a number of lessons learnt. The reality is they experienced a coalition in the way we normally experience a coalition. The consideration that led to the agenda at the last ministerial round was simply the realisation that there are probably ways in which our two countries can further strengthen the alliance if we look at the way we manage coalitions in the future. That is really what it is about.

Senator CHRIS EVANS —So this is more about the management of coalitions rather than things like acquisition policy?

Adm. Barrie —There are parts of that associated with it, but I would say the primary focus of our concern is how our two countries work together in military operations.

Senator CHRIS EVANS —Rather than looking at things like acquisition and technology?

Adm. Barrie —Yes.

Senator CHRIS EVANS —Thank you for that.

Senator HOGG —I have a quick question on the defence cooperation side. I understood that when India and Pakistan conducted their nuclear test programs a couple of years ago, we withdrew our military attaches in both countries.

Dr Brabin-Smith —Yes.

Senator HOGG —Did we ever return those military attaches to those countries?

Dr Brabin-Smith —Yes. I forget the precise dates. The chap went back into India last year, I think.

Senator HOGG —It was mentioned in last year's PBS.

Dr Brabin-Smith —He went back in January last year. The one into Pakistan went back more slowly because of reservations about the political structure and the overthrow of the civilian government in Pakistan. Our government took the view that, in light of Pakistan's central role in the war against terrorism, it would be appropriate to put a defence attache back into Islamabad.

Senator HOGG —Are they both still there in their respective countries?

Dr Brabin-Smith —Yes.

Senator CHRIS EVANS —I would like to ask about the memorandum of understanding with Indonesia. I have seen reports about increasing our intelligence exchange, and the minister referred to the possibility of assisting with some counter-terrorism training. I would like to get an update on the development of that. I gather the MOU was fairly broad; we discussed it at the last estimates. What is happening under the terms of that MOU?

Dr Brabin-Smith —Minister Hill was in Indonesia more recently than I. I do not know whether he would like to answer that or whether Dr Hawke would like to.

Senator Hill —No, you can have a go.

Dr Brabin-Smith —We are still very much feeling our way at this stage. I will ask Ms Rowling to talk about her contact with her Indonesian counterpart in a minute. We are feeling our way. There is a fair degree of good intent on both sides, but I do not think we are going to see rapid progress in the relationship. We certainly have common cause not only in the general proposition of the security of our region but, as the MOU clearly symbolises, in the countering of international terrorism. There continues to be contact, and perhaps Mr Bonighton will cover this in a few minutes, between the Defence Intelligence Organisation and their Indonesian counterpart and, I believe, between the Office of National Assessments and their Indonesian counterpart, so there is a whole-of-government approach. As we sit here this morning, there is still—and you can appreciate this—a degree of ambiguity or uncertainty about the precise nature of what international terrorism is in our region. Perhaps I can get Ms Rowling to talk about her discussions with General Sudradjat.

Ms Rowling —Following the minister's visit to Indonesia, I visited Indonesia for a meeting with my opposite number in TNI headquarters. We looked at initiatives that we might both jointly support and take forward in continuing to develop the defence relationship and bearing in mind the MOU on counter-terrorism as well. As a result of that meeting, we focused on taking forward initiatives such as junior officer training in both countries; Indonesian cadets coming to Australia for training, for short-term attachments or for visits; and service-to-service meetings and more visits. We identified a number of areas that we both wanted to progress. We also talked about maritime surveillance cooperation, and that will be another area in which we will have further discussions on how best to progress that.

Dr Hawke —You recall that when the Prime Minister met the President of Indonesia there was a memorandum of understanding about cooperation on terrorism. That was the precursor to the minister's visit to Indonesia and consideration by the government announced by the minister that we would be restoring our ties to the Indonesian military in a slow and step by step fashion. These issues have flowed out of that, and the minister mentioned this issue when he was at the International Institute of Strategic Studies defence ministers meeting in Singapore over the last week or so, including the important part that the Indonesian TNI plays in domestic stability.

Senator CHRIS EVANS —Ms Rowling, you mentioned junior officer exchanges and training, service to service visits and maritime surveillance. What is happening in the counter-terrorism area? The minister was quoted as talking about the possibility of assisting with some counter-terrorism training. What is envisaged there?

Senator Hill —Ms Rowling might want to add to this, but as far as I am concerned it has not really developed into any detail as yet. It is a matter of feeling our way. Both sides have said that we need to be comfortable with what is being proposed, but both sides have an interest in Indonesia having an effective counter-terrorism capability. There is always the potential of course—and I hope it does not happen—that some Australians might be caught up in hijacking or in some other event in Indonesia. We certainly have a real interest in Indonesia being able to capably respond to that. I think we have good doctrine and good practice in that regard. Certainly, we have assisted other countries in the development of their counter-terrorism capabilities. It might be that in the future we can offer some assistance to Indonesia in that regard.

Senator CHRIS EVANS —That is not what the Prime Minister said at the time, unless he was misquoted. In my reading of the press reports, he ruled out Australian involvement in counter-terrorism exchange activity with Indonesia. Has there been a change in policy?

Senator Hill —I would be very surprised if there were something inconsistent between what I am saying and what he said.

Senator CHRIS EVANS —I am trying to be clear about what we are now saying. He was quoted as saying in February, I think:

... we are not talking about an acceleration of military links. We are not talking about Australians getting involved in domestic matters going to the unity of Indonesia.

In particular, he ruled out relations with Kopassus. Some of that is a direct quote; some of it is interpretation. I am not arguing the case about what he said. I am keen to get an understanding of where we are now. Are we saying that we are re-engaging with organisations like Kopassus?

Senator Hill —No. We do not have any active engagement with Kopassus.

Dr Brabin-Smith —To add a point, in Indonesia, as in Australia, the first port of call in dealing with terrorism is the police force. This raises issues of coordination between police forces and defence forces. As you know, in Australia in extremis we have our own special forces who would come in and support the police. I believe it is the same in Indonesia. One of the matters which I believe we have discussed with them is our general arrangement for the coordination of protection against violence—the Standing Advisory Committee on Commonwealth-State Cooperation for Protection Against Violence, or SAC-PAV. There are a few things that we can talk about which would be helpful. This is considerably short of getting back into full-scale training with Kopassus.

Senator Hill —There is a lot of scope in what might be described as the nonlethal side of counter-terrorism where I think we could be of assistance to Indonesia.

Senator CHRIS EVANS —Do you mean from the Defence Force side or more generally, with the police et cetera?

Senator Hill —Our primary capability is a defence capability but, as has just been said, in response to a terrorist action there are a range of different agencies that have a role to play, such as the police, ambulances, emergency services and so forth. We have quite well developed doctrine. We have experience of preparing for the Olympics and preparing for CHOGM. I do not think Indonesia is as well advanced in the command and control of such situations. It could be a good instance where we could offer some assistance. It has not got to that stage yet, but that strikes me as a sensible sort of thing to look at. I know of other instances where we have supported regional states, in our facilities in Australia, in improving their counter-terrorism capabilities. There may be some scope for that in future with Indonesia.

Senator CHRIS EVANS —Has any of this gone beyond the discussion of plans? What is currently happening under the MOU, other than discussions between officers?

Dr Brabin-Smith —My view is that we are still at the talking stage.

Dr Hawke —Ms Rowling's visit to Indonesia was only quite recent I think to follow up on this.

Ms Rowling —Yes, just two weeks ago.

Senator CHRIS EVANS —We are likely to see the first manifestation of that agreement to be things like service to service visits and training of each other's military officers?

Dr Hawke —That will be the first stage in the process. I think that the Indonesians are giving further consideration to it and will probably send one of their people down here in the next couple of months to discuss future practical and pragmatic arrangements.

Senator Hill —The exchanges of service personnel are at the relatively easy end of the spectrum. We have had some preliminary discussions with them about maybe some time in the future participating in a joint maritime surveillance exercise. The memorandum, which is not very old, sets out a number of principles and a number of objectives, and what we are now seeking to do at the level of the departments and services is to work out how we can most effectively put it into practice.

Senator CHRIS EVANS —I know we have a role with the East Timorese military in the training and development of their armed forces. Are they being briefed on development of some of the MOU as part of that? I assume there are some sensitivities there.

Senator Hill —They seem to be developing a very positive relationship with Indonesia. There are some processes taking place that will enable the three countries to work on ideas together. The matters that we are talking about would be regarded positively by the new administration in East Timor.

Senator CHRIS EVANS —We had a discussion the other day about the $20 million for the Papua New Guinea Defence Force. Senator Faulkner followed that through. He was interested in the decision-making process that led to it. I am interested in what has happened to the money.

Dr Hawke —I think I did answer some questions from Senator Faulkner on exactly where we were at in terms of the payout and that these arrangements are being run through Deloittes to ensure that they are consistent with the intent of the arrangement. I have not got those figures with me today, but I am absolutely sure I read them into the record the other day.

Senator CHRIS EVANS —You must forgive me, Dr Hawke. Sometimes when Senator Faulkner is examiner-in-chief I tend not to pay as much attention as I should.

Dr Hawke —We will see if we can locate them in the Hansard.

Senator CHRIS EVANS —That goes to the question what has been paid out, by whom and to whom.

Dr Hawke —Yes.

Senator Hill —As I understand it, the money was transferred to an account administered by Deloittes. Deloittes has guidance on what payments can be made—in other words, ensures that any draw-down is consistent with the agreement reached between the two states. We can give you figures. My vague memory is that about 85 per cent of the first $20 million has been drawn down.

Senator CHRIS EVANS —Of the first $20 million?

Senator Hill —Of the $20 million. The issue is whether there will be further money with another tranche in the future, but no other money has been transferred.

Senator CHRIS EVANS —Has there been a commitment from us to fund more than the initial $20 million?

Dr Hawke —Yes, there has. I have to confirm this for you, because I am not sure whether it was $A8 million or eight million kina, which would be about half of that—$A4 million. I am not sure that we have concluded that agreement yet. That followed a further meeting between Mr Moore-Wilton and Mr Igara, at which I was present, a few weeks ago.

Senator CHRIS EVANS —I will not ask what time the meeting finished.

Dr Hawke —Before lunch, as I recall.

Senator Hill —According to this note, over 80 per cent of the $20 million has been expended. For what it is worth, progress made was redundancy and repatriation of about 580 members of the PNG Defence Force.

Senator CHRIS EVANS —We made a decision to contribute a further $8 million or eight million kina—

Dr Hawke —I will take that one on notice and get you a precise answer to the question.

Senator CHRIS EVANS —Yes, as to the currency. When was that decision taken?

Dr Hawke —I will get you the details of that too. It was just a few weeks ago. We reviewed where we were at and made a further decision on that.

Senator CHRIS EVANS —Is that with the expectation that that would be the last?

Dr Hawke —No, that may not be the last. The government would have to consider that. It may be a partial payment against a second tranche of money. But there is no government decision to do that at this stage.

Senator CHRIS EVANS —So we have two confirmed government decisions, one of $20 million and one of—

Dr Hawke —A further sum of money. I will confirm it.

Senator CHRIS EVANS —Is that money, second tranche, set against some benchmarks from the first?

Dr Hawke —Yes. It has been made absolutely crystal clear to the PNG side that, if they do not deliver against the targets on the first tranche, they can probably forget about getting any further money to this end.

Senator CHRIS EVANS —As I understood it, we were not meeting the whole sum; there was supposed to be some contribution by the Papua New Guinea government as well. Is that right?

Dr Hawke —That is correct. On page 36 of the Hansard of Monday, 3 June, in response to these questions, I said, as the minister just did:

Of the $20 million, 80 per cent was to go towards redundancies and 20 per cent towards what were called reform stoppers and morale issues. This involved paying some old allowances, fixing up some of the barracks accommodation and some repairs to aircraft and ships. As of 31 May, some $17 million of the $20 million has been spent and about 15 per cent of that has been spent on the reform stoppers; the rest has been spent on redundancies.

Senator CHRIS EVANS —Thank you for that. I am sorry, I missed that at the time. There is now a decision for another tranche, and that will also be against a target of numbers to be retrenched effectively.

Dr Hawke —Yes, I will be able to confirm for you what the numbers are that are involved.

Senator CHRIS EVANS —Does this agreement include some provision to construct armoury bunkers?

Dr Hawke —That is a separate issue under the Defence Cooperation Program. Ms Rowling will be able to tell us where that is at.

Ms Rowling —We have completed construction of three armouries in Port Moresby, and we are looking in the next financial year to do some more work on armouries probably in northern bases.

Senator CHRIS EVANS —Are we funding and doing the construction ourselves?

Ms Rowling —We are certainly funding them. I am not certain, but I think it may be built under contract.

Senator CHRIS EVANS —Are we commissioning the work or is the Papua New Guinea government commissioning the work?

Ms Rowling —It is a joint decision as part of our Defence Cooperation Program—that this is something that would be valuable.

Senator CHRIS EVANS —So jointly we commission for armoury bunkers to be built—

Ms Rowling —We would do that under the Defence Cooperation Program.

Senator CHRIS EVANS —But we are paying for it, effectively, are we?

Ms Rowling —Yes, out of the Defence budget.

Senator CHRIS EVANS —What is the budget for that?

Ms Rowling —I will have to get back to you with the exact figures, but I have a recollection of about $3 million for the work we have done to date in Port Moresby. I will check that and get back to you.

Senator CHRIS EVANS —Could you also get me the figures for what is anticipated next year as well?

Ms Rowling —I will do that.

Senator CHRIS EVANS —Thank you. Out of which bucket of money is that funded?

Ms Rowling —It is $10 million for cooperation with PNG out of the defence cooperation fund.

Dr Brabin-Smith —It is on page 53 of the yellow PBS book.

Senator CHRIS EVANS —Thank you for that.

Dr Brabin-Smith —Mr Acting Chair, perhaps I could respond to the question that we took on notice yesterday from Senator Evans on the Solomon Islands.

Senator CHRIS EVANS —We were going to do that with Foreign Affairs, but you have got the information there?

Dr Brabin-Smith —We can provide some information on the Defence part of this. On 14 February this year, 2002, ministers approved a plan put together by DFAT in consultation with others to draw down the international peace monitoring team. The ADF contribution at that stage was four personnel who provided specialist intelligence and security advice to the IPMT. As we speak, the ADF component is just one person, who is attached to the High Commission in Honiara for duty as the liaison officer between the IPMT and Commander Australian Theatre. The current contribution by Australia to the IPMT is 18 people, 14 of whom will leave the Solomon Islands on 25 July and the remaining four IPMT people remain in the Solomon Islands until 9 July to complete logistical and administrative tasks associated with the draw-down of the IPMT.

Senator CHRIS EVANS —When you said 25 July did you mean 25 June?

Dr Brabin-Smith —Did I say July? I meant June. The remaining four folk leave on 9 July and the Headquarters Australian Theatre liaison officer comes out on 25 June.

Senator CHRIS EVANS —That will mean no ADF personnel will remain in the Solomon Islands; is that right?

Dr Brabin-Smith —There will be none associated with the IPMT.

Senator CIS EVANS —There might still be one attached to the embassy?

Dr Brabin-Smith —Yes.

Senator CHRIS EVANS —Thank you.

CHAIR —Thank you, Dr Brabin-Smith. That completes output 5: Strategic policy.

[12.08 p.m.]

CHAIR —We move now to output 6: Intelligence (including Defence Security Authority).

Dr Hawke —Mr Bonighton will address the question that Senator Cooney was asking about the other day.

Senator COONEY —Thank you, Dr Hawke. I am going to ask you about a letter you sent. I ought to declare an interest here. Emma Hunt, who is referred to, is my daughter-in-law, but I hope I am doing it for a public purpose. You have probably answered these questions again and again—I apologise for the repetition. Nevertheless, some issues arise. Dr Hawke, do you have the letter there? If you do not, I have got copies.

Dr Hawke —I do recall the letter.

Senator COONEY —It was a most courteous letter. You attached not all of the report from Mr Blick but an introduction and a summary, and a press release from the Minister for Defence, Senator Hill—may I say the very eminent minister!

Senator Hill —You are very generous, Senator.

Senator COONEY —I want to ask a few questions about the report. You say in your letter that the intercept of something outside the material DSD gathers is something that happens `on occasion'. Does that mean it is rare? Is DSD collecting unintentionally a massive quantity of the communications of the citizens of Australia?

Mr Bonighton —DSD is basically a foreign intelligence collector, so our emphasis is on the foreign part of the communications that we are collecting. There are provisions for us in some circumstances to collect the communications of Australians, and that is done when it is a targeting matter. There are very limited circumstances in which we might do that—for instance, the risk to the safety of a person or commission of a serious crime or a threat to security. As well as that, we do from time to time come across the communications of Australians in the course of our normal collection. We call that incidental collection.

Senator COONEY —How much of that goes on?

Mr Bonighton —I could not give you a figure on that, but not a large part of our business would comprise that. The problem is that Australians are everywhere, and even if we are concentrating on the foreign part of our business we are bound to come across them. We do whatever we possibly can to delete those communications from any of our records as soon as we recognise them. If there is any question of them being reported, we do not name or identify those people. In the particular case you have of the three Australians to whom Dr Hawke wrote, at no time were any of those people named.

Senator COONEY —That might be the problem—that you did not name them. You say that you do not name these people, and by using that approach people say, `You are not going to name Emma Hunt; there must be something wrong with Emma Hunt.' I do not know. Both her parents are Australian citizens but born in England. Is that a problem?

Mr Bonighton —Not at all. Our aim is to, wherever possible, protect the privacy of Australian citizens.

Senator COONEY —This was a communication from inside Australia?

Mr Bonighton —Yes.

Senator COONEY —You are gathering those all the time, incidentally.

Mr Bonighton —Correct—it can happen.

Senator COONEY —Is it on a massive scale?

Mr Bonighton —I certainly would not describe it as a massive scale. I do not want to go into the details of our operations, but we are aiming to collect foreign communication intelligence, so we are focusing all the time on that foreign intelligence. Those priorities are set by government. We are not deciding what we should be collecting; we are doing this in accordance with the priorities.

Senator COONEY —Whatever you collect is done at the direction of government?

Mr Bonighton —Yes.

Dr Hawke —The Inspector-General of Intelligence and Security does frequent inspections to ensure that the rules are being obeyed. In this case he found these three cases where we had inadvertently reported—but the individuals were not named in those reports.

Senator COONEY —I understand what you are saying, but in your letter, Dr Hawke, you use the phrase `on occasion'. That gave me the impression that this was a fairly rare occurrence; I am getting the impression from Mr Bonighton that it occurs more frequently than the phrase `on occasion' suggests.

Dr Hawke —It is a rare occurrence for there to be any reporting of Australian citizens. That is correct. We collect it, but we do not report it. So, if we find something that involves Australians, we take that out of any subsequent reporting. It would not be in the reporting we make, because DSD is involved with foreign intelligence collection. It does not target Australian citizens in any shape or form.

Senator COONEY —I gather from Mr Bonighton that a whole lot of communications by Australians from within Australia are picked up by DSD incidentally.

Mr Bonighton —That could be the case but, without going into the detail, we are trying to focus on foreign communications.

Senator COONEY —This is the problem and this is what I am going to come to: you are focusing on foreign communications; I am trying to work out how it is that some Australian citizens were picked up within your intelligence operations. I do not think Emma Hunt particularly cares that she was picked up—I do not know about the others—but what I am trying to get from you is whether you are capable of thinking of this from the point of view of Australian citizens inside Australia. That is what I am trying to get from you. How many of those communications do you pick up incidentally? That is what I am trying to get from you. If it is all secure and you cannot tell me, I understand.

Mr Bonighton —It is certainly a difficult issue for us. What we are trying to do, as I say, is to look at the foreign part of the spectrum.

Senator COONEY —But you do pick up a lot of Australian communications?

Mr Bonighton —We do pick up some Australians. The only time we would deliberately do that is where there is a justified reason for doing so. In that case we would seek authorisation for that to happen on an individual basis. It is very rare.

Senator CHRIS EVANS —But Mr Blick's report found these breaches.

Mr Bonighton —Those are the breaches we are talking about, but I guess the good news from Mr Blick's report was that the fairly bizarre allegations made in the first place were found to be completely baseless. He did find that we had committed a breach.

Senator COONEY —So you are saying that the MUA has been bizarre?

Mr Bonighton —No, what I am saying is that allegations that we were intercepting the communications of Australian citizens and hawking around to the government for political purposes the transcripts of Australian citizens' conversations were wrong.

Senator CHRIS EVANS —But Blick's report did say that you had breached on four or five occasions and that you had then produced reports, using that information which was in breach. Is that not right?

Mr Bonighton —That is what it said. In fact, we were the ones who brought to Mr Blick's attention the fact that there was more than one report. As soon as he notified us that there was a problem—an `apparent breach' as he described it—we immediately stopped that line of reporting and later drew to his attention that there were three other reports in that same line. So the thought that there are people in DSD champing at the bit to intercept the communications of Australians is just dead wrong.

Senator COONEY —In your letter, Dr Hawke, what did you mean by the phrase `on occasion'? As I said, I gathered from that that this was very limited.

Dr Hawke —It is, and maybe we are not getting that point across. It is very limited.

Senator COONEY —So can I take it from what you say that this occurrence that occurred with PILCH, the organisation for which Emma Hunt worked, was a rare occurrence?

Dr Hawke —Yes, you can. How do you determine rare? Do you determine it as less than one per cent?

Senator COONEY —What do you say?

Dr Hawke —My guess is that it would be less than one per cent.

Mr Bonighton —That is probably a reasonable number. It is a minute part of what DSD does, and we do whatever we can to make sure that records are kept on these occasions, and the inspector-general looks at them.

Senator COONEY —I am not worried about that. What I am interested in is the concept that that is a very rare occurrence and that is an exception.

Senator HOGG —Yes.

Mr Bonighton —That is absolutely correct.

Senator COONEY —Did you turn your mind to the fact that this very exceptional occurrence should have occurred in an incident where the Commonwealth was going to be taken to court? That is the suggestion—that action would be taken against it in respect of asylum seekers coming down from the north. Can you see what I am saying to you?

Dr Hawke —That had no bearing.

Senator COONEY —Dr Hawke, I am just a poor, bumbling senator who is trying to clarify things. You sweep me off my feet. Can I just put this to you. Here is a rare occasion, as you say—it does not happen at all often—and what does it happen in reference to? It happens in reference to a communication—I will give you a copy of it—which is sent off to the Tampa by PILCH, the Public Interest Law Clearing House, signed off by Emma Hunt, suggesting that PILCH would give help not only to the asylum seekers but also to the captain of the Tampa. That communication is of great interest, you might think, to the government—and if you cavil with that I have a record here of an ABC radio interview with Jon Faine on 23 October 2001. Here is this document, which I am not suggesting for one minute you did give to government but which would be very, very useful to government. Out of all the communications that are going around Australia, one of the very rare ones that is picked up is this communication offering legal help to asylum seekers and to the captain of the ship. There we are. You say to me, `That is very, very odd; most unfortunate.' Out of all these thousands or millions of communications that go around Australia, one of the ones you pick up, one of the rare ones you pick up, happens to be this. Have any explanation for that?

Mr Bonighton —I think we can look back to Mr Blick's report again, where at one point he describes this as, I think, a new and fast-moving situation. This, for us, was something different and unusual. I think that is why in fact this report was treated in the way it was. It was a new situation.

Senator COONEY —If you look at Mr Blick's report, it reads:

4.That investigation is now complete and I am able to confirm that the claims are without foundation.

5.I am satisfied that DSD did not target or report communications of the Maritime Union of Australia or the International Transport Federation. Nor did it provide raw intelligence product to the government, or to anyone outside DSD (other than this office). The government could not, therefore, as claimed, have used transcripts ...

I wonder why he used the phrase `are without foundation'. That sounds to me—I do not know what you think, Mr Bonighton—more like an advocate speaking rather than somebody who is making a cool assessment of what went on.

Senator Hill —It is a bit unfair to ask this witness what he believes Mr Blick meant by that.

Senator COONEY —All right. I ask you and Dr Hawke.

Senator Hill —I think it is probably better that you ask Mr Blick.

Senator COONEY —No, it is not. I will tell you why. Because Dr Hawke has adopted this report, and so have you, if I may say with respect.

Senator Hill —Well, you can ask me—

Senator COONEY —Mr Blick has provided a report on the matter. This is what Dr Hawke writes to Ms Hunt.

Senator Hill —Yes.

Senator COONEY —He accepts it. I am asking—

Senator Hill —What do you want us to do? He is a separate statutory authority. He is charged to examine this matter independently, to give public confidence in the agency's work. He has done that and he has reported.

Senator COONEY —No. That is what I—

Senator Hill —And what we are saying is—

Senator COONEY —Of course you do. What I am asking—

Senator Hill —we do not have a quarrel with his findings or his determinations.

Senator COONEY —What I am asking you is: do you fully accept everything he says?

Senator Hill —What do you mean by that?

Senator COONEY —I have set out a scenario—

Senator Hill —I have not done a separate examination of the records.

Senator COONEY —No. But you have accepted a record and so has Dr Hawke.

Senator Hill —I accept that he is a capable, independent and diligent officer. I have no reason other than to believe he would have done a sound job.

Senator COONEY —Dr Hawke, I ask this: did you turn your mind to the question as to whether or not the law had been breached?

Dr Hawke —I accepted Mr Blick's recommendation that I should write to these people apologising for the incidental collection.

Senator COONEY —But you read his report. You said so.

Dr Hawke —I did not say I read his report.

CHAIR —Can I interrupt you for a moment, Senator Cooney. I would very much like you to wrap your questions up by lunchtime, which is 12.30, because after lunch we have to finish Defence.

Senator COONEY —Can I just ask you this, just to see where we are going.

Senator Hill —Yes.

Senator COONEY —What did you do in assessing the situation about the provisions of section 12A of the Intelligence Service Act?

Senator Hill —Are you asking me?

Senator COONEY —I am asking whoever wants to answer it.

Senator Hill —Mr Blick in his examination raised the issue, the possibility which I understand had not been considered, that a particular course of action was in breach of that section. As I understand it, no-one had previously suggested that. As a result, as Mr Blick said, the legal issues are being further pursued and a determination will be made as to whether changes need to be made either to legislation or to the practice adopted by the agency.

Senator COONEY —What 12A says, Minister, is:

Both the Director—

that is the director of DSD—

and the Director-General must take ... reasonable steps to ensure that:

.........

... nothing is done that might lend colour to any suggestion that his or her agency is concerned ...

We have just been through a proposition which would certainly lend colour to any suggestion. If you cavil with that I will give you a copy, a potted copy I might say, of a statement by Julian Burnside QC—very eminent, may I say—where he says there are rule problems about what was done here. That is one thing I ask you about. The next thing is: what regard was had to section 7 of the Telecommunications (Interceptions) Act? This was unlawful. This was a wrong intercept. I cannot see where it is protected. You might be able to point out where the legislation protects this, from section 7.1 of the Telecommunications (Interceptions) Act.

Senator Hill —I am not sure whether we are discussing the methodology adopted in the interception or whether we are—

Senator COONEY —No. The intercept itself.

Senator Hill —In terms of the target?

Senator COONEY —What is that?

Senator Hill —In terms of the targeting?

Senator COONEY —But there is no justification for intercepting, under any legislation I can see, material that is not within the provisions of the act. This is outside the provisions of all the legislation.

Senator Hill —With respect, I do not think that is correct.

Senator COONEY —Well, let us have a look at it.

Senator Hill —Yes. You are talking about the intelligence legislation?

Senator COONEY —Yes, plus the Telecommunications (Interception) Act.

Senator Hill —The legislation sets out the objectives. It sets out the powers. It sets out restrictions.

Senator COONEY —Let us go through that. Let us go through it, since you ask it.

Senator Hill —I thought you were quarrelling about the method of interception.

Senator COONEY —There was an intercept—which is agreed upon. What I am asking about is the reaction of government to that. I am suggesting that that reaction is unsatisfactory for a variety of reasons. What you say is, `Well, that intercept is all right because we had Mr Blick look at it; whatever Mr Blick says I am going to accept,' and you are suggesting, I think, so should everybody else—so should the Senate committee accept it. I ask you: why should this Senate committee accept what Mr Blick has to say without examining it?

Senator Hill —The Senate committee does not have to accept anything. The position of the government is that the decision by the agency to seek foreign intelligence that was relevant to issues of a breach of Australian borders is within its area of responsibility. It has to then do it in accordance with the more explicit guidance of the legislation.

Senator COONEY —And it is this committee that has to see whether there was any error in the way that was done.

Senator Hill —That is fine. There was an error in the reporting. Matters were reported that should not have been reported. There is a legal issue in relation to the methodology of the interception that is still being worked upon. We do concede some points, but if Senator Cooney is suggesting that the target in the first instance was invalid then that is certainly not the view of the government. It might be the view of this committee; I do not know. It is not the view of Mr Blick either.

Senator COONEY —I will clarify what I am saying for you, because I do not think you follow what I am saying.

Senator Hill —That would be my mistake.

Senator COONEY —No, it would be my mistake. It would be my inability to put it. What I am saying is this: DSD, in going about its necessary duties in the collection of intelligence to protect Australia from people who might want to disadvantage this place, collects intelligence. In going about that task, it might pick up material from Australian citizens, and you might expect that would happen. Nevertheless, the underlying principle—

Senator Hill —It has been conceded that that can inadvertently occur.

Senator COONEY —Section 7 of the Telecommunications (Interception) Act 1979 puts the position that we want to live under, if we can. It states:

A person shall not:

(a) intercept;

(b) authorise, suffer or permit another person to intercept; or

(c) do any act or thing that will enable him or another person to intercept; a communication passing over a telecommunications system

That is the position.

Senator Hill —That sets rules for domestic Australia, doesn't it?

Senator COONEY —Of course it does.

Senator Hill —Domestic Australia is not our business.

Senator COONEY —I know, but you did interfere with a communication that originated domestically to take on a matter that would be held in the domestic courts.

Senator Hill —No. In an attempt to seek foreign intelligence, there was one of these inadvertent—

Senator COONEY —But that is what happened. You are saying that somehow—

Senator Hill —That is not the breach. The breach was in the reporting.

Senator COONEY —Every time I want to raise an issue about an Australian citizen's right to go about it, you say, `This is immaterial, because what we were doing was a mistake, bad luck, and what we were really after was overseas intelligence.' That is fair enough if your position is, `We really don't worry about what we pick up in the vacuum—

Senator Hill —You are putting words into my mouth. I did not say that at all.

Senator COONEY —I am not sure what you are saying.

Senator Hill —We are concerned that we fulfil our responsibility within the guidance of our legislation. We are in the business of foreign intelligence, and we acknowledge that, in doing so, on occasions you might inadvertently make contact with an Australian. If you do so, firstly, you get rid of it, but you must not report it—that is absolutely clear—and that was the mistake that occurred in this instance.

Senator COONEY —What the government is saying—and we will have to cop it I suppose—is, `Mr Blick did this, we will give an explanation and do not test that explanation because we know we are right and just because—

Senator Hill —I am not saying that at all.

Senator COONEY —Yes, you are.

Senator Hill —You can argue the policy.

Senator COONEY —I am arguing that.

Senator Hill —I must say that we are pursuing the same policy in relation to foreign collection that previous governments have pursued—there has been no change at all. But you can argue that policy.

Senator COONEY —Why when I ask what you did about communications from an Australian citizen being intercepted do you then go into talking about policy? That is not a policy. I am simply asking: how did that happen and what are you doing about it?

Senator Hill —That is okay, you can ask: how did it happen and what are you doing about it? I thought that had been answered.

Senator COONEY —I feel I am criticising what has been done about it. Every time I raise any question of criticism you then introduce what great things this body is doing. I have no doubt about that. You say, `This is government policy.' With respect, you want to do everything but answer that question.

Senator Hill —What is the specific question?

Senator COONEY —My specific question is: what reliance if any did you place in formulating your press release, Minister, and your letter, Dr Hawke, on the report from Mr Blick?

Senator Hill —Do you want to go first?

Senator COONEY —Before you answer, just to give you warning, then I am going to say that you clearly should not have done that.

Dr Hawke —Mr Blick recommended that I write to the people concerned apologising for the inadvertent collection, and I did so. If I could just make one other point, neither the individual nor the company were actually mentioned.

Senator Hill —What did I do? I read the report. I had the extra privilege of reading it before it became public. I also had the opportunity to discuss it with Mr Blick because he has an obligation to discuss it with me. I had more opportunity than most to go through it in effect paragraph by paragraph. I wrote my own press release.

Senator COONEY —It is a good press release. I am not concerned about the press release.

Senator Hill —I stood out in front of the media and copped it.

Senator COONEY —I have nothing but admiration for the letter and for the press release. All I want to do is to ask something about what you were discussing, which is this report, but that is one thing you will not do. You have all the capabilities for doing that.

Senator Hill —I think the question you should be asking of the officer is: how can you better ensure that there will not be inadvertent interception of Australians?

Senator COONEY —That is exactly what you do want me to ask. You do not want any sort of questioning about how this vital information became part of a court case of some importance to lots of Australians. If you believe in the rule of law, which I do not necessarily require you to do, and Dr Hawke were to—and I presume he does—then you would be somewhat concerned. Do you remember the famous flight over Tasmania to gather intelligence? This is consistent with that. What you are saying is that that was never done. There is a colour to that proposition and the act says you have to look at the colour. You have not addressed that issue. I suggest you look at section 12A over lunch.

Senator Hill —I have read 12A.

CHAIR —Dr Hawke, you have some answers.

Dr Hawke —I have some answers to questions that we have taken on notice. In response to a question from Senator Evans relating to the original fuel budget for the F111, it was $11.7 million, based on a rate of effort of 3,600 hours. Based on a revised rate of effort of 2,700 hours and lower fuel prices experienced during the year, actual achievement will be about $8 million. Senator Evans also asked the Chief of Army yesterday how many 155-millimetre artillery rounds had been used in training in the current financial year. During the period 1 July 2001 to 1 April 2002, 886 rounds of 155-millimetre artillery have been fired.

In relation to the points I was making about PNG redundancies, I have had an opportunity to check and we have not yet reached agreement with PNG on the further tranche. There are still discussions going on between us and them about the quantum of that money and precisely what it will provide to us in return. I expect that we may finish that before 30 June, but there is no answer to that question at this stage.

Senator CHRIS EVANS —But the government has given an in-principle agreement to pay more?

Dr Hawke —Yes, to negotiate the agreement. We have not yet completed that agreement and got the final government tick to that.

Senator CHRIS EVANS —Did you clarify whether it was more in the ballpark of $8 million or eight million kina?

Dr Hawke —This bit of paper here tells me it is around $A4 million, so I think eight million kina was right. It could be a lesser or greater sum than that, depending on which agreement we reach, but my guess is that it will be around that vicinity. Joe Roach would like to add something.

Mr Roach —Senator Evans, you asked me on Monday morning to confirm that the $1.123 billion change between 2001-02 and 2002-03 included the capital use charge and the receipts from asset sales.

Senator CHRIS EVANS —Back on Monday morning—Mr Roach, you really are testing me. That seems like years ago.

Mr Roach —I can confirm that that figure is based on figures which include both the capital use charge and the expected receipts from asset sales.

Senator CHRIS EVANS —Thank you.

Dr Hawke —Lastly, Senator West asked the Chief of Army what use had been made of the equity hotlines by females from the Army aviation units. Since the inception of the Army Fair Go hotline on 1 March 2001, Army records show that five calls have been made to the hotline by female soldiers posted to Army aviation units. Two of those calls were from the same caller. That is all we have at this stage.

CHAIR —Senator Cooney, you have one thing you want to say.

Senator COONEY —Dr Hawke, subject to everybody agreeing, I would like to table the communication that was sent from PILCH, in the name of Emma Hunt, to the captain of the Tampa, Arne Rinnan. I am doing this to set the scene for suggesting that the legal proceedings that grew out of all this were consistent—I am not saying it did happen—with knowledge being held by the government which would help it. Indeed, I think that matter is conceded by Mr Blick. I will come to that, but I will hand this to you before it is put in to see that everybody is happy for it to be tabled. Dr Hawke, did you want to go on?

Dr Hawke —I am waiting for the document, but we can proceed, Senator.

Senator COONEY —If you look at the introduction and summary which you sent to PILCH, you will see that paragraph 18 states:

Three of the reports contained no information derived from Australian communications that a reader could have put to any practical use. The fourth could, in theory but not in practice—

which is a very interesting phrase—

have given advance notice of legal proceedings to be instituted against the government in an Australian court.

That is consistent with the letter that you can see. The proposition I want to put is this: in this rare case of an intercept which was forwarded, the material contained in it was something which could, as Mr Blick says, give advance notice to the government about proceedings in an Australian court. Mr Blick, for some reason or other, uses the phrase `in theory but not in practice'. I have the transcript of a radio interview between Jon Faine and the Attorney-General. The Attorney-General rang up about this on 23 October 2001. He was complaining about what people had done with the courts. He said:

They were also seeking to assist the captain of the Tampa who had while outside Australian territorial waters, been instructed by the Government not to enter, to actually do that. So what the applicants were basically doing was from a government perspective, promoting unlawful activity.

I will give you a copy of this. He later says:

Well I think the legal community needs to have a very careful look. The question has to be asked by the government, do we want to encourage people to bring actions in the courts to stop the government dealing with a situation in which it is negotiating for the safe passage of people with two other governments.

I will table this transcript. He further says:

They're not looking at the overall situation where people without clients interfered in what was government action being taken outside Australian territorial waters.

All of that could have been taken straight from that fax. I will table that and have that incorporated as well, if I may. So there is the communication, which was amongst those rare communications which were taken, tapped and then forwarded. You will remember the action which the Victorian Council for Civil Liberties took against the Minister for Immigration and Multicultural Affairs and the one that Eric Vidalis took against the Minister for Immigration and Multicultural Affairs which, in the end, failed; the government won that. You have the concession from Mr Blick on this communication—we presume that is what it is: `The fourth could, in theory but not in practice, have given advance notice of legal proceedings to be instituted against the government in an Australian court.' That is also consistent with the perception, about which the legislation talks, that this communication was intercepted, for whatever reason, and where government was made aware, if not of it, of the contents of that legislation. I would suggest to you that that is something that would lend colour to a suggestion that this agency—DSD—was concerned to protect the interests of a particular section of the community, namely, the government.

Dr Hawke —Yes.

Senator COONEY —Do you accept all that? Did you get all that, Minister? I was asking questions and you, with your usual brilliance and ability to put me at a disadvantage, were never quite accepting what I was saying. So I thought I would put all that on the record and see whether you agreed with it.

Senator Hill —Obviously we do not, but I understand your argument and I understand where you are coming from. I guess that is what politics is all about: if there were not alternative points of view then we probably would not have as good a system.

Senator COONEY —I do not know what I am saying, but I hope I am not saying that the apology is not sufficient. It would be most ungracious of me if I were to do that. On the other hand, I do not know whether the explanation—including the explanation given by the inspector-general—is sufficient to cover the problems here. There is still obviously concern, which I illustrate by giving you a copy of page 56 of the Australian Financial Review of Friday, 17 May 2002 where this is discussed. I say that the system has not yet met the obligations imposed upon it by section 12A of the Intelligence Services Act 2001.

Senator Hill —I am happy to have a look at that. I suspect I have probably read it. If I interpret Senator Cooney correctly, he is not quarrelling with the matters we acknowledge were deficient, nor is he arguing with the additional issue raised as to whether this form of interception is legitimate; it is his view that the initial targeting is inappropriate and beyond what he believes should be the function of an agency such as this. That is a legitimate argument to put. As I said before, the scope of the agency's work has not changed for a long time. It has been consistently maintained by successive Australian governments, so it is not as if this government is taking it a step further. Nonetheless, Senator Cooney's view is that it is still working beyond what he believes is appropriate. In the end that is a matter of judgment between individuals and political parties. The fact that there are different points of view on these matters is a healthy thing.

Senator COONEY —I am saying this: this having happened and you and Dr Hawke having taken action, the explanation given is not a sufficient explanation to rebut the inference, whether right or wrong, that this material has found its way into the hands of government so that the government could use it for its own advantage and to the disadvantage of the people bringing the Tampa case, if I could use that broad expression.

The reason I say that you have not gone into it sufficiently is that, first of all, the inspector-general—and you might differ in your opinion—in a fair reading, was too ready to give weight to the function of advocate rather than to the function of giving a fair assessment of what happened. I say that because of paragraph 4, for example, where he says:

... I am able to confirm that the claims are without foundation.

Then, in paragraph 18, he says:

The fourth could, in theory but not in practice, have given advance notice of legal proceedings to be instituted against the government in an Australian court.

What he is doing throughout his account—and I have only the introduction and summary—is to protect the government situation and the situation of DSD. He has not turned his mind with any sufficiency to section 12A of the Intelligence Services Act, so the perception is still left that intelligence wrongly gathered by DSD was of use—I am not saying the evidence was used—to the government in finding a successful action against Mr Vidalis and against the Victorian Council of Civil Liberties, firstly, before Justice North and, secondly, the appeal before Chief Justice Black, Justice French and Justice Beaumont. There was a two-two split. It might have been successful but for the information that was obtained as a result of, whether by derivative use or otherwise, the DSD.

Senator Hill —I have not seen anything to suggest the government has benefited by that information or in fact that it made use of that information. Apart from that, the issue of whether Mr Blick adequately took into account the potential for government to have made use of the information is something that he might like to have a look at. If he wishes to comment on the points that you have made, he will have the opportunity to do so in his annual report.

Senator COONEY —He can do that, but it will be all too late by then.

Senator Hill —I assume that you are looking at the big picture for the future. As I have interpreted you, it comes back to what you think is the proper targeting—I said before the `proper targeting' but it is also the proper targeting and the proper use—the limitations of that information going through this agency.

Senator COONEY —The other thing I say, apropos 12A, is that the Director of DSD failed to `take all reasonable steps to ensure that: (a) his or her agency is kept free from any influence or considerations not relevant to the undertaking of activities as mentioned in paragraph 12(a) or (b)' and, secondly, he has failed to `take all reasonable steps to ensure that nothing is done that might lend colour to any suggestion that his or her agency is concerned to further or protect the interests of any particular section of the community'—namely, the government—`or with undertaking any activities other than those mentioned in paragraph 12(a) and 12(b)' and that therefore the money we pay to DSD—whatever it is—has in this case failed to be well spent.

Senator Hill —I have heard Senator Cooney's argument. I do not agree with it, and I am sure we could continue the exchange all day. At least he has had the opportunity to put his view on the public record. As I said, if there is something that Mr Blick wishes to respond to, seeing in some ways Senator Cooney has been making a case against his report, Mr Blick will have an opportunity to do so.

Senator CHRIS EVANS —Perhaps I could take a slightly different tack. Mr Bonighton, you provide reassurance about collection methods and say that this was an extraordinary case, a breach that should not have occurred, but we are left to believe that it just so happened that the one in a million chance of a breach happened to involve the Tampa—I am sorry that I am being provocative, but I am trying to tease out this issue that Senator Cooney was putting to you—happened to involve a legal communication between an Australian citizen and the captain of the Tampa and, as Mr Blick's report says, obviously a number of your officers were involved in the collection and reporting of this matter and it went up the line. It just so happens that this was the one-off case where things went wrong. I suppose we are trying to tease out why it was this particular case where those protections did not seem to work.

Mr Bonighton —I think Mr Blick points out that this was a complex and fast-moving situation. I think I have already said that this was something a bit out of the ordinary and that is where—

Senator CHRIS EVANS —Why, though?

Mr Bonighton —That is Mr Blick's judgment. Certainly something new and different for us was happening here. In those circumstances, that is where your existing procedures can sometimes be found to be faulty.

Senator CHRIS EVANS —I accept that. What I do not accept from Mr Blick's report or your comments then was what was new and different?

Mr Bonighton —I do not particularly want to get into the operational details.

Senator CHRIS EVANS —I appreciate those sensitivities. That is a large part of the defence, as it were, for what has gone wrong, but we do not know why it was different and why the procedures did not hold up. That is clearly the key concern—because they did not.

Mr Bonighton —Certainly there was a breach and what we are doing now is working with Mr Blick to make sure that that sort of situation will not happen again. We have put a number of activities in place that will make sure that will not happen. I should say that the last thing we want is to be involved in a situation like this. We rely on high technology to get things done but, more than that, we rely on really smart people to make sure that it happens. I have had a number of people come up to me in DSD, after these allegations were made, and say that they would not want to work for an organisation that was doing those sorts of unlawful things. So it is very important to us, if we are going to have that talent to perform, that the sort of mud that happens here does not stick to us. We are human; we make mistakes. When we do make mistakes we do our best to learn from them. We work with the inspector-general to put in place procedures and systems which will mitigate that risk.

Senator CHRIS EVANS —I accept all of that, but I would not want you to be implying that that means that we should not then pursue those accountability issues to make sure, in the public interest, that these things are being done. This case causes us concern, obviously.

Mr Bonighton —Indeed. When it comes to accountability we are the sort of organisation that welcomes that, for that very same reason. If we are not seen to be accountable, then we are going to have a problem with our own people, because our aim is to get a culture in the place where we are looking first and always at protecting the communications of Australians—because that is what is going to do us in quicker than anything else.

Dr Hawke —You would be aware, Senator, that there is additional legislation that goes to the accountability arrangements, including the formation of a specific oversight committee, which has not existed in the past, to give the parliament a further reassurance of the accountability of the intelligence agencies.

Senator CHRIS EVANS —That is true, but one of the things this whole episode has shaken out is the fact that some of the protections we thought were there when we passed the act are actually not there and that there was an oversight in the construction of the act, according to the minister's response to me, about the protection of Australian citizens. I think that is now subject to—

Senator Hill —Did I say that there was an oversight in the construction of the act? Anyway, the answer stands for itself.

Senator CHRIS EVANS —I have the answer here, if you want me to read it to you.

Senator Hill —I could get into another debate. I think I had one on that the other day. There are so many days of these sittings it becomes a bit of a blur.

Senator CHRIS EVANS —You said:

The Act did not specifically apply the same protection to Australians in Australia.

.........

To ensure that the privacy of Australians was properly protected irrespective of whether they were overseas or in Australia, my predecessor issued a direction to Director DSD under section 8(1)(b) directing DSD to obtain an authorisation before undertaking any such activities in relation to Australians within Australia.

It seems to very clearly say that the act did not provide that protection and that your predecessor—

Senator Hill —The act has provided that protection. We have adopted a methodology within the scope of the act to provide that protection. That was the point of that answer.

Senator CHRIS EVANS —I will quote you again. You said:

The Act did not specifically apply the same protection to Australians in Australia.

Senator Hill —It did not do it in the same way, that is true. I am presuming that it was more likely to be the deliberate intention of the parliament. You tell me why the parliament chose to pass legislation in that form?

Senator CHRIS EVANS —I assume—and I was not intricately involved in the debate—that it was an oversight.

Senator Hill —That is your assumption. I do not know whether it was an oversight, but the main point is that we have found a way to ensure that the same protection is in fact given.

Senator CHRIS EVANS —By way of secret directives?

Senator Hill —Not by way of secret directives.

Senator CHRIS EVANS —They are secret; they are not publicly available.

Senator Hill —It is publicly available to the extent that I have said in the answer to that question that approval is required of the minister to the interception.

Senator COONEY —It is a most fortunate intercept in one way. In any event, I want to table the message from PILCH, the instructions to lodge a writ of habeas corpus that were sent with it and the reply from Captain Rinnan—it has my telephone number on it. The `Barney' on it is me.

Senator CHRIS EVANS —That should help DSD!

Senator COONEY —I want to table the letter from Emma Hunt, the media release from Minister Hill and the part of Mr Blick's report that was made public. That has some lines underneath it, and paragraph 24 has the word `mode' circled and the query `fax or phone'—you probably cannot say, Mr Bonighton, whether it was the fax or the phone but that is what people are wondering about—and the comment `privacy rules' is noted against paragraph 31. I also want to table the radio interview with Jon Faine and Mr Williams—again, with my name on it. Does anybody have any problem with those documents being tabled?

Mr Harding —Mr Chairman, I expect that is a matter for you and the committee rather than for us.

CHAIR —I do not think the committee has any problem with those documents being tabled, Dr Hawke, and it would make Senator Cooney happy.

Senator COONEY —You have defeated me again, Minister.

Senator Hill —No, I have not.

Senator COONEY —I have not been able to get to the bottom of it all—failed again.

Senator Hill —We have had an interesting exchange that I hope was of interest to others.

[2.05 p.m.]

CHAIR —We move now to `Business process', starting with defence science.

Dr Hawke —I am told there are no questions on defence science. What area would you like to go to?

Senator CHRIS EVANS —I gather we are now onto odds and ends. There are a couple of questions we had deferred, Dr Hawke: one regarding the asset sales issue, so maybe we could start on that one. We started on it the other day and you begged me to defer it until now. I have a question regarding what I thought was the traditional arrangement whereby Defence kept one per cent of its budget as proceeds from asset sales. I gather there has been a change in policy in relation to those matters. Could you outline what the old policy was, what the new policy is and when that changed?

Senator Hill —It is a bit misleading to say the `traditional' position. There have been a number of different positions over the years, but the officials can outline differences between the coming budget year and this year.

Mr Pezzullo —The differences between the preceding system and the one to be operative in 2002-03 is as follows: the operative system up until the forthcoming financial year was that Defence could retain up to one per cent of asset sales as derived from any particular class of asset sales worth up to the value of one per cent of its budget.

Senator CHRIS EVANS —So it is not one per cent of the asset sale but one per cent of the Defence budget?

Mr Pezzullo —Equivalent to a percentage expressed as one per cent of the Defence budget. That is operative in this current financial year, 2001-02. In the forthcoming financial year, 2002-03, there will be a change to that system whereby Defence will be required to return the full proceeds of asset sales up to a particular target. It has been agreed by government that anything beyond that could be retained by Defence.

Senator CHRIS EVANS —Just so that I understand the previous system: whatever Defence asset sales took place, Defence could keep to a cap of one per cent of its budget. Is that a fair way of describing it?

Mr Pezzullo —Yes.

Senator CHRIS EVANS —So I presume that that acted as an incentive for Defence not to sell more than one per cent of its budget's worth in one year—but that is probably commentary rather than a question.

Senator Hill —Some people suggested that, but I am sure it was not so.

Senator CHRIS EVANS —I am sure that would have been prudent of them! So whatever was sold up to that value was just retained by Defence. Had Defence returned funds in excess of that limit to consolidated revenue in recent times?

Mr Pezzullo —I would have to check the year-by-year track on that and get back to you. However, I should indicate—I should have added this when I started my answer—that a number of sales have been over the years classed as consolidated revenue sales where it is identified that the proceeds go to consolidated revenue irrespective of the operation of the one per cent cap. So Defence has in fact returned moneys to consolidated revenue outside the operation of the one per cent system.

Senator CHRIS EVANS —Perhaps you could take that question on notice in terms of returns. But in addition to that were certain sites or certain assets identified by the minister or cabinet and marked as being in a sort of separate category?

Mr Pezzullo —Particular properties were identified by government as being properties where the entire proceeds go straight to consolidated revenue.

Senator CHRIS EVANS —So they were still owned by Defence but something like this was said: `There is a ring around that one and when you sell that the money goes into consolidated revenue.'

Mr Pezzullo —Yes.

Senator CHRIS EVANS —How is the new system to work?

Mr Pezzullo —The government has determined an asset sales target which is incorporated in the capital budget in the papers before you. Up to a particular target that the government has set for us, all of that money goes to consolidated revenue, and the proceeds of anything sold beyond that are retained by Defence.

Senator CHRIS EVANS —Is that a policy to be pursued in the out years as well?

Mr Pezzullo —The current decision of government applies only to 2002-03.

Senator CHRIS EVANS —So do we have any guidance on the out years or is that a wait and see decision?

Mr Pezzullo —Government has requested that officials come back to government with some options.

Senator CHRIS EVANS —Is it page 63 that—

Mr Pezzullo —It is on page 63 that it is most closely identified. You will see there that capital receipts total a tick under $700 million and then there is an item known as capital withdrawal of $659 million. As the secretary indicated on Monday, in effect that capital withdrawal item relates to the property returns.

Senator CHRIS EVANS —So that is what you expect to get from the sale of assets this financial year?

Mr Pezzullo —The expected return on all of our asset sales, not just property but also plant, equipment and other such capital assets, is indicated at table 3.4 entitled `Capital budget statement' on page 63 and the total $699 million.

Senator CHRIS EVANS —That is the figure of $699.766 million?

Mr Pezzullo —That is correct.

Senator CHRIS EVANS —Is that the target for sales or the target to be retained by Defence?

Mr Pezzullo —That is the target for all sales not just property. That includes plant and equipment and, I believe, it includes things like car and computer sales.

Senator CHRIS EVANS —Does the policy apply to all sales or just property sales?

Mr Pezzullo —Just property sales.

Senator CHRIS EVANS —What proportion of that is property?

Mr Pezzullo —There is an item one line immediately below called capital withdrawal which you see in reverse. That is a flow that goes back to government. The amount of $659 million is to be returned to consolidated revenue.

Senator CHRIS EVANS —So Defence will keep $40 million?

Mr Pezzullo —From all of the asset sales, that is correct. I stand to be corrected by my CFO colleagues, but that is my understanding of the position outside of the property world.

Senator CHRIS EVANS —I may be getting a bit confused here, but this is net asset sales of property and other assets.

Mr Pezzullo —The item identified under the capital receipts is entitled `Proceeds from sales of property, plant and equipment' and it does include therefore non-property items.

Senator CHRIS EVANS —But they are subject to a different policy. Are they totally retained by Defence?

Mr Pezzullo —They are not captured by the policy I have just described on property.

Senator CHRIS EVANS —So they are totally retained by Defence?

Mr Pezzullo —I would defer to my CFO colleagues on that, but I believe that is the case.

Senator Hill —It is the sale of second-hand vehicles and the like.

Senator CHRIS EVANS —I just want to be clear that they are therefore retained wholly by Defence?

Dr Hawke —Correct.

Senator CHRIS EVANS —Are we able to break down what is related to property sales? The $40 million retained by Defence, on that scenario, might be wholly sales of other equipment.

Dr Hawke —The $659.5 million is all property.

Senator CHRIS EVANS —And that is to be returned to consolidated revenue?

Dr Hawke —Yes, that is why it is shown in brackets.

Senator CHRIS EVANS —Do I take it from that that Defence is to retain nothing from the sale of property?

Dr Hawke —If we sell or realised more than $659.5 million from the sales we would retain that.

Senator CHRIS EVANS —But you have to realise $659 million.

Dr Hawke —Yes, $659.5 million. We expect to. In the event that we did not I would be explaining myself to the minister and probably to the expenditure review committee.

Senator CHRIS EVANS —That means that they have an expectation that the cheque is in the mail, Dr Hawke.

Dr Hawke —That it would be delivered over the course of 2002-03 financial year.

Senator CHRIS EVANS —Yes.

Dr Hawke —I have an expectation that the infrastructure division will deliver that.

Senator CHRIS EVANS —If I am not mistaken, I think your targets for last year were nowhere near met.

Dr Hawke —That is correct, but there were a range of factors involved in that.

Senator CHRIS EVANS —I am sure that is right, but there may be a range of factors this year as well.

Dr Hawke —I expect that we will meet it this year. This is an agreed figure between us and the central agencies which was determined by the government. We have set in place arrangements, under the government's direction, between Defence and the Department of Finance and Administration to monitor progress with this and the way in which we go about it. My expectation is that we will meet it.

Senator CHRIS EVANS —I am making the obvious point that these things do not necessarily work out as one plans and clearly they did not last year.

Dr Hawke —We have a different team in place and I am confident that they will achieve it.

Senator CHRIS EVANS —I was not making any particular point.

Dr Hawke —I understand that.

Senator Hill —I think more effort has been put into assessing realistic figures. Much greater effort has been put into what are the difficulties in relation to the sale of particular properties, requirements for rezoning, rehabilitation et cetera. Defence has had another look at the estimated prices. We hope as a result of all of that effort that the figures will turn out to be more realistic.

Senator CHRIS EVANS —I have a set of figures for the out years. What do I take of what the out year projections mean given that the question of how the proceeds from asset sales are to be returned to government is a question still to be determined? What does the budget indicate as the policy and the projections?

Dr Hawke —You can see from the table that none of that is intended by way of return to consolidated revenue. The government wishes to take the additional paper that we are preparing in conjunction with the Department of Finance and Administration on the further approach to this. I believe that they would consider that and make a decision on it probably at the expenditure review committee next year when they are forming 2003-04 budget. I am also sure that when it comes to additional estimates time the minister, aided and abetted by the Treasurer and the Minister for Finance and Administration, will want to be reassured how we are going against the target for this year and that we are going to meet that.

Senator CHRIS EVANS —What do you say those figures for the out years mean?

Dr Hawke —They are figures that are included in our bottom line. That money in out years is presently programmed to come to Defence as part of our budget bottom line for the out years.

Senator CHRIS EVANS —They seem to be involved significantly less.

Dr Hawke —They are a lot smaller numbers. This year we are doing a strategic review of our property holdings and where the government might wish to go on that front.

Senator CHRIS EVANS —Does that mean that you expect to sell a lot this year and not much next year?

Dr Hawke —Apart from what is in there, we are doing a reassessment of our property holdings and we will bring that back to the government over the course of the next financial year. Those figures will no doubt be adjusted at budget time in light of the decisions that the government makes about that issue.

Senator CHRIS EVANS —Maybe I will rephrase the question. On the face of those figures, it appears to me that you are selling a lot of property this year and not much next year. Is that a fair reflection?

Dr Hawke —They reflect the decisions that have been taken at this stage. I think that is a fairer way of putting it.

Senator CHRIS EVANS —But that involves a significantly lower expectation than the revenue from property sales in the out years?

Dr Hawke —That is correct. Beside the $659.5 million figure you can see that our previous estimate was that we were actually going to sell $775 million. The figure of $659.5 million is an agreed figure determined by the government. So it is actually less than what we had programmed under the previous estimates.

Senator CHRIS EVANS —That leads me to the next question: what will you record as receipts for capital expenditure in this financial year?

Dr Hawke —Receipts for capital expenditure?

Senator CHRIS EVANS —Sorry, what will you realise from asset sales this financial year?

Dr Hawke —Of course, we have not finished this financial year.

Senator CHRIS EVANS —No, no.

Dr Hawke —The reason I am saying this is that we are, right at this very moment, engaged in the sale and lease-back of Campbell Park Offices here in Canberra.

Senator CHRIS EVANS —I read about that.

Dr Hawke —We have not finalised that deal just yet, but we expect to by 30 June. If we do that, that will be quite a significant sum of money.

Senator CHRIS EVANS —$80 million according to the Financial Review.

Dr Hawke —I read that too. I hope they are right. So I am not sure. Do we have a figure of an expected total for this year?

Senator CHRIS EVANS —I was going to ask you why you spent $30 million doing it up if you are only going to get $80 million for it.

Mr Pezzullo —At the moment, just in relation to Campbell Park, we are in a state of finalising arrangements for making an announcement in respect of that, but there is obviously a commercial party involved, and we are not at liberty—

Senator CHRIS EVANS —I am not seeking to pry into those figures. Have you got a year to date figure on sales?

Mr Pezzullo —I would have to get that for you.

Dr Hawke —Can we take that on notice? I am sure we will have a figure somewhere about that.

Senator CHRIS EVANS —I assume, though, it is fair to say that it is well below the target.

Dr Hawke —I do not remember what the target is for this year.

Senator CHRIS EVANS —Wasn't the target the $775 million?

Dr Hawke —No, that is the target for 2002-03.

Senator CHRIS EVANS —Sorry, yes, but I recall you had a fairly ambitious—

Dr Hawke —For 2001-02?

Senator CHRIS EVANS —Yes.

Dr Hawke —Yes, I think we did. The point I was trying to make to you earlier was that we did not necessarily agree with that target, and there has been some debate about that issue. But we will take it on notice and get you an answer.

Senator CHRIS EVANS —Thank you. There was an answer given in response to a question on notice to Mr Bevis, which is question No. 136 of 2002, regarding Defence properties, in which you provided him with a list of the properties anticipated to be sold. Can I confirm that that is, in broad terms, the list of properties which are expected to return the $700 million that is targeted for sales?

Mr Pezzullo —Mr Bevis's question was couched in terms of either properties listed for sale or evaluated for possible sale during the course of the next three years. Our answer encompassed both classes that his question went to. That is why we couched our response in terms of the anticipated year of disposal. Since that time, the government has taken a set of decisions in relation to individual specific properties and some individual specific property targets, and those are the commercial figures that are not for publication that we talked about the other day when we spoke about Meeandah.

Senator CHRIS EVANS —Do you have a list of properties which are anticipated to be listed for sale in this next financial year?

Mr Pezzullo —I do not have a list for publication which goes beyond question on notice No. 136. The government has put no further information beyond No. 136. But, to answer your question in the way that you couched it, that is broadly indicative of the properties that we are targeting. Indeed, we need to strike a balance here between having that indicative information out in the community so that our officers can meet with council planning staff and state planning staff, whilst, of course, retaining the specifics confidential to the government in terms of what we are actually targeting property by property and individual value by value.

Senator CHRIS EVANS —I was not after the values. I did not realise there was some sensitivity about property. Isn't it a case where you are either going to sell it or you are not?

Mr Pezzullo —In terms of the values, obviously you do not want to be giving away your commercial targets, because then people would bid against those.

Senator CHRIS EVANS —That is why I did not ask for those.

Mr Pezzullo —In terms of actual properties, the information provided in response to question No. 136 is broadly indicative of where we are going over the next four years. There might well be a slight variation between the confidential decision the government has now taken—that is now our guidance—and what has been put on the record. That, if you like, strikes that balance between having indicative information out there that our officers can talk to councils with, versus having our private asset sales targets. And, as the latter part of the answer to Mr Bevis's question indicates, there might be, in some cases, an individual slippage of a property from year to year or a bring forward of a property, depending on the kind of planning vagaries that you encounter in the real estate market.

Senator CHRIS EVANS —I take it from that answer that it would be fair to say that that list, in Defence's view, represents more than the $700 million budgeted for 2002-03.

Mr Pezzullo —Because the list is inclusive of the next four years, by definition it goes beyond the 2002-03 financial year. You will see that some of the anticipated years of disposal go out to, I think, 2006. I think that is the latest one—the first year indicated in that answer. It is a multiyear list.

Senator CHRIS EVANS —Are some of those sites dependent on the DIDS decision?

Mr Pezzullo —Yes, a number of those sites are. As we discussed the other day with Senator Hogg in relation to Meeandah, the DIDS contract is structured around what are called optional sites for the DIDS contractor and a mandated site at Moorebank. Obviously, we cannot finalise any property sale in relation to those sites unless and until the preferred DIDS tenderer is awarded.

Senator CHRIS EVANS —What does that mean in practice—that they have the ability to purchase or to lease those properties?

Mr Pezzullo —If they are optional sites, they make a commercial pitch to the government as part of their tender, and they say either `We can deliver this service for you with a footprint on that site' or `We've got a better way of doing it 20 miles away.' That will obviously drive the kind of disposal strategy that we then pursue.

Senator CHRIS EVANS —What about the mandated sites? What does that mean?

Mr Pezzullo —There is one mandated site, and that is the National Storage and Distribution Centre at Moorebank. As I understand the structure of the DIDS tender, the preferred contractor has to have a footprint at that site.

Senator CHRIS EVANS —But in terms of the rest of the sites, it is purely a decision for the successful tenderer about whether or not they maintain an operation there and the size of that operation?

Mr Pezzullo —Correct.

Senator CHRIS EVANS —Does Defence also have the right to say, `We do not want you there?'

Mr Pezzullo —I would have to defer to the joint logistics organisation who are running that tender, but the guidance I have been given is that an optional site is just that: optional to the contractor—if they come up with a scheme that does not involve that site, it becomes available for outright disposal—and if they require that site and they win the process, we need to enter into some kind of sale and lease-back arrangement.

Senator CHRIS EVANS —In terms of Meeandah, is the DIDS operation the only Defence facility there or is there a broader Defence facility?

Mr Pezzullo —Currently there is no DIDS presence there, obviously, because there is no DIDS contract in place, but there is a unit known as the northern logistics group, as I recall it, who are headquartered at Meeandah. That is, as I understand it, their principal stores facility in Brisbane. We had a discussion the other day. I will just take this opportunity, if I may, for Senator Hogg, to clarify the accounting treatment of the portion that is going off to DIMIA. I indicated on Monday that I did not think that the DIMIA moneys were reflected in those capital receipts that we have just been talking about. I have since checked, and in fact they are. I do not know if Senator Hogg picked that up, but it is read into the Hansard and if it could be drawn to his attention I would appreciate it.

Senator CHRIS EVANS —I will do that. Dr Hawke, could I get someone to assist me with some information about PMKEYS?

Mr Carmody —Before we do that, could I answer a couple of questions on infrastructure that have come up in the last couple of days so we can get them on the record?

CHAIR —Fire away, Mr Carmody.

Mr Carmody —Senator Hogg raised a question on when the Qantas travel contract was signed. It was signed on 11 February 2000 for a five-year period with two one-year extensions. The two one-year options would extend the contract until 28 February 2007. Senator West asked a question with regard to Defence Headquarters Australian Theatre and the Defence Headquarters Australian Theatre project. Firstly, she asked what consultation has been undertaken with the landowners since October 2001. There was an initial meeting with the Hyles family, the owners of the affected property. We have had two telephone conversations with the family since that time and Defence project staff are set to meet with the Hyles family again this Friday, 7 June. Those consultations are continuing. The second question Senator West asked concerned the planned expenditure on the project for financial year 2002-03. The answer is that $2 million of pre-approval funding is planned to be spent ahead of parliamentary approval. During 2002-03, we expect to spend $2 million. That is for the conduct of an environmental impact study, preparation for further development of things like the private financing proposal and development of conceptual design which would support the private financing proposal or any other proposal as it goes to the Public Works Committee.

Senator CHRIS EVANS —Where have you hidden that in the PBS?

Mr Carmody —I defer to my finance colleagues, but I know it is in there.

Senator CHRIS EVANS —It certainly was not listed as a measure. I looked backwards and forwards a number of times. I think that may be why Senator West asked the question. I hasten to add that I may just have missed it.

Mr Carmody —I will have to take that question on notice to identify exactly where it is, but I am certain we will be able to answer it for you.

Mr Roach —Senator, I gather your question was about where HQAST appears in the PBS.

Senator CHRIS EVANS —Yes.

Mr Roach —If you look at the first table, under `Significant capital facilities projects' on page 84, table 3.11, it does not appear there, because the table is limited—

Senator CHRIS EVANS —That is very helpful! Thank you for that!

Mr Roach —to projects which are greater than $5 million. That is the reason that it does not appear there.

Senator CHRIS EVANS —Can you just describe for me why it does not appear where?

Dr Hawke —At table 3.11 on page 84, you will see the introduction:

The following table and descriptions provide detail on planned progress and estimated expenditure for the significant major facilities projects with an in-year spend in 2002-03 greater than $5m.

But you will also see, on page 76, towards the bottom:

New capital facilities projects proposed for Government approval in 2002-03 are ... Headquarters Australian Theatre — Bungendore, New South Wales ...

Senator CHRIS EVANS —I read that as being for funding approval in 2002-03.

Dr Hawke —I think that is right.

Senator CHRIS EVANS —You actually are spending some money this year—

Dr Hawke —This would be the money we are spending to—

Senator CHRIS EVANS —It is environmental.

Dr Hawke —To explore the site and environmental impacts and to prepare the submission for consideration through the Public Works Committee. Is that the case, Mr Pezzullo?

Mr Pezzullo —It is in relation to various studies that are being undertaken over the course of 2002-03 preparatory to those approval processes.

Senator CHRIS EVANS —And that comes out of your buildings and works budget? Is that right?

Mr Pezzullo —We will need to check that.

Senator CHRIS EVANS —Mr Roach is saying to me that it is there but it is $2 million and therefore it does not get on that list. I am just trying to ask which budget item it comes under in capital works.

Mr Carmody —It comes out of the infrastructure and division budget. There is money set aside within the budget for studies, developing proposals and those sorts of issues. It does not actually come out of the $200 million which was the amount identified around Defence Headquarters Australian Theatre, because we have not got to the stage of that project expenditure yet. This is preparatory. We need to be able to develop enough information to be able to bring a submission forward.

Senator CHRIS EVANS —I will move to PMKEYS.

Mr Carmody —Mr Chairman, can I answer one more question before you move to that. Senator Hogg asked a question last evening on community centres in Darwin and also at Duntroon. I believe the question related to whether there were community centres which were beyond their expected life.

Senator HOGG —And asbestos.

Mr Carmody —Asbestos was the second phase. Mr Pezzullo will deal with the second phase; I will deal with the first. That matter has been discussed a great deal in the last month or so. I have asked Defence Personnel Executive over the last month to develop a prioritised list of community centres for consideration so that we can see what neighbourhood and community centres exist in Defence, what state of repair they are in and then if necessary, based on what the Defence Personnel Executive and the Defence Community Organisation believe is appropriate, develop state capability proposals to replace, repair, rebuild, based on the priorities that they set. So that is in hand.

Senator HOGG —When will that be done by?

Mr Carmody —I am expecting the Defence Personnel Executive to have a proposal ready within the next two months, at least a review of what community centres exist, because there are many which are almost `grace and favour' community centre areas that have been set aside on particular bases. So it is not as straightforward an item as it would appear.

Senator HOGG —All right.

Mr Pezzullo —In relation to asbestos, as I read the proceedings, your question went to three centres—one at Duntroon and two in Darwin, one of which is at HMAS Coonawarra and the other is at RAAF Base Darwin. The asbestos situation in relation to those three is as follows. At Duntroon community centre, the regional infrastructure staff have advised me that the centre does have asbestos wall sheeting and roofing, which is not untypical of buildings of that age. In its current condition and location—this has been checked through our asbestos control program—the asbestos sheeting does not present a health risk so long as it is not tampered with, broken up, drilled into et cetera. The building is appropriately labelled, indicating the presence of asbestos in the building in that condition.

With respect to HMAS Coonawarra, the same conditions apply. The asbestos is contained; it is not dangerous unless the material is broken up or damaged. In that case, Infrastructure Division has written to the users of the community centre advising them of the contained asbestos situation and informing them of the potential dangers if the sheeting is broken or damaged, and asking them to notify Infrastructure staff immediately if this happens. In terms of our audited records of the buildings on RAAF Base Darwin, there is no evidence of any asbestos still in place at that building.

Senator HOGG —All right. Thanks.

Senator CHRIS EVANS —Admiral Shalders, you are going to tell me all about PMKEYS. I gather it is a software package for personnel management. I just want to know the size of the contract and the state of the contract, and if you could help me with suggestions that there are serious delays in it.

Rear Adm. Shalders —The Personnel Management Key Solution project was an outcome of the Defence Efficiency Review. The project started in September 1997. The aim of the project is to provide a single, effective and efficient solution for personnel management. It will replace some 20 separate legacy systems currently performing that role. It will include the following functionality: organisational structures, personnel administration and leave, career management, work force planning, and recruitment and payroll.

The status of the project at this stage is that the civilian human resource aspects and payroll aspects were successfully implemented in September 1999. The second phase provides software development for the ADF, the uniformed services, in the human resource area of functionality. The Navy part of that package was implemented in August last year and is operating effectively. Air Force HR was successfully rolled out on 18 February this year and Army is scheduled to be rolled out in early July. The final phase of the PMKEYS project is the ADF payroll part. At this stage the estimated completion date of that is the final quarter of 2003.

Senator CHRIS EVANS —Is that on track in terms of timing?

Rear Adm. Shalders —No, there have been delays which have been caused principally by our requirement to customise the standard package that we bought for this system. It is based on a PeopleSoft solution and we have had to do a degree of customisation to meet our requirements, which has caused some delays. Additionally there have been some delays created by the need to migrate data from those 20 legacy systems I spoke of to put them in a format which PeopleSoft can use.

Dr Hawke —One added complication to this it is that when Defence decided to go this route, it was on the basis that we would be continuing on a cash based system. Of course, we had the added complexity of moving to the accrual framework, which has caused us quite a deal of trouble, as you would probably know, across the financial and the logistics systems as well, where we are endeavouring to do the same thing and bring a plethora of legacy systems into the one system, so that we would have three key systems: one dealing with personnel, a second dealing with the financial arrangements, and a third dealing with logistics. It has added to the complexity because the financial arrangements of course need to draw on what happens in the personnel and logistics side, so that we can get our accounts properly certified by the National Audit Office each year. I mentioned a couple of years ago that we have got problems in this area and that it will take us some years to fix them. Each time that you hope you are on top of this, something else happens to make sure that you are not. That has been a continuing issue with all three of these systems. PMKEYS is now almost at the completion of the stage it was to get to, and we will need to have a look at how we migrate these systems together in the longer term as well.

Senator CHRIS EVANS —How far behind is the implementation of the PMKEYS system?

Rear Adm. Shalders —When the project started back in September 1997, it had been our hope that we could complete it by June 2000. As I indicated, the last quarter of 2003 is now the expected completion date.

Senator CHRIS EVANS —With that three-year delay, am I right in saying that the original contract was worth $26.5 million?

Rear Adm. Shalders —The original estimate was $25 million.

Senator CHRIS EVANS —That was the original estimate. What is it going to end up costing you?

Rear Adm. Shalders —At this stage, the direct costs we have incurred are just over $60 million. We are in the final stages of negotiation for that final phase which, as I indicated, will be completed in the last quarter of next year.

Senator CHRIS EVANS —How much do we expect it to cost us, all up?

Rear Adm. Shalders —As I say, we are in the final stages of negotiation with the contractor, and I prefer not to declare our hand on that.

Dr Hawke —We would be happy to tell you that when we have finalised the contract.

Senator CHRIS EVANS —I appreciate that. Are we talking, in addition to the $60 million, about another $10 million or $20 million? Or are we talking about $1 million or $2 million?

Rear Adm. Shalders —In the order of $10 million, I would suggest.

Senator CHRIS EVANS —It is going to end up costing us in the order of $70 million.

Rear Adm. Shalders —About that, Senator, yes.

Senator CHRIS EVANS —I am not trying to argue the thing. I am just trying to get a ballpark figure. There has been a delay. Has all this money gone to the contractor?

Rear Adm. Shalders —Up to this point, most of the expenditure has been related to consultancy, contracts, employees and administrative expenses. At this stage, there has been no direct infrastructure cost associated with this project, because we are using existing Defence infrastructure.

Dr Hawke —PeopleSoft have got the contract, haven't they?

Rear Adm. Shalders —That is correct.

Senator CHRIS EVANS —When we were going into this originally, we thought that it would cost $25 million, and that was mainly to be paid to PeopleSoft, I presume, as the contractor.

Rear Adm. Shalders —Yes.

Senator CHRIS EVANS —Now that it has blown out to closer to $70 million, have they been the beneficiary of that, or have you had to get someone in to clean up?

Rear Adm. Shalders —No. There have been a number of consultancies let, as we have looked at some of those customisation issues that I mentioned, for example. A number of consultancies have benefited in terms of the increased expenditure.

Senator CHRIS EVANS —Obviously you have had to renegotiate on a number of occasions your contract with PeopleSoft as well, have you?

Rear Adm. Shalders —We have, and we are in the process of renegotiating that contract right now. I should also add that there is obviously a considerable degree of training associated with implementing a system like this across the Defence Force, and a large part of the consultancy fees that we have had to pay out have been related to training.

Senator CHRIS EVANS —I might put some questions on notice about those. You said you had introduced them progressively to Navy, Air Force and Army. Were you referring to the pay systems or just the other human resource management systems?

Rear Adm. Shalders —As I mentioned, the payroll aspect of the project is the next phase, which is the phase to be completed by the last quarter of next year.

Senator CHRIS EVANS —Currently, none of your uniformed personnel are getting paid under that system?

Rear Adm. Shalders —Not under the PeopleSoft system; they are being paid under one of the legacy systems that I mentioned.

Senator CHRIS EVANS —Legacy systems is a catch-all for what?

Dr Hawke —All the old systems.

Senator CHRIS EVANS —Legacy of the past; not a brand.

Dr Hawke —That is right. The civilians are being paid out of this program. That is up and going.

Rear Adm. Shalders —The civilian payroll system came online in September 1999. We have not yet got the uniform forces across to that.

Senator CHRIS EVANS —You are hoping that the payroll will go across in the last quarter of 2003?

Rear Adm. Shalders —That is correct.

Senator CHRIS EVANS —What is so different about the two systems that you have been able to do the civilians but you have not been able to do the uniformed personnel?

Rear Adm. Shalders —It is a feature of getting the HR functionality across first and from that flows the payroll. We have to bring the uniformed members across onto the HR system before we can move them to the payroll system.

Senator CHRIS EVANS —You were able to do the civilians as long ago as September 1999; I do not conceptually understand how you can do the civilians in 1999 but you cannot get the uniformed personnel there until four years later.

Mr Hannan —The nature of the arrangements in allowances, salaries, rank structure and so forth is substantially more complex in the military system than it is in the civilian system. In the past we have never been able to acquire a bespoke off-the-shelf system for ADF payroll. It has been an in-house development. This one is to be developed in PeopleSoft but it is going to take some development. Essentially it was underestimated just how complex that was going to be—matters to do with retrospective adjustment to pay rather than in-arrears payment of allowances and the like. It is the nature of the military salary and allowance processes and systems that is substantially more complex than in the civilian world.

Senator CHRIS EVANS —So it is not, as it has been put to me, that the troops would jack up if they were put onto that system because it is such a disaster? Have you had serious problems with civilian pay?

Rear Adm. Shalders —No, it has been effective now for almost three years.

Senator CHRIS EVANS —I will get a couple of people who have spoken to me about it to talk to you about it.

Dr Hawke —They might be complaining about how much we are paying them.

Senator CHRIS EVANS —The quantum was part of the issue, I am sure. You chose off-the-shelf software as opposed to specialised software. Why is that, given that you have obviously had to try to adapt it? Obviously the off-the-shelf software was not good enough for your needs.

Mr Hannan —We chose one of the government endorsed enterprise resource management packages because it was the one that was most adaptable. Indeed, I have been advised that it would almost be impossible to do what we have done if we had chosen some of the other alternatives. We always recognised that there would need to be some adaptation. The issue has been that the original estimate assumed that we were going to have a greater homogeneity between the three arms of the service. In the way certain processes operated that indeed has proven to be possible. That is certainly part of it and certainly both the extent of customisation required for military payroll was underestimated, I suggest by both parties.

Senator CHRIS EVANS —What is it that is different between the way the Air Force, Army or Navy need to be paid?

Rear Adm. Shalders —A large part of the difference there is different allowance structures. The leave arrangements are slightly different. All of those things are manageable but there are distinct differences between the three. There is also the difference in size between the three services, and I come back to the training load, which I mentioned before: one of the reasons that we left Army until last was the requirement to train far more users in Army than we did with either Navy or Air Force.

Senator CHRIS EVANS —By that you mean human resource officers, payroll clerks and those sorts of things?

Rear Adm. Shalders —Correct.

Senator CHRIS EVANS —How are you paying the forces currently? Are you using one of the legacy systems?

Mr Hannan —The legacy system known as ADF Pay system.

Senator CHRIS EVANS —Is that true you are still doing some of that by hand?

Mr Hannan —I beg your pardon?

Senator CHRIS EVANS —Is that all computerised now?

Mr Hannan —It has been computerised for a number of years. The current version of ADF Pay was implemented in 1993 or 1994, I think, and that was an upgrade from an earlier system that was computerised from the mid-eighties, I believe.

Senator CHRIS EVANS —So all ADF personnel would be on computerised pays?

Mr Hannan —There are circumstances when there are manual pays, I think largely to do with issues of recruits where they have yet to have proof of 150 points of evidence for banking.

Senator CHRIS EVANS —Apart from the one-off payments, it is all computerised?

Mr Hannan —Yes, apart from those it is all computerised.

Senator CHRIS EVANS —Which budget does this come out of and where do I find it in the PBS?

Rear Adm. Shalders —It is in my budget. I will ask CFO to explain where it is in the PBS.

Senator CHRIS EVANS —Don't tell me where it is not, Mr Roach. If you tell me that, or if Dr Hawke uses the excuse again about accrual accounting, I will scream.

Mr Roach —The PBS is presented in an accrual and output format.

Senator CHRIS EVANS —So you are going to take his excuse now, are you?

Mr Roach —No, it is a different excuse, Senator. It is because all of our owner support group costs—and the Defence Personnel Executive is one of our owner support groups—are distributed across all six Defence outputs, so it is subsumed in those costs.

Senator CHRIS EVANS —So where won't I find it?

Mr Roach —It is, effectively, distributed between the six output prices that are in the six outputs. We do not separately show the group budgets.

Senator CHRIS EVANS —So I cannot find a budget item that says, `We budgeted $25 million for this but we have spent $60 million or $70 million'? I have to look across the six outputs?

Mr Roach —That is where the money is in terms of the PBS. If you wanted to know a specific number about that particular budget, I am sure we could get that for you.

Senator CHRIS EVANS —It is part of Admiral Shalders's personnel cost budget, basically—is that it?

Mr Roach —Yes; but that budget, like all of the owner support and enabling group operating budgets, form part of the six output prices.

Senator CHRIS EVANS —Thanks for that.

Rear Adm. Shalders —Whilst I am here, I have an answer to another question that was asked yesterday. This related to the MSBS retention bonus—the Military Superannuation Benefits Scheme. I think the question was asked by Senator West. There is a 90-day period before reaching the 15-year point where members must apply for that retention bonus. That requirement is a standing condition of service and no individual advice is provided to members that they are approaching that 15-year point. However, advice about the bonus is widely promulgated. It is in the ADF pay and conditions manual and it is publicised via Navy News and SeaTalk. I believe the case that Senator West was talking about was a naval member. Where a member misses that cut-off date, he or she can seek a review of their circumstances through my organisation and should the member be dissatisfied with my decision on those matters they do, of course, have the opportunity to make a further submission through the redress or grievance procedures.

Senator CHRIS EVANS —So Senator West could pursue the individual case by writing to you, Admiral Shalders—is that the best thing?

Rear Adm. Shalders —In the first instance the member should put his case through the chain of command and it will come to my area.

Dr Hawke —I also have an answer on the armouries issue. The work has been completed on the three armouries at a cost of $1.82 million.

Senator CHRIS EVANS —These are the PNG ones?

Dr Hawke —Yes. Fletcher Morobe is the contractor. We have an Army unit which is managing or overseeing the project, and $50,000 has already been allocated for 2002-03 if there is any rectification work required. That does not mean it will be required or spent.

Senator CHRIS EVANS —There is some suggestion there were more to be built.

Dr Hawke —My recollection is the minister and the government have not made a decision on that matter yet but it is something the minister wanted to do in the light of him seeing those armouries and their effectiveness. He is going to consider the need for further armouries.

Senator CHRIS EVANS —Can I ask, briefly, where we are at in the review of the Military Compensation Scheme?

Senator Hill —It is progressing, isn't it?

Dr Hawke —Ready to go.

Senator CHRIS EVANS —You are wasted as a minister—you make such a good public servant.

Senator Hill —That would be a much more valuable use, yes.

Rear Adm. Shalders —The current status of the review is we are conducting consultation with ex-service organisations. That consultation is being effected through a working group, which is comprised of Defence and Veterans' Affairs members. The intention or the hope is to have an exposure draft available for public consultation by later this year. Our original intent was to try and introduce legislation in the spring sitting. It now appears that that may not be possible, but that is a result of the requirement to consult widely, particularly with the ex-service community.

Senator CHRIS EVANS —When do you think we are likely to get the exposure draft out and about?

Rear Adm. Shalders —The target date for that was July. My expectation now is probably closer to September.

Senator CHRIS EVANS —There is no realistic hope of that legislation this year, then?

Rear Adm. Shalders —That hope appears to be fading, on the basis of the fact that we are having very constructive dialogue with all the affected ex-service organisations. So that in itself is a good thing.

Senator CHRIS EVANS —There certainly will be a public exposure draft and time for public comment?

Rear Adm. Shalders —Absolutely.

Senator CHRIS EVANS —Then you will frame recommendations to the government?

Rear Adm. Shalders —That is correct.

Senator CHRIS EVANS —Then it will be a question of the government determining whether or not to proceed with legislation?

Rear Adm. Shalders —That is true. But I do note that a lot of that consultation has already taken place between government, opposition and other parties, and the Prime Minister did announce that we would be proceeding with new legislation.

Senator CHRIS EVANS —Okay. Thanks for that.

CHAIR —Thank you, Senator Evans, and thank you, Dr Hawke, Minister, Admiral Barrie and all your colleagues from the Defence organisation. It has been a long 2[half ] days. Thank you for your cooperation. Can I put on record to you, Admiral Barrie, I wish you well in your retirement. I am sorry to say that we won't be seeing you before us again. I am sure you don't feel that way, though.

Senator CHRIS EVANS —I am sure the estimates is not part of the job he will miss.

Adm. Barrie —I can say after nine years of doing this I do not think I will miss it. But I think the process itself is reasonably important, both to the ADF and to the people of Australia. So, provided it continues to support those needs, I wish everybody else good fortune.

CHAIR —The same to you. Farewell and bon voyage.

Dr Hawke —Mr Chairman, just before we break can we, through the minister, wish all the best for those other senators who will not be returning in the near future. Senator Sue West has made a long contribution to this committee as well.

CHAIR —Thank you, Dr Hawke.

Senator Hill —We heard the officials saying, `Hear, hear!' That is rather nice.

CHAIR —It is. And can I say, Dr Hawke, what a pleasure it is to have the secretary of the department here for the whole of the estimates.

Senator Hill —He has found it a pleasure, too. That will be my last contribution.

CHAIR —And it is very much appreciated.