BINSKIN, Air Marshal Mark Donald, Vice Chief of the Defence Force, Department of Defence

CALIGARI, Major General John, representing Chief of Army, Australian Army

DAY, Major General Stephen Julian, Capability Manager, Department of Defence

HARVEY, Air Marshal John, Chief, Capability Development Group, Department of Defence

JONES, Rear Admiral Trevor Norman, Acting Chief of Navy, Royal Australian Navy

McKENZIE, Mr Ian Robert, Acting Deputy Secretary, Intelligence and Security, Department of Defence

[14:57]

CHAIR: I now welcome the capability managers. We have seen some of you earlier today. Would you like to make an opening statement in relation to this particular matter?

Air Marshal Binskin : I would like to provide a brief statement to set the context so that you understand the players you have here today. You have me as Vice Chief of the Defence Force. I am the joint capability authority. I make sure that the capabilities as they come together, whether they be new capabilities or standing capabilities, are developed in accordance with the joint concepts and are capable of being interoperable in a joint sense. I sit across all the capabilities. We have capability managers in Defence—we have Chief of Army, Chief of Air Force, Chief of Navy, today represented by General Caligari and Admiral Jones, and the fourth capability manager is Deputy Secretary, Intelligence and Security, represented by Ian down the end.

Underneath those capability managers—and some capability managers may have dual tasks—you will have capability coordinators who are the users of a lot of the equipment. Why aren't they capability managers? Capability managers are responsible for raising, training and sustaining force, so it is quite specific. If they do not do that they will normally be a capability coordinator. CIO is a capability coordinator. While I am the joint capability authority I am also capability coordinator for health, logistics, policing and defence. It is a cascading level of ownership throughout Defence. You have asked for the capability managers, but we can go to capability coordinators if you want to talk to those people as well, but we have the main players here at the table.

CHAIR: Thank you very much, Air Marshal. Has the release of the Defence handbook changed the role and responsibilities of the capability managers in any way?

Air Marshal Binskin : I think it has. I think it far better defined the authority and roles of capability managers. We discussed it this morning. The capability managers have a far greater role right upfront on capability development and a far greater say over the development of those projects as they come into service. At the end of the day a capability manager sits across the capability. The capability development group identify a capability requirement and options. The DMO procure product, as does Defence Support Group and CIO and all that, but the capability manager is the one that ensures that it all comes together as an overall capability. They are responsible to CDF for that.

CHAIR: That is very helpful. Just changing the subject a little bit, is the expertise for naval ship-building design, construction project management and maintenance in the services with CDG, DMO or industry? Who has the expertise for these things?

Rear Adm. Jones : We have some engineering experience within our regulatory domain in terms of mobile architecture and other engineering advisors, both civilian and uniform, particularly in our regulatory domain. The majority of the skill sets that you are talking about rest with the DMO in the sustainment of our capabilities and in commercial industry that supports our capabilities, particularly in the sustainment cell.

CHAIR: Thank you.

Senator HUMPHRIES: What is the process of capability planning and needs assessment is in each of the three services?

Air Marshal Harvey : I lead the capability involvement. We discussed this morning that the needs phase was basically driven by the strategy group in forming the white paper and then informed by what the white paper says about defence planning guidance that identifies the broad needs. We in the capability development group go from the needs to the requirements on behalf of all the capability managers. We do that for all the services and we do that in close conjunction with the services. I have the director-general maritime development, aerospace development, land development and integrated capability development. Typically they are from the services with whom the equipment will be operated. They work closely with their capability manager counterpart and typically with their counterparts, often of the same service plus civilians as well within the DMO, so there is a flow through the chain of the individual service expertise but broken into who has the lead for the responsibility. I have the lead for the requirements definition for all the capability managers but in close consultation with those capability managers.

Senator HUMPHRIES: Is that process essentially identical in all three services as each need is identified?

Air Marshal Harvey : Yes. It varies a little bit from project to project in terms of the exact requirements but the process is the same. That is one of the reasons the capability development group was stood up give that joint perspective, that common perspective, and have a standard process throughout.

Senator HUMPHRIES: What is the trigger for a capability gap analysis? Specifically, who has the primary responsibility for conducting the capability gap analysis in the needs and requirements phase? Is it the capability managers or is it the capability development group?

Air Marshal Harvey : The very top is treated in the long term. The force structure review would look at what is the long-term strategic requirement and would look at what force structures are required to deliver that. That would then inform the white paper, which would inform the defence capability plan, so the individual projects in the plan are there to either fill a gap or step into a new capability. We will work those individual projects within the DCP. That said, the situation will arise where a new gap is identified and we will work with the services, with strategy group, to develop the high-level needs for a new capability and then we will start back into the formal process of the requirements phase.

There is a long-term picture which fits into the normal white paper force structure review defence capability plan cycle, then on a case-by-case basis something will occur. For example, we recently lost a Chinook helicopter so we will be replacing that. It is not just a matter of buying a Chinook. We go through the whole process of making sure it is of the right standard, has the right modifications and has all the infrastructure that comes with it. We will try to do that initial work out of the normal cycle but then try to plug it into the formal approval committee process as we go through.

Senator HUMPHRIES: It is not a bidding process that is undertaken by individual services. You say force capability initiates that trigger. How do they do that? Do they survey line areas? Do they take bids? Is there a process for them identifying what the capability gaps might me?

Air Marshal Harvey : The individual services have their own responsibilities for providing capabilities to the CDF. If a gap arises for whatever reason, it will flag that and, again, there is a very formal process. A new project is not stood up unless it goes through the Defence Capability and Investment Committee and then only if government would agree to that as well. There is a very formal process. I do not know if the acting CDF wants to add any more.

Air Marshal Binskin : We might go back to Mr Neil Orme and he will explain a bit of the strategy behind this. We now have the capability managers here as well.

Mr Orme : I will reflect back on some of the comments I made this morning about the strategy to capability development process. We have a five-yearly white paper construct. That white paper process is formed by the conduct of a five-yearly forward structure review, a strategic risk assessment and also a budget audit. As I said this morning, if opportunities or threats arise in between cycles, there is an annual process through a document called the Defence planning guidance that allows Defence to deal with threats and opportunities as they arise within that five-yearly cycle. That provides an opportunity to have a discussion with government about requirements that might not necessarily have been captured in a white paper. One of the examples I cited this morning, which is quite common, is the lessons that you learn on operations. I used the IED example this morning. You might recall that, following the last white paper, we did conduct a fairly comprehensive force protection review. That reflects the fact that the threat environment, particularly in Afghanistan for example, does change over time and you need to have the flexibility in the system to be able to respond with capabilities that might not necessarily have been extant either in the white paper or in the DCP. I guess it is a dynamic, rolling process. White papers, if you like, are to some extent snapshots in time. They provide the left and right of arc for broad planning guidance but clearly you have to be flexible. From time to time contingencies or exigencies will arise that will require a treatment solution within a five-yearly cycle.

Air Marshal Harvey : In one of those submissions it was mentioned that projects were conceived of by relatively junior desk officers in CDG. That just cannot happen; they are either in the DCP itself, which is agreed in the white paper or a need arises and they have to work their way all the way through the senior committees and get to government. You just cannot have a project unless it is approved in that way.

Senator FAWCETT: In the case of that urgent operational requirement we were just discussing, does the capability manager have more ownership, once it has been approved, of actually driving the schedule, accepting risk and pushing for an outcome or does it then essentially go into the DMO camp where they then run through their normal processes?

Mr Orme : My stance, looking at it from the strategy perspective, is that it is a partnership all the way along, from inception through to delivery, between the capability manager, the strategy folk, the capability development folk and the procurement folk, particularly in the context of a rapid acquisition, which is most relevant to responding to operational requirements. While the different agencies have different responsibilities for the component parts of the process, it is very much a team effort and very much a partnership. You cannot turn responses around quickly enough in that kind of space unless it is a very joined up process all the way from identifying the strategic requirement, clarifying the capability need and then looking at procurement options to meet a particular need.

Senator FAWCETT: So you would expect the end user, DMO and the industry group providing the solution to be working very much together and sharing information as required?

Mr Orme : Very much so. As I said this morning, if you look at the consultative deliberative processes inside Defence—which start with the senior investment committees, such as the DCIC and the DCC—those committees have at the table all of the relevant representatives from the different parts of the shop, such as the capability manager, the strategists, the capability development group and also the procurement and sustainment group. So it is an integrated approach to the way we do capability planning, both in deliberate planning—the long-term planning that manifests itself in the white paper and the DCP—and also when we have to respond to emerging operational requirements.

Air Marshal Binskin : It does happen. Again, as we discussed this morning, there is a distinct post-2008-09 period and before that. It does happen a lot more post-2008-09. Importantly, where the capability manager has a strong say is against that risk. As you would expect, if you want to get the schedule risk down to a low schedule risk, you make the schedule longer, potentially. That may increase the capability risk because you need this bit of kit in service. That level of discussion and trade-off does occur. What is the best commercial risk against a capability risk? That discussion does happen.

Senator HUMPHRIES: What precisely are the responsibilities of the capability managers for projects on the CDP?

Air Marshal Binskin : Can you say that again?

Senator HUMPHRIES: What are the responsibilities precisely of the capability managers in terms of projects on the capability development plan?

Air Marshal Binskin : The capability managers are in on the discussion on the phase-in of those capabilities as they come in. It may not be the primary driver because, as you know, cash is an issue—the finance side. There is an issue of how much work the DMO can actually put through in the time. There is the ability of the contractor to deliver. So all these things that we have discussed are part of that discussion, but the capability manager signs off very much upfront on the very first set of documentation. It is in that first pass level that this capability will meet the capability intent as flow-down from the strategy that we have got in place and that he or she, in the future, as the capability manager can bring that into service.

Senator HUMPHRIES: Is that it? Have they got ongoing responsibility after that?

Air Marshal Binskin : Oh, no. The capability manager is in all the way on from that as well. So they sign upfront and then has participation at all levels as it goes through.

Senator HUMPHRIES: Until what point?

Air Marshal Binskin : Until it is delivered.

Senator HUMPHRIES: And that is the end of their responsibility?

Air Marshal Binskin : No, not at all, because the capability manager then has to manage it and through a materiel sustainment agreement where the Defence Materiel Organisation agrees on how that is sustained. That is reviewed annually. The capability manager is in pretty much now from cradle to grave.

Senator MARK BISHOP: Is the capability manager the equivalent of the CEO of a corporate entity in terms of those responsibilities from first phase until end?

Air Marshal Binskin : I guess they are. It is hard to bring a corporate sense across to it because it—

Senator MARK BISHOP: I am trying to get a sense of his or her responsibilities and accountabilities.

Air Marshal Brown : Ultimately, as the capability manager, you are accountable. So you will follow the project from start to finish. You might not have all the levers that you would like to be able to do it but you will push as hard as you can, because ultimately you are going to operate the capability for the joint force. As soon as it starts rolling, you are making sure that the rest of the organisation is doing what it has to do so that you can deliver the capability.

Air Marshal Binskin : If you would allow me to read it out, I can probably provide more detail on the capability manager's roles.

Senator HUMPHRIES: Yes.

Air Marshal Binskin : This is the handbook.

Air Marshal Harvey : The Defence Capability Handbook was tabled on 26 August.

Senator MARK BISHOP: We have got that.

Air Marshal Binskin : You have got that. Okay. If you go to page 18 and 19 of that book, it details what the capability manager is responsible for. I would just be rereading that out. That is the way it is working in practice now.

Air Marshal Harvey : For example, one of the recent developments over the last year or two has been the capability manager being a cosignatory to the Materiel Acquisition Agreement. So it is CDG, DMO and the capability manager for that. The capability roles of the capability manager are explicitly identified in the new joint project directives that CDF and the secretary issue. Throughout the whole thread of the capability life cycle, the capability manager has a key role. The specific level of leadership varies at where you are in it, but he or she has a key role throughout that.

Air Marshal Binskin : Because the capability manager is land, air, maritime and intelligence, they are the primary providers of professional advice in those domains as well.

Senator HUMPHRIES: There are clear distinctions between the roles of the capability managers and CDG?

Air Marshal Binskin : Yes.

Senator HUMPHRIES: Who would you say takes primary responsibility for decision making as that role continues through a project?

Air Marshal Binskin : As the role continues through the project?

Senator HUMPHRIES: Yes.

Air Marshal Binskin : As the role continues through the project—I think the capability manager has a strong say in it but there are different parts of that project. There are the commercial aspects where you would expect CEO DMO to have primacy in that part of the discussion. Capability and the fundamental inputs to capability that go there, the capability manager has a very high say in that. So you cannot say that one has the total primacy in the discussion because the capability manager is not the expert on the commercial side. But what happens in the process at the moment is you do weigh up the commercial aspects, developmental aspects, facilities and the IT—all those factors that the capability manager has to look across the board to make sure that, as it comes together, it will provide the capability the government has signed off on.

Senator HUMPHRIES: It is a little disturbing not to have a clear sense of who is responsible at each stage. I realise that a person might not the expertise in a particular phase—

Air Marshal Binskin : Ultimately it is the secretary and CDF.

Air Marshal Harvey : If I could clarify, if you are talking about up to the point of project approval, the Capability Development Group brings together all the advice so we provide decision quality advice to government, with all the key players in Defence bringing together their individual knowledge, in a cabinet submission or a ministerial submission to make the ultimate decision on investing taxpayer money.

Senator HUMPHRIES: But they are obviously decisions for capability management as the project goes on. We are not referred to that level, are we?

Air Marshal Harvey : We will refer to the capability manager: do you have the manpower to assess this, do you have the sustainment funds to run it, how many hours a year do you want to fly it, do you have the skill levels to do this? We will do the same with the facilities people, with the DMO for their part of it, and with the intel people to support information. So a lot of people come together, and we bring that advice together.

Senator FAWCETT: In terms of accountability what happens if you do get the commercial aspect and the CEO of DMO says, 'Go this way,' and the capability manager says, 'No, I want to go that way,' each for quite valid reasons—what is your process for resolving that? Who do you hold accountable then if it is not actually delivered and they both have valid reasons?

Air Marshal Harvey : We will work this at a number of levels. At the project office level they will try to resolve the issues as best they can. They will raise it to a higher level if they cannot get agreement there. And eventually get to the point where, to the best that I can, I will work with the capability manager or CEO DMO to resolve it. If we cannot resolve it there, we take it to the Defence Capability Investment Committee, and the secretary is the chair of that. But at the end of the day we end up putting advice to government on a preferred way to go.

Senator JOHNSTON: Can you think of an example where we have had legitimate concerns from inside the DMO and from the capability manager that have gone all the way? What is a project that springs to mind in that regard?

Air Marshal Harvey : Many projects come to the Defence Capability Investment Committee to resolve residual issues such as balance of risk or schedule issues, as was mentioned before.

Senator JOHNSTON: But what we are talking about here is the on-ground user saying, 'This is what we need,' and then the Defence Materiel Organisation is saying, 'This is what you are going get.' This is the fundamental issue that we all carry some responsibility for here. If you have an example of legitimate concerns on either way, what is the mechanism for the resolution of this fork in the road, and how do we go forward?

Air Marshal Harvey : I can give you a generic one. For example, you might have one capability that can provide 99 per cent of what you want but it is only available 85 per cent of the time; and then have something else that can provide 85 per cent of the capability but it is available 99 per cent of the time. As best you can you try to quantify that to get a hard fact outcome. At some stage you get to a judgment call. You rely on DMO advice on availability issues and the capability manager will look at capability issues—it is just the role of senior committees to judge those things.

Senator JOHNSTON: What concerns us is the resolution of the money versus the capability, the survivability, the protectability and the applicability of the particular capability, if you follow me. This is the essence of what the battle is all about in terms of the process we go through, and I find it difficult to resolve. For instance, with small things like combat kit, the DMO often says, 'This is what you are getting,' and the man on the ground says, 'This is no bloody good to me,' if you will excuse my French.

Air Marshal Binskin : Senator, I know we have had this discussion in other committees. There is also the issue about what the person on the ground is saying and what the capability manager who that person works for is saying as well.

Senator JOHNSTON: I think that just replicates the problem.

Air Marshal Binskin : But ultimately it is the capability manager that is responsible, not the person on the ground. The person on the ground does literally wear it, depending on what the piece of kit is, but the capability manager takes into account the entire requirements not just that one part that that one person may be focusing on for the whole time. So the capability manager has to bring that all together—whether it is the best overall fit, whether it is sustainable—

Senator JOHNSTON: What is the template he uses? Where is the doctrinal assistance that he looks to to say, 'Here is the way I determine the way we are going forward—either accept this into service or I am very unhappy about it for these legitimate reasons.' What does he look to?

Air Marshal Binskin : That is different from what we were just discussing. How does the capability manager—

Senator JOHNSTON: He is responsible. You have told me he is responsible—

Air Marshal Binskin : He or she is responsible as the capability manager. And again this is where we have to go back—if you want to know how it is working now as opposed to prior to 2008. How we know that the DMO is procuring what the capability manager wants or has agreed is right up front when the capability manager signs off the Materiel Acquisition Agreement, the MAA, so therefore the DMO now deliver to that MAA.

Senator JOHNSTON: Or purport to.

Air Marshal Binskin : Well, they deliver to it. That is what they are reporting to. If they do not, trust me, the capability manager will be the first to flag it as an issue, and then it is an issue that will need to be resolved. You may find as you go down the path that the contractor physically cannot deliver what was signed up for. That comes back. The DMO come to the capability manager and CDG and say, 'Listen, this is the problem we have. We need to have a look at this.' But the DMO in my experience—there may be a couple of smaller issues—in the major capability side of it is not making decisions without consulting the capability manager and CDG.

Senator JOHNSTON: Okay. I have a couple more questions for Major General Caligari.

CHAIR: Go ahead.

Senator JOHNSTON: The microcosm of what we have just been discussing is in a little operation, which I think is a very successful and pleasing operation, called Diggerworks. I would like you to discuss with the committee what Diggerworks does and is intended to do. The bit I am really interested in is that Diggerworks puts forward a host of very well-considered solutions to combat uniforms and combat equipment for the combat soldier. Somewhere along the way I suspect that the DMO takes those and rejigs them into something that is different from what Diggerworks has said. Now Diggerworks engages industry and spends a lot of time doing it. I would like you to tell us a bit more about that organisation, because I had the benefit of Major Khan's presentation yesterday down in Melbourne. Who is ultimately responsible for the choice between what the DMO want to do and when an organisation like Diggerworks says, 'This will work'? If you could answer that for us.

Major Gen. Caligari : Thanks, Senator. Diggerworks actually originated because of some problems we had with equipment two years ago that you would be aware of. The problem is actually that you need to turn over the equipment into theatre much quicker than we were able to do under the current acquisition process. If a soldier identifies a need, the current system was not being responsive enough to be able to deal with that need.

Diggerworks is an MOU that I crafted, along with six other two stars across the Defence Organisation, including two of the divisions inside DMO, CDG and Army. What that does is gives me direct access to Colonel Jason Blain. I had the Chief of Army specifically appoint Colonel Jason Blain to be the director of Diggerworks, because he comes with a significant amount of moral authority, having been the Commander of the 6th Battalion Group in Afghanistan last year and took six casualties. So there are very few people who will argue with him when he says that this is what the soldier needs on the ground. And as the vice chief said, there are circumstances where what a soldier says he needs and actually what the capability manager says he needs can be different.

Senator JOHNSTON: Yes.

Major Gen. Caligari : I take that role for the capability manager. Jason Blain and I work directly to each other, the key being that everyone else steps aside and understands that we are the two primary ones to get the equipment into theatre to solve soldier's problems in the quickest way. He is inside DMO—

Senator JOHNSTON: And you have both been in command in Afghanistan?

Major Gen. Caligari : Correct. He is inside DMO, but actually does not hold any of the acquisition strings. He is an integrated coordinator of capability. He works, for instance—

Senator JOHNSTON: Just go a little bit more slowly. He is a what?

Major Gen. Caligari : His actual title is the Director of Integrated Soldier Systems. Diggerworks is an acronym that we use. We created his organisation out of a directorate, so the head of Land Systems Division, Major-General Cavanagh, and I created an organisation that could serve this purpose. He works with industry and essentially finds what it is that is becoming available. That is the industry connection.

It was an avenue that I discovered where we were getting a lot of people coming to us with good ideas that many of us did not even know existed to solve our problems in Afghanistan. He works with them directly, and what we are working with Diggerworks is to use, firstly, force protection money that is still ongoing for Afghanistan and now connecting it to LAN 1, 2, 5 phase 3 Bravo, which is about survivability—connecting the two of those up.

Senator JOHNSTON: This is MCBASS, TBASS et cetera?

Major Gen. Caligari : Correct. We have moved off MCBASS into TBASS, and TBASS will continue—

Senator JOHNSTON: TBASS tier 3 or something we are on to now?

Major Gen. Caligari : TBASS has three tiers in it. TBASS will continue forever now, but it will be modified on an ongoing basis. It is solving Afghanistan's problems in particular now, but what we are trying to do is institutionalise that process so that even after Afghanistan we are turning over equipment at a rate that solves the soldiers' equipment problems on the ground at the time.

For example, 10 years ago LAN 1, 2, 5 generated enough equipment to outfit the army and no new equipment was seen for some period of time and was not expected for some period of time. As new developments occurred the plan to introduce those was being rolled into the next phase of 1, 2, 5—which for us will be phase 4.

What we intend to do with Diggerworks is to roll this along with the army's force generation cycle, which puts a combat manoeuvre brigade on a ready state each 12 months, rotating through the three combat-ready brigades. We want to inject the newest of the equipment into the readying brigade before it becomes ready for 12 months—

Senator JOHNSTON: So they are wearing it here before they leave?

Major Gen. Caligari : learn from that experience and deploy them; if necessary, learn from that, take into account the timelines it takes to acquire some of the new equipment, get all the good ideas from industry—

Senator JOHNSTON: And what are those time lines?

Major Gen. Caligari : In most cases it is around six months. Sometimes it is longer. If it takes longer then it will take a full 12-month cycle to inject it into the third brigade, rather than the second brigade. But in general it is six months. You can inject it in the following year, and there have been a number of examples in Afghanistan. There is hearing protection: we had a company come to us with exactly what we were after for hearing protection. We were able to buy that and put it straight into theatre.

So we are solving issues. The soldiers in Afghanistan now, as I am sure the reports will come back, are very happy with TBASS and very happy with the way we are generating this new equipment, because Colonel Blain has the money inside DMO and DMO does exactly what he says because he comes with my authority.

Senator JOHNSTON: I congratulate you for that. I think that is very positive and a good example for us of expedient, sensible lesson learning. How is it, though—the downside of my question—that I look at a paper and see torn uniforms on the front page of a newspaper? These are Crye uniforms; these are not standard DPCU. This is not a Diggerworks workup—this is something different, is it?

Major Gen. Caligari : No, that is all Diggerworks.

Senator JOHNSTON: Alright, so why are they torn? How did that happen, and what is the fundamental issue with that problem? What are we doing about it?

Major Gen. Caligari : I think that if you took just what the newspapers said you would recognise it was overdramatised.

Senator JOHNSTON: Okay.

Major Gen. Caligari : There was actually a very small sample of them that were torn.

Senator JOHNSTON: How many?

Major Gen. Caligari : I think there were something like 3½ per cent across the board of the equipment that was torn. You saw on the newspaper the worst of the lot.

Senator JOHNSTON: Three and a half per cent is a good figure.

Major Gen. Caligari : It is actually better than we use with our current DPCUs.

Senator JOHNSTON: Sure. But how many DPCUs are you talking about with 3½ per cent?

Major Gen. Caligari : As a percentage of the force that has disruptive pattern camouflage—the desert-looking one—we have a greater attrition rate that 3½ per cent. What we are talking about—

Senator JOHNSTON: Alright, but are we talking about 1,000 uniforms? Fifteen hundred uniforms?

Major Gen. Caligari : Well there are 1,500 soldiers in Afghanistan, and each of them would have four or five sets on them, so there are many more than there are people. And that is an important statistic, because the soldiers who are wearing the Crye uniform are actually only the ones who are using the hardest of the uniform. So they are all the ones stepping outside the perimeter. There are many soldiers for instance changing brake pads in Tarin Kowt or cooking who are also wearing DPCU and there is still a greater tear rate, so the 3½ per cent is pretty significant. The fact that we have such a small quantity of them—by the way, it is actually still a trial. Part of the information we wanted to find out was whether we could fix it easy enough, whether there was something wrong with the material. It is a trial, to find out the circumstances under which this works before we make a full blown decision on it.

Senator JOHNSTON: I am interested in this, because it is a new uniform. So we have gone outside the standard operating procedure with our DPCU. We have gone to this Crye product. The percentage, you tell me, is low. That is fine. I accept that. How is it, though, that it appears they tear in a similar area, around the crotch area? What do we know about the product? Has it been through the usual process that we put all our other standard products through—the DPCU? What is the difference and what are we doing about it? How did it come to pass that these uniforms tear in the same place ostensibly?

Major Gen. Caligari : This is a classic example of what you were discussing with the VCDF a minute ago. A decision had to be made about whether we would take a risk on that, given that these uniforms are being worn by the United States Army and had been worn in Afghanistan for some period of time before we bought them. So we had a pretty good idea of the rate of tearing was and what the problems with it were. The key decision from a capability manager's point of view was to accept that this was actually the best camouflage uniform we could possibly give our soldiers.

While I was the commander in Afghanistan, one of the problems was that everyone was being issued with a desert uniform—because that was what we configured to go go the Middle East—which was perfect for Iraq, but not so perfect for Afghanistan. In fact, most of the soldiers in Afghanistan who stepped outside the wire were all going back to the DPCU, the green uniform. The problem with that was that now they were stepping out into the green zone with a green uniform, and then every time they stepped into the Dash, which is the desert area just outside the green zone, they become a big target. So, whilst we thought we were being very clever some time ago when we went to a desert uniform, it did not suit Afghanistan. So we now have soldiers who are potentially targets as soon as they step into the green, depending on what they wear.

So the key imperative was to get a camouflage uniform that served both purposes as quickly as possible. That was where this particular camouflage colour came in. We had been watching closely for some time what the Americans have been doing, because they have exactly the same problem. The British Army have exactly the same problem. In fact, the American army went to this system first. The Brits did almost exactly the same thing we did; they changed the colours slightly and the pattern so that at five metres you could tell they were a British soldier as opposed to an Australian or an American. They did exactly the same thing. So we are actually one step behind both the Americans and the British in producing this set of uniforms. We were pretty confident we knew the rate of destruction for Afghanistan and we were giving them a uniform that gave them the best protection in no matter what environment they were working in in Afghanistan.

Senator JOHNSTON: So, as capability manager, you stipulated back down through and into the DMO, 'This is what we want'?

Major Gen. Caligari : Yes.

Senator JOHNSTON: What did they say?

Major Gen. Caligari : We actually started looking at a multicoloured uniform initially—

Senator JOHNSTON: Five colours?

Major Gen. Caligari : We started looking at a blend of our own two camouflages—a desert and a DPCU. In our DSTO trialling, it was proving very difficult to do, so we worked with DMO and Diggerworks and said, 'Go and survey industry and the world, and find out what the best thing to do is.' And Diggerworks came up with this answer.

Senator JOHNSTON: Diggerworks said, 'Let's get the Crye'?

Major Gen. Caligari : Yes.

Senator JOHNSTON: Diggerworks said that; you agreed.

Major Gen. Caligari : Yes.

Senator JOHNSTON: How did you get the DMO to do it? What did you physically have to do?

Major Gen. Caligari : As the capability manager, not much—except make the decision that that is the uniform we wanted. It is now a DMO process to acquire it and get the approvals to acquire it.

Senator JOHNSTON: Right. So they went off and did the licensing agreement and all of the things that are necessary?

Major Gen. Caligari : Yes.

Senator JOHNSTON: From the Diggerworks advice, to your decision, to the arrival of the uniforms, how long did that all take?

Major Gen. Caligari : From memory, from the time at which we identified the Crye uniform was the one we wanted to the time we first put the 5,000 sets I think was between six and eight months.

Senator JOHNSTON: That is pretty good.

Major Gen. Caligari : Very good. In fact, we had them in Afghanistan before the last MTF rotated out of Afghanistan. There was some concern as to why they were not putting it on six weeks before they were due to come home, and that was a commanding officer's decision.

Senator JOHNSTON: Thank you, General, I appreciate all that.

Senator HUMPHRIES: From a project's entry into the DCP and second pass approval, can you tell me how the expertise of individual services is used to develop the requirements documents?

Air Marshal Harvey : From the DCP, as you know, there are two major steps: one is the first pass and then to get the second pass. Getting to first pass is a broad survey of what the capabilities might be and to define specific options that we will be taking to government to progress to the next phase. In that phase we use project development funds to fund a range of studies. Typically it is capability development personnel, a desk officer—typically a service person, but not always the case, and typically of the same service that are going to use the equipment, so a land development project would have an Army officer. So we take the lead. Often we will form an integrated project team to bring people together from the capability manager, from DSTO, from DMO, maybe CIOG if required, and maybe they might hire contractors to provide some professional support as well. So they come together as an integrated project team. Depending on the size of the project it might be a large, dedicated team but in some cases it is a part-time integrated project team that come together as required. They will work that.

They will go through a number of what we call capability development steering groups that are typically at the one star level, which will have a wide range people from the same group but typically at the one star level, to refine the requirements as we go through. We now have what is called a project initiation board where we get Capability Development Group, the capability manager and DMO together to give basically the project a steer in which is the right way to go. It will then get to what is called an Options Review Committee which will look at: what options are you looking at; and how do we formalise those before taking them to government? So that is the process.

Then parallel with that there is probably in the order of a dozen different documents that are developed to inform and to go through the options for the review committee—sorry, one step before that is what is called the Capability Gate Review Board to see if all the documentation is in place. It will then go to the Options Review Committee and then will go to the Defence Capability Committee, except for the largest projects, and at that meeting we have the representation of all the major elements in Defence. I chair that one. We have mentioned strategy, the capability manager and DMO. We also have DSTO, the facilities people and joint warfare people from VCDF group. So there is probably about a dozen people around the table to review that submission before it goes up to the government for approval at first pass.

Once you get that first pass steer, you sort of replicate that in the next phase but you have bounded decisions and you go out to industry to get solicitations. It is a very formalised process. It is in the Defence Capability Development Manual we passed out earlier.

Senator HUMPHRIES: At each of those stages you describe though you have the capability manager from the relevant service, but do you have a lot of input from other areas of the service concerned? Obviously the CM will not necessarily be familiar with that particular area. How are you drawing on expertise within that service as to what is required for that project?

Air Marshal Harvey : Typically our desk officer is chosen because of their connection with the services. They will know where to go to get advice or at least you are only one connection away from the appropriate advice. We will go back to say the service headquarters or the specialist area to get the advice and we will pull people in from the integrate project teams. So we will go as required to get the information.

Senator HUMPHRIES: So the advice is sought from the relevant line area but not necessarily anybody from that area is involved in any of those formal processes you are describing?

Air Marshal Harvey : It depends. Sometimes you have people in there on a full-time basis; sometimes they are part time; and sometimes they attend the meetings only. But with the key documents such as the logistics support concept for an Air Force project, for example, Air Force would sign off on that or the Commander Joint Logistics would sign off on that for a large group project. All the stakeholders get involved in clearing those documents and attending the meetings as well.

Senator HUMPHRIES: You are confident that by the end of all those filters and all those processes the line area concerned will still recognise the project that they originally wanted?

Air Marshal Harvey : Certainly, because, as I say, the service representatives are at all the steering groups meetings, they are all at the committee meetings, and when we get to the level of the submission going to government we have to get all the capability managers from all services to sign off on those and clear them before they go forward. There certainly should be no surprises in the process.

Senator HUMPHRIES: You will be aware of evidence before the committee already that one of the negative consequences of centralisation in relation to Defence acquisition is that some of the technical skills that go with capability development and the overall technical regulatory framework have moved from the service to CDG and the process that you have just been describing. I assume that that is largely undeniable. That has been the product of centralisation of this exercise, hasn't it?

Air Marshal Harvey : That is right. I think with any complex organisation you have to work some form of structure. Any structure you develop breaks some form of synergy, but potentially to the benefit of something else. So the idea of trying to group them together in Capability Development Group we would see as a benefit as opposed to breaking them between individual services.

Senator HUMPHRIES: Are you confident, personally, that we have not taken too many of those technical skills away from the outlying areas and brought them into the centre?

Air Marshal Harvey : I do not think there is a risk of that. The main way we operate is such that I see my DGs as working as much to the service chiefs as to me, so there is a full and free flow of information to allow that to happen.

Air Marshal Binskin : Also, in each of the three service headquarters—I won't speak for INS, because I am not quite sure there—the capability manager has his own little capability cell that is ensuring that all those FIC elements are being managed as well. But they are plugged into the CDG capability and the DMO as well, to make sure that the capability managers' deeds are being managed and the work being asked for—whether it be out in the field, on the hangar floor or whatever—is actually flowing into the requirements development and then the delivery.

Senator HUMPHRIES: Okay.

Senator MARK BISHOP: So, you say the shift to the more centralised approach that Senator Humphries raised is proving to be beneficial as it is practiced. What do you then say, in that context, to the criticisms that the ANAO had, where Navy has essentially been denuded of the whole range of engineering skills? They have gone elsewhere.

Air Marshal Binskin : I won't speak for Navy, but I think you may have heard it from Chief of Air Force before: the different services, at the end of DRP and some of the reforms that happened around the nineties—there were a couple of others as well—Air Force chose to maintain its investment in engineers. I cannot speak for the other two services. To be honest with you, Air Force did not choose to continue investing in the logistics. We learnt from that mistake, and then reinvested in logistics over the last five years to stand back up the logistics element as well. So I think it is one of those areas: the three services still have to maintain that expertise by being willing to invest in those levels of capabilities. Regardless of whether you are going to centralise, share-service or whatever, you still need to grow that expertise that understands that environment.

Senator MARK BISHOP: Right. So is that really a question better directed to Rear Admiral Jones?

Rear Adm. Jones : Yes, Senator. We are fully seized of the outcomes of the Rizzo report and our need to improve our technical skills base, particularly our engineering strength. That is a focus of the current Chief of Navy, and we continue to work to implement the Rizzo reviews. We are looking very carefully at how we have our resources allocated within Navy at the moment. We are also looking to see where we might be able to get supplementation to improve our engineering base.

Senator MARK BISHOP: It's not the time now, Rear Admiral, but one of the critical issues in this inquiry is what I say is the apparent shortfall in engineering and technical skills in Navy, and the problems that seem to derive from that. I have heard from you now, and I think from Air Marshal Harvey before, say that Navy was seized of the problem, attending to it and implementing change. You might provide us on notice a detailed response to what Navy is doing to implement the shortcomings and deficiencies—if that is the proper description—on the engineering and technical side, so that we do not have those problems that ANAO have going forward.

Rear Adm. Jones : We can take that on notice and give you a response. As I said, I know the chief is working actively to implement as quickly as he can the Rizzo recommendations and he is working through that forum to deliver those.

Senator MARK BISHOP: I am looking for hard data on skills, retention, numbers, levels of expertise that show us that the problems that are now in the public domain are being attended to. That would be useful.

Rear Adm. Jones : A useful document we could give you is a synopsis of the initiatives we have underway now to restore our technical competence.

Senator JOHNSTON: Rear Admiral and VCDF: how is it that aeronautical engineering is perceived as an essential function we cannot let slip or drop—

Air Marshal Binskin : I had better let the Chief of Air Force answer that.

Senator JOHNSTON: CAF, yes, sorry—you can see where I am going here—yet engineering functionality in the maritime space is not perceived as so essential. I find that very difficult to digest. We all use aircraft. We all hope to goodness that someone looked at it before it took off, everything that should have been hanging off it was hanging off it and it is all functioning perfectly, because we do not want it to fall out of the sky. We do not seem to apply over some 15 or 20 years the same level of concern to the operations in the engine room in a boat. I cannot for the life of me see how we have been suckered into that mental disposition. How did this happen?

Rear Adm. Jones : I think that is a long story, Senator. I think Rizzo gets to the heart of it fairly well in a very pithy way. This had its genesis over many years. I think in fairness you could characterise it in terms of a criticism that was levelled at Navy a while ago about the can-do attitude. I would not want to lose that edge quite frankly, because the can-do attitude is about fighting and winning at sea, but when that is at the expense of due diligence in the attention to maintenance, that is when you know that you have swung too far to the right.

We are aware of that. This first came to light when the former Chief of Navy instituted the Seaworthiness Board construct to mirror in some respects the Air Force initiative of the airworthiness boards. The current Chief of Navy has not only embraced that but further refined it. We realised at that point, even before Rizzo tabled his findings, that we had some challenges we needed to address fairly quickly. Mr Rizzo's report merely reinforced what we had come to conclude through our own analysis. We did not pay enough attention to the importance of our technical engineers as a rider to the maintenance of our capability. There are differences between aircraft and ships, and I think it is important to understand. If people understand the consequence of an aircraft engine failing, it is a bit hard for them to understand the material condition of ship when it is still tied up alongside a wharf and it looks okay. It is about making sure we can manage the aggregated risk in future and know when we need to assess those matters.

Senator JOHNSTON: Are you saying to me that we are going to replicate, in a Seaworthiness Board, the air certification structural system in a seaworthiness structural certification system?

Rear Adm. Jones : Not in its entirety. Those elements that are relevant to the maritime domain, we are incorporating. There are some elements of the Airworthiness Board that we would not see as relevant to the maritime domain. That is ultimately where we are heading. It is about a more appropriate method for providing due diligence that the technical worthiness of our capabilities enables us to meet our obligation to government.

Senator JOHNSTON: Why is that we need Mr Rizzo to tell us all this?

Rear Adm. Jones : As I said to you, we had started to come to that conclusion ourselves based upon the early information we were getting from the initial Seaworthiness Board. You would recall the Seaworthiness Board into the LPAs and what led from that. But it was important to get an independent validation that what we had come to understand in Navy contemporarily was a challenge for us. So I think the Rizzo review was good in that it gave independent verification that we had some issues we needed to work through, and we are now using that as the vehicle by which we can address those matters.

Senator JOHNSTON: So when I want to see the airworthiness and maintenance certificate for an aircraft, which is a pretty important thing to look at—when it was last serviced, how many hours on the motor, all of that sort of stuff—what am I going to be able to look at with respect to a ship?

Rear Adm. Jones : We have no maintenance records at the moment. What we have to do is have better interrogating and auditing of those processes to make sure they are followed appropriately and properly so that the equipment is maintained to the standard. That includes, of course, making sure that the data bases from which the maintenance is conducted are up-to-date and relevant for the equipments fitted to that particular vessel.

Senator JOHNSTON: I would have thought that the systems used in the aeronautical space would have had, with some differences, application in the maritime space. So if I want to see what I want to know about the airworthiness of an aircraft and all of the data that the Air Force has put into that, I should be able to do exactly the same thing with a ship given that the number of passengers is multitudes more than on the aircraft.

Rear Adm Jones : That is true, but with respect to that there are some issues to do with the navy capabilities, and I think the Chief of Air Force touched on this earlier, that makes us different from them in terms of the quality of the data that went into the acquisition of that capability in the first place. We can leverage off a larger organisation that is employing that same capability and has done the engineering quality assessment and put the rigour into building the maintenance databases that support that capability, and I am talking now about military off-the-shelf aircraft from overseas sources, compared with the ability of our navy with a parent navy responsibility, and that means we are the sole operators of a unique piece of equipment from acquisition. If we do not get that piece right in the first place, that is when you start to see long-term impacts as we have started to see. We can look at the Collins class example. If you do not get the database right up front, and you do not get the maintenance data injected in that database and if you do not recapture that fairly quickly then you build a debt that is hard to recover—

Senator JOHNSTON: Collins is a bit of an orphan and I would not want to use that as an example.

Rear Adm Jones : It is not an orphan; it is a parent navy responsibility platform and that brings with it attendant issues that we need to be better at dealing with.

Senator JOHNSTON: But if I want to go and see the seaworthiness of HMAS Perth, I need to know that the data that has been put in is reliable, that the data has integrity and has been maintained, and that what I am looking at tells me all of the essential things I need to know to meet a seaworthiness criteria, in line with when I want to turn over the motor and take off on an aircraft, surely.

Rear Adm Jones : We do not do seaworthiness boards on specific ships; we do them on classes, and so in this particular case we would look at the fleet of eight ANZAC class ships to look at the systemic problems that might exist through the seaworthiness board across that class. That is how we deal with it.

Senator JOHNSTON: But if I am taking off an aircraft, I can see exactly what the hours on the airframe are. If a cylinder is blown in one of the motors in a frigate then I need to be able to see that, surely, in some document.

Air Marshall Brown : There is a difference between operating aircrafts and ships. With airplanes you have no choice but to actually put in very high-reliability systems. The consequences of any part in an airplane failing are actually much greater than they are on a ship because fundamentally a lot of the time the ship stays afloat, so you can have equipment failures on ships but they do not have the same sort of consequences that they do on airplanes.

Senator JOHNSTON: I do take issue with that. We are getting two 28-thousand tonne vessels that contain an awful lot of ordnance, people et cetera.

Air Marshall Brown : True, but do you take my point that you can have failures on a ship—

Senator JOHNSTON: Well you can have failures on planes that are not—

Air Marshall Brown : That is true, but—

Senator JOHNSTON: Where we can glide down and hope for the best, but I am just saying there are comparisons that we need to acknowledge.

Rear Adm Jones : Yes, and all I would say is that we are working towards having a better understanding of the material condition of our vessels and the seaworthiness board is one vehicle by which we will do that.

Senator FAWCETT: We have had a lot of assurances today that, post Mortimer, the relationship between the capability manager and DMO as the procurer has become a lot closer and more functional. We are now talking about sustainment, and Rizzo's report written this year and some of his strategic actions. He talks about actually getting closer working arrangements between the capability manager and DMO, and there are a number of actions through here at a tactical and strategic level that basically say that relationship is not functional. In broader comment from the panel, are we looking at two differences between the capability manager's relationship with DMO in the procurement space verses the capability manager and sustainment? Because at the end of the day, it was DMO that was sustaining navy ships, albeit the navy had perhaps lost its ability to know that DMO were not doing their job.

Rear Adm. Jones : That is a good point. We were instructed a little by the Army experience here. Major General Caligari's area, in fact the Deputy Chief of Army, instituted a deep dive process into materiel sustainment agreements. We have adopted a similar approach. Prior to that we were not as rigorous in understanding and asking the DMO what they were doing in terms of the expenditure of what was effectively our money in managing our product schedules or our particular capabilities. This started for Navy in 2010. We had our second major deep dive in February-March this year. We have another one due in November.

That has enabled Navy to be a far better informed customer in terms of the service provision from the DMO. The more you interrogate these materiel sustainment agreements—and for the first time we now have key performance indicators injected into those—one question begets another and you become far more forensic in your analysis of how they are managing a capability. That is actually a constructive process; it is not a destructive one. It builds a better understanding of each other's challenges. Quite frankly, there have been times when we were ignorant of some of the challenges that DMO was confronting in trying to manage our capabilities.

So I think Rizzo is absolutely right. And I am quite happy that we have started that journey because we are more informed as a consequence of it. We are getting a better mutual understanding of the challenges associated with managing some of our capabilities, including what Rizzo highlights in terms of the challenges in managing aged capabilities. So we need to understand what we need to do to support the DMO to manage those aged capabilities, and to lobby on their behalf as well as our own to ensure that they are given the resources to deliver what we expect of them. It is a good process.

Air Marshal Binskin : To build on that, I think we are seeing that capability managers are now a lot more in the process than they were before, but it takes time to change that. Materiel sustainment agreements take a lot of time to develop. Each MSA is very thick, and the various capability managers go through those with the DMO on an annual basis on what is required in a sustainment sense.

Over the years you are also seeing—again, back to Air Force being an engineering logistics organisation—the investment of people in the DMO was about 850 or 900 people and that was Army and Navy combined. The previous two service chiefs in Army and Navy realised, in about the 2009-10 time frame, that it takes time to develop those skills and put them in.

There is another important part here. The capability manager has primacy in capability but he or she cannot discount the needs of the DMO in a sustainment sense. At some stage you get to a point where you have to negotiate with the DMO. There are commercial or sustainment aspects where a ship must go into refit or—I cannot remember the exact term—alongside for maintenance. The capability manager can say: 'Yes, that's okay. Put it off. Put it off. Put it off.' But at the end of the day it gets worse and worse, and at some stage it will be off-line for a while. The capability managers from the chief level down to the environmental commanders—the fleet commander, air commander and forces command—need to weigh up those issues when making their capability decisions. A short-term or short-focus decision may have a long-term impact. They need to understand both those, and you can get that only by working closely with the Defence Materiel Organisation.

Senator FAWCETT: It is no different to 20 years ago when the maintenance people worked for the capability manager. They advised him, as opposed to having a contractual agreement with him around the same things. Has there ever been an analysis of the net cost to Defence of now having all these contractual relationships, sustaining additional organisational structures and having, as you said, MSAs of varying thickness as opposed to having people—whether civilian, APS, military or contractor—working within the chain of command of the military? Has that cost-benefit analysis been done?

Air Marshal Binskin : I do not think that has been done. I will make this comment: the only people who talk about the 'good old days' are the people that were never there. I hear that more and more around the place. The 'good old days' had its own issues. To be quite frank, the last thing I want to put on us is another review—we have got a lot of those.

Senator JOHNSTON: Hear, hear.

Air Marshal Brown : But you have to say that the current organisational construct puts high transactional costs and a lot of communication between the groups. You could look at other constructs that would probably be more effective and efficient than the ones we have at the moment.

Senator FAWCETT: That is the heart of my question. I am not suggesting we go back 20 years. But, as we move forward, the last thing we need is more levels of bureaucracy and more interservice agreements. We need to find a way to streamline and get the continuity of command such that the person we want to hold accountable has a reasonable level of control over all the elements he needs to do his job.

Air Marshal Brown : The thing you need to be careful of is that we have constructed a whole lot of input-focused organisations; that is the way we are at the moment. The reality is that we have an output that we have to produce. It is much better if you can get everybody involved focused on the output rather than what the inputs are.

Senator MARK BISHOP: You made comments about the high transaction costs and the extensive internal consultation. That is a direct consequence of the matrix management system in Defence, isn't it?

Air Marshal Brown : That is true, but we are not too different to a lot of other organisations that wax and wane on organisational constructs a lot of the time. That is one the big disadvantages of a 14-group organisation: to get anything done requires an extraordinary amount of effort across the groups.

Senator FAWCETT: The WA government is in the process of unwinding their shared services. Part of the rationale for shared services was to get commonality of process. For example, all three services are operating aircraft, but they all work to one process, because you have a regulator who stipulates a process and then audits it. There are probably many areas you could move forward by winding back shared services but having common standards.

Air Marshal Brown : That model—having someone set standards and frameworks and letting the output functions look after the whole process—is probably the better way to go.

Senator HUMPHRIES: Can I ask about the role of the Capability Systems Division in bringing a project for consideration of the options review committee. Do capability managers work with the Capability Systems Division? If so, how and when do they get involved?

Air Marshal Harvey : Within Capability Development Group at the moment we have Capability Systems Division—they are basically sponsors of the project—and Capability Investment and Resources, which are the contestability side of the shop for that. In the capability systems side within the individual environments, there will typically be a desk officer, who is the desk officer for the project. They will bring all the inputs together. They will bring that to the capability development steering group. At this point, as I mentioned before, the capability manager representative is there, depending on what level the meeting is. They will then go through the various committees I mentioned before. There are probably in the order of a dozen people sitting around the table, and the capability manager is at least one of the people. There is DSTO, DMO, Defence Support Group and the strategy group. The capability manager is a key player at all those meetings.

Senator HUMPHRIES: It is a sort of continuous involvement with that division.

Air Marshal Harvey : Depending on the size of the project, there might be a standing integrated project team, of which the capability manager would be a part.

Senator HUMPHRIES: What input do capability managers have in the development of the project management plan for a project?

Air Marshal Harvey : A project management plan typically is more a DMO lead because they will become the project managers once we get through project approval. But again, as part of the sign-off from the key stakeholders, they will get a chance to sign off on the key documents as well.

Senator HUMPHRIES: The chance to sign off on key documents as in—

Air Marshal Harvey : I will get back to you as to whether the capability manager signs the project management plan or not. But as part of the capability gate review board they get to review all the key documents. That plan itself will be a DMO lead. I am not sure whether the capability manager signs off on that one, but I will get back to you on that.

Air Marshal Binskin : If he or she has resource implications in that then they should be in the sign-off process. One of them would be AOSG, for example, in a test sense. I am with CCDG; I have to remember whether I signed off on it or at what level we had the coordination. But we can check and get back to you.

Air Marshal Harvey : There are in the order of a dozen documents. A project management plan typically looks at how the project will be managed as such. We have a test concept document as well. There is a test master plan. You have logistic supports concepts. There are a whole range of documents.

Senator HUMPHRIES: Does sign-off mean taking responsibility for what is put forward in the document?

Air Marshal Harvey : Typically you have someone that takes the lead on the document and you get agreement of the stakeholders that they agree with the content of the document. You still have one person who led the development as being responsible for the content.

Senator HUMPHRIES: In what sense are they responsible? If something goes wrong are they the person that you turn to to say, 'What happened here?'

Air Marshal Harvey : If you had made a judgment call—say an acquisition strategy, where DMO typically take the lead, they will provide advice on acquisition strategy. If for some reason it goes wrong we would certainly look at DMO and say: 'What went wrong with that advice? Why did that go that way?' With a test concept document AOSG may provide advice on that. If something does not work out we go back to AOSG and say, 'What went wrong?'

Senator HUMPHRIES: Does the capability management in that process assist in establishing the cost estimates for the project as well as the risk and mitigation strategies that are going to be used?

Air Marshal Harvey : Cost estimates are very complex. We have a very detailed cost modelling approach with multipaged spreadsheets developed for the cost models. People are responsible for individual elements of that. A key driver of cost would be rate of effort. The capability manager is a key player in what the rate of effort will be. They have a key role to play in sustainment.

Air Marshal Binskin : But we will check the cost models as well.

Senator HUMPHRIES: Again, the language is a key player. It does not quite tell me whether he takes responsibility for delivering that plan or whether he supervises somebody else doing it or whether there is a collective responsibility for that.

Air Marshal Binskin : Delivering the plan, delivering the project, is the responsibility of the CEO of the DMO.

Senator HUMPHRIES: I mean delivering the plan up the line.

Air Marshal Harvey : Are we talking about the project management plan in this case?

Senator HUMPHRIES: Yes.

Air Marshal Harvey : It depends. The DMO will have the lead in developing the project management plan. That will call out responsibilities that the capability manager will do. It is just a matter of how you mean 'key role in the plan'. We will check to see if they sign off on the plan, but if there are elements in there they are responsible for, as VCF said, I expect they would sign off that part.

Senator HUMPHRIES: The Major projects report has highlighted problems and delays often resulting from shortcomings in product specification in this process. In you view is product specification the responsibility of capability managers? If not, who is responsible or who shares responsibility for that?

Air Marshal Harvey : Prior to project approval, CDG take the lead in that, but in consultation with DMO and the capability mangers. We will do as best a job as we can getting that right, but part of it is judgment calls and the level of specificity of those requirements, what are essential requirements, what are important requirements. We will work together with the manager and the DMO to develop those specifications.

Senator HUMPHRIES: Are you saying CDG is responsible for product specification? It is not the responsibility of capability managers?

Air Marshal Harvey : Capability managers will give advice on what they basically need to deliver capability. It is our job to work largely with DMO and contractors often to turn those into formal specifications that go out to industry. A capability manager will say, 'This is what we need the thing to do, but it is not their job to write the legalistic specification of that.

Senator HUMPHRIES: I realise that, but whose responsibility is it to settle those specifications for proceeding up to first and second pass?

Air Marshal Harvey : We will take the lead in bringing that all together but we would sign that off. Again, that is one of the key documents that has delivered the operational concept document or the performance specification. The key documents that are delivered are the document suite, and the Capability Gate Review Board would clear those documents.

Senator HUMPHRIES: Is the Black review going to lead to changes in any of those processes?

Air Marshal Harvey : It possibly could, based on a number of factors, given that at the high level, the defence level, there was a requirement to review all the committee processes with, say, a sunset of 12 months. Every 12 months there would basically be a review of the requirement for the committee. So it could affect from the top level down. I do not know yet because it has not been considered. But there are a large number of committees, as it identified, so the future of those we do not know. Inside the capability development process, that will be part of the review when the associate secretary takes over as well. It could change; we just do not know.

Senator HUMPHRIES: You would be aware of the views of a number of stakeholders before the committee that industry's input is involved too late in many of these projects. Isn't that input at a stage where it can help shape the product specification or other essential information about defining what project is required or to be delivered? I think you have already commented on this today, Air Marshal Harvey, but are there other comments from the panel here about the validity of that complaint? Are we involving industry at an early enough stage to identify better what it is that we want and how we can get that?

Air Marshal Harvey : Can I add a point to that, and I was going to follow up with the specifications. Often we will put out a draft tender document for industry to comment on as well. We do not want to put it out there absolutely set: 'This is what it has to be.' We will seek industry engagement as well to review a draft document before putting the final out. Otherwise, as I said this morning, we engage at various levels. But that is one of the key parts as well, to make sure we do not put a specification out that is not possible to be delivered. So we seek industry feedback before we put that out formally.

Senator HUMPHRIES: At an early enough stage? Are you confident by the time industry is brought into the room to comment on the specification that it is not so far advanced that it is more a case of shaping its direction rather than determining the overall nature of it?

Air Marshal Harvey : That is what I said—in the early days we talk about the informal engagement so we understand what is out there in the market and get ideas from industry. We go through the environmental working groups to again shape that. We help them to frame the requirements and then the formal engagement is for the draft tender document. As General Caligari said, in things like Diggerworks they engage with industry to understand what the art of the possible is. So it is really a bit of a capability push idea to know what is out there that is available already.

Senator HUMPHRIES: So industry is just whingeing to us there, or they are seeking advantage by being involved earlier in the process and they want to get in on the ground floor to maximise their influence on what happens.

Air Marshal Binskin : I would if I were industry. We talked this morning about the probity issues. It is hard to bring them in early. We talked about the need to bring them in early so there is confidence they will tool up. But they will not tool up until there is a commitment, but you cannot give a commitment until you have been through the proper competition. It is a balance. You also do not necessarily want a particular industry or company to shape the response because there might be other options there as well. I think the balance at the moment is okay. Was it SEA1180 this morning? We can talk to you a bit more about what is going on with industry because that was one of the discussion points, so I will put that to Chief of Navy and he can give you a bit of what is going on there very early on in the process.

Rear Adm. Jones : I heard this morning that you had some interest in SEA1180 and the level of industry engagement. SEA1180 is not due to deliver for a number of years yet, but both the Chief of Navy as the capability manager and Air Marshal Harvey as the chief of the Capability Development Group signed what we call an initial capability description which is an unclassified document—this is specifically in relation to SEA1180 and the OCV. That is the vehicle by which you encourage industry solicitation about the concepts that are envisaged within that project. I have a copy of that here if you wish to see that.

Senator HUMPHRIES: Can you table that?

Rear Adm. Jones : Yes. The conclusion section of that is quite insightful in answering some of those earlier questions that you raised about too much specificity in the solution set. That is not in fact the case. It is quite open if you read the conclusion about what industry could look at. This is not due to deliver for another nearly 10 years and we are already trying to engage with industry on this matter.

Senator HUMPHRIES: And this document went to the relevant industry stakeholders?

Rear Adm. Jones : My understanding is that Capability Development Group use this document to give to industry that shows an interest in that project so that they understand what our capability description requirements are.

Senator HUMPHRIES: In SEA1180?

Rear Adm. Jones : In that particular instance that is specific to SEA1180, the offshore combatant vessel.

Air Marshal Harvey : That is the invitation to register formally. This is informal advice to industry.

Senator HUMPHRIES: Informal advice?

Air Marshal Harvey : Yes.

Senator HUMPHRIES: How long after the capability gap was identified that led to SEA1180 and that document? Was it before that document was issued?

Rear Adm. Jones : At this stage there is no gap. This is part of a defence capability plan project which seeks to replace those capabilities which are approaching their end of life. So this is getting ahead of the game.

Senator JOHNSTON: It is a new approach to maritime capabilities, which modulates a whole lot of existing capability in different FEGS into one type of vessel.

Rear Adm. Jones : Not necessarily. If you read that it says it might be more than one type of vessel. In fact it is very clear in the conclusion. I think it is important to understand in the context of the comments made about this project that the capabilities that are represented by unique platform types at the moment—we are talking about patrol craft, mine hunter coastal vessels for mine warfare operations and hydrographic survey vessels—bring with them an overhead. They are unique individual vessels with different systems that drive up my sustainment costs and my workforce challenges in terms of the training overhead for dissimilar workforce types who cannot be cross-pollinated across a broader range of navy capabilities.

What this seeks to do is get greater commonality against subsystems within the vessels, be it one hull type or perhaps more than one, but it also is reflective of where these warfare fighting techniques are moving into the 2020s. We are seeing a convergence of the hydrographic survey and mine warfare type of work by virtue of the greater use of automated underwater vehicles or unmanned underwater vehicles. So there is a natural synergy to be developed by bringing those together into common systems which plug and play.

This is a challenge for industry—we know that—but it has been done before. If you look at what the Danes have done, with their new arctic patrol vessel they have developed a modular concept in a patrol vessel. They have a modular gun, a modular evolved Sea Sparrow launcher system and a modulised MU90 capability. They tried this earlier in the 1990s with a patrol boat type, but they abandoned it because it was too much of a technological leap. They have certainly got it going now and I think Australian industry can probably arise to this challenge. We have given them a broad definition of what we think our requirements are so that they can help define what their options to deliver might be.

Senator JOHNSTON: That helps us a lot, Admiral. When we asked this morning for an example of where this has been done before, we did not have one but we now do have one. I am not sure that the full enumerated pockets of capability are in the Danish example, but to us, as casual and slightly educated observers, the combination of several, discrete, important maritime capabilities for an island nation such as ours, laid out in the way it was, has alarm bells ringing, as you would understand.

Rear Adm. Jones : I do, but I would highlight that we are not alone here. There are other western navies who are seeking to move towards modular systems that are adaptable because of those benefits that I outlined earlier—reduced sustainment and training overheads and the convergence of the different war fighting techniques towards common solution sets.

Senator JOHNSTON: You can bet on the fact that we are very supportive of exactly what you have described. We like to see the challenges attacked and innovation put to the fore. But what we are looking for is the confidence that the i's are dotted and the t's are crossed at inception, and that it is not something that is a thought bubble that has come from nowhere.

Rear Adm. Jones : No, I think the capability development group have already done some advanced work on this. One of the capability technology demonstrators looked at unmanned underwater vehicles, and that was a precursor to informing some of the work that we are doing. And so it is a natural evolution of understanding of what we are asking industry to deliver in the technology domain.

Air Marshal Harvey : Not just that, but we are also looking at the US littoral combat ship, because they do have some modular systems in there, to see what lessons we could learn.

Senator JOHNSTON: That is the example I thought you might have given me—a smaller version of the littoral combat ship, with all of its versatility, flexibility and capacity for our littoral environment. But I am told that multihulls are not the flavour of the month inside Navy.

Rear Adm. Jones : When you read that you will see quite clearly that the Chief of Navy, Vice Admiral Griggs, has signed up to the fact that he is not mandating a solution. What he is mandating to a certain extent is commonality of subsystems to drive down his sustainment cost—that is where he wants to go.

Senator JOHNSTON: We relate to that.

Rear Adm. Jones : But if the OCV ultimately becomes a system of ships—some mono-hulled, some tri-hulled—he is not opposed to that. In fact, he is quite open in making the statement that he has signed up to to inform industry.

Senator JOHNSTON: I appreciate those comments. Thank you.

Air Marshal Harvey : In terms of engaging with industry, there is also the land side—the Land 400. As part of the Land Environment Working Group at the Defence and Industry Conference we released the user requirement for the Land 400 as well, to get out there with industry early to say, 'Here's broadly what we want,' to get the ideas.

Senator JOHNSTON: I come back to this issue of probity. It strikes me that we overstate the probity problem. Yes, we are a small market. Yes, we our primes are all foreign owned, but has anyone ever thought of trying to get them together to get their advice?

Air Marshal Harvey : That is what we do in the environment working groups.

Senator JOHNSTON: Yes, but at the environment working groups they are all sitting there together and they are all looking over their shoulders saying, 'I'm not going to tell them about what I've got on my planned list.'

You have a probity officer with you and one-on-one you say, 'Here's our problem; what do you think?'

Air Marshal Harvey : That is what we tend to do. Generally we have a group meeting with all the people in play. You are right; generally there is not that much discussion because they do not want to talk in front of the competitors. It tends to be us talking to them. You will get some discussion on broad common features. The cost of tendering is always a good one that comes up as a cost. You then break out to special group discussions on a topic. Then you have one-on-one meetings. We can do that. It is not a problem having one-on-one discussions as long as we do not go beyond a certain point and as long as you are fair and willing to share the same information with other people and make sure that we do not swap information we get from one company inadvertently to another company.

Senator JOHNSTON: That is important; yes.

Air Marshal Harvey : There is nothing to stop us talking with them. We just have to be disciplined in the way we do it.

Senator JOHNSTON: You have to have a template that is signed off by probity officers who are experienced and know what is a fair thing.

Air Marshal Harvey : Depending on what level we are at. Once in the tender stage I certainly defer to DMO. It is very legalistic. When we are at the early, exploring-concept phase it is not quite as difficult. Again, the challenge is not to flow ideas from one contractor to another inadvertently.

Senator JOHNSTON: It is the big projects we are talking about. It is the big-ticket items which require an amount of work on them before you start to really do anything, to get the concept right.

Air Marshal Binskin : I guess we also get around it in the development phase where we fund, up-front, a number of companies to develop a solution. We have done that with Wedgetail. I think there were three different companies and we put $8 million in each company to develop. We had some skin in the fight; they needed to put money towards it as well.

We do do it. Air warfare destroyer is another model we developed. So for the bigger-ticket items we do do it. But it does add to the process. It does add to the workload, as well.

Senator JOHNSTON: The tendering example I am thinking of is the patrol boat tender that said, 'Here's the maritime environment. Tell us how many boats, how many days and what we need to spend. Just come back with the solution.' It strikes me that industry that has the capacity to do that, and carry that burden, should be utilised, because they do it every day, potentially.

Air Marshal Binskin : And there are some capabilities where that is useful. There are others where it is not. If you do it too much you actually take the capability manager out of the loop so far, because you have given industry the chance to develop the whole—

Senator JOHNSTON: I contrast that with the specification of the tare weight across axels in the Land 121, for instance. Truck manufacturers know what they are doing, pretty well, I think.

Air Marshal Binskin : Yes.

Senator FAWCETT: Speaking of trucks, I move to a slightly different question. In the acquisition phase obviously part of the capability manager's role is to identify all the FIC elements that you need to fund and make sure that they are appropriately provided for in your personnel, training, hanger age for aircraft, shelters to put trucks under, petrols, oils, lubricants et cetera. All of that has to go into the process and go up to government and get approved. How do you cope? What pressure does it put on the capability manager when government turns around and gives you a gift of 101 Bushmasters? How did that go through that process and how do you then cope with the ongoing costs to sustain that capability?

Major Gen. Caligari : Presumably we have no problems with that. It is now just matter of the facilities and all of the FIC elements that go with it. As capability managers we are responsible for a capability realisation plan which ties together all of the fundamental inputs to capability—people, organisation, support, facilities, training, equipment and doctrine. We put all of that together. The Chief of Army is the capability of manager for land capability. Depending on the significance of the capability there could be three-star steering group, right down to something that my one star deals with. Across the board, he keeps his eye on defence support group and the facilities and he coordinates. For us it is not so much 'How do we cope with that?' but a matter of 'How do we integrate that with other things that make it a capability?'. Obviously the vehicle itself does not come as a capability. How do we introduce that into service into an army that is actually busy? These are the main two issues for us.

Air Marshall Harvey : As capability development takes forward the proposals for government approval, we are responsible to identify those FIC elements and make sure they are all covered, and they are addressed in the proposal. As we said then, the capability manager will be responsible for a capability realisation plan to make sure they eventuate, but we have to identify all those requirements as we go forward.

Senator FAWCETT: Do you have the option in a case like that to go back to government and say 'Thank you very much but we are already going through SRP. We are very lean and we need additional funding for certain FIC elements'. Or do you have to take out of hide to absorb that additional capability.

Major Gen Caligari : We asked for these vehicles because they relate to the number that we have lost in Afghanistan and, based on an attrition rate, how many we thought we needed for the time that we are likely to be in Afghanistan. So the 101 was actually a demand of Army's to replace vehicles that have been destroyed or are likely to be destroyed. We had that all worked out before we asked.

CHAIR: Can I just say, it has been suggested that we have a quick five minute break. Is that something that you would like to do? Okay, we will take a five minute break.

Proceedings suspended from 16:26 to 16 : 39

CHAIR: I might ask Air Marshal Binskin to make some comments about any changes that might have occurred in the way Defence is handling issues to do with developing equipment and whether there has been a change in approach since 2008, as I gather.

Air Marshal Binskin : Chair, I just wanted to clarify. We are sitting and we are getting the questions, and we are not sure what state of evolution of the capability development system we are talking about. I guess there were different parts or different phases that we have been through. We went through the Defence Acquisition Organisation—the DAO—and then Kinnaird. That was when the sustainment and procurement were all put together, in about 1999 or 2000, from memory. Then we went through the Kinnaird process in about 2003-04, which dictated basically the current process we are in—the two-pass process. Then, in 2008, we had the Mortimer review, which increased the overlay on the process, and that is what we are currently working to. So sometimes we talk about projects that may have actually started—some of the longer ones. Wedgetail is one; it started right about the formation of the DAO, before Kinnaird. For a lot of what Kinnaird brought up, Wedgetail had been the model. Then, post Kinnaird, I think the tanker project—for an aviation example—was post Kinnaird, with some issues. Now we are talking about projects that we are starting to initiate now in the post-Mortimer period. So we would like to think that we are taking the lessons as we go through each of those reviews, and rolling those in. That is where you are starting to see us talk more about the primacy of capability managers, or the capability managers coming up to the fore now and having equal say in these capabilities.

One thing I would say—I think Chief of Air Force alluded to this—is that each one of these reviews has increased the transactional costs; it has added to the process, not necessarily streamlined. So that is an issue that we do work with day in and day out. But at the end of the day, from what I can see at the moment post the 2008 review—the Mortimer review—it is a better process that we now have in place. It does balance the requirements far better than what we had previously. The commercial capability requirements and the risk are better articulated. It is hard at the moment: because we are answering questions on the current process, it does not necessarily overlay to some of those earlier projects that we are talking about—some of the problem children there. I think that when the CEO of DMO comes in he will be able to give you statistics on how we are actually tracking post Kinnaird in costs, schedule and the capability side. So I think that, if you wait till Friday, he will be able to give you an idea pre and post on that.

Senator MARK BISHOP: Air Marshal, thank you for that information. I do understand that this discussion has really been a continuum of 10 or 15 years, and I do understand that a lot of questions that you are answering today are post Mortimer and post 2008. I think the context of a lot of questions that individuals are asking is really that we are trying to be satisfied that, with a lot of the lessons that were learnt from all of those legacy projects and all of those ones that had a lot of notoriety, say, pre 2008 and 2009 and are confirmed by more recent ANAO reports, the lessons learnt are lessons learnt and are being implemented as we go forward. That is the focus, I think, of where the committee wants to go. It is no good hanging people out to dry for bad decisions that were made in 1998. That is done; I accept that. But I want to make sure that the bad decisions made in 1998 are not going to be replicated as we go forward. If you are asking for the context or a focus of, I think, the majority of people here, that is the focus.

Air Marshal Binskin : I agree with you. It is only a lesson learnt if you do not repeat it; otherwise it is just a lesson identified and it is useless. Our aim is to try to learn.

CHAIR: Thank you very much; that is very important clarification for us to have, I think.

Senator HUMPHRIES: I want to clarify the situation with the materiel acquisition agreements. You said that the capability managers have input into those agreements. Is the capability manager actually responsible for the agreement? Does he deliver the agreement? What is his authority over the agreement?

Air Marshal Harvey : They are a cosignatory. It is the capability manager, Chief of Capability Development Group and the CEO of DMO. It is basically the vehicle by which we transfer money from the unapproved project to the approved project for DMO, primarily, to deliver that. We give them the funds and they deliver the materiel capability.

Senator HUMPHRIES: I suppose no-one is the purchaser or the provider in that model; it constitutes an agreement between those three parties, effectively, for the delivery of the project.

Air Marshal Harvey : It is essentially a contract project. We transfer the money, potentially billions of dollars, across to DMO to deliver the materiel parts of the capability, whereas the capability manager has the rest of the FIC, the fundamental input capability elements.

Senator HUMPHRIES: The MAA specifies the scope, schedule, price and milestone criteria for the work assigned to DMO. The capability manager is responsible to ensure that the capability is brought into service—that is still his responsibility. What is the role for CDG in all of that? Why is CDG a party?

Air Marshal Harvey : At the point of second pass, we have been responsible for getting the project approved. We hold the money in the unapproved project—so we are transferring money across to DMO at that point. We basically hold the contract in terms of what was agreed by government, what was agreed on cost schedule capability and all the details that go there. Effectively, while the capability manager is the ultimate customer, we are the ones developing the contract for DMO to deliver at that stage. We are the keepers of the requirements agreed by government.

Senator HUMPHRIES: That is not DMO because it is providing to the requirements—okay.

Senator FAWCETT: If, for example, there is an enhancement to a capability and the capability in question is deployed, and there is a change in circumstances such that you need to adapt or change the scope of what you are procuring, do you then go back and actually sign a new MAA? Who drives that transfer process? If it is urgent, is the role of capability manager enhanced and is he able to drive schedules, accept risk and make decisions over that when it is already in that process?

Air Marshal Harvey : Initially, we go through a materiality assessment: is materiel enough to have to change that agreement in the first place? If not, we basically go ahead. If it is, yes, we would have to come back and change the MAA. But before changing that, we would have to change the agreement from government as well. So we have to go back to government to change the scope or the schedule or the cost to allow that to happen.

Senator FAWCETT: In regard to putting options to government, if the capability manager says, 'I think this option is critical,' but DMO, for whatever reason, says, 'We're not happy with the contractual side of it,' how is that resolved? Is that what you were discussing previously where it goes back up to you—

Air Marshal Harvey : Yes, we try to resolve it at the lowest level we can and get to an agreed position to go forward. If we cannot get it at the lower level, we work at a three-star level and if not there we go to the DCIC, and then CDF and Sec would make a call. That would be the process. It gets back into the original approval process then; you get back to providing options to government, cost it and then get the government to agree.

Senator FAWCETT: Once it has gone through that process and you have put it up to government, do you then have any control? Is there any accountability for the time frame within which government should respond to Defence over a UOR?

Air Marshal Harvey : We do not control it, but we try to influence it. Our job is to get it to the government as soon as possible and to get it to government in as good shape as possible, and to work with the central agencies, who clear it. So there is a lot of scrutiny by central agencies before it gets to the minister or the secretary of the committee on national security, and then to NSC. We have to do everything we can to make the document as well argued as possible to get the right decision. If required, our Chief of Defence Force would talk to the minister to get a faster consideration. We work that process to try to get it through.

Senator HUMPHRIES: The Auditor-General told the committee previously that the effect of centralisation of the acquisition process in organisations, including DMO, is that the responsibilities that rested previously with the service chiefs are now DMO responsibilities. Do you agree with that assessment and what are the implications for the service chiefs if that is the case, particularly regarding the accountability of the process?

Air Marshal Binskin : What was the question again?

Senator HUMPHRIES: The Auditor-General says that the effect of this new arrangement is that whereas previously responsibility rested with service chiefs they now rest, more or less, with the DMO. I think that is a fair summary of what he had to say.

Air Marshal Binskin : It depends on which process we are talking about, because if we went back in fact to the Defence Acquisition Organisation days back in 2000 and then when the logistics areas were brought in it became the DMO and then we had Kinnaird. I actually missed out a step. We are looking back to that process way back then when the DAO and the DMO were responsible for the procurement of the product—bringing those specialisations together to be able to do that. It is not a recent thing; that was a fair way back. What we have had on top of that are a number of reviews—Kinnaird and Mortimer—which have tried to tighten up processes around that to get the best advice to government for decisions. That was Kinnaird. Then Mortimer brought the capability management back into play as a far more important component. But as Chief of Air Force said before, what we have had is an increase in the transactional side of doing that. Prior to the DAO days, back in the nineties, they were large organisations that the services had doing the procurement. If you think about it, it is not just procurement of the product; it is the facilities, the IT systems and everything that would go with it that you would be looking at doing today and replicating that across three or four organisations within Defence. So, as CCDG said before, what looks like a simple change to go back to the way it was is probably not simple to put in place and you are going to create tensions in other areas.

Senator HUMPHRIES: You would have heard it said by various people that the service chiefs ought to be the primary clients and not CDG, for example, in the sense that you have described the process, Air Marshall Harvey. So you do not think there is any basis for that suggestion?

Air Marshal Binskin : I would like to see the post Mortimer period and what we have put in place as part of the capability development stream and the Mortimer stream as part of the strategic reform program go for a year or two to see what lessons we get out of it and develop on that. The problem we have sometimes is that we are changing every five years but the projects take eight years to deliver. We are inside our own decision loop sometimes with the reviews rather than letting them mature for a little bit and refine the processes that you need to be able to run that system.

Senator HUMPHRIES: So you are flagging the possibility that we could go back to that system in the future.

Air Marshal Binskin : Everyone would like to own everything that they have. Let me move away from just the pure product of aircraft. If you took it to the next degree, if I were chief of one of the services, capability management, I would need to set up my own IT organisation and facilities organisation as well. Again, it gets back to what were the good old days and whether they are actually practical or not. The biggest problem with the process at the moment is, as you have heard couple of times, the transactional side of it. If that could be refined—and that is what we are working to try and do—we would be in a better space.

Air Marshal Brown : You always end up with a problem with large shared services. The output of any organisation depends on the lowest level they focus their enthusiasm. I just fundamentally believe that they are much better if they are output focused. So if you build large input organisations you will always have difficulties in getting them to relate to what their actual output is sometimes.

Rear Adm. Jones : There are other reasons why you would want to centralise some of those functions. It is about the joint nature of the war fighting and where we are going to. We rely heavily on the fact that we do have some of those centralised functions so that they take into account all of those inputs from the services to ensure we can talk to each other when we are out there in a joint environment. We are seeing this unfold with the landing helicopter dock ships, where that is very much a joint effort between all three services. We rely upon those central groupings, particularly in the communications and information domain in terms of data links, to make sure that we are moving together in a joined up manner. It is very important for us.

Senator HUMPHRIES: There are still cases, though, where products from DMO are rejected by the capability managers as the service chiefs, aren't there? The FFGs, for example. How does that come about in this model?

Rear Adm Jones : Which specific element of the FFG operation are you talking about?

Senator HUMPHRIES: Take that question on notice. I assume that in all three services there are situations where a capability manager will reach a point where he or she will reject a product from DMO. That has happened in the past.

Rear Adm Jones : I think the upgrade is a legacy program though. It is a bit like the ones that we mentioned earlier—it had its genesis a number of years ago, so it needs to be seen through that lens in terms of the situation we find ourselves in when using that as an example.

Senator MARK BISHOP: Let me ask the question in a different way then, because we all went through the energy upgrade program ad nauseum and we understand the problems of communications and the underwater stuff and the upgrades. Thales reminded us of it again this morning. In the new regime, post 2008, do you conceive that it is possible for a capability manager at the end, when he has to sign the capability into service for his respective say 'no, that's not what I wanted, and I'm not taking it'?

Air Marshall Binskin : If the DMO was delivering what he or she had signed off on right back at the start of the project, I cannot see why they would do it. If the current process in place breaks down you may end up in that situation, but, if the current process works the way it is supposed to, I do not see that being the case, because—

Senator MARK BISHOP: Is it really possible with all these lessons learnt and reforms that are part and fully implemented, for a service chief in any of the services to say at the end of the line, when the DMO wants to sign the final cheque, 'no, I don't like that capability' or 'I don't want that capability' or 'it doesn't do what it says it should' or ' I don't understand it—nick it off'? Is that possible?

Air Marshall Binskin : I see a point where a contractor fails to deliver what has been contracted and where you end up with a couple of options. One is to terminate at great cost. Or you can accept what the contractor can deliver with a bunch of liquidated damages. So there may be a point down the track where, although the contractor signed up to deliver something, they physically cannot do it. That has happened in the past.

Senator MARK BISHOP: Seasprite.

Air Marshal Binskin : Seasprite is a classic example. As long as, early on, the capability manager comes in on that and the discussion happens very early on, you may choose to terminate early. You may choose to have to accept a lesser capability and look at what you need to do to remediate that through other means if you have made a fairly large commercial commitment at that stage. That would be an area to consider if a contractor just does not deliver.

Senator MARK BISHOP: But presumably the capability manager, through the process, would have become alert to the fact that the contractor was not likely to deliver at the end

Air Marshall Binskin : With the proper DMO monitoring of projects, which has evolved very well over time, you should have early indicators of that.

Senator MARK BISHOP: So is it right to say that should not occur? Except for the instance you have just mentioned, you cannot conceive of that occurring again into the future?

Air Marshall Binskin : Never say never—but I think the processes are better. I will give you an example of where quite early on in the newer process the capability manager got in with delivering a project that was of concern: the Wedgetail. We are at a point where we are in a contractual cornice with Wedgetail, but we brought the capability manager in and developed a plan with the capability manager. This meant a longer delivery time but in fact allowed that capability to be phased in over time. That worked well for the contractor, well for the DMO and well for the capability manager, and we ended up through a partnership bringing that capability in. I think it is about to hit IOC, isn't it?

Air Marshal Brown : Yes.

Air Marshal Binskin : It is a fantastic capability, but it had troubles as it went through. If you took the direct line, 'No, sorry—I'm not going to accept that because it doesn't deliver what I want,' we would still be there now fighting that. So there is a give-and-take as long as you have that conversation going well between the capability manager and the DMO and CDG and the contractor and you work in partnership.

Senator XENOPHON: I have one question of Mr Orme, who has been neglected for the last couple of hours. It relates, Mr Orme, to when you gave evidence earlier today about your role in terms of strategy. You may be familiar with the paper delivered by U.S. Army Colonel John Angevine to the Lowy Institute in the middle of this year called Dangerous luxuries. He was quite scathing. He says that the white paper prepares:

… for contingencies that are least likely to happen, and—

Dedicates—

large portions of the nation’s limited resources to missions that exceed the ADF’s capability.

He goes on to say that our tasks are:

… more likely to be humanitarian, peacekeeping, nation building, capacity building, support to civil domestic authorities, and other operations on middle and lower levels of the military continuum of operations.

He also says that the Australian planners:

… create potential capability gaps in the very mission areas that Australia would most commonly offer as its principal contribution to a U.S.-Australian alliance.

That is quite a scathing critique of the white paper. Is that taken into account when we undertake our long-term planning with respect to defence and procurement?

Mr Orme : I am aware of that report. I cannot say that I have total recall of the content. As a general comment I can say that there are a wide range of views about matters to do with Australia's strategic planning and national security. That is one particular view; there would be a wide range of views. Clearly, in the process of assembling strategic guidance documents such as white papers, we look at a whole range of views from different commentators. The process these days tends to be a little bit more open than it used to be. That is one perspective from one individual, and there is a wide and rich tapestry of use that contribute to our thinking in this particular space.

Senator XENOPHON: If you could just take on notice some of those matters that I have raised in the paper Dangerous luxuries, and, if you are in a position to comment further, I would appreciate that.

Mr Orme : Okay.

Senator XENOPHON: Thank you.

Senator STEPHENS: As Senator Bishop flagged before, we are quite interested in the response to the ANAO report and the submission. I wonder if you have had the opportunity to read the submission to this inquiry.

Air Marshal Binskin : No.

Senator STEPHENS: There are several issues raised. Perhaps if we put them on notice it will give you an opportunity to respond to the areas of concern.

CHAIR: This hearing is concluded. Thank you very much for appearing today.

Committee adjourned at 17:03