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Joint Committee of Public Accounts and Audit - 27/02/2015 - Major projects report 2013-14: Defence Materiel Organisation

DUNSTALL, Mr Harry, Deputy Chief Executive Officer, Defence Materiel Organisation

GRIGGS, Vice Admiral Ray, Vice Chief of the Defence Force, Department of Defence

McKINNIE, Ms Shireane, General Manager, Joint Systems and Air, Defence Materiel Organisation

McPHEE, Mr Ian, Auditor-General, Australian National Audit Office

STEELE, Mr Tony, Director, Assurance Audit Service Group, Australian National Audit Office

THORNE, Mr Col, General Manager, Land and Maritime, Defence Materiel Organisation

WEARN, Mr Steven, Chief Finance Officer, Defence Materiel Organisation

WHITE, Mr Michael, Executive Director, Assurance Audit Service Group, Australian National Audit Office

Committee met at 09:34

CHAIR ( Dr Southcott ): Good morning, everyone. I now declare open this public hearing of the Joint Committee on Public Accounts and Audit for its review of the ANAO's DMO Major projects report 2013-14. The committee resolved on 4 December 2014 to commence an inquiry into the Major projects report on the date of its public release. I now welcome representatives from the Australian National Audit Office, the Department of Defence and the Defence Materiel Organisation. Although the committee does not require you to speak under oath, you should understand that these hearings are formal proceedings of the Commonwealth parliament. Giving false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. I remind you that the hearing is public and is being Hansard recorded. The hearing is also being broadcast live. I now invite each organisation to make a short introductory statement, and the committee will then proceed to questions. I ask that you limit your opening comments to a few minutes only. I might start with the ANAO, and then we will move to Defence and then DMO.

Mr McPhee : Thank you, Chair. The 2013-14 Major projects report is the seventh review by the ANAO of selected major Defence equipment acquisition projects managed by DMO. The ANAO continues to receive positive feedback and support of this review by a variety of stakeholders including ministers, parliamentary committee members, industry and the media. Acquiring and sustaining capability for the Australian Defence Force is critically important work and this report provides an update on 30 of the most significant projects managed by the DMO. Consistent with previous years, schedule slippage remains a key focus for the DMO, particularly for projects regarded as developmental. The ANAO's analysis illustrates that older projects which achieved second pass approval prior to 2005 generally experienced the most slippage. These projects tend to be more developmental and complex in nature and typically experienced schedule slippage in the past and, of particular note, they have continued to experience slippage. In addition, the ANAO's analysis shows that of the range of completed projects, military off-the-shelf projects tend to be delivered on time and on budget.

For the third year, the 2013-14 MPR includes a project financial assurance statement within each PDSS provided by the project. Of particular interest is that, while all projects again continued to operate within their total approved budget, three projects continued to recognise that available indexation funding may be insufficient as contracted indices escalation may be greater than in the approved project budget. Those particular projects were the air warfare destroyer ships, the amphibious ships and the Anzac Anti-Ship Missile Defence Project. Further, in relation to the AWD ships project, the 2013-14 statement by the CEO DMO continues to note concerns in relation to the adequacy of the total project budget which will be dependent on the results of the AWD reform program.

For the first time, the 2013-14 MPR includes a contingency statement within each PDSS provided by the project. In conjunction with the financial assurance statement, these statements provide greater transparency of projects' financial statements following the move to out-turn budgeting in 2010 and highlights the use of contingency funding to mitigate project risks. The committee will recall this additional disclosure has been as a result of the committee's focus on the resourcing of these very large acquisition projects. Additionally, the DMO expects that the 30 projects in this report will deliver all of their capability requirements, recognising that some elements of the capability required may be under threat but considered manageable. This is consistent with the 2012-13 assessment and represents five project offices currently having challenges sufficient for these to be mentioned in the MPR.

This report builds on the earlier work by the DMO and the ANAO to improve the transparency of and accountability for the status of major projects and is supported by the commitment of this committee to maximise transparency and accountability in defence acquisition projects, for major projects managed by DMO. Additionally, with the number of projects having plateaued to 30 projects in 2013-14, the report now provides for the longitudinal analysis envisaged when it was conceived. I am confident that the increased transparency and public accountability will continue to assist the committee, the parliament and other key stakeholders, and assist the DMO in pursuing its project management improvement agenda.

Further to the committee's request for a detailed options paper on sustainment reporting, as you are aware we have submitted a sustainment reporting options paper for the committee's consideration. We consulted with Defence in the preparation of this paper. We would be happy to address any questions that the committee may have during the course of this hearing on that paper.

In closing, I would like to acknowledge the strong working relationships between the ANAO and the DMO in the continued development of the major projects report. I would particularly like to recognise, at this time, the contribution of the CEO of DMO, Mr Warren King, for his support on the MPR and also, more broadly, for his positive and effective engagement on our performance audit program. Other key stakeholders within the Department of Defence, and particularly the capability managers and industry stakeholders, have also provided the ANAO with valuable assistance on the major projects report. I am joined this morning by Michael White and Tony Steele, who will be more than happy to respond to issues raised by the committee.

CHAIR: Thank you very much. Vice Admiral Griggs, did you have an opening statement.

Vice Adm. Griggs : I do not.

CHAIR: That is fine. Mr Dunstall.

Mr Dunstall : Thank you, Chair. Since its inception in 2008, the number of projects reported in the Major projects report has risen from nine to 30 in the 2013-14 MPR. For the 2014-15 year, I am very pleased that the committee has agreed to remove several legacy projects, and we will be reporting against 25 projects. Over the last year, DMO continued to deliver projects within budget. From July 2010 to October 2014, the DMO closed 86 projects after successfully delivering the capability outcomes using, on average, only 95 per cent of the approved budget.

As with previous years, as Mr McPhee noted, schedule does remain our biggest concern. However, the average schedule slip for the post-Kinnaird-reform projects in the major projects report is 15 per cent, compared with 71 per cent for those projects approved prior to those reforms.

Over the next decade, we will face a challenging growth in workload to deliver the next generation of capabilities to the ADF, as well as sustaining new and legacy systems. Acquisition spend alone is forecast to grow over 80 per cent during this period. Our capacity to engage a flexible, professional workforce will be a significant determinant of the success of the organisation in this environment. I would also like to address workforce. Contrary to media speculation, DMO's workforce today is several hundred smaller than 10 years ago, when we were established. This comes at the same time as we are managing an ever-increasing project workload and the projects themselves are much more complex.

Finally, can I please take this opportunity to thank, at his last MPR hearing as the Auditor-General, Mr Ian McPhee. We have very much appreciated his guidance, advice and support over the last few years in developing the major projects report to the quality product that it is today. We have enjoyed a productive working relationship—or a mostly productive working relationship—between the ANAO and the DMO under his leadership. So, to Mr McPhee, thank you very much.

CHAIR: Thank you very much. I would like to ask you, firstly, about the project maturity scores that we have in the major projects report. There are a number of projects, some of them quite large—like Air Warfare Destroyers, Wedgetail, the MRH90 helicopters and the FFG upgrade; there are nine that I can see—where the project maturity score has either stalled or actually gone backwards over the last year. Could you give the committee an explanation for why that would be.

Mr Dunstall : I am sure I can pass to colleagues in relation to that, but I guess this comes back to discussion around the purpose of the project maturity scores and the usage in our organisation. We are tending not to use the project maturity score as a project management tool. We now have a system which we call MIRA, the Materiel Implementation Risk Assessment, which gives a narrative, and we are tending to manage our projects through mechanisms other than the project maturity score. I will pass to Ms McKinnie, because I am sure she can help you with that.

CHAIR: Can I just ask you: is the MIRA reflected in the major projects report?

Mr Dunstall : Not as yet, I don’t believe.

Ms McKinnie : MIRA is used as part of the original cabinet approval. When we initially established the project maturity scores, the intention was to provide decision-makers with an understanding of comparative risk across all of the projects. Over time—because it was a score—it became a number that people really did not understand the context of, so we then went about establishing a materiel implementation risk assessment that looked at the same issues but provided a narrative of our understanding of what the risks were, and how we intended to mitigate those risks. Within the PDSS there is the current set of risks that are reported. Those risks are the risks that we are managing each year, and they have been reported in the PDSS for each project. The MIRA is what we start out with when we initially get the project approved and then, over time, the project risks are managed by the project.

CHAIR: Could I ask the ANAO for a comment on that? We have the project maturity scores here. From what you are saying, Ms McKinnie, it seems that it is used for decision-makers, but it not also used as a project management tool; you use other things.

Ms McKinnie : Correct.

Mr White : Chair, I am happy to talk on project maturity scores. I think that my reference to your question might be the one on air-to-air refuel, which is on page 315. And, given the status of the project, I think the project maturity score not having moved or shifted over the last 12 months is a fair representation. Project maturity scores, from our perspective, are a composite indicator. Being a composite indicator, they are very complex to manage, both through guidance and through the on-the-job work. So we are not critical of the project maturity score process; we would actually say it is a better practice. But we do acknowledge that there are great difficulties in that type of reporting. But I do think that, as we have focused on it over time, particularly with air-to-air refuel, it is actually showing a fair presentation of the results over the last 12 months.

CHAIR: Looking at page 372 at the Next Generation Satellite project, we see quite a big jump in there, from system testing to project completion in one year. Is there anything that the committee needs to be aware of in relation to that? How do we explain the fact that we have some projects where we are seeing no movement, or where they are actually going backwards, but we are seeing quite a big jump over 12 months with that one?

Ms McKinnie : Yes. That is due to the project actually meeting its objectives. It is to be expected that if a project begins the financial year, say, at a point where we are ahead of testing, and during the financial year the testing is complete, it was successful and we are able to accept the equipment and then introduce it into service—in a year, then the maturity score can move quite quickly to be fully mature. In deriving the maturity score, it looks at seven different elements of a project. Each element is rated a score out of 10, and then that score adds up to a total of 70.

Mr CONROY: I would like to turn to the Collins class sustainment and performance. Vice Admiral Griggs, could you please tell us your view—and I am aware that this is a public hearing—how well are the Collins class subs performing, compared to other conventional submarines in the rest of the world? What is their reputation like?

Vice Adm. Griggs : Deputy Chair, I think that depends on who you ask.

Mr CONROY: You are a very, very experienced Royal Australian Navy officer.

Vice Adm. Griggs : Yes, well as a former Chief of Navy, I obviously have a fairly strong view. I think Collins is a highly capable weapons system. I think that it has clearly been dogged by a series of reliability issues and it has been dogged by a series of decisions that were taken during the acquisition process that, frankly, were not good decisions and have led to challenges in making the boat reliable. To me it is a boat of two halves. The front end of the boat, the combat system, the weapons, the sensors, are by and large first rate. The back end of the boat, the engines, the generators, the motor, is where we have had the challenges.

Mr CONROY: But in terms of performance in exercises against the Americans and everything else, have you been happy with their performance?

Vice Adm. Griggs : In terms of operational performance, it has been very good.

Mr CONROY: Excellent, could I turn to sustainment now? What is the goal for availability of the Collins-class in how many subs is the ideal to be available on any given day?

Vice Adm. Griggs : Well, we do not go into daily submarine numbers. But the Coles Review laid out an availability process, which was effectively for boats in the operational cycle that could be in shorter-term maintenance during that cycle. But effectively it was four boats in the cycle—two were in deeper maintenance. Navy is working towards achieving that by 2016. When I left the job, we were on track with that. I think we had one setback with a fire in HMAS Waller which has caused a challenge for us. The trouble was we were sitting at around three boats, operational, and that was actually allowing us to start rebuilding some of the workforce experience and things like that. We dropped back down to two for a significant period and we are just coming back up into three now and that will allow us to get the momentum again.

Mr CONROY: I get very frustrated in the public discourse when people, even some who claim to be experts, attack this platform for not having five or six submarines available. When you look at international experience, that is ridiculous even with basic maintenance theory. So can you just put on the record, what would happen if we had five or six submarines available and no maintenance was being done?

Vice Adm. Griggs : We would not have five or six available for very long; that is the bottom line. If I go back to Coles, and Coles is a crucially important document in the Collins-class. And one of the very good things, and this may bleed into our discussion about sustainment reporting later on, that was done was benchmarking activity, which then gave us five areas of sustainment performance that we could talk about in a totally unclassified way and a totally uncompromising way. That referred the Collins performance back to international benchmarks. I think that is a particularly useful way of having some transparency and visibility of sustainment performance against international benchmarks. We are not at benchmark yet. We are at benchmark in a couple of areas, but we are heading towards benchmark. Since I have moved to my new job, I do not religiously check those statistics anymore. But we are certainly tracking very well towards those benchmark figures.

Mr CONROY: You alluded to the boat of two halves there. Is it not true that a lot of the sustainment challenges and reliability challenges arose from the hybrid build? For example, we had the first generators built overseas. The ones built in Australia were slightly different so that added maintenance complexity to maintaining the generators. Is that a fair assessment of some of the challenges?

Vice Adm. Griggs : I am probably starting to stray outside my lane, but I think there are bigger issues around that. Things like taking a fly wheel off that was designed to be on the piece of equipment caused us more problems—and eventually we put them back on about two years ago and, lo and behold, we have had a pretty good run since that time.

Mr CONROY: I have not got it with me, but there was an excellent book on the Collins class. I think it was called the Collins story or something about the acquisition and development of them. In it it states that, whereas other submarine construction experiences have been dogged by huge issues around welding, there was only one module of the Collins class where the welding was found to be substandard and that was done, actually, in Sweden. Would anyone care to comment on that in terms of the quality of the welding done in Australia?

Ms McKinnie : As I recall, the quality of welding done in Australia was extremely high. The nature of the welding was assisted substantially by DSTO research, and that capability was passed on to the submarine builder.

CHAIR: This is really a question for the DMO. It is on the Collins class sustainment. This is our largest sustainment project. I understand the ASC have changed the way that they do the sustainment, in that they basically take the gear out of one submarine and put it into the next submarine; and I understand there was originally some concern about that approach but that it has actually improved productivity at the AS. Does the DMO—

Mr Dunstall : Chair, if I had known that we were going to get into Collins, I would have brought the General Manager Submarines up to answer some of these questions. Since the Coles review, significant improvements have been made in how they are going about sustaining the submarine and the submarine enterprise. But in terms of the specifics, I just do not have the information here to be able to comment on those.

CHAIR: They would have external—they have the e-boat from—

Mr Dunstall : Electric Boat.

CHAIR: Electric Boat from the United States comes in and does an external evaluation and benchmarking of the ASC.

Mr Dunstall : Electric Boat is certainly providing assistance to ASC.

Mr Thorne : Perhaps this is a little bit outside my swim lane but, having spent some time down there on the other side of the facility, it is not so much the cross-decking of equipment, although there has been a little bit of that to avoid the long lead times of cycling equipment back to Europe and other places. They have taken equipment of an adjacent submarine and put it into the other. One of the issues with submarine maintenance, as with ships and aircraft, is access. Some of the investments that have been made down at ASC, both by the Commonwealth and by ASC, are around improving that access. What you will see now is that the submarine slides into a gantry system whereby people and materials can readily access the submarine in a way they have not been able to before, when you had to climb ladders and other things to get in there. It is something that has been used in shipbuilding but had not been used in the maintenance before. That is one major piece.

The other thing is that in the early days of Collins there was—again, it comes down to access—there was a reluctance to penetrate the hull and a lot of maintenance was done by dismantling equipment and taking it out through the top. Another reform that has been done through this process is actually cutting the hull and providing direct access to that heavy equipment, and that has made a big difference in terms of the efficiency of the Collins.

Vice Adm. Griggs : In response to your question, Chair, what you are talking about with equipment being removed from one submarine—I think it was from Farncomb—was to allow the transition to the 10-year FCD cycle. We needed a circuit breaker to get that process rolling so the decision was taken to take the equipment out of Farncomb, to refurbish it and do whatever was needed, and put it back into the next submarine in the line. It meant Farncomb was out of action for a little bit longer than planned, but we just needed to get into the cycle for 10-year full cycle dockings. The point that Coles made about the access, as you would remember, is that it is extremely tight in the back end of the boat in terms of physical access, to get in and move equipment around. So the circumferential cut that was done recently is a significant step forward, and there was a great reluctance to do that for many years. That has now been done, and it literally opens up the entire boat, and the productivity benefits that flow form that are significant.

Mr CONROY: I want to go to one other project and then I will hand over and have another go later. I want to go to LAND 121 Phase 3A, on page 355. I will read off a section for Hansard which is around corrosion protection: 'because the vehicle original equipment manufacturer has recently advised that the cavity wax needs to be reapplied at 12 months from delivery and the corrosion protection underbody sealant wax needs constant reapplication from use and wash of vehicle'. This is highlighting a problem where, as a layman, it seems that we have to reapply this wax every time these vehicles get wet, which I imagine would be an operational issue, since these things are presumably designed to cross shallow creeks and rivers. That, to me, would be a significant problem, if these things start rusting. Have I read that right?

Mr Thorne : I would have to take the details on notice, but my understanding is that it was always expected that we would have to reapply the cavity wax. It is just that we are having to reapply it more often. But we are doing it on a 12-monthly basis, not on an every-time-you-wash-it basis.

Mr CONROY: But if I read this correctly the OEM is saying that you need to apply the wax every time you use and wash the vehicle; wax needs constant reapplication from use and wash of vehicle. 'Constant' to me means that every time the vehicle gets wet you need to apply the wax.

Mr Thorne : I would have to take that on notice.

Mr CONROY: Can you also take on notice whether you think that will affect the long-term sustainability of these vehicles? Then you have two options. You do not apply the wax, because it is impractical if they are on heavy operations, but then you face rusting vehicles later on down the track. So if you could come back with more-detailed answers, that would be good.

Mr Thorne : Sure.

Mr CONROY: I would appreciate that. I have more questions but I will let other people have a go.

CHAIR: I want to go back to the projects of concern. The Collins class submarine sustainment has been on the list of projects of concern since November 2008. What steps would be required to get it off that list?

Mr Dunstall : I think the implementation of all the Coles reforms really will be the point at which we would be recommending to the minister for removal from the projects-of-concern list. Under each of the projects of concern, the way that process works is that we agree a remediation plan with the relevant contractor, and really it is when the matters that have been agreed in the remediation plan have been given effect to, to our satisfaction, that we would then make the recommendation to remove from projects of concern. So, the remediation plan for Collins is really implementation of the Coles reforms.

CHAIR: The committee has done a performance audit with the MRH90, and I know you did a performance audit, and we have examined that in more depth. That was in November 2011. What steps need to be taken before that comes off the list of projects of concern?

Mr Dunstall : I will pass to Ms McKinnie on that one.

Ms McKinnie : The major criterion for that project being removed from the projects of concern is, No. 1, that we establish a commercial settlement with the company on outstanding issues that we had. That has been achieved. The other criterion is to achieve Navy IOC, which has not yet been achieved. There were some delays with that when we had a rotor brake issue on one of the aircraft while it was onboard HMAS Stuart and it took quite some time to bring the ship home to take the helicopter off to diagnose the problem. We have now diagnosed that problem and we understand what the root causes are. Also, we have had issues where the cargo hook on the aircraft does not meet Navy's requirements. We are working on a new design with the company in order to address that issue. It is in use at the moment, but with operational limitations. As part of our final testing, there have also been some issues identified with the electronic warfare self-protection suite. We are going through looking at how we might resolve those issues as well.

CHAIR: On the air-warfare destroyer build that was added June last year, what steps are required to remove that from projects of concern?

Mr Dunstall : You will be aware that since that time we have had the Winter White report. Following that, a joint Department of Finance and DMO remediation strategy is underway. Interim arrangements have been put in place, and we are currently in the process of negotiating the final arrangements to reset that program. I would imagine that once we get the remediation program in place then that will identify the triggers for removal from projects of concern.

CHAIR: Has the ANAO at this point done performance audits on all three of these? You have done one the Collins-class sustainment, you have done one on the MRH-90 and also one on the air warfare destroyer. We have just heard the steps that are being taken to remove it from the projects of concern. Do you have any comment you would like to add?

Mr McPhee : We can track progress through this MPR on an annual basis. And if we consider it necessary or the committee is perhaps interested we could do a further performance audit to see not only what has occurred but also to draw out the experience, I suppose, and what worked particularly effectively in the remediation steps.

Mrs PRENTICE: On the replacement helicopter, one of the issues that has been raised—but it does not seem to be a risk here—is the problem with protecting our troops as they exit the helicopter. There was not a facility that you could mount weapons to offer cover as troops were exiting. Has that been resolved?

Ms McKinnie : No. I think what you are referring to is the fact that when troops are exiting through the door, there is a gun in the door and that inhibits. That is part of the original design and was accepted, so the specifications allowed for that to occur. We are working with Army to look at what options might be available, but the options to change that would probably be outside the project scope.

Mrs PRENTICE: On a completely different topic, it was highlighted that the change in the Australian dollar is having quite a large effect on many of these projects. Given the Australian dollar is continuing to go down and will probably stay down, have we taken any mitigating action, like private companies do, to protect ourselves?

Mr Wearn : DMO and Defence have actually supplemented for foreign exchange movements, so if there is any movement in the exchange rate, we actually get supplemented for that difference. So, from a perspective of the DMO paying for increase in costs, that is supplemented from the Department of Finance.

Mr CONROY: It is a legitimate budget—

Mrs PRENTICE: But it is still the Australian taxpayer paying, so that does not actually solve the problem.

Ms McKinnie : The sorts of mitigations that might be done by a commercial company in government are actually managed by Treasury, as a whole-of-government approach, rather than each individual agency potentially competing to manage currency fluctuations.

Mrs PRENTICE: So it is a question for Treasury?

Mr CONROY: Thank you. Can I return to everyone's favourite project: the air warfare destroyer. I have a few questions there. One question is around page 194, Major Risks and Issues. I have a question to both the DMO and the Audit Office on whether this section, Major Risks and Issues, accurately reflects the findings from the performance audit. When I read the performance audit two of the main issues struck me, and I think they were the subject of significant concern from the ANAO. Firstly, the aligned structure was poorly conceived from the start in that Navantia was not exposed enough in the contracting structure and that led to poor incentives for Navantia. Is that a fair summary of one of the findings from the performance audit?

Mr McPhee : Yes, I think that Navantia did not want in on the alliance arrangement. Defence did try to compensate for that circumstance, and I have not caught up with subsequent developments.

Mr CONROY: It was a contractual flaw not having them in there.

Mr McPhee : It was a consideration in managing the risks.

Mr CONROY: The second one, which I read about and has been emphasised to me in talking at shipyards, is the failure to take into account the cultural differences in Australian shipyards versus Spanish in that Navantia, the designers, have a very interactive process with the actual shop floor. They have had centuries of interaction. The example I heard from one shipyard is that there might be a flaw in the design plans that the designers issued, the tradesman on the shop floor fixes it up, and then they let the designers fix it up on the plans later. In Australia we build what is in the design and that has led to pipes not running and hitting bulkheads and so forth.

Mr Thorne : I have a different interpretation of that. To some extent it comes down to experience of the shipyard. As you said, the Spanish are very experienced shipbuilders. They have been building ships for more 300 years. They do have a peculiar way of building ships, which is to say that the design goes down to a particular level and then there is reliance on, not tradesman necessarily, although they do take a trades view of building a ship, but production engineers in the production facility. So, it is commonplace in the way they build ships. To use an example, it would be like having an architect drawing of your house. Generally speaking, it would say that you would need to run a cable from here to here and you would rely on the tradesman to determine the exact route of that electrical cable, or the plumber to route the particular pipe. There has been a bit of an attitude of our shipbuilder, an inexperienced ship builder, and they want that to absolute precision. They want a design that says that the electrical cable needs to be routed exactly there. There is a difference between this idea that they thought they were getting into, which was an absolute build to print, versus a trades approach to building a ship and that is a difference.

The other thing, which has been at the heart of the productivity issue, is just the way that some of those differences are dealt with. If you are building a ship and you have (a) experience; and (b) production engineers in the shop, and someone puts up their hands and says, 'This is not quite right. I'm seeing something that's not quite in the drawing', the Spanish have quite an efficient way of dealing with that. Experienced people can have a look and say, 'Ah, that's what you need to do', or they can refer that very rapidly to the design organisation. Because of a lack of involvement of the ship designer in the ASC yard, there has been a very bureaucratic process to dealing with that. They will see a difference, they will write a report and they will send it back. There will be a lot of time elapsed while that is being dealt with. That has been one of the major causes of the inefficiencies through this process.

Mr CONROY: The fact remains that two of the key problems that drove the schedule and productivity issues with this project are, firstly, the contractual relationship with Navantia and the alliance and, secondly, the different cultures—and I am not criticising you—between a European ship designer and Australian shipyards.

Mr Thorne : An experienced ship designer and a non-experienced ship designer.

Mr CONROY: So, basically we have problems at the start of the project that are now manifesting themselves.

Mr Thorne : Yes. Can I just come back to the Navantia situation: I think that the Auditor General summed it up pretty well; while it was identified that it would have been preferred to have Navantia part of the alliance, that was never possible. We were unable to induce Navantia to join the alliance. And part of the reason for that is, if you have a look, that the extent of alliance work is in the order of $5 billion, split roughly 60-40 between Raytheon and ASC. The fee for the design is something short of 10 per cent of that. So, under the gain/pain share mechanism, you would have ended up with sort of a minnow in the arrangement. So the alliance gain/pain share mechanism did not, effectively, allow for that kind of operation. We would contend—and this was dealt with to some extent in both the ANAO report and the report by White and Winter—that the separate contract that was established by the Commonwealth was handed over to the industry partners, ASC and Raytheon, to manage. We would contend that that arrangement could have been managed much more effectively to make better use of the ship designer, and to mitigate a lot of the things that we have subsequently experienced.

Mr CONROY: So why are those risks not included in the major projects report—since they still seem extant?

Mr White : If I could reflect on that for a moment. Our perspective would be that they are reflected. And these are risks summarised at the very highest level—for many hundreds and perhaps thousands of risks in some of these projects—through the productivity-level question which is at the first dot point. But, within the time frame of pulling together the PDSS and the review work that we do, we do not or cannot ratchet up to the level of assessing the nature of the contractual arrangement to build the ship—as opposed to just validating the guideline and ensuring that they are consistent with the more in-depth performance audit. I think that that does highlight the very difference between the performance audit and what we are providing here.

Mr McPhee : Just to pick up your point: can I ask Michael, next year when we consult with DMO in the preparation of this, just to have regard to the Hansard and to discuss these issues, to see whether any adjustment to the wording might be beneficial.

Mr CONROY: Thank you Mr McPhee; I appreciate it. Can I ask: how is productivity going on the third ship?

Mr Thorne : The second ship?

Mr CONROY: Are we not cutting to the third ship now—or are we still on the second?

Mr Thorne : Okay. So where we are at the moment is that the first ship is consolidated and we are fitting the ship out, and it will go in the water in about May of this year. The second ship is now being consolidated behind it. The blocks for the second ship have been delivered, and the blocks for the third ship are being built; the blocks for the third ship from Navantia have been delivered, and the blocks from Forgacs and BAE are in development at the moment. We are seeing a substantial kick-up in productivity on the blocks for the third ship. In fact, we are seeing a substantial kick-up in productivity in the consolidation phase for the second ship.

Mr CONROY: I understand that you probably do not have the exact figures, but what is the order of magnitude of that, compared to the first ship? Is the productivity 25 per cent better, 50 per cent better, 100 per cent better?

Mr Thorne : Our figures at the moment would indicate that second ship, in consolidation, is coming together about 37 per cent more efficiently than the first ship. And the numbers from the block yards, particularly Forgacs, would indicate similar kinds of numbers for the block construction.

Mr CONROY: And so, hypothetically, if we ever got into a fourth AWD, or if we used that hull for something else, you would expect productivity to keep going up. Mr King, last time, was very proud and stated that the last Anzac ship, especially the hull, was built at a price that no other shipyard in the world could meet. Is it correct to say that, with more ships being built, you would expect that productivity would keep ramping up—but it does not go on for ever—and that the cost of those aspects of the build would be reduced?

Mr Thorne : That is certainly true, although I would not expect the big increment from ship one to ship two to be repeated, because we have had such a poor experience, I guess, with ship one; both in the block yards and in consolidation, with a lot of rework. I would expect continuous improvement and marked productivity increases; whether we get 40 or 50 per cent, I don’t know.

Mr Dunstall : When you have a look at the learning curves of major ship programs, there is normally a steep down and then it flattens out as you go along, because you simply cannot keep repeating the same levels of productivity improvement ship to ship. At some point it just flatlines.

Mr CONROY: I appreciate that people will be in a difficult situation here about the Winter report, but can I ask: first off, does anyone have any insight on when that will be available to the public, or even to parliament?

Mr Thorne : That is a matter for the minister.

Mr Dunstall : Yes, a matter for the minister.

Mr CONROY: On the two-page summary that has been released, the Winter report is reported to include an industry road map and detailed remediation of the AWD project. Are the recommendations of the remediation aspects of that report being enacted right now?

Mr Dunstall : That is really the purpose of the AWD remediation strategy that is underway now between us and the Department of Finance. We have a steering group and we are driving the remediation to give effect to the recommendations in the Winter-White report.

Mr Thorne : In effect the recommendations are fourfold. There is the injection of shipbuilding expertise into ASC, and that is happening. There is the comprehensive cost and schedule review to be undertaken using external advice, and that is underway. There is consideration of the reallocation of blocks between block builders to make better use of the capacity and capabilities, and that has happened—three blocks have been reallocated from ASC across to Williamstown. The last one is a structural separation within ASC between ASC AWD Shipbuilder Pty Ltd and the submarine business, and that is underway at the moment.

Mr CONROY: So the recommendations of an unseen report are being implemented, which is good, I guess, without having seen the report. What about the road map aspects for the industry? Are they being implemented or examined closely?

Mr Dunstall : That will be part of the enterprise-level naval shipbuilding plan that is currently being developed as part of the white paper and the four-structure review. That element around the industry road map will be dealt with through the shipbuilding plan.

Mr CONROY: I have one final question on the AWD, which goes to page 192 on the electronic warfare radar, electronic attack sub-system, which reports that the procurement has been deferred as current technology does not meet the contract and the RAN requirements. I can completely appreciate that the Navy is after the most capable piece of equipment for what is, no doubt, a very sensitive part of the capability, but how can we have a contract—I think we saw this in the FFG, where the contracted requirements were not able to be met by any product on the market when that contract was designed and agreed to?

Mr Thorne : I would have to take that detail on notice. I suspect that the answer is probably classified, but I will have to take that on notice.

Mr Dunstall : To make some observations around the length of time and the complexity of capability, I think one of the lessons learned for the delivery of these major projects is that, because of the life cycle of, and the time taken from when you have a requirement to when you actually get the capability in, the technology refresh cycle occurs a number of times during that process. One of the things we do need to do is plan for that in the acquisition. To say that the technology that is going to be available here when we are going into contract is not actually the technology that we want to put into the system. It is about planning for potentially saying that we need to construct the capability that is going to be able to cater for a particular system that we might then determine the requirements of down the track.

As an example, with the Wedgetail, the specification that was put on contract around the 2000 time frame, as I recall, had capability requirements for the radar that were actually beyond the laws of physics at that time. It is only in the 15 years since, that technology has continued to develop to a point where, in most cases, we are going to get a radar that actually exceeds specification. But it is that complexity that we need to deal with. This is why when we are planning now for some of these capabilities we need to take a more sophisticated approach to how were going to put in systems over the life of the capability as it brings in to service.

Mr CONROY: I completely appreciate that you do not want to equip a ship with yesterday's technology. I completely understand that. But isn't it also a recipe for contractual conflicts that go on forever? I remember the Wedgetail and I remember FFG had similar issues. Wedgetail was fine because it was a fixed price contract so the contractors did their dough rather than the Commonwealth—but, God forbid, if we ever agree to cost-plus contracts on some of this stuff or anything else. Isn't it a recipe for contractual conflict with industry?

Mr Thorne : Not in this particular. The SPY-1 Radar, which we are talking about here, is an FMS purchase and represents probably the leading edge of proven naval technology at the time. To some extent, this is an issue of you get what you can get via FMS. I do not think it leads to contractual conflict.

Vice Adm. Griggs : I would just make a point. This particular comment here is referring to one part of the sub system, the electronic attack subsystem. We have not had that capability in the service fleet for several decades. So I think there is a degree of caution as to making sure that we get something that actually does the job. The assessment was that what was initially on offer was not going to do the job and so we have deferred that acquisition until we get something that does do the job.

Mr Dunstall : I think we are more sophisticated in how we go about contracting for this capability. It is not just, 'Here is one fixed price for the whole of the capability,' when a whole lot of the systems and requirement are going to be uncertain. The lessons that we have learned is that you can fix price the items that are certain and get that locked down and then you have different pricing for other systems or other capabilities that need to be developed over time. You can agree not to exceed budgets and then we work cooperatively with the contractor to procure the best system. I do think we are a lot more sophisticated now in how we cater for these kinds of things. In truth, in a lot of cases, with the commercial off-the-shelf technology we can make advances so much more quickly than I guess the defence technology refresh. You are at a place in a lot of your projects where, instead of doing a complex defence development project, you can actually rely on COTS products if you factor that into your acquisition strategy.

Mr CONROY: I have just got one more question. I have had a very good go. If we go back to the Wedgetail, which we were discussing, we do have an issue on page 214 with major projects issues where we have been in development and in dispute for so long with the contractor that we have got equipment on the aircraft being rendered obsolete before final operational capability is achieved. We are not aware that we are at FOC yet with Wedgetail? So we have got obsolete equipment on a platform that is not even at FOC yet?

Ms McKinnie : The platform may not be at FOC but it certainly is in use. It is working extremely effectively in the Middle East. The contractual issues that we had with the project were resolved quite some time ago in term of establishing a commercial settlement with Boeing. Some equipment on the aircraft is obsolete. When you are looking at the development lead times for major military equipment, it is not unusual for some parts to be obsolete at the end of production.

Mr CONROY: I do note—and I will not get into it because I doubt if you could tell me—the obsolescent issue affects Wedgetail's interoperability with high-end coalition forces. I will not go into further detail because I do not know if you will be able to tell me anything.

Ms McKinnie : Part of that is due to changes in standards in terms of IFF. The US is moving to the next standard. We specified the aircraft at the contemporary standard of the day and we do need to upgrade it to meet the new standards.

Mr CONROY: I have got more questions on the projects.

CHAIR: I would like to ask the DMO a question. It is really a systemic question. On page 16 in the ANAO's analysis they have identified four areas of project management which continue to be areas of concern. I am going to go through each of them and ask you to explain why these issues are continuing and what is being done to resolve them. The first one relates to price indexation and budget allocations and inconsistency in the recording and application of contingency funds.

Mr Dunstall : I will pass to the CFO to respond to that.

Mr Wearn : I think in this report we have highlighted that we are now exposing more and putting more information in regard to the application of contingency, and that, I think, has met the requirement of the committee. In terms of price indexation, I think that issue comes back to the old issue about out-turning. There will always be projects looking ahead and making a judgement call on where indexation might go or where inflation might go, and it is part of their remit, if you like, to look at those risks. Those risks will always be there, but at this point in time we do not foresee any projects not meeting their current budget. It will still remain an issue, but I think it is still manageable at this stage.

CHAIR: Does the ANAO have comment on that?

Mr White : I think the CFO is correct. I think we were always thinking that eventually we would see projects focusing on the forward estimates that are made, in terms of change of indices over time, and this report and the committee's requirement for reporting in that space is highlighting that. It is a case now of seeing it being managed through.

CHAIR: The second one we have already touched on. That is inconsistency in the application of the project maturity framework reducing its level of reliability. I think we have done that.

Ms McKinnie : I think, to restate what Harry said earlier, because we do not use those maturity scores as a management tool, they are not updated and utilised as we had originally thought. I think the inconsistency arises from that.

CHAIR: The third one is just in terms of the risk management systems and inconsistency there.

Mr Dunstall : I think here—and I think we say it in the report—we have done a lot of work to standardise our risk management systems. We have done a lot of work to standardise our risk management manuals and our risk management guidance. We are trying to get a consolidated approach to risk management across the organisation. I think that will improve now that we have standardised our tools and our risk management methodology and our risk management terminology. I would hope that you would see improvement in that in future reports.

CHAIR: The last one is inconsistency in section 5, capability assessment framework—the green pie.

Mr Dunstall : The green pie. I might pass to Mc McKinnie on that.

CHAIR: Green or orange.

Ms McKinnie : We have struggled to provide, at an unclassified level, capability assessments. Each project has a set of requirements which are defined by the ADF at the outset, and when we do the capability assessment we do look back at how those requirements were set. Each set of requirements does differ and, because of the very wide nature of the projects that we are managing, it is difficult to come up with one methodology.

Mr Dunstall : I think that it is difficult to get a true quantitative approach to this. Inherently, there needs to be some subjectivity to it simply because you might have 100 requirements and you meet 99, but the one requirement that is not met might have a fundamental impact on the delivery of the total capability. So I think, inherently in this, it is going to have to be a qualitative assessment based on judgement.

CHAIR: ANAO, do you have a comment?

Mr McPhee : I would agree with that. I think it is a broad measure, at best.

Mr CONROY: Can I get an update on where the IOC for the MRH90 is up to? The MPR had IOC of December last year. Was that achieved?

Ms McKinnie : Army IOC has been achieved, but not Navy IOC.

Mr CONROY: When was the Navy IOC planned for?

Mr Dunstall : We might have to take that on notice.

CHAIR: I have Navy IOC—July 2010; achieved forecast September 2014, which is 50 months.

Mr CONROY: So that has not been achieved?

Mr Dunstall : The forecast in this report has IOC of both Army and Navy in September 2014.

Vice Adm. Griggs : For the reasons that Ms McKinnie highlighted earlier around the rotor brake and the cargo hook—and the cargo hook is operationally crucial, given that the main role of the MRH for Navy is as a resupply aircraft.

Mr CONROY: Could you take on notice the now revised forecast IOC—

Mr Dunstall : For Navy IOC?

Mr CONROY: Yes, please.

Ms McKinnie : Happy to.

Mr CONROY: And whether there is any flow on for FOC as well. I move to the FFG. The original FOC for the FFG was December 2011. Now, the forecast is December 2015. This is on page 326. This was contingent on implementation of a panorama TDS—torpedo detection system. Do people think we are on track for that?

Mr Thorne : That is my knowledge. Yes, we are.

Mr CONROY: Could you take it on notice if it is different to that?

Mr Thorne : Yes.

Mr CONROY: I return to the chair's discussion of lessons learned and I would be interested in getting an understanding of how those lessons learned are being applied to, for example, the LAND 400 acquisition strategy that went through first pass late last year.

Mr Dunstall : We have had the RFT release last week, I think.

Mr CONROY: Can you expand on how you have learned lessons that are going to guide the LAND 400 acquisition?

Ms McKinnie : Are there any particular lessons that you are interested in?

Mr CONROY: I appreciate that it was a general question. I am hearing from industry a concern that you have broken the project up into phases, and some of these projects have demonstrated the advisability of that. Some in industry are expressing concern that whoever wins phase 1 is in the driver's seat for the other phases of this project. Are there any mitigation methods, or do you just think that is rubbish?

Ms McKinnie : I do not think that is true at all.

Mr Thorne : That is not true.

Ms McKinnie : Phase 1 is to replace the ASLAVs—

Mr Dunstall : Phase 2.

Ms McKinnie : Sorry, the current phase, and future phases are to replace M113s and other vehicles. The RFT and the acquisition strategy do not say that, if you win this one, you will win the rest.

Mr Thorne : There was a plan at one stage of contemplating a family of vehicles. Different purveyors of vehicles would see that as a positive or a negative. Army's preference is for a wheeled compact reconnaissance vehicle and a tracked infantry fighting vehicle, so that tends to militate against a family of vehicles per se. There is a keenness for perhaps some commonality of systems and interoperability of systems between the two phases, but I do not see how anybody could draw a conclusion that capturing phase 2 would mean that you were in the box seat for phase 3.

Mr CONROY: Is wheeled versus tracked set in stone, or will you be open to a tender proposal?

Mr Thorne : There is a key requirements matrix—KRM requirement—that has gone out with the RFT. Amongst the key drivers are things like mobility—the ability to be able to drive down the highway and whatnot at certain speeds and with certain reliability. It would be very, very difficult to meet that requirement for the CRV with a tracked vehicle. So, there are some requirements in there. You will not see anything explicitly saying it must be wheeled or must be tracked.

Mr Dunstall : Generally, in terms of other lessons learned, we have tried to design this process in a way that is going to reduce the cost to industry. We do want to do an early down select down to two or three so that we can then do more detailed risk reduction studies. We are looking at a MOTS Vehicle; we need the tenderers to commit to delivering a MOTS vehicle for testing; we are trying to get clarity and certainty around key issues up-front, so tenderers have to commit to our intellectual property rights regime and access to technical data and other key commercial matters. It is trying to give effect to a lot of the lessons learnt over major acquisitions over a long period of time to deliver a good outcome for us, Defence, with limited risk, to try to reduce the cost of tendering for industry—and we all know that that is a major issue for industry—and to try to address key commercial issues, ensuring we get technical data and IP so that we can sustain effectively in-country with companies of our choosing.

Mr Thorne : A lesson learnt that I would flag was a lesson that we learnt on the first go round on LAND 121 Phase 3B. We were buying off-the-shelf trucks, but then, in the process of getting to contract, we had some particular difficulties with them when we decided to drive the vehicles. The Land 400 acquisition arrangement is very much set up well. In order to get a ticket to the ball you need to have a fielded product. We do provide some flexibility for you to provide some recent improvements to that fielded product, but you need to be able to bring them to the table. If you are down selected for assessment, we are going to drive, fire, explode your vehicles in that test phase. So we will have a very thorough understanding of those off-the-shelf vehicles before we go down to a single down—

Mr CONROY: So the strong desire to have a MOTS vehicle is a requirement? Or is it just a strong desire?

Mr Thorne : There is a requirement for a MOTS field—and there are some very strict definitions of what MOTS is in the RFT. In order to get down selected, you must have a MOTS vehicle that is fielded. You may then offer what is being referred to in the RFT as MOTS Plus. I describe those as improvements that are in the wings, either with the company or the countries that you have fielded that with, that may not have yet made it onto those vehicles but which are pretty ready and can be then brought to the table for trialling.

Mr CONROY: What are the implications of that acquisition decision for Australian industry participation? If there is a MOTS requirement, obviously people would hold out the hope for assembly here. Does that rule out, for example, a certain company at Bendigo? Clearly, it implies that it rules them out of developing a vehicle. If you want MOTS, they are not going to get a look in.

Mr Thorne : That is correct. As you say, there are opportunities. I would say there are opportunities for assembly. I would not suggest there are opportunities for manufacture. We are talking only 225 vehicles here. There is the possibility of flat pack assembly. But, more realistically, MOTS does not mean MOTS, because we have command and control and communication systems that are Australian unique. Irrespective of whether you field it in another country, those things will have to be integrated and installed. We see that as an opportunity in Australia.

Mr CONROY: Is this just for the current phase for the reconnaissance vehicle? Or has the same decision been made for the M113 replacement, as well?

Mr Thorne : No decisions have been made on phase 3, but I expect there to be a similar philosophy applied, yes.

Mr CONROY: So there may be opportunities for flat pack assembly? Presumably, the contractors will probably say that you will pay a premium for that versus getting it off the production line overseas. There will be integration opportunities, potentially, but no opportunity for manufacture. That is the tenor of this conversation.

Mr Dunstall : Under the requirements of the RFT, we have sought that tenderers seek to maximise Australian industry involvement. But they need to be able to do that without necessarily compromising cost schedule and capability risk. It is up to the tenderers, really, to put forward how they are going to best involve Australian industry and maximise the involvement of the Australia industry.

Mr CONROY: I understand that and I understand the complexities and the difficulties it may add. But I just want to clarify that initial acquisition decisions around the first-pass approval have constrained Australian industry involvement, for better or worse.

Mr Dunstall : We are not mandating that the vehicles be manufactured or assembled in Australia.

Mr CONROY: No. But they are not going to be manufactured because it has got to be MOTS and—

Mr Thorne : The constraint really is one of schedule because of the life of type or the plan we have to accommodate for the ASLAV, which it is replacing. Already on the schedule that we are proposing it is going to be a tight thing to deliver the replacements in time for the current planned withdrawal date. I guess that is part of what has influenced this very hard MOTS line. We do not want to go down a vehicle redevelopment activity.

Mr CONROY: How do you manage the tension? I know you are looking at what is plus, potentially, but isn't this the opposite of where we are on the AWD and others in that you are going to get a vehicle, by definition, to de-risk it? I understand—and with the ASLAV's life—that it is a vehicle that is, by definition, already available and is already fielded by other countries. How do you manage the capability?

Mr Thorne : Are you talking about it being more or less obsolescent?

Mr CONROY: I would not say obsolete, but it is certainly not the next generation of vehicle—is it?—if it is something you are saying has to be deployed to de-risk.

Mr Thorne : This is why we are taking the MOTS-plus kind of approach. I do not want to name names, but there are a number of vehicle exemplars in the category where they have fielded them with foreign services but where there are quite useful and current and relatively mature upgrades in the wings that would allow them to introduce that into the competition and, therefore, bring us to that next generation. At the end of the day, you have to draw the chalk line somewhere. Even if you were developing a new vehicle, you would have to draw the chalk line on the technology that is available on the day.

Mr CONROY: I have just got one more line of questioning, related to this LAND 121 Phase 4. Could someone update me on where the JLTV option is progressing in the United States?

Mr Thorne : Yes. We are following JLTV quite closely. It is late. It has been delayed on a number of different occasions. We believe milestone C, which is the down-select decision, is due for June 2015. Apart from that, that is on track. We do not intend to do a head-to-head competition with JLTV. We have embarked on a competitive evaluation process—to be a bit flippant there. But our focus is on developing the Hawkei, and we are constantly benchmarking that Hawkei development against JLTV. For us, though, normally with an FMS purchase, the Americans will not offer, under FMS, a product until it has reached full-scale production, and we do not expect that to happen until I think it is in late 2016—I have not got the date with me—whereupon we would then have to start flatfooted an integration of those things that I described earlier as being Australian unique communications and battlefield management systems. Schedule for schedule comparison, if we went down a JLTV route, we estimate about a 3½-year delay over what we think we could achieve with the Hawkei development.

Mr CONROY: I remember ,when this was being discussed previous to the Hawkei being invited into this process, there was a fair amount of scepticism from Defence that the Hawkei could be available to compete against the JLTV. It sounds like, if there is a 3½-year delay, it is the other way round. The JLTV has slipped completely, given the cumulative challenges you have in the United States, and it sounds like it would be very hard for it to be in a position for an apples for apples comparison.

Mr Dunstall : The JLTV has certainly moved to the right, but we do have a significant amount of insight into that program and we are following it and we are getting information to ensure that we can, in fact, provide advice to government about the Hawkei capability in comparison with the likely capability to be delivered out of the JLTV and about the schedule comparison, and we are trying to get some cost data as well. So we do need that information—so that when we go to government on this project, we can actually give advice about, 'well, this is the Hawkeye solution and this is the comparator'.

Mr CONROY: How much have the specifications of JLTV changed in the last few years? Certainly industry here was concerned that an inevitable compromise platform between the US Marines and the Army might not meet the specifications we are looking at—from memory, for example, around air portability under a Chinook. To the best of your knowledge, have those things been resolved? Or are they still ongoing?

Mr Thorne : There has been some compromise around that performance, as there has been on the Hawkeye development as well. But I think the compromises on JLTV spec are equivalent to any compromises that we have made around Hawkeye.

Mr CONROY: Leaving aside the delay—and you will have to actually test it in this country—do you still think that the broad specifications of the JLTV, that has been developed along for the US services, make it still a suitable vehicle for the requirements under LAND 121 Phase 4?

Mr Thorne : From what we know of it, it would be a credible fallback option.

Vice Adm. Griggs : Correct.

Mr CONROY: A credible fallback; okay. Thank you.

Mrs PRENTICE: Just on the air-to-air refill: it is my understanding that we are actually using it at the moment in the Middle East. Is that correct?

Ms McKinnie : That is correct.

Mrs PRENTICE: And how is it going?

Ms McKinnie : Very well.

CHAIR: And is that the same with the airborne early warning—?

Vice Adm. Griggs : That is correct.

Ms McKinnie : That is right.

Vice Adm. Griggs : And the Super Hornets.

Mrs PRENTICE: I have a question for Mr McPhee—because I do not think that you are going to be here this time next year!—and that is: is it still your view that the best procurement model is to separate DMO from Defence?

CHAIR: That is a big policy question!

Mr CONROY: Come on; you have got nothing to lose!

Mr McPhee : I think that question has been around for a long time, and the answer is always challenging. I think I have said to you previously: when you do organisational changes, there are always positive benefits, from organisational changes, and there are generally negatives, and you have to compensate for those. I think that there is a range of factors that play into it. Some of this early analysis shows that the DMO focus has actually assisted in the acquisition and sustainment effort by defence. So I think we need to be careful not to dismiss the contribution DMO has made here. I know that internally, within the defence organisations, there are movements about how to get greater efficiencies from the way they combine back offices and other arrangements. DMO has provided a critical mass of skills, but it has meant that the capability managers have had to adjust their approaches as well. So there is not an easy answer and, to be fair, we have not seriously looked at the pluses and minuses. In the past, it has been integrated, and it has been separated, and the debate now is just: where is the balance. And I think that is a question we see asked all across the public sector, in terms of where the balance is.

Without taking too much time from the committee, it is the issue of devolution in the Australian Public Service. We went through quite a period of devolution to agencies. And the purpose was honourable—that is, to allow them to arrange their organisations to deliver the services in the best way possible. But what we have seen is a range of—and whole different—systems and processes and arrangements take place. From a whole-of-government point of view now, you are starting to see movements to say, 'well, the devolution is handy to give the authority to the right agencies to make the right decisions, but can we do better; in terms of creating greater cohesion amongst the systems, the operational standards, the ability to transfer information—to give a common look and feel to the Commonwealth operating as a whole. We are continuing to shift around in terms of the positioning of public sector administration, to get the best service to the citizens and to industry and, importantly, ease of intra-operability between public sector agencies—so that when the government does swap around departments et cetera, we do not have the enormous digestion problems that historically we have had. It is a never-ending journey, this one. I am sure others will come to the right decision.

Mr CONROY: I have one more question; it is a very quick one. Are projects of concern monthly updates still being provided to the Minister for Defence?

Mr Dunstall : With the new minister, we have provided a number of submissions about the projects of concern process. Indeed, one of the discussions I am trying to organise is about bringing the minister up to speed on projects of concern. He has had a lot on his plate over recent time, and this is one of the key things that I want to have a conversation with him about. We had scheduled a project of concern summit for this month with the previous Minister for Defence. With the new minister, it has not been possible to get him up to speed on the project of concern process in time to do those summits, but I am still keen to have those summits sooner rather than later.

Mr CONROY: Page 88, paragraph 3.17 says, 'although summits are yet to be reinstated by the new government,' which implies that they have not had a summit since September 2013. It also says that project of concern reports continue to be provided to the minister on a monthly basis—

Mr Dunstall : Correct. We are still providing the project of concern updates.

Mr CONROY: Can you take on notice whether those submissions are being signed off by the minister or an adviser when they are returned?

Mr Dunstall : I will take that on notice.

CHAIR: Can I ask you about the LHD ships? It is an Australianised MOTS—is that right? In terms of system integration, it was two months ahead of schedule. In terms of the ship project acceptance, there was eight months of slippage. Project 2 is down for August 2015. Is that still on track?

Mr Thorne : It is officially. We are hearing some rumours that there may be a delay of a month or two in that, but that has not been advised by the company as yet. We would be surprised if some kind of slippage does not occur. You normally have that with the last ship. Even though this is only the second ship it is the last ship, so you end up having a run down of productivity as you bring people off and so on.

CHAIR: This has been a hybrid. It is part Spanish and part Australian, but you have not had the schedule slippage that you have had with AWDs, for example.

Mr Thorne : The hull, or the ship below the deck line, was built in Spain. By our estimations, that is about 80 per cent of the ship build. That was delivered to Australia, and then the superstructure and some of the communications fit-out was done by BAE. That is the nature of the hybrid.

Mr CONROY: It was delivered late though, because you missed a ship lift window, didn't you?

Mr Thorne : We had some delays because we brought it the long way to avoid a pirate situation and some difficulties through the Suez with an oversized ship. It was deemed a better way to bring it around the south, and then we encountered some weather and so on. I think it was delivered about six months late, and then we lost about another two months in the hybrid fit-out.

Mr CONROY: Where there any production delays at the Spanish end before it got—

Mr Thorne : Not to my knowledge.

CHAIR: When will the LHDs enter full operational capability?

Vice Adm. Griggs : Canberra is just about to start its trials period and should be at IOC by the end of the year and available for operational tasking.

CHAIR: Thank you for attending and giving evidence to the committee. The secretariat will be in contact if the committee has any further questions. On behalf of the committee, I would also like to thank Mr Warren King for his appearances before the committee in his capacity with the DMO. We have enjoyed our interactions with Mr King very much and we wish him all the best in the future.

Mr CONROY: I would like to echo your words, Chair. You do speak on behalf of all the committee members in saying that it has been enormously informative. On behalf of my political party and the committee, we honour his contribution to the defence of this country and good government over the last few decades.

Committee adjourned at 11 : 00