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Foreign Affairs, Defence and Trade Legislation Committee
ACTING CHAIR (Senator Ferris)
Air Marshal Riding
Major Gen. Dunn
Major Gen. Mueller
Air Marshal McCormack
Air Vice Marshal Conroy
Vice Adm. Chalmers
Wing Cmdr Nicholson
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Table Of ContentsPrevious Fragment Next Fragment
Foreign Affairs, Defence and Trade Legislation Committee
- Start of Business
Wing Cmdr Nicholson
Air Marshal McCormack
ACTING CHAIR (Senator Ferris)
Vice Adm. Chalmers
Air Vice Marshal Conroy
Air Marshal Riding
Major Gen. Mueller
Major Gen. Dunn
Output 10—Capability for special forces operations
ACTING CHAIR (Senator Payne)
ACTING CHAIR (Senator Ferris)
Air Marshal McCormack
Air Vice Marshal Conroy
Air Marshal Riding
Major Gen. Abigail
Major Gen. Dunn
Rear Adm. Lamacraft
- Senator WEST
- Output 10—Capability for special forces operations
- Mr Wallace
Content WindowForeign Affairs, Defence and Trade Legislation Committee - 07/06/99 - DEFENCE PORTFOLIO
ACTING CHAIR (Senator Ferris) —I declare open this meeting of the Senate Foreign Affairs, Defence and Trade Legislation Committee. I welcome Senator Newman, the minister representing the Minister for Defence, and officers of the Department of Defence.
The committee will consider particulars of proposed expenditure for the Department of Defence, the Defence Housing Authority and the Department of Veterans' Affairs, in that order. The committee has before it particulars of proposed expenditure for the year ending 30 June 2000, documents A and B, and the portfolio budget statements for the Department of Defence.
The committee will first consider the portfolio overview and major corporate issues. Then, as moneys which were previously appropriated to many of the 14 groups in the former accounting system have this year been distributed across the 22 outputs, the committee will consider both the outputs and the former groups. Instead of the outputs being considered in numerical sequence, they have been grouped by manager, together with the corresponding group from the former system. After all the outputs have been considered, the remaining nine groups will be considered in numerical order.
In order to assist Hansard in the early publication of the transcript of these hearings, the written questions on notice will not be incorporated in the proof Hansard transcript. The chair will state for the record that written questions have been received from a particular senator and that these questions will be forwarded to the department for answer. When officers are first called upon to answer a question, they should state clearly their names and positions.
Today's hearing will be suspended for lunch between approximately 12.30 p.m. and 1.30 p.m., and for dinner between 6.30 p.m. and 7.30 p.m., concluding for the day at approximately 11 p.m. We will take tea breaks at approximately 10.45 a.m., and 3.30 and 9 p.m., as required.
I remind colleagues that the Senate Finance and Public Administration Legislation Committee is continuing its inquiry into the format and content of the portfolio budget statements. The committee would welcome any input from senators about the structure and content of them. Please take the time to put on the Hansard record any comments you wish to make about the documents as we work out way through them.
Finally, the committee has agreed that the deadline for provision of answers to questions taken on notice at these hearings is Friday, 16 July 1999. Minister, do you wish to make an opening statement?
Senator Newman —No, thank you, Madam Chair.
ACTING CHAIR —Under the portfolio overview, are there any questions on the Defence Reform Program?
—May I start with a general comment, Madam Chair? As someone who has looked at four PBSs in this process, I believe it would be very helpful if the PBSs were in the same format. Of the four departments I have looked at, no two have done it the same way. If you think that the change has been hard enough when you are looking at only one PBS, I suggest you try looking at four, or maybe the whole 20[hyphen]odd or whatever there are of them, when no two of them are done in the same way. That is not meant as a criticism—not of these departmental officers, anyway, but probably of Finance in not providing the departments with clear enough guidelines or outlines of what should be in a PBS to meet the requirements of all the different departments, considering how each department varies in its reporting needs. That is the first comment, even criticism, that I want to get on the record in relation to this
process. It has been very confusing and time consuming from our perspective, and I can only assume it has been the same for the departments.
In that respect, I would like to ask—I am happy for you to take this question on notice—what the cost to the department has been, in terms of personnel time, of making this move across to accrual accounting. I suspect that, because a lot of the personnel involved are senior officers and are therefore not on overtime but paid a flat salary, you cannot tell us that in monetary terms. Also, were any consultancies involved? Did the department have to employ any consultancies to work on this? If so, what were the specifications, the recipient and the tender contracts?
Some of the departments started doing accrual accounting as early as 1992. When did Defence first start using accrual accounting, and what historical information is available on programs on an accrual basis? Can that be provided along with the corresponding cash based information? I would like to know also what issues have been raised by the community and industry groups in relation to understanding the new budget reporting arrangements.
More importantly—I put these questions on notice because I am sure they will have to go on notice; if you have got the answers here I will be pleased—for each administered item listed in resource summaries contained in the portfolio budget statements, can the department provide an estimate of expenses for 1999-2000, 2000-01, 2001-02 and 2002-03. Can estimates be provided for any administered items that are expected within the period of forward estimates but that do not take effect until after 1999-2000.
For each departmental output group and sub[hyphen]output listed in the resource summaries contained in the PBS, can the agency provide an estimate of the expenses for 1999-2000, 2000-01, 2001-02 and 2002-03. Can estimates be provided for any outputs that are expected within the period of the forward estimates but that do not take effect until after 1999-2000. I am happy for those to go on notice.
ACTING CHAIR —Thank you, Senator West. Are there any questions on the Defence Reform Program?
Senator HOGG —May I interpose there that I am aware of the response which was given through Senator Newman to a question on notice from Senator Ray, and which the department kindly provided to me. I think this goes beyond that particular answer. I think it is looking to generate a bit more history.
Mr Lewincamp —Senator West has raised a whole range of issues there, some that I think I can respond to and some that we will have to take on notice. As Senator Hogg has mentioned, in answer to a question on notice from Senator Ray on 9 March 1999 we provided quite a bit of data about the cost to date of the introduction of accrual accounting and budgeting, and that included an outline of the contractors we have used to date and the sort of work they have done. I will need to look more carefully at your question now to see how much beyond that particular answer your question goes, but I think most of that is covered in the answer to Senator Ray's question.
On the question of the overall format of the portfolio budget statements, we are unaware of what other departments have done so we are unable to make the comparison you have made. I can say that all departments are operating to guidelines that have been put out by the Department of Finance and Administration and are operating in accordance with those guidelines. The guidelines, by the way, went to the JCPAA for their clearance and comment, and they approved those guidelines before they came out to departments.
There are some differences with the Defence budget which might explain why it looks a little different. One is the global outlays. The second is that we have only one outcome, and so all our structure is within one outcome whereas most other departments have several outcomes. This would lead to superficial differences in the format.
We have also added information within our portfolio budget statements that is strictly not necessary according to the guidelines. As I mentioned at the technical briefing, that is both the overview section and the section on the group information, neither of which is required under the guidelines at the moment but which we thought was additional information which would be very useful for the committee in coming to grips with the Defence portfolio. So there are a number of issues there which will have some impact on the way the Defence portfolio budget statements are structured that make them slightly different from those of other departments.
The final question I would have, Senator, is exactly what information you want on the forward estimates period. It has not been part of the portfolio budget statements to provide the level of detail that you are now seeking across the forward estimates period. The appropriation is only for the year 1999[hyphen]2000, and the detail you are seeking seems to go well beyond that. Our projections for the forward estimates period are only projections. They are not budget allocations. So I am wondering about the question you have about that detail.
Senator WEST —It gets a bit confusing with this method of accounting. What we are looking for is when a decision has been made but the money is not going to be spent this year but will be coming up in forward years for expenditure. We are not necessarily looking for the details, but we are looking for the forward planning of it. You are getting money coming through in lumps, if I can describe it like that.
Mr Lewincamp —We are planning to expend all the money given to us this year.
Senator HOGG —But in some of those it is not identifiable whether it is going to be expenditure this year or expenditure in the forward years because, in some of the descriptions across some of the items in the outputs, the output is across a three[hyphen]year period in some instances. Yes, I understand, but we cannot capture how much of that against that particular item is for this year and how much is for the forward years. I do not know whether we are making a rod for our own backs, but it is a confusion that lies within there because we have now moved to outcomes and outputs and we are thinking down the track where we need to look at the annual report that is based on outcomes and outputs. As I understood it, this system would allow us in the longer term to be able to say, `That was the output that was going to be achieved this year,' and go to the annual report and tick that it has been achieved.
Mr Lewincamp —That is true.
Mr Tonkin —That is right. Each of the outputs that are in our PBS this year is an annual output rather than continuing in nature. It is not a case of a portion of output 1 being delivered this year and another portion next year. We will deliver, this year, the output described at the level of performance set out, funded by the appropriations appropriated this year. You will be able—when the annual reports come round in the output structure, which is a year and a bit hence—to compare what we said in this document today with what we delivered for each of those 22 outputs. It will be expressed, `This is what we said we would do, in dollars and performance terms. This is what we achieved in performance terms and this is what it cost.' That will be there. That is how it will be structured.
—With the greatest of respect, Mr Tonkin, in my view that will be about as clear as mud. That is why we are going to spend this time trawling over this PBS. I
understand that what you say is in good faith, but my reading of the document thus far and my expectations of how that will be reported do not lead me to the conclusion that that will be crystal clear at all. Anyway, we can get into the detail of that as we go through.
Mr Lewincamp —What happens with the accrual budgeting here is that we are now accounting for all of the accrual expenses that are incurred during the coming year, 1999-2000. I think what lies behind your question is a suggestion that some of those accrual expenses will not involve cash payments until later on, later into the forward estimates period and well beyond that. But that has always been the case with Defence budgeting, even under cash budgeting—the notion of forward commitment.
Senator HOGG —Except that you cannot identify the accrual expenditure.
Mr Lewincamp —The whole PBS is the identification of the accrual expenditure.
Senator HOGG —Yes, but in one big lump.
Mr Lewincamp —In the group sections and in the output sections, we have broken it down by categories of expenditure. This does not differ from the cash based budgeting. Where we have a major equipment project that we commit to now and spend only $4 million or $5 million, and then spend $4 billion or $5 billion over the next 20 years, it is the same principle. Here we are capturing the forward commitment and the forward liability under accrual expenses, in a way that we have not done in the past.
Senator HOGG —Some of this might well be best left until we get into individual outputs, where we can identify some of the problems that I think exist within the document. As an example, though, I have just opened up at—for what it is worth—output 14 on page 99. The following statement appears:
Infrastucture works at Delamere air weapons range are scheduled to begin in 1999-2000, with completion scheduled to be achieved over the following two years. These works include accommodation and repair facilities, preparation of equipment installation sites and access roads.
From the information then shown in pages 100 to 102, however, one does not know what the allocation for that is in this year or what stage is meant to be achieved during this 12 months, given that it is now going to stretch over a further two years. What we are looking for is this: if this is a report card system, then fine, I think that is very healthy—I have not come to my general comment about the PBS, which I think I should make before we go too much further—but that does not enable us to say yes, otherwise in 12 months time you will come along with the annual report and you will say `Tick.'
Mr Lewincamp —The reason we have done that is that we have tried to capture in each of the outputs the work that we are doing to enhance those outputs over time—in other words, the projects that we have in the pipeline to increase the capability represented by those outputs.
Senator HOGG —We accept that, but how do we test it?
Mr Lewincamp —On the question of Delamere, for example: on page 34, in the major facilities section, in table 1.17 you will see, under Northern Territory, an approved project cost of $12.3 million, with an estimated expenditure of half a million in 1999[hyphen]2000. That gives you the traditional input type of break[hyphen]out of the major equipment expenditure and the major facilities expenditure. So there are ways of cross[hyphen]referencing some of that future development work.
Senator HOGG —It goes to the other comment that I made in one of the technical briefings that I had. We need a `Guide to the galaxy' to get us through the PBSs.
Senator WEST —Everything is cross[hyphen]referenced.
Senator HOGG —As my first general comment I want to put on the record my thanks to the officers of Defence for the technical briefing that we had. As you would be aware, it went for nearly three hours. Whilst that was enlightening, it has not led me to resile from my opinion of the PBS. The first test the PBS should pass is readability—including being understandable—with transparency and then accountability in the longer term. I cannot say anything about the accountability side because that will come up in the annual report, but in terms of readability and understandability, whilst cross[hyphen]referencing has just been alluded to, there is no ready cross[hyphen]referencing for people such as I in going through it. It has to be reasonably understandable to one and all.
Senator West alluded to part of the problem, that there is no consistency from your PBS to Veterans Affairs' PBS to that of Foreign Affairs. I note that in yours, for example, there are `goals'—very good—and there is `preparedness' and, as you look in, `performance targets'. When you go to our friends over there in Foreign Affairs, you find they have general `effectiveness indicators'. They have `milestones', which have been renamed already as millstones. You do not have any millstones in your PBS at this stage. Maybe that is something we can look—
Senator QUIRKE —They are still floating!
Senator HOGG —Maybe that is something we can look forward to in the future. But you would understand that there is a great degree of confusion as people try to translate what is in your PBS and to interpret and understand that, as opposed to what is in another PBS. I understand from your comments, Mr Lewincamp, that you are not necessarily wedded to what others are doing in their PBSs, whilst you have got a general set of guidelines brought down through Finance and Administration. I am going to appear before the Senate Finance and Public Administration Legislation Committee to make a few comments about the `Guide to the galaxy' that they should issue to people trying to get through the PBS.
We get into yours and find there are `key objectives' and there are `goals', `performance indicators', `capability enhancement initiatives', `preparedness' and so on. Relating what you are doing to what someone else is doing and coming up with a clear picture is difficult indeed. That is my broad comment on the PBS.
While we are in this broad area: in the technical briefing that we were provided with, we went through a range of issues on pages 18 through to 21, which show the basic construction of the accounts. As I understand it, you have had to adapt a number of changes in going from the cash system to the accrual and the outputs system. Would you outline for us, so we have got it on the record, what changes had to be made when you went from the cash system to the accrual and the outputs system. What are the major differences, so that we can recognise them?
Mr Lewincamp —I think the more important of the two initiatives is the move to output management—that is, managing on the basis of the products and the services that Defence delivers to government.
Senator HOGG —How does an output differ from last year's, where I think you had objectives?
—The outputs do not differ so much from the objectives as from the basis upon which the resources were allocated under the old system. Under the old system, the appropriations were for departmental activities and they were governed largely by inputs: you were given a certain amount of money to engage in a certain number of activities, without any clear understanding on the part of government of exactly what Defence was delivering
for the dollars being given to it. The principal difference here is a much more explicit focus on the products and services being delivered and the cost of delivering them.
Previously, appropriations were made under `running cost expenditure', for example. If you go back many years you see that we got different appropriations for salaries, for travel, for facilities, for all sorts of different input categories. Progressively, over the last few years, we have moved to a situation where now appropriations are being made for the outcome and the outputs that we deliver for government. That is quite a difference in focus.
Senator HOGG —Let me take you back to last year's PBS—it does not matter which one we look at. The headings were `Strategies' for the financial year, `Performance measures' for the year and `Performance forecast' for the year. On this occasion we do not have those sorts of headings—which I understand. In some areas there is talk about `goals' and there are headings such as `Description', `Composition' and `Performance information', which comes under a number of subheadings—`Preparedness', `Capability enhancement initiatives' and so on.
Mr Lewincamp —Last year also we used to report on performance, but the way in which the appropriations were given to us was not performance related. That is the point I am making.
Senator HOGG —That is the problem, because in reading the annual report we never thought we got a report on that performance. We got a fairly global sort of statement. I am just wondering if we are looking to become too pedantic in saying what the outcomes and the outputs should be.
Mr Lewincamp —I do not agree. The other difference I should mention is that last year the performance information you got was based around organisational groups and not about outputs. Again it was about a particular organisational entity. We gave you that information based around 14 groups. We have now identified the 22 products and services that we think Defence delivers to government—the government has signed up to those—and we are now putting in place costing and performance information related to those outputs, so that in the annual report you will see our performance against those outputs.
I should mention that this is a progressive implementation. The government has introduced a very big change. We have done it from 1 July this year and we will need one to two years, at least, to refine the information that you have there based around the outputs, in terms of both the financial information and non-financial information so that it becomes increasingly more meaningful.
Senator HOGG —This is not a criticism of what has been done. It is purely and simply registering the frustration in trying to interpret what is there. In output 4, for example, $252 million is being spent. Without getting into that particular output, I must say that $252 million is not to be sneezed at. Looking at the performance targets for 1999-2000 shown in the table there, we ask ourselves: how do we know at the end of the day that we have got value for money for that $252.7 million? That is really what our task is about.
Mr Lewincamp —I agree.
—Looking at the performance indicators there, I do not get much reassurance. If everyone just goes down the list and says, for example, `Yes, we did 4,349 ship days; we achieved 100 per cent of training objectives; unforeseen operations were not planned; assistance to the community was provided as required; we did 1,800 days on national tasks,' that does not seem to me to be very much of an assessment. Or am I now not understanding
the sort of assessment that we are going to get on the performance indicators? Are we going to get some sort of analysis that says, `In terms of the 15 Fremantle class patrol boats, we had hoped to do this, this, this and that and we achieved this, this, this and that'?
Mr Lewincamp —The annual report at the end of the year will look at each of those performance indicators and give you a report of what was actually achieved. We will say, for example, that we did 1,800 days of patrol, and the report will include an assessment then of the number of fishing boats intercepted, the number of boardings and things of that sort, to give you an idea of what was actually achieved by conducting those patrol days. But in advance we cannot actually tell you what those patrol boat days will achieve, apart from actually doing them. So the first deliverable is to do them.
Senator HOGG —That is the common problem I have with all the tables that are here. We are buying a pig in a poke, in the sense that they are very broad in their descriptions—and there are substantial numbers of dollars being spent.
Mr Lewincamp —As I say, progressively over the next two to three years you will find that this will improve in quality, in terms of the amount of information that you have, both about what we are intending to do and about what we actually achieve. But a thing like the 1,800 days is the requirement from government to us, to provide that number of days for that particular task. So it is part of our tasking directive and we have to meet that.
Mr Tonkin —The challenge we confront, Senator, is that our outputs have to be structured in a form which is a continuing problem for Defence, of how we express our outputs. Our outputs have to be expressed and managed in a way in which we can direct and exercise the resources effectively. So our outputs are force element group based. The example of patrol boats is a good one. It is a capability which can do a range of things. What we are budgeting for or undertaking to do for government is a certain level of patrol boat capability, which you can express in numbers of hulls in the water, number of days at sea and so on. Those patrol boats are then deployed across a range of activities.
We could seek to express our outputs against the range of activities which were predicted to be delivered. That is another way of approaching the whole equation. The difficulty with that is: how do you then manage the allocation of those resources? Many of those activities run across a range of force elements; often they run across the services. You might take as an example the illegal immigration boats which are being tracked. They are being tracked by patrol boats and by maritime reconnaissance aircraft—there are two services and two force element groups involved there. Sometimes surface combatants, frigates, are chasing them as well, so there are three groups involved.
That is happening because of a specific tasking. If we try to predict at the beginning of the budget year what that tasking will be, the only certainty I can offer you is that we will be substantially incorrect. Events occur which you cannot predict, and the whole point of having our capability is to give us that flexibility.
So we are never going to get a perfect, predictive set at the beginning of the budget year. What we can offer to government, and what we can seek to explain to the Senate and to the parliament more generally, is the broad level of capability we can offer. As we get more expert at expressing this, I believe we can certainly do it better and give more comprehensiveness and ensure that, when we report, we do pick up the sorts of things that Mr Lewincamp says—that we did not just do 1,800 patrol days, but that that generated the following outcomes for government and the people.
Senator HOGG —I understand what you are saying, Mr Tonkin, and I do not disagree with you, but I must say that the expectation created in my mind was different from what I see before me. I thought we would be able to be a bit more precise, because this is setting the base for how we will view that annual report in 15 months time when it is brought down. If we do not understand what the ground rules are now, in 15 months time we will be at complete odds as to why you have not reported on the indicators that you said you were going to report on, that, really, this is a meaningless sort of task and at the end of the day all we should do is just throw our hands up in the air and say, `Let's go back to square one and start again.'
Mr Lewincamp —Senator, I have to disagree; I do not think we are saying that to you. We are providing you with meaningful performance indicators here in each of the output sections. Yes, we have agreed that they can be refined further, but I think they are meaningful as they stand at the moment.
Senator HOGG —As I say, on page 71 of the PBS it says:
Non[hyphen]Combat Related Tasks
. Assistance to the Community (Output 21).
That is noted, `As required.'
Mr Lewincamp —That is that you have patrol boats ready for things like search and rescue, assistance in the case of disasters and that we have a capability that is ready for the government to use when necessary. We cannot predict when those things will happen.
Senator HOGG —I accept that. But one would have thought there would have been some allocation against that particular output.
Senator WEST —Some contingency.
Senator HOGG —Some contingency, as my colleague has just said.
Mr Tonkin —It comes out at ship days at MLOC.
Mr Lewincamp —Yes. It is built into the preparedness of that capability.
Mr Tonkin —So if we maintain a deployable field hospital, it is there for operational purposes. If there is a tsunami in Papua New Guinea, we then deploy for that purpose. There is an opportunity cost in doing that—that is, while it is deployed, it is not available for some other purpose. What we then report is what we did, how much it cost and so on. But the fact is that we are not maintaining a deployable field hospital for the prospect of a tsunami in Papua New Guinea. That is not what we are funded for; that is not what the government budgets for.
Senator HOGG —I accept that. But it still makes it difficult for us, sitting here, trying to interpret this document in relation to what `as required' would mean. I am not trying to get into the nitty[hyphen]gritty of the questions on individual outputs; I am looking at the overall concept.
Mr Lewincamp —And it is a management challenge for us, Senator.
Senator HOGG —I am sure you will meet it, Mr Lewincamp—I am absolutely certain. For example, if you turn to page 101, where it refers to output 14, this is where I get to, equally, the readability and understandability of the document. Under `Preparedness' it says:
Output 14 elements are able to meet endorsed Operational Viability Periods without external re[hyphen]supply at MLOC.
That is noted under `Target' as, `Fully achieve.' The same type of comment occurs on the next line:
Output 14 elements are able to meet endorsed Sustainability Periods with external re[hyphen]supply support at MLOC.
That is also noted as, `Fully achieve.' All of that is very good but, as I asked, what does it mean? What does `fully achieve' mean?
Mr Lewincamp —Here we come up against another problem—that is, for a number of our capability outputs, the performance information would be classified at this level. That is an issue I think we ought to take up in addressing the future format and content of PBSs and how we give you meaningful performance information on things like our combat capabilities. Here we have a minimum level of capability, which is what MLOC refers to.
Senator HOGG —I understand that.
Mr Lewincamp —We set each year preparedness directives for all of our combat elements. This is referring to these elements being able to meet the requirements set out in those preparedness directives. The preparedness directives themselves are highly classified.
Senator WEST —But you mention them all the way through?
Senator HOGG —That is right.
Senator WEST —You are changing them and things like that. You are then going to tell us that it is highly classified and we cannot ask questions about it.
Senator HOGG —There is a billion dollars associated with this particular output. We are not trying to compromise any security aspect but we are supposed to be able to test what you put in this document when you say that you have achieved the output. Here we have `fully achieved'. Whether you have fully achieved it or not, to my way of thinking, cannot be tested. If you say that there are security implications, how are we to test that this has been fully achieved?
Mr Lewincamp —There is a separate issue here for the committee about ways in which we might brief you on these things outside an open session. Beyond that, the assurance that we give or the oversight of whether we achieve these things or not is a matter for the minister.
Senator HOGG —I understand. I have no doubt that, without trying to breach security, you cannot be overly open in some of these areas but they are being put forward as the basis of large amounts of defence expenditure—in this case over a billion dollars on output 14—and are not going to the nature of the output. It is the whole concept of being able to test. Estimates itself is a public scrutiny process and, as I understand it, in the estimates process we are not able to go into an in[hyphen]camera situation. If that is the case then that may be one specific issue that needs to be addressed if we are to get any meaningful sense out of the output process. Otherwise, you roll up to us—and this is no disrespect to you people—and tell us that you are going to spend $1.186 billion on this particular output and then the shutters go up. It is a security question.
Mr Tonkin —As part of the process of looking at how we have produced this year's review to see what else meaningfully and responsibly can be done within the bounds that we have got, if you turn to the next page, page 102, which has a whole series of flying hours spelt out, it was not all that long ago that the flying hours were classified. It was something we would never have mentioned. We have reviewed that.
Senator SCHACHT —Classified from whom? Us?
Mr Tonkin —Security classified.
Senator SCHACHT —So that we could not find out or the Russians could not find out? The Russians probably knew anyway.
Mr Lewincamp —In a sense flying hours again is an input measure. It does not actually tell you what you are generating. But it is a measure.
Mr Tonkin —We will therefore seek to have a look at how we can express this—
Senator HOGG —Just excuse me, Mr Tonkin. I am glad to hear Mr Lewincamp say that. It is an input measure in an output budget.
Mr Lewincamp —We recognise that.
Senator HOGG —You can understand the difficulties that we are having.
Senator WEST —Certainly you are having too.
Senator HOGG —Yes, in trying to get this budget to make some sense.
Mr Tonkin —There is a slight difficulty with generating outputs without inputs.
Senator HOGG —I understand that.
Mr Tonkin —The physics does not work.
Senator HOGG —I did see those tables there. While they are good, one has to go back to where the actual outputs are going to be measured in the annual report. I would suggest that that is going to be under your performance indicators.
Mr Lewincamp —Yes.
Senator HOGG —Is there anything else that is going to be used as a measure of the output? For example, in that output 14, there are a number of items under performance information for output 14—preparedness capability, enhancement initiatives. Will you be going through and giving an individual tick to the items that have occurred there, including things such as I see at the top of page 100, personnel? Is it your intention that in reporting on that output you will report on basically that nearly page and a half of items?
Mr Lewincamp —Yes.
Senator HOGG —What would you do with these performance indicators which have very little meaning to me and the public at large when we look at them and, rightly or wrongly, you tell us that there are security implications there and therefore you cannot go beyond?
Mr Lewincamp —We would tell you for a start whether we achieved it not. If there is no full achievement against these classified requirements, we will give an explanation of why there was not.
Senator HOGG —How will you be able to give an explanation if something is not fully achieved?
Mr Lewincamp —Very carefully.
Senator HOGG —My very point, Mr Lewincamp. I am not trying to be difficult; I am just trying to make sure that we all understand where we are going with the PBS. This is not a difficulty that we will have only now; we will have this difficulty into the future as well. I have picked those at random. I did not predetermine what outputs I was going to look at. I think that those two fairly much sum up the difficulties that I see in this area.
Air Marshal Riding
—If I could make a point on those performance indicators? There are two issues: firstly, I think that it would be very useful for the committee if we provided a technical briefing on a lot of these phrases and acronyms that are used in respect of
preparedness, because they are widely used within Defence. I think it would be important that the committee understands this process of preparedness and the phrases and the acronyms that are used.
Secondly, I would make the point that we are reviewing all of the security classifications against our readiness and sustainability periods against all force elements. That review was commissioned about two months ago and it is progressing slowly. I believe we will be able to provide more understandable and clearer information in the future which will not infringe on the fundamental security issues that we need to protect.
Senator HOGG —Who is actually doing that?
Air Marshal Riding —That is being done in the Defence headquarters.
Senator HOGG —Is there a name for the review committee?
Air Marshal Riding —It is being done as part of the policy and planning process within the headquarters.
Senator HOGG —Whilst we are on this area—and I thank you very much for that, Air Marshal—I am going to jump around a fair bit here because it will depend on how things flow. If I can take you to page 7, in section 1—that does not mean that I have forgotten what has gone before there—there is a table there on performance indicators, under combat capability preparedness operations and then non[hyphen]combat related. The paragraph underneath interests me where it says:
Military capability is achieved by developing a force structure appropriately prepared for operations. Preparedness is a measurement of how ready (readiness) and how sustainable (sustainability) the whole or part of the ADF is to undertake military operations.
Then it goes on to list a number of qualities:
The readiness of forces to be committed to operations within a specified time is dependent on the availability and proficiency of personnel, equipment facilities and consumables.
So that defines, as I understand it, readiness. I understand from what you are saying to me—and have always said—that that is something that, for security reasons, cannot be divulged.
Sustainability is measured in terms of the ability to provide personnel, equipment, facilities and consumables to enable a force to complete its period of operations.
It would seem to me that that goes to what we were discussing on page 101 in output 14 a few minutes ago. Those are the characteristics by which you will test whether or not you have achieved an outcome—I suppose it would be—under one of the outputs. Is that correct?
Mr Lewincamp —An output.
Senator HOGG —Whether you have achieved one of the outputs. I know the general outcome is the defence of Australia; I understand that. But am I correct that you would be using a number of those criteria listed in that definition to test your own outputs? Is that correct?
Mr Lewincamp —Yes.
Mr Tonkin —The level of readiness and sustainability which has been set for that given output, because it will vary.
Senator HOGG —I understand that. Whilst we have a broad description there of `fully achieved', within the province of your own knowledge, you have far more specific details which would go to that definition. Is that correct?
Mr Lewincamp —For every force element that is contained within a particular output there will be defined readiness and sustainability levels, so the full achievement will be for all force elements within that output.
Senator SCHACHT —In the same table on page 101, the performance indicator which is from Output 14, which Senator Hogg has been talking about, the first dot point:
. . . elements are able to meet endorsed Operational Viability Periods without external re[hyphen]supply at MLOC—Fully achieve
You are saying that you will fully achieve that as the target in 1999[hyphen]2000 in the budget period. So when we get the annual report in 15 months time for 1999[hyphen]2000 you will change the tense to say `achieved'. Is that right?
Mr Lewincamp —If we have. If we have not, we will say so.
Senator SCHACHT —This raises the point that Senator Hogg was on about. What will you put in there to show that you have achieved it or, more importantly, you have not achieved it? What information—
Senator HOGG —That is the difficulty we got into.
Senator SCHACHT —Yes. If you go back to where you have got lists of flying hours or something like that, will you say `We only achieved 80 per cent of the flying hours because we ran out of petrol' or `There were five pilots down with diarrhoea or whatever?' Will we get that back as a reason why you did not achieve it?
Mr Lewincamp —Flying hours is one of the factors that contributes towards the unit's achievement of its readiness. It is not the only factor.
Senator SCHACHT —No; I understand that. But if that were the reason why you could not say `achieved' in 15 months time on this table, would we be able to ask the question: what are the detailed areas that meant that you did not achieve it? Then would it be non[hyphen]classified to say, `We did not achieve it because we did not have enough money to pay for the aviation fuel?'
Mr Tonkin —That is correct.
Air Marshal Riding —Yes, Senator, that is correct. Within the constraints of security, we would be reporting to you on why we did or did not achieve our targets. If that were aircrew availability or aircraft unserviceability, then that would be articulated.
Senator SCHACHT —What are the elements—and this is going to be the question of the chicken or the egg—that are classified that would affect performance that you could not tell us?
Senator WEST —Because they are classified they probably cannot tell us.
Senator SCHACHT —Because it is classified you cannot tell us?
Air Marshal Riding —The readiness and sustainability of our force is the fundamental capability that we have to undertake the defence tasks and, clearly, the full extent of that cannot be fully divulged in the public arena.
Senator SCHACHT —Could it be divulged to a private hearing of this committee?
Air Marshal Riding —I think we discussed that earlier.
Senator HOGG —We did discuss it. It does raise the real issue that—
Senator SCHACHT —Did they say yes?
Senator HOGG —No, it is an issue that we need to traverse. If we are now going to outputs—and it seems to me that those outputs need to be tested—we have the right to inform ourselves that value for money is being achieved, that the output is being achieved. It is not that we doubt the integrity of anyone sitting at this table, or anyone in Defence for that matter, but that is why we are elected to parliament. Part of our role is the scrutiny of what is happening.
I would see Defence as being fairly different from a number of other portfolio areas where you do have real security concerns and operational concerns. I do not think it is the desire of anyone from our side of politics to compromise any of the security arrangements that you people have in place. At the same time, we need to be able to apprise ourselves of the PBS that is being presented to us.
In previous years, this might not have been as blatant as it is under the new structure. The new structure now presents it more openly to us. We have gone down the path of trying to read and understand and have run into difficulties. Air Marshal, you made an offer for a private briefing on some of the acronyms and bases on which this document is made. That is very good. It is very helpful. But nonetheless the issue of accountability is the one that is paramount in my mind.
I do not believe the document to be all that readable. I know Defence is renowned for its jargon. If someone else picked that up and tried to understand what you people were saying there, most would get lost in the jargon very early on. I do not doubt that there is an endeavour by Defence to be transparent, so I am not questioning that, but I do not think the transparency is there. That raises the question of how we will translate all of this into accountability at the end of the day.
Air Marshal Riding —I just make one point: while it is a new deal for the committee, it is also very much a new deal for Defence. We are now focusing very much on output and outcomes rather than inputs, which have been our management regime since time immemorial.
Senator HOGG —We are in deep sympathy with you.
Air Marshal Riding —You can rest assured that we are wrestling with the same very obvious questions that come up when you do start talking about outputs rather than inputs.
Senator SCHACHT —I missed the earlier part of the discussion that Senator Hogg raised about the question of a private briefing. On the economics estimates committee, in questions 12 to 18 months ago about CSIRO and a number of commercial disputes they were having, the head of CSIRO, a former well[hyphen]known Defence person, offered and gave us a private briefing. If it had leaked, it could have easily compromised CSIRO's commercial position when they were in court. It was worth millions of dollars.
That briefing was given for over an hour. As far as I am aware, there has not been one word of that leaked, hinted at or inferred anywhere. The members of parliament accepted the responsibility that, if you get a private, in camera briefing, there are obligations that go with it. If you break those obligations, as a member of parliament, you will suffer a penalty in one way or other. There is no doubt about that. There is just the publicity that you broke them.
What we did at that time was use the opportunity to say that the estimates committee would hold an in camera briefing as part of their review of the annual report, as a broad description. That worked very well. I think it did CSIRO a lot of good. The members of the parliament were able to get a balanced briefing and a lot more information than they could on the record publicly. I have to say I cannot see why, in view of the layout now, that opportunity should
not be available. If you find that there are some things that are classified, and if a member of parliament chooses to break the classification, then they will have to take that as a pretty awesome responsibility.
Mr Tonkin —Madam Chairman, I think we will refer this issue to the minister. It is a matter of how the minister would wish to consider whether or not or how such a briefing would be provided and to which body. After all, there is the Joint Standing Committee on Foreign Affairs, Defence and Trade which gets briefed on certain classified issues as well. We will take the general issue on notice and refer it to the minister.
Senator SCHACHT —Mr Tonkin, I appreciate that. I am on the Joint Standing Committee on Foreign Affairs, Defence and Trade, on the Defence Subcommittee, as well as this committee. I have been on that committee nine out of 12 years and we have sat through extraordinarily detailed briefings. The only one you will not give us is Pine Gap. Nevertheless, at the time of the Gulf War, there was information given to that committee almost on a daily basis that was extremely sensitive. I know of no evidence leaking. I think the joint committee on defence has accepted that responsibility in particular. I think there is a good track record there, but I have to say—
Senator Newman —The problem is that, of course, Mr Brereton treated a DIO document in a totally improper manner. Therefore, that must colour the minister's response.
Senator SCHACHT —Minister, if you want to go back and say the odd document around the place has been leaked, then we will spend 13 years looking at your track record in opposition—
Senator Newman —It perhaps depends on exactly what kind of a document. If you are not prepared to accept that a DIO document is in a very special class of documents, Senator—
Senator SCHACHT —Well—
Senator Newman —then any assurances about the protection of sensitive information fall on deaf ears.
Senator SCHACHT —Well—
ACTING CHAIR —Order, Senator Schacht!
Senator Newman —We have said that we will take that to the minister and that is what we will do.
Senator SCHACHT —You interrupted, Minister. The point I was making is that that is the Joint Foreign Affairs, Defence and Trade Committee. This is the estimates committee. I would want to emphasise that I think it is the estimates committee that should have the in camera briefing as it is the one that is handling the questions about the budget, not the Joint Foreign Affairs, Defence and Trade Committee, and that does not have a specific responsibility at looking at the budget outlays—which we now call outcomes and outputs. It should be this committee. If members of the committee do not want to accept that responsibility of an in camera hearing, they should not attend it. That ought to be made very clear.
Senator HOGG —There are problems in a legislation committee being able to hold in camera sessions for estimates. We can for annual reports.
Senator SCHACHT —That is what I am saying. For the annual report, we did that for CSIRO as they did not want to put it on the record, because it would have affected their commercial position in legal challenge. That is the device we use. We also used it for Telstra over the COT cases.
Senator Newman —You are wasting your estimates time. There is going to be no different answer from the one he has got.
Senator SCHACHT —All I can say, Minister, is that I just wanted to emphasise that I think it ought to be looked at through the estimates committee.
ACTING CHAIR —Senator Schacht, I think Mr Tonkin has undertaken to raise that with the minister.
Mr Lewincamp —Senator, I have not answered the second half of your earlier question about the change from cash to accruals; we only talked about output management.
Senator HOGG —We will come to that, I have got no doubt. Just while we are on this: at the technical briefing that we had you were able to put outputs against each of the goals at pages 3 to 5. There are six goals over those three pages. Is the intention to report against those goals in the annual report, or is that intended to be just a good, brief, preliminary statement by way of entry into the PBS?
Mr Tonkin —I think it is the second rather than the first. The goals are broadly descriptive and longer term in nature. What we are setting out to have the funds appropriated against and will report on will be the outputs which we are delivering to achieve the outcome which the government is seeking. The goals are, in the context of this document, setting a broader and longer term context. You could not achieve `More Combat[hyphen]Ready Capability', `Stronger Future Capability', et cetera. They are continuing types of things. They are more contextual. They give us a broad framework.
Senator HOGG —Let us just go to a specific issue. For example, goal 3 is `Closer Alliances and International Strategic Relationships', which is specifically output 20. A sentence near the top of page 4 says:
In particular, we will work with the Indonesian military to support its transition away from political involvement and encourage its development as a conventional, externally oriented defence force.
Where do I find that in output 20?
Mr Lewincamp —It is implicit in the third dot point under `Significant Achievements Plan', but it is not explicit.
Senator HOGG —That is why I am confused. Again I just picked that one at random. That to me is a fairly significant part of the output. I would imagine that, subject to not breaching any secret information or anything such as that, that would be a little bit more than being `implicit in dot point 3' on page 119.
Mr Lewincamp —I agree.
Senator HOGG —But that is not the only such instance, and that is why I am asking the question. Senator West is champing at the bit to go to goal 4, but first could I just take you to goal 5.
Senator WEST —That is output 22.
Senator HOGG —The sentence under goal 5 that leapt out at me stated:
A revised ADF remuneration structure is being developed . . .
In output 22 where do I find that?
Mr Lewincamp —Goal 5, `Growing Skills and Knowledge', applies across all 22 outputs because it relates to our work force. It is not specific to output 22.
Senator HOGG —So it is all 22 outputs. I have read that as output 22.
Mr Lewincamp —It is all 22.
Senator WEST —So goal 6 is across all 22 as well.
Senator SCHACHT —Goals 5 and 6 are across all 22?
Mr Lewincamp —That is right.
Senator SCHACHT —So we will never know when you actually got Plugger kicking the 1,300th goal; we will not exactly know when you have kicked it?
Mr Lewincamp —This is one of the reasons why we have retained the group information. This is a question that would legitimately come up under the defence personnel executive, under the groups—to talk about our remuneration strategy.
Senator HOGG —I was not trying to get into the issue; I was trying to find out where. If I can then take you back to page 3 of the PBS, under the heading `Goal Two—Stronger Future Capability'—outputs 1 to 19—the second sentence in the second paragraph states:
In the coming year, Defence will establish an Office of the Revolution in Military Affairs to study the implications—
Senator WEST —I thought that was a lovely title.
Senator SCHACHT —It is a great title.
Senator HOGG —It is something that Mao would have been proud of.
Senator SCHACHT —I thought Gaddafi might have been using that title.
Senator HOGG —Again, that is across the 19 outputs so I cannot find it individually itemised in any of the outputs from 1 through to 19. Is that correct?
Senator WEST —Does that come under any of the groups?
Mr Lewincamp —This was a government election commitment at the last election.
Senator HOGG —Again, I am not wanting to debate the merits of it; I just want you to—
Mr Lewincamp —I understand. Output 1 is where it should be—sorry, output 22.
Air Marshal Riding —RMA will be under output 22.
Senator HOGG —Where do I find it within output 22?
Air Marshal Riding —Under the heading `Strategic Policy' and the dot points `Providing strategic advice on capability development' and `Formulating and analysing . . . new future scenarios'.
Senator SCHACHT —But there is no mention there of the Office of the Revolution in Military Affairs at all. Shouldn't that have been mentioned on page 124 so that you can get a cross[hyphen]reference?
Senator HOGG —I am not trying to be difficult. I am just trying to ask: where is the guide to the galaxy?
Senator WEST —Also, on output 22, under the heading `Strategic Policy', there is a fifth dot point which states, `Provide advice to, and support for, a range of national security for a.'
Mr Lewincamp —Remove the gap. I think it is supposed to be `fora'.
Senator HOGG —I thought there was something secret in there.
Mr Lewincamp —As in the plural of forum.
Senator SCHACHT —It is like forums—plural.
Senator WEST —If you had used `forums', we would have understood it—or if the gap had not appeared.
Senator HOGG —Before I turn you over to Senator West, who wants to talk about goal 4, I am trying to find the relationship between goals 1 to 6 and the various outputs. We were told in the briefing that certain goals applied to certain outputs and so on. I understand that. But how are we to pick up some quite specific things related in the front part of this document and then pick them up in here without some absolutely diabolical—
Air Marshal Riding —There is a cross[hyphen]referencing issue here, Senator. The point is that these specific objectives for 1999[hyphen]2000, grouped together under the broad goals for the way ahead for Defence of priorities set by the minister and the department, will be reported upon in the annual report. There will be that kind of activity, but I appreciate the fact that there is a lack of cross[hyphen]reference between the output performance indicators and these specific issues that have been identified as objectives that will be achieved in 1999[hyphen]2000.
Senator SCHACHT —In the annual report, will there be any reporting on what has happened with each of the goals? Will we get a description in the annual report of how these six goals have gone, irrespective of the cross[hyphen]referencing?
Mr Tonkin —It is my intention that it would not report on the goals because the goals are, as I said, a broad contextual statement of where we are going over a number of years. What we will try to do in the annual report is to be quite precise, under each of the 22 outputs, about what we said we were going to achieve and give you an accountable way of seeing whether we did or did not achieve against each of those outputs, which contributes over time to these broadly expressed goals. The goals are there as an internal thing. On reflection, it is probably unhelpful to present the key objectives in the way we have against these goals, because all it has managed to achieve is to confuse rather than to assist.
Senator SCHACHT —I have to say, Mr Tonkin, that in the private briefing we had with the officers of the department—which was very, very useful—we raised the matter of how these goals had appeared. We expressed the view then that by putting them in you have only created more confusion. If you had stuck to outcomes and outputs—
Mr Tonkin —The intention was to give a useful overview. It has not worked as well as we would have desired.
Senator SCHACHT —The foreign affairs department called them `milestones' rather than `goals'.
Senator HOGG —We have been through that.
Senator SCHACHT —We started calling them `millstones' because Foreign Affairs got into the same quagmire as I think you have. Senator Hogg has raised a very good point: you have put in objectives but, by the time the annual report comes out in 12 months time, how will you report against them? Goal 3 states:
In particular, we will work with the Indonesian military to support its transition away from political involvement and encourage development as a conventional, externally oriented defence force.
In 12 months time, if you do have it in the annual report, why would you not make a comment under the objectives, `This has developed in the right way. We are pleased with the outcome, that the military in Indonesia has become an externally oriented defence force'? Would you put that in the annual report as an achievement under the goals, or would you write it somewhere in an output?
I can see that you can actually measure that. If the military do not withdraw from the politics of Indonesia and from interfering in some way which we as democrats might oppose, you can say, `It has failed.' Or, if they have withdrawn and there is a democratic parliament that is actually giving directions to the Defence Force, you can say, `This has been a major achievement.' But then you might say, `This is classified. We do not want to write that either way because we do not want to offend the Indonesian military,' and then we go to that other argument.
Air Marshal Riding —Certainly, within the outputs, we would be reporting that sort of output achievement. It would depend upon whether it is useful for us to provide in the annual report an overview of our achievement ahead of the detail in the back on output achievement and making sure that it is appropriately cross[hyphen]referenced, which it is not at the moment. You have quite rightly picked up on that.
We would certainly be very interested in your view as to whether that overview, both for our objectives and for our achievement as we would report it in the defence report, is useful. As Mr Tonkin said, if it is not, we can just go straight to the very technical, hard[hyphen]edged, hard[hyphen]nosed reporting without that overview, which I would have thought would have been of some assistance.
Senator SCHACHT —At the time of the private briefing I expressed my view that the goals are actually creating more confusion and it is not relevant for them to be in the document in the way they are, because I do not think you can chase them all down. They are nice descriptions but, if you are really relying on outcomes and outputs and you cannot relate them to those, we cannot chase them down.
Air Marshal Riding —They are relatable but it is not clear.
Senator SCHACHT —But where?
Air Marshal Riding —As you read this document from an uninformed position, it is not clear what the connections are.
Senator SCHACHT —Are you sure you know what the connections are? Are you sure that, if you went back in the next couple of weeks, you could tie all those paragraphs under the six goals into—
Air Marshal Riding —I think, broadly, one way or another, we could link them up.
Senator SCHACHT —You could link them up?
Air Marshal Riding —We might be a bit obtuse, but we would get there.
Senator HOGG —You have supported what I said in the first instance, so I do not want to put words in your mouth. This has to be readable and understandable to people. Whilst it might be a good working document for you and us, the whole aim of this game to me is that there is a transparency and an understandability for the average person. If anyone claimed that they would pick up the Defence PBS as night[hyphen]time reading, I think you would question—
Senator WEST —They would have to be an insomniac.
Senator HOGG —You would have to question something about them—I do not know what it would be.
Senator Newman —Their honesty?
Senator HOGG —It could be that, Minister, as well as a range of other things. Nonetheless, I think there is a responsibility for this to be in a fairly readable style.
Before I get back to those questions that I was going to ask about pages 18 to 21, let me just take you to page 6, which talks about the outcome, `The prevention or defeat of armed force against Australia or its interests'. The following paragraph tends to clarify that, saying in part:
Prevention, in this context, includes all parts that contribute to a more stable and certain international environment, such as peacekeeping and assistance in overseas disaster[hyphen]relief operations.
It goes on, however:
Armed force includes incidents of acts of terrorism and other breakdowns of order within Australia which may require Defence aid to the civil power.
In my previous readings of PBSs—I have been through three now—I have not seen that phrase `other breakdowns of order within Australia which may require Defence aid to the civil power'. Is that something new that has been added, and, if it has been added, why?
Mr Tonkin —It has always been part of the Defence responsibility. There always has been a provision for Defence aid to the civil power. The words used to be `defence including civil defence' and things like that, which was a shorthand to cover that sort of thing. This is perhaps more explicitly expressed, but there has been absolutely no change in the intended scale or scope of Defence responsibility.
Senator HOGG —I have looked at previous PBSs and I have tried to find it. This is a change—
Mr Lewincamp —I will explain why this section is actually in the PBS. It covered some legal advice that was sought by the Department of Finance and Administration about whether the outcomes put forward by departments were sufficiently broad and comprehensive to cover all expenditure intended by departments. The legal advice offered to the Department of Finance and Administration indicated that our outcome might be a bit too specific to include some of these other items. That is why we have an explanatory paragraph underneath the outcome which indicates the intent of the words in the outcome, to ensure that all of the money that we are appropriated against that outcome can legitimately be spent on things such as overseas disaster relief operations, counterterrorism and a range of things of that sort.
Senator HOGG —I accept that, but, if I look into the previous PBSs, nowhere do I find the words `other breakdowns of order within Australia which may require Defence aid to the civil power'. What are `other breakdowns of order'? Do we know?
Air Marshal Riding —The Hilton bombing and the subsequent CHOGM meeting in the 1980s, for example, resulted in Defence being called upon to provide aid to the civil power. It is for those types of events where the law and order capacity in the civil environment is insufficient to deal with the particular circumstances, and there is legislation under which aid to the civil power can be provided. That is what is reflected there.
Senator HOGG —Do you have a broad list of contingencies that you would be likely to meet, in terms of that `other breakdowns of order'?
Mr Lewincamp —I think it would be better for us to take that on notice and give to you the circumstances in which the ADF can be called out in aid to the civil power. It would be better to come from that angle rather than trying to guess what contingencies they might meet.
Senator SCHACHT —I was just thinking of that phrase, `Call out.' Is that defined in the legislation, that you have to make certain legal decisions about the call[hyphen]out to help in the civil area?
Mr Tonkin —Call[hyphen]out tends to be in the context of the reserve, Senator.
Senator SCHACHT —That is what I want to get to. You are not calling out the reserves.
Air Marshal Riding —No, Senator.
Mr Tonkin —This is where the permanent forces would be requested by the appropriate government authority.
Senator SCHACHT —Let us just deal with the reserves. Could the reserves be used for a call[hyphen]out for a civil disturbance, legally?
Senator WEST —For breakdowns of order.
Mr Tonkin —I would like to take that on notice.
Air Marshal Riding —I think we will take that on notice. We need to find the legislation detail and provide it to you.
Senator SCHACHT —On the same point, in an industrial dispute, could this phrase be used for the Defence Force to be used to remove a picket line if the police could not do it?
Mr Tonkin —I think I would like to take that on notice, too.
Senator SCHACHT —I am sure the Defence Force would like to, as well. If police refused to remove a picket line because of their own industrial position, or whatever else, it is possible then that the Army, the professional service, could be called on to remove the picket line?
Mr Tonkin —I would not wish to speculate on that sort of an issue, Madam Acting Chair.
ACTING CHAIR —Senator Schacht, I think the officers have indicated that they will take the questions on notice.
Senator SCHACHT —Major General Peter Dunn, who has come to the table, might be willing to proffer some view at the moment.
Major Gen. Dunn —If the military is to be used to support police action in that situation you have described, they do require a formal declaration.
Senator SCHACHT —A declaration by whom?
Major Gen. Dunn —By the Governor[hyphen]General. With regard to the use of the reserves, which was your previous question, the call[hyphen]out relates to defence of Australia tasks, and it is confined to that at the moment.
Senator SCHACHT —Thank you.
Senator HOGG —While we are in this broad area, could I raise another issue on the performance indicators. I see that there is a note to a number of the performance indicators that occurs throughout the document, which says:
Valid only for CPD98, judgement for CPD99 yet to be made.
Getting myself around the acronyms, I found out that CPD is the CDF's preparedness directive. As I say, it is not just a note against one set of performance indicators; it is against quite a number. My way of interpreting that note is that it is valid only for the CDF's preparedness directive 1998 and that judgment for the CDF's preparedness directive 1999 is yet to be made. Does that mean that the performance indicators are being based on out[hyphen]of[hyphen]date judgments?
Air Marshal Riding —The CPD98 and CPD98 Amendment List No. 1 are the directives under which the ADF is being held at readiness and sustainability periods. CPD99 is currently being developed and it will set the new parameters for readiness and sustainability for the year 1999[hyphen]2000.
Senator HOGG —Now you have confused me.
Air Marshal Riding —CPD99 has not yet been issued.
Senator HOGG —It has not been promulgated at this stage—I understand that. I understand that there is a degree of sensitivity in the preparedness directives. I do not want to get to the exact nature of what is in there. But, if the budget were prepared on CPD98, how significant a change will there be to CPD99 such that it changes the performance indicators that were there for each output?
Air Marshal Riding —There will be some variation based on the changing strategic circumstances. Until that preparedness directive is finalised and CDF issues it, neither COMAST nor the service chiefs can declare their readiness and sustainability requirements to meet that CDF preparedness directive. However, whatever level of readiness and sustainability is declared in CPD99, it will be achieved within the resource constraints of the 1999[hyphen]2000 budget.
Senator HOGG —It just seems odd to me that in framing together a number of outputs for 1999[hyphen]2000 it would be based on CPD98 rather than on CPD99. I do not know whether I understand your internal organisation well enough, but, as an outsider looking in, it just seems to me that when we come to the 2000[hyphen]2001 budget you would be basing that on the preparedness directives germane to that year.
Mr Lewincamp —One of the things that we have noted at the front of this PBS is that the consequences of the government's increased preparedness requirements levied on Defence in March of this year have not yet flowed through all of the figures in the PBS. One of the consequences may well be to adjust the resources given to different outputs. We are not yet seeing the consequences of that flowing through. On page 97, which is the first page on which I could find—
Senator HOGG —Isn't it coincidental?
Mr Lewincamp —that footnote that you mentioned.
Senator HOGG —That is the page that I am at.
Mr Lewincamp —As the VCDF has mentioned, we would still expect the preparedness requirements levied on this particular output under CPD99 to be fully achieved. The one in the column that is likely to change, or may change, as a result of adjusting resources for the preparedness requirements could well be the flying hours. We may make some adjustments to the number of hours for those aircraft, for example, as a result of funding the increased preparedness requirements. That has not yet flowed through the PBS.
Senator HOGG —Without trying to see how many tables it applies to, except that it was something that I kept coming across—
Mr Lewincamp —I think it is the Air Force outputs.
Senator HOGG —Is it mainly Air Force?
Mr Tonkin —I think so.
Senator HOGG —It is in outputs 16, 19—it is in quite a few. It struck me as a note that was there for a reasonable purpose and it seems to me that it obviously is not going to be insignificant.
—It is one of the products of the timing of budget documentation. Once we moved from an August budget to a May budget, it became much more difficult to include within budget documentation the full set of what you are planning to do in the coming financial year because you are actually preparing this material just around Christmas or a bit
thereafter and so you are reaching a long way forward in making these projections. There are benefits in having the budget in place before the end of the financial year but one of the defects is that it cannot incorporate some of the decisions as comprehensively as previously. So it is a matter of the cycle.
The change from CPD98 to CPD99 will not vary the outputs of Defence; it will vary some of the balances of performances within some of those outputs. Those variations will be reported to this committee in the additional estimates process so we will be able to track them. If CPD99 changed something you would see that variation appearing in those documents so you can track the way it has shifted.
Senator HOGG —Can I therefore assume that in next year's budget we will have a similar note valid only for CPD99 and the judgment for CPD00 yet to be made? Is that a reasonable assumption on how this will flow through? I am just trying to get to the process.
Mr Tonkin —It could well be, Senator. It just depends upon the cycle time of when the preparedness directives are issued, of how much a variation there might be, and how enduring CPD99 might be. It could be that CPD99 has a longer duration. That depends upon the nature of strategic circumstances and so on. If the givens do not change very much then you can set the setting and you can stay pretty much at it.
Senator HOGG —This gets back to the earlier question that I raised about our ability to understand the performance indicators.
Air Marshal Riding —We simply cannot regulate the real world outcomes that are occurring every day in a total, quite unpredictable way and our response to them in a time frame such that will satisfy the preparation of this documentation.
Senator HOGG —I accept that, but nonetheless CPD98 or 99 is a fairly fundamental basis on which the outputs for this year 1999[hyphen]2000 have been made or will be varied at some stage. It just seems to me that, whilst it appears as very much a small one line there, it is something that should be considered to be significant. Thank you for that explanation.
Proceedings suspended from 10.43 a.m. to 11.02 a.m.
Senator WEST —The first sentence of the second paragraph on goal 4 says:
To assist efficient service delivery, Defence is taking steps to promote the development of the skills and capacities needed from the civil sector.
Can somebody give me some indication what that precisely means, please?
Air Marshal Riding —Senator, the skills and capacities we need from the civil sector are those support functions we are currently in the process of testing for outsourcing. In many areas the industry has not had experience in maintaining combat systems. As an example, the F111 combat capability has previously resided totally within the Air Force with some outsourcing of component repair. The intention is to test the whole of the deeper maintenance capability of the F111 fleet, and that will indeed demand that industry develops skills and capacities that it has not had before.
Senator WEST —So you are telling me that currently, with all the things that are being CSPed, the industry does not have the capacity and the capability—is that it—and they have to undergo additional training and develop new skills?
—As we progress through from the easier market testing areas such as garrison support, through clerical and administrative to a lot of the higher, more technical things, such as the Air Marshal has referred to, the scale of the challenge for industry rises quite
substantially and we need to ensure that there is capacity in industry to do those more skilled things particularly.
There is no question that at the lower end of the technological scale there is ample capacity in industry, as we have seen from the range of companies bidding in our garrison support things. We get in any one instance six or seven significant companies bidding. We want to make sure that when we get to the more complex things there is a robust competition and an effective ability to deliver the services that we want.
Senator WEST —Right. I think we are dealing with CSPing later on in the more specific questions looking along the lines of how you are going to reach the decision that the promotion of the development of the skills and capacities in the civil sector actually ceases to be efficient and beneficial in having them do it and how it is easier for you to do it. I will be wanting to know what the decision making process is going to be and what the guidelines and the criteria are going to be for those decisions to be arrived at because there are some fairly fundamental and significant decisions that have to be made. So I shall remember that.
When we had the private briefing we were told goal 4 related to output 21. Was that correct?
Mr Tonkin —I looked at that myself a second ago. It is not quite, because it is a two[hyphen]way equation. Output 21 is Defence's contribution to national support tasks—what we are doing to support broader national activities. Goal 4 goes beyond that to draw on the nation's capacity to assist the defence function to deliver defence capability more cost[hyphen]effectively. For example, I could just underline the sentence you took, the one about using airlines during contingencies.
Senator WEST —That was going to be my next question: where were both of those actually appearing in output 21—in fact, where were both of those appearing in the outputs?
Mr Tonkin —The second one you would not find in output 21. It relates to the earlier outputs, the capability outputs in particular. To give a simple example, during a large exercise, Crocodile 99, when moving large bodies of people about, we would routinely use the airlines on a contract basis to provide transportation. So that is a cost we would pay which might well come up against the land force capability output, which, from memory, is 11, so it is a minor cost element inside that activity. That is a `for instance' of where that sort of activity would appear.
Senator WEST —Okay, thank you.
Senator SCHACHT —Mr Tonkin, you say the cost of paying that service provided by the airlines to shift people to exercise Crocodile 99 is in output 11. Which line would that be on page 90?
Mr Tonkin —It would be under `Other expenses'. Look at table 3.11.2.
Senator SCHACHT —So the budget of just over $1 million—
Mr Tonkin —Billion.
Senator SCHACHT —would be in that cost?
Mr Tonkin —Yes.
Senator SCHACHT —If we asked you to take it on notice, you could provide a breakdown of that, of what the airlines got paid?
Mr Tonkin —They have not been paid anything yet. It is prospective.
Senator SCHACHT —Okay. For 1998[hyphen]99, on the accrual, it was estimated at just over $1 million. If we asked the question, you could provide us—if you took it on notice—with what was paid to the airlines in 1998[hyphen]99?
Mr Tonkin —We have not completed the 1998[hyphen]99 financial year.
Senator SCHACHT —I know we have not. That is what I am saying. We would have to ask the question at the appropriate time at the end of 1998[hyphen]99 or at the annual report or the supplementary estimates.
Mr Tonkin —At the annual report. How much we spent on airline contracts to support army training operations—that sort of question.
Senator SCHACHT —But it would not be mentioned as a specific role?
Mr Tonkin —No.
Senator SCHACHT —Because, you would say, it is too small?
Mr Tonkin —Yes.
Senator HOGG —If we can go back to the introduction—we seem to be all over the place—in the fourth paragraph on page v it says:
In accordance with the whole[hyphen]of[hyphen]government reforms, Defence is developing a new performance and resource management framework that builds on and integrates a number of current reforms and initiatives in Defence management.
Could you elaborate on what that means? Is that another new initiative or is it something that is already happening?
Mr Lewincamp —It is something that is already happening. In fact, this same issue has come up in the last two years at the PBS hearing. Rather than respond in an ad hoc fashion to each of the individual management changes that are occurring, we set out 2[half ] years ago to put in place an integrated resource framework that encompassed and captured output management, accrual budgeting, better performance management, better management systems, and training and education of our people in order to respond in a holistic way to all the things that are happening at the moment. We have been progressively implementing that over the last 2[half ] years, so this is an ongoing initiative.
Senator HOGG —Is there a finite conclusion to this or is it something that is developmental forever more?
Mr Lewincamp —There are some clear milestones and end points in it.
Senator HOGG —You have got milestones? Good.
Mr Lewincamp —Yes, we do.
Senator HOGG —I would be interested in the milestones.
Mr Lewincamp —I can give you milestones. It would be nice to say that this is a time limited initiative, but that will only happen if there is no further change in overall public sector management or Defence management. I cannot see that happening, so we are trying to put in place a flexible arrangement that can continue to adapt to new initiatives as they come up.
A couple of milestones. We are implementing a new financial management information system. It is called Project ROMAN. One of the milestones is that the first phase of that will be operational on 1 July this year. It will be fully implemented within a further 18 months across the Defence portfolio. This will provide us the systems support needed for accrual and output management. There are a number of others.
Senator HOGG —Just on that, if one looks to page viii, under `Output costing' it says:
At present, Defence's management information systems do not directly capture output costs. This is being addressed in the upgrade and replacement of these systems over the next one to two years.
Is that part of that Project ROMAN initiative that you have just referred to?
Mr Lewincamp —No, it is a slightly broader issue. Project ROMAN is the financial management information system. We need to integrate that with non[hyphen]financial performance information as well, but ROMAN will provide a considerable amount of functionality for costing of outputs.
Senator HOGG —So there are some outputs that are not directly costed. Is that the correct way to interpret what is there?
Mr Lewincamp —The current process involves us both allocating and attributing costs against the outputs. Some of the things that we are engaged in can be directly allocated to a particular output; and there are some costs within the department that we cannot just say, `That is specifically related to output 1 and nothing else'—for example, financial management services.
What we do is attribute the cost of financial management services across all of the outputs because one of the requirements in the new framework, in terms of the guidelines set by government, is that the full cost of the Defence activity has to be captured against the outputs; they did not want a separate section that says, `Management', `Corporate overheads' or other things. So there is a whole range of corporate functions, including financial management, personnel management and a number of others, that are attributed across all the outputs, usually on the basis of the proportion of the budget expended in that output or the number of people working in that output.
Senator HOGG —Just taking those two initiatives, one where the management systems are obviously being upgraded, where does one find those in the PBS? Can one find them in the PBS?
Mr Lewincamp —You can certainly find them under group 14, on pages 164 and 165. If you look at the top of page 165, the second dot point down specifically refers to Project ROMAN.
Senator HOGG —Yes.
Mr Lewincamp —It should also be in output 22. I am trying to find it.
Senator HOGG —I found output 22. It is on pages 124 and 125.
Mr Lewincamp —It is not explicit there. It underpins a number of the achievements listed there, but it is not separately mentioned. It is seen more as a supporting measure than a specific deliverable in itself.
Senator HOGG —How are we supposed to know these things from where we sit? You have the advantage of having put the documentation together and can see where these things fit in and underpin different programs. How are we supposed to identify those? An equally important question is: how important is it for us to obtain a reasonable understanding of what is happening that we need to do it at all?
Mr Lewincamp —The issue here is that the sorts of things we are talking about—management systems, financial management systems—are not outputs that Defence delivers to government so it is not easy to capture them in outputs 1 to 22. In essence, they are preconditions. They are part of what the Defence organisation does to run itself effectively and efficiently and are captured more clearly under the groups. Again, one of the reasons why we have kept the groups there is so that you can get some sense of what we are doing in terms of financial management or personnel management or logistic management. But they are not outputs, as such; they are more inputs. They are preconditions or contributing factors towards the successful delivery of the outputs.
Senator HOGG —I must say that I went through the individual groups and, whilst I do not have a lot of questions on each of the individual groups, there are some groups where I have more questions than others. The questions just leap out at you there, whereas when you look at the outputs the questions do not leap out at you at all—you are looking through that maze. I have no more questions on the opening section.
Senator SCHACHT —Mr Tonkin, I refer to page 6—which has been mentioned before—headed `Defence outcome and outputs'. When I read that, I must say that I get a more defined picture about what you are trying to achieve than I do by reading the goals. If you had not put the goals in this document and just stuck to the defence outcome and outputs on page 6, I probably would have found this to be a more satisfying document. You may not have given me enough leads elsewhere to chase things up, because what is in the goals are a number of interesting comments, but I would have thought that, if you stuck to something like page 6 in the future for this accrual accounting system—defence outcome and outputs, with those four dot points listing which outputs they are covered by—that would be a much more structured way to proceed than having those goals running at almost cross[hyphen]purposes.
Mr Tonkin —Thank you, Senator. We are a learning organisation.
Senator WEST —It might not be to our benefit.
Senator SCHACHT —I know it might not be to our benefit, but I suspect that in the long run it probably will be because all we are going to get is gobbledegook about goals. They will always be written up in abstruse ways about whether or not they have been achieved, and then we will be told they are covered by security factors, et cetera.
Mr Tonkin —Madam Acting Chair, we would probably still seek to provide some sort of a summary overview, even if we did it by output, because we believe it is useful for the odd insomniac reader of the document—
Senator SCHACHT —There are at least four of us.
Mr Tonkin —to be able to capture in some few pages the broad nature of the deliverables we are offering. We think that broad overview is helpful. It is more the context it has been presented in which has perhaps been confusing in this instance.
Senator BROWNHILL —Madam Acting Chair, if we actually moved on to capital budget or financial statements or got into some of the actual specifics, a lot of these questions that have been asked might actually eventuate into reality—
Senator SCHACHT —I would not hold your breath.
Senator BROWNHILL —or we might get very clear replies to some of the questions.
Senator HOGG —I think we have been doing very well. I think we have progressed very well.
Senator SCHACHT —With all due respect, Senator Brownhill, we could spend three weeks on the six goals and still be no clearer about outputs and outcomes than when we started. That is why I just make the point: I do not know what the document is that Defence has used to get these goals and how they are kicked around, and there are useful things for an opposition to chase up on the odd paragraph here and there, Mr Tonkin. Thank you for those.
ACTING CHAIR —Can I just clarify, Senator Schacht: we are still on portfolio overview?
Senator SCHACHT —Yes.
Senator HOGG —I am about to move.
Senator SCHACHT —It seems to me that if you jump from page 2 to page 6 it is a cleaner document. Whether in the end we are going to get more information in 18 months time, when the annual report comes down after the first full year of accrual accounting, the proof will be in the eating of the pudding. We may then go back to look at some of those goals, at where they have disappeared to, Mr Tonkin.
Senator HOGG —Can we move to the Defence Reform Program?
Senator SCHACHT —Can I just say that occasionally we may come back to page 7, table 1.1, performance indicators, which are the overall ones that relate to specific outcomes.
ACTING CHAIR —I think the officers realise we are all working through this with patience.
Senator HOGG —On the Defence Reform Program, can I acknowledge the assistance of Mr Lewincamp and others in providing me with a document which—
Senator WEST —You have got and nobody else has.
Senator HOGG —I do not know if this has been supplied just to me. That is what I am trying to clarify. It is a document which was forwarded to the secretary of the committee which arose out of the briefing. It is this document.
Mr Lewincamp —It was forwarded to the secretary of the committee.
Senator HOGG —Yes, forwarded to the secretary of the committee, who forwarded a copy on to me.
ACTING CHAIR —For distribution?
Senator HOGG —I do not know. Was it distributed to other members? We are not sure whether it was distributed to other members of the committee. That is why I am just taking a couple of minutes to try and identify the document. It is a letter dated 3 June. The reference is RFP136/1999. It has provided me with a number of tables on the Defence Reform Program, the cumulative personnel reductions, the cumulative resources available for reinvestment 1997[hyphen]98 through to 2002[hyphen]03, and a further document headed `Defence Reform Program reinvestment 1997[hyphen]98 to 2002[hyphen]03'. That document has not been provided to all members of the committee?
Senator WEST —It might have been.
Senator SCHACHT —It may have been. Can we get a copy of that now?
Mr Lewincamp —What we tried to do in that document—
Senator HOGG —Would you just explain briefly, for the benefit of the committee, the purpose of the document and how it came about as a result of the briefing that you gave to us?
Mr Lewincamp —It came about for two reasons. One is that at the last hearing on the PAES last year and the supplementary hearing, you asked us to give a reconciliation of DRP savings and reinvestment through the various documents since the 1998[hyphen]99 PBS. That was the 1998[hyphen]99 PBS, the 1997[hyphen]98 annual report and then the PAES in 1998[hyphen]99. We provided that. Then, slightly in advance of the technical briefing, you asked for that same reconciliation to be extended over this budget and the forward estimates period. So we have now provided that in a single table which shows the DRP reinvestment and savings right across that period.
Senator HOGG —That is correct. For the sake of those who may read the Hansard of these estimates at some stage, would it be useful if we had them incorporated in Hansard ?
Mr Lewincamp —Certainly, that is possible.
—I think that might be worth while. It is clearly designed to give a trail of what has happened in the Defence Reform Program and it is a document that has been, as
you have outlined, prepared by you. I must thank you very much for it and compliment your staff on the preparation of the document.
ACTING CHAIR —Is it the wish of the committee that the document be incorporated in the transcript of evidence? The minister has not objected and there being no other objection, it is so ordered.
Department of Defence
3 June 1999
Mr Paul Barsdell
Senate Defence, Foreign Affairs and Trade Legislation Committee
CANBERRA ACT 2600
At the Supplementary Hearings before the Senate Legislation Committee on 5 May, I gave an undertaking to Senator Hogg to provide a summary of all Defence Reform Program resource efficiencies and personnel reductions from the 1997[hyphen]98 Annual Report to the 1999[hyphen]2003 Forward Estimates. I have also included a summary of the reinvestment of the resource efficiencies into new or enhanced capabilities for the ADF. The information is attached.
Should Senator Hogg need further explanation of the information provided, I would be happy to elaborate in person or by correspondence.
First Assistant Secretary
Resources and Financial Programs
Annex A contains an explanation of the cumulative personnel reductions (both military and civilian), by category of reform and Group for the period 1997[hyphen]98 to 2002[hyphen]03.
Annex B contains a summary of all Defence Reform Program cumulative resources available for reinvestment by category of reform and Group for the period 1997[hyphen]98 to 2002[hyphen]03.
Annex C contains a summary of Defence Reform Program reinvestment for the period 1997[hyphen]98 to 2002[hyphen]03.
Defence Reform Program Reinvestment (1997/98 to 2002/03)*
|1998[hyphen]99 PBS||1997[hyphen]98 Annual Report||1998[hyphen]99 PBS||1998[hyphen]99 PAES||1999[hyphen]2000 PBS||1999[hyphen]2000 PBS||1999[hyphen]2000 PBS||1999[hyphen]2000 PBS|
|(Figures in brackets were reproted in the 1998[hyphen]99 PBS but have been refined in the 1999[hyphen]2000 PBS)|
|Capability Related Logistics Costs|
|New Capabilities—Net Personnel Operating Costs|
|Defence Science Capability Projects|
| * Some figures may not add due to rounding.
The figures in bold are those reported in the document indicated in the column heading, eg the 1997/98 Plan figures were reported in the 1998/99 PBS. The figures in brackets were reported in the 1998/99 PBS and have been refined in the 1999/2000 PBS.
|New Capital Investment||85.2||169.3||138.5||138.5|
|Provision for 50,000 ADF (Includes category "Army Program Reinvestment")||54.3||54.3||45.3||338.0||434.4||539.3|
Defence Reform Program—Cumulative Resources Available for Reinvestment (1997/98 to 2002/03) *
|Plan 199899 PBS||Actual 1997[hyphen]98 Annual Report||Plan 199899 PBS||Revised 1998[hyphen]99 PAES||Budget 1999[hyphen]2000 PBS||Estimate 1999[hyphen]2000 PBS||Estimate 1999[hyphen]2000 PBS||Estimate 1999[hyphen]2000 PBS|
|(Figures in brackets were reported in the 1998[hyphen]99 PBS but have been refined in the 1999[hyphen]2000 PBS)|
|Defence Control and Management|
|Group 1 (1)|
|Group 4 (2)||1.1||1.1||1.3||1.6||1.6||1.6|
|Group 3 (3)||0.1|
|Group 4 (4)|
|Group 8 Only (5)||(0.1)||(0.1)|
|Acquisition and Industry|
|Group 2 (6)||0.1|
|Group 3 (7)||0.2||0.1|
|Group 4 (8)||0.3||0.3|
|Science and Technology|
|* Some figures may not add due to rounding.
The figures in bold are those reported in the document indicated in the column heading, eg the 1997/98 Plan figures were reported in the 1998/99 PBS. The figures in brackets were reported in 1998/99 PBS and have been refined in the 1999/2000 PBS.
|Group 8 (9)||0.4||0.2||0.6||0.3||0.2||0.3|
|Group 11 (10)||40.1||0.3||10.8||6.6||9.4||10.8||11.2||11.6|
|Group 1 (11)|
|Group 2 (12)||3.5|
|Group 3 (13)||0.5||2.4||0.6|
|Group 4 (14)||0.2||0.2|
|Group 6 (15)||11.0||14.0||44.1||45.6||94.5||151.6||174.7||178.4|
|Group 8 (16)||0.2||4.8||3.0||12.7||22.3||23.0||24.7|
|Group 1 (17)|
|Group 3 (18)||0.6||0.1|
|Group 4 (19)||1.7||2.0||1.0||1.0|
|Education and Training|
|Group 2 (20)||0.7||0.5||2.1||5.0|
|Group 8 (21)||2.0||1.2||4.0||4.7||4.5||5.2|
|Group 1 (22)||0.4||0.4||0.6||0.6||0.6||0.6|
|Group 2 (23)||2.0||1.2||1.4||1.4||1.4|
|Group 3 (24)||4.5||1.1||2.7||2.8||2.8||2.8|
|Group 4 (25)||1.1||[hyphen]1.9|
|Group 8 (26)||0.1||16.3||13.7||36.1||43.0||34.1||41.6|
|Group 3 (27)||0.1|
|Group 4 (28)|
|Provision For Contractor||[hyphen]20.7||[hyphen]20.0||[hyphen]87.6||[hyphen]53.7||[hyphen]219.9||[hyphen]416.5||[hyphen]453.3||[hyphen]453.3|
|Savings Not Yet Allocated||6.6||17.1||79.6||81.6||80.8|
|Total Resources Available for Reinvestment||102.6||96.9||255.1||303.4||474.1||673.9||861.5||1,116.9|
Explanatory Notes to Table:
A) These notes relate to instances where there has been a material reduction in savings in any particular Group. Overall however the level of Defence Reform Program savings is greater than that originally forecast. The majority of variations relate to changes in the timing and scope of activities, transfers between categories of reform and Groups or the influence of actual rather than forecast outcomes.
1) The savings forecast in 1998[hyphen]99 related to the collocation of the operational level command headquarters. As a decision on the collocated Headquarters has not yet been made, the previously programmed savings are not likely to be realised until further detailed work on the planning for the collocated Headquarters is completed.
2[hyphen]5) This variation relates to the recosting of Defence Reform Program savings at the time of the 1989[hyphen]99 Additional Estimates and revisions to the allocations of savings to better reflect where overhead savings are being made.
6) This change reflects the impact of the error in DRP savings calculations over the Forward Estimates Period.
7[hyphen]9) This variation relates to the recosting of Defence Reform Program savings at the time of the 1989[hyphen]99 Additional Estimates and revisions to the allocations of savings to better reflect where overhead savings are being made.
10) The revisions represent the reallocation of one off property disposals into a separate category and the recosting of Defence Reform Program Savings at the time of the 1999[hyphen]00 Additional Estimates.
11) These estimated savings related to the integration of strategic level policy staffs. Following the establishment of the National Support Division, there are no savings attributable to Group1.
12) This change reflects the impact of the error in DRP savings calculations over the Forward Estimates Period.
13[hyphen]14) These variations relate to the recosting of Defence Reform Program Savings at the time of the 1999[hyphen]00 Additional Estimates and the consequent distribution of overhead savings to better reflect the categories against which savings are being achieved.
15) This variation relates to a number of factors; the reallocation of $10m per annum in savings relating to food management to the `unallocated' category, changes to Group 6 savings as a result of the recost of Defence Reform Program savings at the time of the 1999[hyphen]00 Additional Estimates and changes to the number and mix of Service personnel to be saved as actual outcomes are known and better estimates of the forward program are made.
16) These variations relate to the recosting of Defence Reform Program Savings at the time of the 1999[hyphen]00 Additional Estimates and the consequent distribution of overhead savings to better reflect the categories against which savings are being achieved.
17) The scope for achieveing these initiatives has been reviewed and alternate savings will be found.
18[hyphen]19) These variations relate to the recosting of Defence Reform Program Savings at the time of the 1999[hyphen]00 Additional Estimates and the consequent distribution of overhead savings to better reflect the categories against which savings are being achieved.
20) This change reflects in part the impact of the error in DRP savings calculations over the Forward Estimates Period and a review of the level of savings which might be achievable by Navy in this category of reform because the retention of the ADF at 50,000 has resulted in adjustments to the level of savings available in Navy training functions.
21) These variations relate to the recosting of Defence Reform Program Savings at the time of the 1989[hyphen]99 Additional Estimates and the consequent distribution of overhead savings to better reflect the categories against which savings are being achieved.
22) Group 1 has transferred its administrative personnel resources to Group 13.
23) This change reflects the impact of the error in DRP savings calculations over the Forward Estimates Period.
24[hyphen]29) These variations relate to the recosting of Defence Reform Program Savings at the time of the 1999[hyphen]00 Additional Estimates and the consequent distribution of overhead savings to better reflect the categories against which savings are being achieved.
Defence Reform Program—Cumulative Personnel Reductions (1997/98 to 2002/03) *
|(Figures in brackets were reported in the 1998[hyphen]99 PBS but have been refined in the 1999[hyphen]2000 PBS)|
|Defence Control and Management|
|Group 1||APS (1)|
|Group 3||APS (3)||40||78||81||75||76||76||76||76|
|Air Force (7)||5||6||6||6|
|* Some figures may not add due to rounding.
The figures in bold are those reported in the document indicated in the column heading, eg the 1997/98 Plan figures were reported in the 1998/99 PBS. The figures in brackets were reported in the 1998/99 PBS and have been refined in the 1999/2000 PBS.
|Acquisition and Industry|
|Air Force (12)||72||72||163||211||211||211|
|Group 1||Army (13)||1||1||1||1|
|Group 2||APS (14)||2||9||20||21||21|
|Group 10||APS (16)||99||99|
|Group 1||APS (19)|
|Air Force (20)||20||38||38||38||354||1,290||1,833||1,933|
|Group 14||APS (21)||2||2|
|Group 8||APS (22)||373||68||402||110||239||239||239||239|
|Education and Training|
|Group 2||APS (23)||65||67||1||6||17|
|Group 1||APS (25)|
|Group 2||Navy (26)||10|
|Group 13||APS (27)||382||397||876||957||1,103||1,313||1,313||1,313|
|Group 14||APS (28)||6||8||2||4||12||20||20|
|Total Personnel Reductions||(126)||(340)||(440)|
Explanatory Notes to Table:
These notes relate to instances where there has been a material reduction in savings in a particular Group. Overall, however, the level of Defence Reform Program savings is greater than that originally forecast. The majority of variations relate to changes in the timing and scope of activities, transfers between categories of reform and Groups or the impact of actual rather than forecast outcomes.
1[hyphen]2) The savings forecast in the 1998[hyphen]99 PBS related to the collocation of the operational level command headquarters. As a decision on the collocated Headquarters has not yet been made, the previously programmed savings are not likely to be realised until further detailed work on the planning for the collocated Headquarters is completed.
3) This variation relates to a minor reduction in civil personnel due to more recent information on actual savings.
4) The variation in civilian numbers reflects the revised assessment of civilians to be saved under the various Intelligence reforms.
5[hyphen]7) These changes reflect updates to the DRP savings plan within the Intelligence Group.
8[hyphen]9) The DRP initiative to civilianise some positions within Capability Development Division will not now proceed
10) This change relates to a DRP initiative to enhance the development of strategic guidance within Defence Headquarters.
11[hyphen]12) These changes reflect revisions to the Acquisition civilianisation plan that has been affected in part by the lower than forecast appointment of qualified civilians into positions within Acquisition.
16) This saving relates to a DRP initiative to rationalise the Geographic Information Organisation. It was not included in the 1989[hyphen]99 PBS.
14[hyphen]15) This reflects a revision to the outcome of the market testing program which is not scheduled to be completed until 1999[hyphen]2000
16) 99 civilian personnel savings were recorded in the 1998/99 Portfolio Budget Statement against the Science and Technology function relating to support personnel. These personnel savings achievements have been transferred to Corporate Support (89) and to Defence Estate (10).
17[hyphen]18) The change to civilian personnel numbers reflects the actual number to be achieved. The changes to the Service workforce represent better estimates of the likely mix of Service personnel savings.
19) These estimated savings related to the integration of strategic level policy staffs. Following the establishment of the National Support Division, there are no savings attributable to Group 1.
20) The changes to civilian and Service personnel numbers reflect both actual outcomes of market testing and rationalisation activities and better forecasts of future activities. The mix of Service personnel to be saved is still being refined.
21) These savings have been transferred to the Administrative Support category.
22) The variation represents the latest estimate. However, the level of savings in this area in Defence Personnel Executive is subject to internal review.
23[hyphen]24) This change reflects in part the impact of the error in DRP savings calculations over the Forward Estimates period and a review of the level of savings which might be achievable by Navy in this category of reform. The retention of the ADF at 50,000 has resulted in adjustments to the level of savings available in Navy training functions.
25) Group 1 has transferred its administrative personnel resources to Group 13
26) This change reflects the impact of the error in DRP savings calculations over the Forward Estimates period.
27) These changes have resulted from the actual outcomes of market testing of Garrison Support services in Northern Queensland, South Queensland and Western Australia.
27) These revisions relate to the current forecast personnel reductions in Group 14. The Group 14 savings target will be achieved with a lower then forecast level of actual personnel savings.
Senator HOGG —The document consists of a number of pages which I think Mr Lewincamp would have a fresh copy of. I have scribbled on mine. Can I take you, Mr Lewincamp, to the first part of that document and that is the Defence Reform Program, cumulative personnel reductions 1997[hyphen]98 to 2002[hyphen]2003. As I understand the document that has been presented, if we look at defence control and management under group 2, the 1999[hyphen]2000 budget indicates that there will be cumulative personnel savings there of 102 whereas, if we look back to the 1998[hyphen]99 PBS, the figure in brackets underneath 19 tells me that that is what was in the PBS, is that correct?
Mr Lewincamp —That is true.
Senator HOGG —I think I am interpreting that the right way.
Mr Lewincamp —Yes, you are. There has been a change in the estimate of the personnel reductions that will occur.
Senator HOGG —So I have got that part right. The other part that seems to have changed is that, at the top, we now have 2002[hyphen]2003 estimate, whereas in the original PBS, we had 2001[hyphen]2002 and then mature.
Mr Lewincamp —It is the addition of the final year of the forward estimates period as we roll forward a year.
Senator HOGG —Right. My question is, though: is there a mature year beyond 2002[hyphen]2003?
Mr Lewincamp —In some cases yes: in some cases, the initiatives have reached maturity in that year; in some cases, there is a year or two more before they reach maturity.
Senator HOGG —So I cannot necessarily read from that table where something still has to come to maturity?
Mr Lewincamp —No, that is true.
Senator HOGG —It seems to me, if we can go back to that defence control and management group 1, that originally for 2001[hyphen]2002 for the APS in group 2, there were going to be 22 positions and now that is out to 109: is that correct?
Mr Lewincamp —That is true.
Senator HOGG —Do we know what brings that about?
Mr Lewincamp —I can probably find it. Can I take that on notice?
Senator HOGG —I think there will be a number of these things that you will need to take on notice. I just thought, if there was a ready explanation, it would have been helpful.
Mr Tonkin —In broad terms, Senator, it will come about by the rationalisation of what was the navy office in the old structure to the navy headquarters component of the new Australian Defence Headquarters. There was significant downsizing in that area and we are picking up, I would expect there, the larger than initially anticipated reduction. I would like to confirm that, but that is my feeling.
Senator HOGG —So your gut feeling, if I can put it that way, is that we are looking at a number of people who will be made redundant under that program.
Mr Tonkin —Not necessarily made redundant, Senator. There are reductions in that area. Some of those people may be redeployed elsewhere; other people may leave; not everybody affected by the Defence Reform Program is made redundant.
Mr Lewincamp —Senator, as a general explanation—
Senator HOGG —No, I understand that.
Mr Lewincamp —For a change of that magnitude, my initial assumption would be that we have changed the category against which the saving is being recorded: we have done a transfer somewhere internally. I would not expect a change of that magnitude just on a particular initiative.
Mr Tonkin —So there are two explanations—one of them is right.
Senator Newman —And taking it on notice is the wisest and quickest thing to do.
Senator HOGG —Which is part of my problem with the DRP and following it through. I would imagine that the government is as interested in the explanations that are given as to anything else.
—Senator, you might remember at the last hearing we spoke about some of these changes. Because we had changed the categories against which we reported them since the start of the DRP, we had also changed allocation of particular initiatives between some
of the groups. I made the point at the time that the really important issue here is the bottom line rather than the way in which—
Senator HOGG —I am going to come to the bottom line.
Mr Lewincamp —the issues are recorded against particular groups.
Senator HOGG —It just seems to me though, Mr Lewincamp, that it is a bit of a moveable feast, that it is very hard to follow from hearing to hearing as to what is actually taking place. It does interest me because I am just concerned that the right outcomes are being achieved.
I take you to the total on that page for defence control and management. I note that the figure for that is now out to 188; the mature figure that I had provided by you last year was 109; the figure at 2001[hyphen]02 is 105. So there is a bit of a blow out there which I have now had two different explanations for. But then if you look at the total ADF, the 2001[hyphen]02 figure for the total ADF positions is 278. That tallies up with what you provided me with on the previous occasion, except that I had a mature figure of 497 ADF positions. That 497 was not shown in the table that was provided to me, yet at 2002[hyphen]03, there is a number shown of 224 ADF positions. So instead of 497 positions, according to the table you provided me with last year around this time, it is now down to 224, which seems a substantial—
Mr Tonkin —It is not down, Senator. There is a distinction between 2002[hyphen]03 and a mature number, and the difference there will be, if I can hazard, is that there are certain initiatives which will be beyond 2002[hyphen]03.
Mr Lewincamp —Senator, I come back to the point that we are still talking about, savings within one initiative. In defence command and management group initiatives, there are—
Senator HOGG —I accept that.
Mr Lewincamp —10 or 11 others—
Senator HOGG —We will come to those, too.
Mr Lewincamp —and we have made adjustments about a number of particular initiatives and how they are recorded within these and they have moved around. If I take you to the table at the bottom which talks about total personnel reductions, at the end of that whole section—at the end of the fourth page—you will see in 2001 and 2002, against an estimate last year of 11,175, we are now estimating overall ADF reductions of 11,414—so it has gone up. It has not gone down as shown against a particular initiative.
—That is why I am confused and I want to come to this. If we go to the next column, near that 11,175 that you are just looking at, in 2002 and 2003, it says 11,757. The mature figure that I had provided by you last year was some 14,001. So, whilst you are correct that you have gone up from 11,175 to 11,414, the mature figure that you provided me with for 1998[hyphen]99 was 14,001, and the mature figure for APS positions was 3,587, which equates reasonably closely to your figure of 3,647. However, that is a substantial number of positions—2,300 in terms of ADF. So, whilst I was not trying to do a line[hyphen]by[hyphen]line analysis of the various programs that you are attributing the changes to, you are quite correct—there is a major shift on the bottom line, but a major shift of 2,300 positions. That is in round figures. All I am interested in is that you seem to be going in the direction, for APS positions, at maturity, of being within ballpark figures, and that is fair enough. But, in terms of ADF positions, do you have maturity on this document? Maybe there is another column or two
missing which takes the mature position for ADF positions. But, if there are no further mature positions for ADF, where is the figure of 2,300?
Mr Lewincamp —There are more mature figures, and we will need to generate the mature line for you. The conclusion I would draw from that analysis is that we are making the total civilian savings more quickly than we are making the total ADF savings.
Senator HOGG —Sorry, I missed a bit of that.
Mr Lewincamp —We are making the total civilian reductions more quickly than we are making the total ADF reductions. But there is still a mature line beyond the year 2002[hyphen]2003, and we will need to generate that figure for you to compare it to the 14,000 figure we gave you last year.
Senator HOGG —So those are positions that will not necessarily be around as a result of what has taken place with the DRP.
Mr Lewincamp —Can I remind you about the assumptions that underpin these figures? They are based on the market testings of functions in which ADF personnel are currently engaged and—we said—on the assumption that most of these would be won by private sector contractors, and that 90 per cent of the ADF positions would then be lost. This generates the forward figures that you have here. Remember that they are based on those very broad assumptions and the reality might be different.
Senator WEST —Because you are actually now giving an indication in goal four that industry is not able to get up to the speed that perhaps you would like it to get up to because you have got to take steps to promote the development of the skills and capacities needed in the civil sector.
Mr Lewincamp —There is an issue there of industry's capacity to respond, although I think that is going ahead reasonably well. But there are other areas where we will not make the savings in personnel until we have put in place rationalised processes, rationalisation of facilities and infrastructure and seed funding for systems enhancements in areas such as logistics. All of those things are prerequisites for us making the personnel savings.
Mr Tonkin —Take the establishment of the permanent location for the Commander Australian Theatre. It is presently in a temporary location in Sydney at Potts Point, conjointly with maritime headquarters, which is a subcommand. Land Command, which is another element, is at Victoria Barracks; Air Command, which is another element, is at Glenbrook. Bring those three together in one place and we will achieve some significant efficiencies. We cannot do that until we have actually got the location determined and the establishment constructed. That is something which is sitting at the moment beyond the tables that you are being provided with.
That takes you back to your line under the first one, command and management. I think you will find there is a difference of about 250, in round numbers, in miliary positions between where we think we will sit at the end of that table you have, 2003, and the earlier mature number that you have seen. The variance, in that case, is related to that sort of initiative. The same applies in the sorts of other examples that Mr Lewincamp has given you. So what we need to generate for you, as Mr Lewincamp said, is a revised, mature set across all these numbers which will still give you a number we believe is consistent, within the tolerances you get when you get the estimates of the outcomes of given market testing, with the numbers we have displayed before.
Senator HOGG —The reason I was interested in that difference was that I was just wondering how that was related to the commitment to go from 42,700 back to 50,000 for the Defence Force. Will that see a weakening in the number of positions that you have saved in the longer term?
Mr Tonkin —No. Essentially, you have to look at it in two parts. Holding the ADF at 50,000 rather than allowing it to come to whatever number the reform process would generate means that we are buying back military personnel assets. That is a reinvestment. We still go through the process of saving the people who are engaged in the support functions and the administrative functions, and we reinvest the resources we generate from that in combat and combat support areas. That reinvestment may be in strict dollar terms. In other words, we may take the position and the person. That person may have a set of skills which is not redeployable, so that person separates from the Defence Force, the dollars are generated and the dollars are used to pay for the reinvestment in another person who goes through the training and skills pipeline to provide that capability. That is one way of reinvesting.
Senator HOGG —And that assessment process is ongoing, isn't it? It really is moveable in that true sense?
Mr Tonkin —That process is ongoing. As we take each support area and market test it, for example, we genuinely do not know, as we are competing often with in[hyphen]house options. If you go back a couple of steps: you start with a function. In many cases it is a function that was done across a range of services or other areas. We rationalise that function in that we bring it together, we co[hyphen]locate it, we bring it under one order of group of management. We can then start to think of how we can better run that function, which is what we call our rationalisation process. That will generate a range of savings, both in overhead costs and in people terms. We can then look to reinvest that.
We then market test that. In the market testing, we are competing our own organisation against the best that industry can offer. We cannot predict in that process who will win that competition or what scale of human resources and overheads will be in the final cost of doing the business. We have made judgments in the estimated savings as to what we think the broad outcome is, which is what you see in those tables, but they broad judgments. When you get the actual decision, there is a certainty that there will be some variance from that. We hope the variance is with a greater saving than we predicted.
Senator HOGG —I accept that there will be a variance. That is not my problem. My problem is tracking the whole process and seeing that the savings that are claimed to be deliverable are deliverable and that they are reinvested as per the desire under the Defence Reform Program.
Mr Tonkin —That is why we are very careful to measure—to come back to the second part of my example—even if an individual is in an area where the function has been rationalised or market tested. So the person has been `saved', the person has the skills. Let us say that it is an Army person who has infantry combat skills who has been working for various postings or training, for whatever reasons, in a support or a logistics function. You then can then deploy that person with their current infantry combat skills into a needed position in infantry combat in that output. We still want to measure the capture of that saving, the person's cost and their overheads, record that as a saving against our target a $1 billion. We then reinvest those dollars, expressed as a person's personal salary, et cetera, into the combat force, and we measure that reinvestment.
In that way we get the full capture of our savings and the full expression of our reinvestment rather than short[hyphen]circuiting it and simply slipping the money from support into combat with no record of whether we achieved that efficiency gain or that reinvestment. It adds a bureaucratic step which I am sure some of my colleagues would rather we did not go through.
Senator HOGG —And which some of your colleagues would love, as well, I would think.
Mr Tonkin —In the interest of tidy bookkeeping, we want to go through that. It is like putting the sheep through the race—a bad analogy.
Mr Lewincamp —Can I add to that?
Senator HOGG —Before you add anything, I just want to go back and traverse a little bit. Who actually decided on the 42,700 that we originally had as the number under the DER; was that the committee?
Mr Lewincamp —I was going to add a point on this. We should not see the personnel reductions here as a target. They are indicative only. The target that we are trying to achieve is the saving of funds to reinvest in capability, so the true targets here are the dollar figures.
Senator HOGG —We will come to those in a minute.
Mr Lewincamp —It is possible, for example, that in this process an in[hyphen]house option will win because it can demonstrate it is more efficient than any of the private sector competitors in a particular competition, in which case we will not save the personnel numbers you see in this table but we will save the dollars and the dollars will contribute towards our overall DRP savings target. So in no sense should this civilian personnel reductions table or this ADF personnel reductions table be seen as a target that we are seeking to achieve, and it should not be seen that we have done something wrong if we have not achieved it.
Coming back to your question about the 42,700, that was an entirely notional figure, again, based on the assumptions of a possible outcome of market testing a certain number of positions. We identified a number of ADF people working in support type functions, and we said that if you proceed on the assumption that those functions are market tested and contracted out and that 90 per cent of the ADF positions working in those areas are then lost as a result, that generated the notional outcome of 42,700 as the residual number of ADF personnel.
Senator HOGG —Who was actually responsible for the decision; was that the review team?
Mr Tonkin —It is not a decision. It was not the review team. The review team calculated the effect of their savings, and that is addressed in very broad summary terms at page 54.
Senator HOGG —Of the purple book, the thin book?
Senator SCHACHT —The thin purple book.
Mr Tonkin —There is a summary at the top of page 54 which states that, in round numbers, they anticipated that 11,700 military positions and 9,000 civilians would be affected—on the way they calculated the numbers.
Senator SCHACHT —And this is all in the document?
—That was what they did. When we then looked at it as the Defence Reform Program, we went through the exercise of calculating the effect. It is a Defence derived estimate of why it might have happened. It has never been established as a target. It has never been mandated. It was a basis upon which to start to calculate what would be the reinvestment cost of where we might have been to where we want the Defence Force to be. You have got to have some base line to measure it against. It was an internally derived estimate. That is all
it has. It has no standing. It is not mandated, not government policy or anything else. It never was. We have consistently said this ever since we started.
Senator HOGG —So, based on Mr Lewincamp's explanation and on your explanation, you are saying that nothing more can be read into that first table we have just canvassed: that it is not necessarily a goal or something that has to be obtained; it is part of the process unfolding as these positions are market tested?
Mr Lewincamp —That is right. There may well be significant variations to this table which reflect considerable efficiency inside the organisation and savings achieved with particular functions, but not necessarily the positions lost.
Senator HOGG —It is possible that those additional people who are necessary to bring it back up to the 50,000 mark will still be in some of these areas that have been market tested?
Mr Tonkin —Yes, if the skills match, absolutely.
Senator HOGG —Do we have any idea of what quantity?
Mr Lewincamp —Not in advance of the process.
Senator HOGG —What mature figure would you expect to reach in terms of the ADF personnel reductions?
Mr Lewincamp —Again, these are the reductions and it is very hard to predict those in advance of the process of market testing. But remember that in parallel to this process of reductions under the DRP process we also have the buyback of personnel to maintain an ADF around 50,000. These are reductions—
Senator HOGG —And that buyback figure?
Mr Lewincamp —It is in table 1.4 on page 15.
Senator HOGG —So that is the 539?
Mr Lewincamp —Yes.
Senator HOGG —And that is an annual figure, is it?
Mr Lewincamp —Yes. That will be ongoing, yes. And again that is not a mature figure. That will also vary depending on what actually happens with the market testing program.
Senator HOGG —What processes do you have in place to assure us that the outcomes that are being achieved under the DRP are in effect happening, that it is not just someone shuffling numbers around on a piece of paper?
Mr Lewincamp —If we were just shuffling people around you would not see the dollar savings being generated. I come back to it: it is the savings table in terms of dollars that is the important issue here. If we are able to achieve something like 25 per cent or 30 per cent efficiency savings in a particular function and still maintain the service in[hyphen]house, that will have delivered what the DRP was looking for.
—So the first part of the process is that we have programmed the savings which we expect against all the groups which are undertaking the functions which are subject to the reforms. We have taken the money out of their budgets and each of their forward estimate years at the scale which has been anticipated in the review process. For example, Defence Corporate Support provides garrison support and clerical and administrative functions across the country. That group is tasked to produce certain contributions to each of the 22 defence outputs. It provides a lot of the basic levels of sustainment and has got to deliver that with
the resources that are allocated. Those resources are diminishing over time. It has to achieve efficiency gains through market testing and rationalisation in order to do that.
We have taken the resources away, so the first level of your assurance is the fact that those monies have been taken away and reinvested and yet the performance is still being expected to be achieved. So the first thing is that the money is there.
The second part is how it is being reinvested. We have the tables that you see in the front of the PBS which set out the reinvestment process—and we can go into those in greater depth if you wish. We also have established this DRP review team—to shorthand its title—which is tasked to look in more depth than we have been at all these processes of chasing down the savings, accounting for them, tracking them and reviewing the reinvestment to provide us with a, if you like, a form of internal audit on the process as well. So that overlays that process.
Senator HOGG —Could I just stop you there? The internal audit process is probably what I am very much interested in. Do we get access to how that internal audit process is progressing and, if so, in what way?
Mr Tonkin —I think what you will see, Senator, as we progressively report on DRP in these documents, annual reports and so on—the outcome of the work of the DRP SMART team, to pick up its acronym—that any variations will be reflected in the quality of what we are reporting. So it is there as an internal device for us to reassure ourselves, check our numbers and give us an enhanced depth of analysis, and that will be reflected in the accountability documents which we are presenting and in the sorts of material generated. A lot of this stuff is generated by the quite a small staff of that group. So you are seeing the outcomes of what they are doing already in this sort of material.
Mr Lewincamp —There is a breakdown in section 5 at the back of the PBS on page 192 of the savings from each of the groups. Page 193 shows the personnel and page 194 shows the reinvestment, and that gives you a breakdown by group against the particular initiatives. As Mr Tonkin has indicated, this is money that we are taking away from these groups. These tables are for 1999[hyphen]2000 only.
Senator HOGG —So the contribution for reinvestment for the provision for 50,000 ADF this year is $45.3 million—is that correct?
Mr Lewincamp —Yes.
Senator HOGG —And the transition costs for the DRP are at $29.1 million. Why are the transition costs in the DRP in that table on page 194 so heavily concentrated in group 8 whereas the provision for the ADF seems to be concentrated in groups 2 and 3 and negative in group 4? There are some transition costs indicated under group 2 for the $45.9 million but nothing under group 3.
Mr Lewincamp —The first line Defence Reform Program Transition costs amounting to $29.1 million have actually been allocated for specific initiatives. The $53 million in the line below is a centrally held provision. It has been held against the group 8 because it would be mainly related to redundancy costs this year. That will be allocated as necessary during the year but we anticipate that a large part of it will be in group 8. The $23.8 million is money related mainly to setting up a national service centre.
Senator HOGG —So there are no transition costs in the provision for the 50,000 ADF or are they incorporated within—
Mr Tonkin —It is a reinvestment rather than a going down. Transition costs are the costs of market testing the costs of redundancies, crudely put. It is not a reinvestment; it is an expression of an overhead.
Senator HOGG —I understand that now.
Senator WEST —On the DRP, you have market tested and got rid of all these ADF personnel. How many people have actually come under the employ of ADF or the department—I am thinking of ADF—that are now no longer in uniform and are actually part of the services provided by the private sector? You have got rid of all these uniformed people. How many people have been employed to fill the CSP positions?
Mr Lewincamp —We cannot give you an answer to that because we have a contract for the provision of a service and it is up to the contractor to determine how many people he or she needs to employ to provide the service. We have no figures for the number of personnel employed by contractors.
Senator SCHACHT —According to this list, over the last couple of years people have been leaving and—excluding the APS numbers on page 4 or 5 of this document—you have got, in 1997[hyphen]98 in the annual report, that 97 Navy personnel left, 277 Army and 133 Air Force. In 1998[hyphen]99 the plan was substantially bigger: 701 Navy, 1,909 Army and 716 Air Force left. Then it was revised for 1998[hyphen]99 but it was almost the same and only a couple have changed. When those service people left they got a separation or redundancy payment—whatever you want to call it—but you have no idea how many of those were subsequently re[hyphen]employed by the private sector providing the services when they were outsourced?
Mr Lewincamp —That is true. I should also add that not all of them would have left with a separation payment.
Mr Tonkin —In fact, very few.
Senator SCHACHT —Did they just leave because you sacked them?
Mr Tonkin —They left because at the end of their engagement they chose to—
Senator SCHACHT —The term of their engagement had been completed?
Mr Tonkin —Yes. The total number of redundancies for 1998[hyphen]99 for the ADF is: 148 for Navy, 9 for Army and 12 for Air Force, a total of 169.
Senator SCHACHT —Are they service people who took what we call a redundancy package?
Mr Tonkin —Yes, that is what my figures say.
Senator SCHACHT —In a number of other public sector areas—state and federal—when people leave the service and take a redundancy package they often have a rule that you cannot be re[hyphen]employed under contract, et cetera, doing the same sort of job for a number of years. Would the same rules apply to those 169 people?
Mr Lewincamp —The rule applies only to employment in the Commonwealth sector. Again, such a rule is not applied to people going into the private sector.
Senator SCHACHT —So there is no rule?
Mr Lewincamp —There is no rule.
Senator SCHACHT —Therefore, if there is no rule there is no need for you to keep a record.
Mr Lewincamp —No.
Senator SCHACHT —All the others who left were because their term of contract within the service had naturally expired?
Mr Tonkin —Yes.
Mr Lewincamp —I might add that, in terms of turnover of ADF personnel, it is quite considerable each year at around 10 per cent or 11 per cent. We are talking about 5,000 people a year, on average, leaving the services over a number of years. There is quite a bit of turbulence, if you like.
Senator WEST —That is a nice word to use for those that are leaving the defence force.
Senator SCHACHT —A bit of turbulence.
Senator WEST —Turbulence—I will remember that for a few more questions later on.
Mr Lewincamp —I am just trying to help my colleague, General Dunn, who will answer them.
Senator WEST —I am sure he is thanking you.
Senator SCHACHT —I will go to the revised 1998[hyphen]99 document provided to Senator Hogg and now to the committee, the 697, 1,909 and 716 figures from the services. When those positions went they were service positions and in the reform process they were identified as no longer required to be done by service people.
Mr Tonkin —That is correct.
Senator SCHACHT —How many of them are now being performed by outsourced private sector groups?
Mr Tonkin —We do not measure the positions. They were operating in the conduct of functions which we no longer wish to have undertaken within the Department of Defence or by the defence force. Those functions are now being performed by contractors or else, if it is an internal thing, there is simply no requirement because of rationalisation and we do not need as many people to do the job. It is not as if each position is transferred to the private sector; it is each chunk of activity that is transferred.
Senator SCHACHT —That is a good way to avoid answering the question.
Mr Tonkin —It is a fact.
Senator SCHACHT —By describing it as function you then cannot identify whether that job has actually gone or not. Then you say that the new function, which is a combination of three of these previous positions, is now performed by one person with a new function. Is that how you get around it?
Mr Tonkin —What we have done is to have market tested particular activities. Those particular activities had a previous work force performing them. We market test the activity. If the activity is retained in[hyphen]house because the in[hyphen]house option wins, the in[hyphen]house option will have won because it has reduced its cost structure, which will have reduced its work force as well as other overheads. So you might have had 50 positions; you might have 30 as a result. It will not be directly one to one; they will have restructured themselves as a new entity to do it, so you will not have a one[hyphen]to[hyphen]one comparison. Or else the functions have gone outside to private enterprise and all those positions have disappeared. Private enterprise provides the function as best they see fit to meet the standard of the contract.
Senator SCHACHT —But you could still provide a list of the jobs that—
Mr Tonkin —We could provide you with a list of the positions, the functions that have been market tested, and the number of positions which were in those functions when they were market tested.
Senator SCHACHT —The number of positions within those functions when they were market tested?
Mr Tonkin —The number of positions that were there. That is what we look at and it is part of the figures that come up.
Senator SCHACHT —Is it too difficult to provide us with that on notice?
Mr Tonkin —I do not think so, Senator.
Senator SCHACHT —When we go to this budget, 1999[hyphen]2000, in the PBS the figure down at the bottom, including the APS positions, is 6,210. Previously—
Mr Tonkin —I can give you them now if you would like.
Senator SCHACHT —In a written form or just by reading them into the record?
Mr Tonkin —In summary terms, there are only about nine different groups for contracts led by a major contractor this year under the Defence Reform Program, so I can tell you what they are.
Senator SCHACHT —What can you tell us? It is the bulk number? The positions previously there that have now been abolished because the function is taken over, you can now provide off that list to us?
Mr Tonkin —I can give you an example to see whether this meets the need.
Senator SCHACHT —Yes.
Mr Tonkin —In Support Command Australia we looked at the commercial vehicle management program—that is, managing vehicles which are non[hyphen]military vehicles. There were 18 positions in that. That function has now been undertaken by DASFLEET, which of course has been overtaken by National or something. There was PC9 integrated logistic support, also a Support Command activity. There were 20 positions affected by that process. That is now being undertaken by Air Flite.
Senator SCHACHT —That is fine, if you can provide those. How many pages would you have to read out?
Mr Lewincamp —These reductions are not all entirely the result of market testing. There are rationalisation processes internally that are also delivering savings. There will be some examples, too, where people are leaving from functions that are going to be market tested but have not yet been market tested, and therefore we are operating with reduced personnel in those areas. This list will not generate you the exact figures that are in this table.
Senator SCHACHT —Because this includes rationalisation as well?
Mr Lewincamp —Yes.
Senator SCHACHT —Do your records show how you separate rationalisation from market testing?
Mr Lewincamp —We will take that on notice and do our best to break these figures down for you.
Senator SCHACHT —What Mr Tonkin has outlined is pretty useful. Perhaps you could provide us with a printed list.
Mr Tonkin —We will provide you with the rest of those on notice.
Senator SCHACHT —Could I now go to the document now tabled. What was revised for 1998-99, including the APS figure, was 3,122. With this budget that now grows over the next 12 months to 6,210, nearly another 3,000. Is that correct?
Mr Lewincamp —Yes.
Senator SCHACHT —Are you at this stage able to provide on notice a list of the nearly 3,000 actual positions now anticipated to be covered by function that would be abolished?
Mr Lewincamp —We can, again with the proviso that what we are talking about here is an assumed outcome of positions lost. I need to keep making that point.
Senator SCHACHT —I understand. You can put an asterisk next to the figure with that qualification. I understand and accept that.
Mr Tonkin —What we can provide is a list of those activities for which contracts are expected to be let this year. What we will provide is not the breakdown of the 2,900, but what we can provide is a list of the total number of positions which are affected by this process. There are 6,953 positions.
Senator HOGG —Is that the table on page 12?
Mr Tonkin —That is exactly right.
Senator SCHACHT —That is through to the year 2000, to the end of this financial year. Right?
Mr Tonkin —That is this coming year, yes, and from those activities at table 1.2—
Senator SCHACHT —And that is the cumulative number over the Defence Reform Program?
Mr Tonkin —No. That is the positions which will be market tested this fiscal year. From the outcome of that it has been anticipated that it will contribute to the variance that you see between 3,322 in the tabled document and 6,210, and between 2,481 APS and 3,157. Those activities will make a very substantial contribution to that increase in the number of positions no longer required.
Senator HOGG —But that is conceding that not all those positions being tested will be gone?
Mr Tonkin —That is right.
Senator SCHACHT —What is the difference between the list that you have just told me you will provide on notice—you mentioned the car fleet as a specific example, saying that 18 positions with regard to non-military vehicles are now outsourced—and the list on page 12, where you have got 501 Wing Amberley F111 workshop, with 60 positions and a decision to be announced October 1999? Is that a more general description of a group than you were reading out?
Mr Tonkin —No, what I was reading from was a list which was the outcome effect of what this table, 1.2, is predicting is going to happen.
Senator SCHACHT —This is the prediction over the next 12 months—
Mr Tonkin —Yes.
Senator SCHACHT —And the other is what has already happened?
Mr Tonkin —It is what has already happened.
Senator SCHACHT —But it is exactly the same classification?
Mr Tonkin —The same sort of thing.
Senator SCHACHT —At the top we have the words `decision announced'. Is October 1999 when it is going to implemented?
Mr Tonkin —No. It will be implemented slightly after that. We had one recently where we announced the decision on garrison support for ACT and southern New South Wales. The decision is announced, you then proceed with the final negotiations, there is then a time in the future when it comes into effect.
Senator SCHACHT —Do the people in the 60 positions in the F111 workshop at 501 Wing Amberley know that this is to be market tested and they have a chance of survival within the service or they could be outsourced?
Mr Tonkin —Yes. The areas which have been targeted for market testing are known well in advance; it is a long program. Usually, especially in the case of some of these, the process can take two years before we get to the decision point.
Senator SCHACHT —So the staff in those 60 positions will know in October 1999—all things being equal in the process of the market testing—what will happen to those 60 positions?
Mr Tonkin —What happened, yes.
Senator WEST —I am wondering how the decision is made to market test—how, when you actually say, `Yes, we will explore market testing' the yes or no decision to market test is made—and how the contracts are then awarded and how that process goes.
Mr Tonkin —There is a series of steps. Firstly, you review the nature of the function. What you want is a quality outcome at a cost[hyphen]effective price—that is your desired end state. You see whether you can achieve that outcome simply through reordering, reanalysing, rationalising, process re-engineering, all the various terms you can quote—
Senator WEST —This is all done internally?
Mr Tonkin —Internally. You want to see whether that outcome is sufficient to meet the test that you have applied. You would look at all that and ask, `Will that do? Is that sufficient?' You examine whether it is of a sufficient scale to be worth market testing. I can recall some instances in the past where we went two and three times around market testing an activity which employed 20 people.
It turns out that that is a silly thing to do because the cost of doing the exercise is not worthwhile. You have to make sure that the scale is worth the market testing because, if it is not a sufficient scale, you might not get sufficient bidders, for example. You want to make sure it aggregates effectively. Then you ask the following questions: is there an appropriate market available? Are the skills available? Are the companies available to do it? We looked for a while at whether we could market the overall library functions. The notion was: why would we provide libraries? It did not seem to be core business.
Senator SCHACHT —I suppose you are going to tell me that you have to improve efficiency.
Mr Tonkin —We looked at the process and there was not a market to provide the totality of library services.
Senator SCHACHT —Do you mean a competitive market?
Mr Tonkin —Not a competitive market. There is a market to provide some of the functions that go towards the provision of overall library services. You make a choice and say, `We will not market test libraries, but we will contract out some aspects, because there is a market for things like cataloguing.' You can buy that service in. You go through those questions and ask if it is worth doing. If the answer to all of those processes is yes, you then define the specification for the service that you want—the level of the provisioning and performance that you wish to see achieved. That forms a specification. You also go through the process of what forms the baseline cost of the activity.
All these steps are set out in the CSP manual in quite considerable detail. I will not bore you with the multiple steps. An in[hyphen]house option team will be established to bid against the process if you want an in[hyphen]house option or if it is feasible to do so. You then have a group of people who run the process. There is an evaluation team and a normal contract evaluation process. There is a high level form of review, then it goes to an appropriate delegate for decision. It then goes to the minister for noting and, after an appropriate period, it is announced. If you want to read it, the CSP manual is a public document.
Senator WEST —I want to be clear in my own mind that the testing is not done with some input from the private sector that is then likely to turn around and say, `Me too, me too, me too, me too.'
Mr Tonkin —We use consultants to assist us in the evaluation process. A panel of consultants is brought in to do that. Consultants are forbidden from participating if they want to be a service provider; they could not possibly be part of the consultancy process.
Senator WEST —They have not gone off and been a consultant to some of those that have put their hands up for contracts, have they?
Mr Tonkin —They have to make certain undertakings of impartiality. It is like dealing with the law office; they have to declare if they have any conflict of interest and that sort of thing.
Senator WEST —After they have finished their work with ADF, they then do not have the capacity to go off and be a consultant to one of those.
Mr Tonkin —They could go and be a consultant to someone who is then delivering us a service. Only a finite number of consultancy companies are in the market of advising on these sorts of processes. Some will have been engaged by us in the past and will have learned about our process. We are very open about the nature of our process. We have attempted to make sure that our market testing processes are world's best practice. We have gone through and reviewed that, talked to industry and got industry engaged. We ask the big companies that bid for us how we are doing. Can we do it better? Is it fair? We have modified the process in that sort of way.
We have no difficulty with a company that has advised us on method subsequently going and advising somebody else as to how to bid against that method. We do not see that as an unreasonable thing to do. It is not privileged information. The processes are there and public.
Senator WEST —So it is going to be someone who can afford to buy that consultant after they have done the consultancy process.
Mr Tonkin —A lot of the companies that are bidding for our processes are very substantial organisations. Serco Gardner Merchant is a worldwide organisation. Tenex is a big Australian company. These are big organisations. The judgment they make about what they want to invest is their business.
Senator WEST —They are, of course, not providing all of the services: I am thinking in terms of catering and guard duty and stuff like that.
Mr Tonkin —So far all the market testing outcomes in garrison support, in terms of prime contractors, have gone to large organisations. They may well have subcontractors at the local level delivering the service.
Senator WEST —That leads on to whether you have any comprehension or understanding of how many subcontractors are subcontracted.
Mr Tonkin —It is not essentially our business; it is their business.
Senator WEST —It is their business. Do you have any security clearances that are necessary for some of these subcontractors?
Mr Tonkin —Certainly, in some cases we do, but security clearances to a very high level are often not very likely with things like garrison support.
Senator WEST —Background checks may be better.
Mr Tonkin —As with any contractor working for us, if they want to employ people in a secure establishment, then the people they are proposing to employ have to go through the appropriate security vetting processes to whatever standard we require for access to the given site.
Senator WEST —Would you know how many subcontractors those contractors of yours have?
Mr Tonkin —No.
Senator WEST —Defence does not worry?
Mr Tonkin —That is one of the reasons why we are contracting the process out—to shift the burden of management for that function from us to somebody else.
Senator SCHACHT —You will not be employing John Friedrich and the National Safety Council, Victorian division, to provide security at Pine Gap again, will you?
Mr Tonkin —I have no knowledge of the issue that you raise.
Senator SCHACHT —I sat on a committee that dealt with that issue, which was rather interesting, to say the least. He did commit suicide some time afterwards. His committing suicide had nothing to do with Defence, I must say.
Mr Tonkin —We do go through processes when we look at bidders to make sure of their bona fides, the company's validity and those sorts of things.
Senator SCHACHT —This man, who was an illegal immigrant, ran a company that was providing preliminary security against demonstrators at Pine Gap. I thought it was always an interesting point. It was in the late 1980s before the National Security Council of Victoria went bankrupt. A joint foreign affairs, defence and trade committee investigated it and had a number of hearings, including with Mr Fredericks.
ACTING CHAIR —Are there further questions?
Senator SCHACHT —This is the point about outsourcing. A person who was the chief executive of an organisation, and who was clearly an illegal immigrant in this country, got the contract to provide security services to Pine Gap. That was not inside the base but when demonstrators from the anti[hyphen]nuclear movements were holding demonstrations outside Pine Gap. I think a number of his staff were providing services.
Mr Tonkin —I come back to the point that we do go through a process of looking at the bona fides of companies which are bidding. It is one of the characteristics and criteria that need to be passed in order to win a contract. When people are going to be engaged in areas which are of security significance, those people have to go through the appropriate security—
Senator SCHACHT —You would do better next time in making sure that an illegal immigrant running a company is not employed providing security.
ACTING CHAIR —Senator Schacht, I think you have made that point. Are there further questions?
Senator WEST —Once a contract has been awarded, what review processes are there in the delivery of the service?
Mr Tonkin —Each contract which is awarded has a contract manager. If you take garrison support, under the Defence Corporate Support program, this is an example where you might want to ask the question under group 13—if we ever get there.
Senator HOGG —We are going very fast down that path. Stop getting so excited.
Mr Tonkin —There is a management process in place in that organisation to monitor the performance of the contract against the specification. Taking the same example, we also have some fairly keen and attentive clients within the defence organisation who are rather observant if the performance of the contract, in terms of delivery to consumers, is not being met. There is a user assessment and a management process. There are performance milestones, standards and reviews set out in the contracts.
Senator SCHACHT —So far, where a company bidding has to get some sort of security clearance or check, has any company been rejected because they or their staff have not passed the security check?
Mr Tonkin —I cannot answer the question because it is really too broad, especially in the latter part. I am not sure whether we would want to answer the question of how many people have been rejected for security clearances. So far, from memory, there have been around 97 different CSP contracts entered into since about 1991. I think it would be somewhat difficult to go back and review every bidder for every contract to see whether any of them were ever knocked back or downgraded for that sort of factor.
Senator WEST —What, say, in the last two years?
Senator SCHACHT —What about since the reform program start? Surely there must be a record somewhere in the foggy bottom of Russell that presses a button on a computer that gives you the outcome of whether each of the firms have cleared the security check.
Mr Tonkin —I think you are overstating—
Senator SCHACHT —Overstating your ability.
Mr Tonkin —No, I think you are overstating the importance of a security check. You do not actually security check companies; you security check individuals.
Senator SCHACHT —Yes, that is what I am saying. But you would know that in the company they employed five people who did not meet the security check and then you would inform them that they could not be employed in the contract, presumably.
Mr Tonkin —We will take that on notice and see what, meaningfully, we can tell you.
Senator SCHACHT —I would hope you would because my experience as a member of the subcommittee that dealt with the National Safety Council in Victoria raised a number of useful and interesting issues.
Mr Tonkin —Just to get it clear from the point of view of the officers, the question is, in the last two years, say, what advice can we provide on whether or not proposed employees of contractors employed under the CSP process have been knocked back on security grounds? I do not believe that we will be able to—
Mr Lewincamp —Senator, without being provocative—
Senator SCHACHT —Be provocative, Mr Lewincamp; you are a very good public servant.
Mr Lewincamp —What purpose would this information serve?
Senator SCHACHT —The purpose is to see whether there has been anyone knocked back and what the process is. Presumably, the security agencies—ASIO or somebody; I do not know who does it—would have a record of it. It is their job; we pay them lots of money to do this job.
Mr Tonkin —They actually do it for us. Madam Chair, we will take the question on notice and—
Senator SCHACHT —If it is too difficult, Mr Tonkin, you will let me know that you cannot do it and I will make my judgment from there.
Mr Tonkin —Yes, we will do that.
Air Marshal Riding —Senator, would it help if we provided you with details of how we deal with the question of security clearances through the CSP process?
Senator SCHACHT —I sat through three committee hearings nearly 10 years ago on that. I would presume that for 99.9 per cent, for the level of security you need, you give them a tick.
Mr Tonkin —From my general observation, there are very few people who are knocked back for security clearances. It is quite a small number really, proportionally.
Senator SCHACHT —On the same level of table 1.2 on page 12, under `Market testing decisions expected for 1999[hyphen]2000', Mr Tonkin, could you and your officers describe some of the activities? In the 501 Wing at Amberley and then 503, particularly 501, at the moment they are all Air Force service people who have been trained to an appropriate level of 4 to be in the avionics workshop and weapons systems.
Mr Tonkin —They will be a mix of Air Force and civilian employees.
Senator SCHACHT —Already? But there will be APS civilians?
Mr Tonkin —Yes.
Senator SCHACHT —Right.
Mr Tonkin —There could well be in some cases some contractors already working in those. In fact, I am pretty sure there are. From the F111s, I remember seeing that there was a contractor—
Senator SCHACHT —That is an area of security. If someone obviously is fiddling around with the radar system of an F111, you would want to know that they are doing the right thing. In regard to the Australian Defence Force explosive ordnance project, can you explain to me what that project is? There are 525 positions. Is that the dump that has all the bombs and shells and bullets in it?
Major Gen. Mueller —Senator, could you please ask the question again?
Senator SCHACHT —Could you explain to me the nature of what is called the Australian Defence Force explosive ordnance project with 525 positions to be market tested?
Major Gen. Mueller —That is the market testing of those elements of the joint ammunition logistic organisation that are responsible for the receipt, storage, maintenance and issue of explosive ordnance, both guided and non[hyphen]guided, with some exceptions in the guided area because of security considerations.
Senator SCHACHT —What percentage are those 525 positions of the total number of people employed in the explosive ordnance project?
Major Gen. Mueller —I will take that question on notice; I will be able to give the answer later today.
Senator SCHACHT —Is it approximately half?
Major Gen. Mueller —No, probably about 500 out of 758, or something of that order.
Senator SCHACHT —Would most of these people in the 525—I use the term not in any way in a pejorative sense—be essentially storemen recording the ins and outs of the depots et cetera?
Major Gen. Mueller —A significant number are, but some would require adequate technical knowledge, for example, to undertake inspection of ordnance on receipt periodically during maintenance to ensure that it has not deteriorated and, of course, on issue. When, on issue, there is a requirement to integrate ammunition components which are normally stored separately, they would need adequate knowledge to be able to do that.
Senator WEST —Who else, apart from ADF personnel, have those sorts of qualifications?
Major Gen. Mueller —There are a number of members in the Australian Public Service who have them, and have had for many years.
Senator WEST —And work in this particular area?
Major Gen. Mueller —Yes, in this area. From memory, in Navy in particular.
Senator WEST —But they are people who are current? You are looking at market testing this. I am trying to think about out there in the wider public, outside the Public Service related to the ADF and the ADF itself. Where else would there be a significant number, in terms of hundreds of personnel, who would be able to undertake this sort of work?
Major Gen. Mueller —I think it is reasonable to assume that a significant number of these people, if the in[hyphen]house option does not win, will gain employment with the successful private bidder. Some of the levels of skills which are appropriate to the activities that these people perform, consistent with the observation made by Senator Schacht, do not require high degrees of competency in the sense that they can be acquired within a comparatively short time frame. It needs to be borne in mind that ammunition is, after all, made by civilians. I do not think there will be any difficulty in acquiring the appropriate level of competencies and maintaining them for this activity.
Senator WEST —There are not many in Australia.
ACTING CHAIR —Senator Schacht and Senator West, did you want to pursue this line of questioning. We are just over our determined lunch break, but I am happy to continue if your—
Senator SCHACHT —While I have Major General Mueller at the table, can I finish on this one about the ordnance project? I have other questions on the list.
ACTING CHAIR —All right.
Senator SCHACHT —In view of the sensitivity of controlling and monitoring our ammunition suppliers, do the bidders have to be Australian majority owned companies?
Major Gen. Mueller —The answer to that is that I do not know other than that they will be required under the terms of the statement of requirement to meet very tight technical regulatory demands. I can pursue that question; I do not know whether or not it is specified.
Senator SCHACHT —You mentioned that there are some exclusions.
Major Gen. Mueller —Yes.
Senator SCHACHT —We rapidly went through them.
Major Gen. Mueller —There are some intellectual property issues of a security nature with guided weapons principally of United States origin.
Senator SCHACHT —I see—and those would be the ones that are excluded from the market test?
Major Gen. Mueller —Yes, that is correct.
Senator WEST —So you going to have to keep those ordnance supplies and stuff separate from the CSP, are you?
Major Gen. Mueller —That is true.
ACTING CHAIR —The hearing of the committee is suspended.
Proceedings suspended from 12.35 p.m. to 1.33 p.m.
CHAIR —The committee is resumed. Senator Hogg.
Senator HOGG —It seems a long while ago—I have a window of opportunity and I might exploit it—but could I take you back to the chart of the figures that we were talking about. Whilst I understand that these are positions that are likely to alter as a result of the market testing, is it fair to say that, of the mature 14,000 in the ADF positions, some 50 per cent of those are going to be repackaged as providing that 7,200, the savings that are realised under that? Is that a fair way to characterise it?
Mr Tonkin —It depends whether they meet the right skills sets. Certainly there are 14,000 going down; there are 7,000 coming up. I would expect that you would not be able to find 7,000 of the 14,000 who would have the appropriate skills. It will be some lesser number than that because most of the reductions are coming in those support areas where the skills sets, generally speaking, may not be. Some of the people are retrainable, so they go through a process of being reskilled into something else. It is a mixture. You could not assume just half straight off; it will be a less than half number.
Senator HOGG —If I can move to the next set of charts, the ones headed `Defence Reform Program cumulative resources available for reinvestment by major initiative category', is it fair to say that the mature figures are not necessarily there for all programs?
Mr Lewincamp —Yes.
Senator HOGG —Or for all headings. So, at some stage, you would be able to provide me with those figures?
Mr Lewincamp —Yes.
Senator HOGG —On the third page of that section there is no mature amount in brackets for the total resources available for reinvestment. This is down the bottom of the page, under the $1,116.9 million.
Mr Lewincamp —Remember, that is the final year of the forward estimates brought forward. In 1998[hyphen]99 we would not have had that figure in the documents.
Senator HOGG —Do you have a figure now? If you have not, can you take that on notice and provide it to us. Does it exist?
Mr Tonkin —The figures in brackets were what was in the previous documentation.
Mr Lewincamp —Do we have a figure for that year?
Senator HOGG —It was my understanding that there was a mature figure.
Mr Tonkin —There was a mature figure, not a 2002[hyphen]03 figure.
Mr Lewincamp —We would have had a track to the mature future so, yes, we can generate that.
Senator HOGG —Can I take you back to the superannuation and the FBT. Superannuation is out to $156.3 million, as I understand the cumulative resources available for reinvestment, and FBT is $38.1 million. The superannuation is higher than that expected in the 1998[hyphen]99 figure, yet the FBT is substantially lower. Why is the superannuation higher when the FBT is lower?
Mr Tonkin —There is not a direct relationship between the two anyway.
Senator HOGG —I am not asking if there is a direct relationship. I understood that we were looking at a number of positions that have been market tested. I can understand that one would see a drop in the FBT. Why have we not seen a commensurate drop in the saving under superannuation?
Mr Tonkin —The superannuation would go up because superannuation costs are a function, effectively a mathematical function, of the number of positions being saved. So as we go back to—
Senator HOGG —So that is related to a direct number of positions being saved?
Mr Tonkin —This is the superannuation we pay in a given year for our current work force. So, if you are reducing the number of people you are employing, the employer contribution to superannuation is what is being harvested. As the personnel numbers, as we have discussed, have gone up slightly in that same year—take 2001[hyphen]02—so the super will go up as well, and it has. There is a direct relationship there.
Mr Lewincamp —In relation to the FBT, I understand that is a reassessment of the FBT payable in terms of the various allowances and conditions of service upon which we pay FBT. That is why it is reduced even though the numbers of personnel being saved are increasing. But I will take that on notice and give you a fuller answer.
Senator HOGG —If we turn to the next chart, which is `Defence Reform Program reinvestments', the new capital investment is $85.2 million in 1999[hyphen]2000, then $169.3 million, and going out to $138.5 million in 2002[hyphen]03. Given that the commitment has now been made to go back to 50,000, given that there is a significant problem of block obsolescence and real pressures for platform replacements that Defence will be facing over the next decade, is there sufficient being redirected from the DRP into new capital investment to meet the demands that will be placed upon Defence?
Air Marshal Riding —The block obsolescence problem that we face really starts to impact in the 2008, 2009, 2010 time frame. The period that we are covering here is somewhat short of that. However, there is no doubt that significantly difficult decisions are going to have to be made in respect of that investment program in the—
Senator HOGG —In the period beyond?
Air Marshal Riding —In the period beyond that to which you are referring.
Senator HOGG —So how far out does the reinvestment program go? What is the mature age of the program? Do we know?
Air Marshal Riding —The formal program we have is a five[hyphen]year program—the current year plus four. That is reflected in the internal planning document known as the `pink book'. Beyond that period, we are producing this year a Defence Future Directions Paper, which will look at the investment pressures for major capital equipment and facilities, along with other aspects of capability, including personnel, which will have to be accommodated. That future directions paper will be providing that initial guidance to start to bring together the demand side and the resource side of the equation.
Senator HOGG —So, really, the decision to proceed down the path of 50,000 ADF has impacted on the amount of resources that could have been allocated to new capital investment?
Mr Tonkin —Additional resources. I presume we are talking about table 1.4 in the book, or in the figures that have been given to you. What it is showing is a judgment about where the additional resources made available by the reform program might go. The question that is posed to Defence is: what is the appropriate balance between the resources that need to be allocated to current capability, or the force in being, and those which can be allocated to future capability? The line `New capital investment' relates to future capability and is additional to the amount of resources already allocated for that purpose.
We spend approximately $2.7 billion a year on new major capital investment. They are the resources being expended on the acquisition of new or enhanced capabilities. That is an ongoing program which stretches into the future. We also have to confront the fact that we need—and the government requires that we provide—capability today. A significant part of that capability requires a human element. The 50,000 ADF is an expression of the provision of that human element; it is a judgment call.
You asked the question: `Is there sufficient money being put aside to meet the block obsolescence in the future?' It ultimately becomes a matter of government policy as to how many resources the government believes are appropriate for Defence as a whole. We really cannot comment on that. Our job at the moment is to manage the outcomes with the resources that we have been allocated. There is a fair bit of material on the record to suggest that the resources we presently have, and are forecast to have available for new investment, will not be sufficient to meet the future capital investment required, in the 15 years beyond the turn of the millennium, to meet those new capability requirements while maintaining the current level of operating capability. We will get into a squeeze which needs to be addressed in some way. Either you reduce the amount of performance you expect out of the Defence Force at present or you scale down your capability in the future—
Senator HOGG —Or there will need to be a major capital injection.
Mr Tonkin —or else you increase the resources available to the activity as a whole.
Senator HOGG —That is right.
Mr Tonkin —That is a choice for government.
Senator HOGG —Are there likely to be other efficiencies that have not yet come to light in this program which will feed into the reinvestment program? If so, of what order? I am asking for a ballpark figure. Are we looking at 10 per cent?
Mr Tonkin —I do not think I would want to put a ballpark figure to it. I do not think that the efficiencies that come forward will be particularly material, in terms of the scale of what we have achieved to date, bearing in mind that we also have to have regard to the maintenance of market suitable levels of remuneration for our work force, a significant proponent of which must be productivity based in terms of their funding. So we need to be able to generate productivity gains to meet our work force demands on top of this. So anything significant that we get, you could argue, has to also address that other third cost pressure, which is the personnel cost pressure.
Senator HOGG —I think what I am trying to find out is: are there other efficiency gains that just get shoved into the DRP? How do we isolate them? How do we identify other gains that are not a result of the DRP? Are they just put in here as part of the DRP process and that is it? How do we segregate those out? Can it be done?
Mr Tonkin —The one line which we have added to table 1.4 is the $125 million in administrative savings you see in bold print on the third line. They are the additional set of measures directed by the then Minister for Defence at the commencement of the reform program which were additional to the DRP targets. We have explicitly recorded those.
Senator HOGG —Yes, I accept those.
Mr Tonkin —But we have now brought them to account as part of the total amount of resources available.
Senator SCHACHT —That is $66 million—
Mr Tonkin —Yes, because it is $125 million per annum. The question is `What was unallocated?' As we go further into the future—so the whole $125 million would have been unallocated—we can tip that into the bucket. Are there any large[hyphen]scale additional measures? There are none that I can foresee. In some instances, I expect that we will find that some aspects of the reform program will perform better than expected. In other words, we have not put a ceiling on the DRP savings. We would obviously want the DRP to be as successful as possible. As we go through each cycle, we may come back and report the fact that we now predict in some area that the level of, say, efficiency gains might be greater. Information technology may be an example where that might happen as we go forward with the consolidation and rationalisation of that function. But I cannot turn my mind to any large[hyphen]scale initiative, other than those, which is likely to occur.
By the time we get to a reasonable steady state, we will have achieved ongoing efficiency gains of the order of $1.6 billion to $1.7 billion per annum, going right back from 1990. That is a pretty reasonable harvesting of efficiency gains. Go from the Force Structure Review through the Commercial Support Program through the Defence Efficiency Review reform program, add them all together, and you end up with about $1.6 billion or $1.7 billion per annum.
Senator WEST —What is the breakdown of each of those?
Mr Tonkin —Before we got to the DRP, it was roughly $650 million per annum from Force Structure Review and pre defence reform Commercial Support Program savings. We build the DRP on the baseline of those savings.
Senator HOGG —Are there still savings coming out of those areas?
Mr Tonkin —No. Those savings are continuing in the sense that we have the mature state of those adjustments.
Senator HOGG —Right.
Mr Tonkin —They are fed into the base and that money has been reallocated and spent against our requirements—some on cost pressures and some on capability. We add the DRP on top of that. Is there scope for much more? There is always scope at the margins, but nothing material.
Senator HOGG —That is why I asked for a ballpark figure. I just want to get an idea of where we are at in terms of the savings and whether there is a great margin there to be still gained out of it. On the last occasion, Mr Tonkin, you might have said something about the hardest part of this process being still to come. I am just wondering if by that you are going to squeeze more out of it?
Mr Tonkin —No, what I meant by that was, if you take the market testing issues that we were discussing before lunch, some of those at the higher technology end are more complex to undertake than some of the more simple ones. That was the meaning of that phrase. It is not something else.
Mr Lewincamp —If you look at table 1.3 on page 14, about halfway down the page under the heading `Other', there is an unallocated line of savings that gets out to about $80 million per annum. They are other initiatives that we will have to find in order to generate the savings total required under the Defence Reform Program.
Senator HOGG —So they have not been identified yet?
Senator SCHACHT —But you have to find them.
Mr Lewincamp —We have to find them in order to achieve the totals.
Mr Tonkin —We have to find the owner of them.
Senator SCHACHT —That means, if you do not find that, you will impose it on some section of Defence.
Mr Tonkin —Some of the savings estimates in the DER report are more difficult to place against a target inside the organisation which will yield those savings. So, while we gather up the contributors, it is listed as unallocated.
Senator SCHACHT —Until you put the fire to their feet to make them cough it up. Is that true, Mr Tonkin?
Senator HOGG —So is that an unallocated amount?
Mr Tonkin —Until we find the area which is most appropriate to generate the savings.
Senator SCHACHT —But that would be driven from you at your level at the ADF at the top in allocating something like $81 million cumulative by the year 2002?
Mr Tonkin —It would be a collective Defence management decision, not just the ADF as contributor.
Senator SCHACHT —A collective Defence management decision. Oh dear, oh dear; is that how you describe arm breaking these days in Defence?
ACTING CHAIR —Senator Schacht, that is not helpful.
Senator SCHACHT —It is helpful. We know what we are talking about. The $81 million has not been found. It will be allocated. You will find, under the Defence Reform Program or elsewhere, that someone will have to bear the cost.
Mr Tonkin —We will either settle on the appropriate area that ought to be generating those efficiency gains under DER or, as Mr Lewincamp says, we will have to find additional efficiency gains elsewhere to generate those numbers.
Senator SCHACHT —In the coming financial year, it is $17 million. Is that right?
Senator WEST —Can I just go back on that? That is tagged with note 6 which says:
This provision has varied since the 1998[hyphen]99 Portfolio Budget Statement, due in part to the recosting of Defence Reform Program savings in 1998 . . .
As I do not have my last year's PBS with me, can you tell me what this provision varied from, please?
Mr Lewincamp —It was $12 million last year.
Senator SCHACHT —It was $12 million and it has now gone up $5 million this year.
Mr Lewincamp —Plus some price updating, so $4[half ] million.
Senator SCHACHT —I want to get this right. This figure is cumulative. The $17 million includes $12 million in the previous year. So this year will you be finding another $5 million? No?
Mr Lewincamp —No. The estimate for the cumulative saving by the end of 1999[hyphen]2000 made last year was $12 million; the estimate is now $17 million, cumulative by the end of this financial year.
Senator SCHACHT —So you have increased the cumulative figure by $5 million?
Mr Lewincamp —That is right.
Senator WEST —Is that because the rationing and catering savings, previously listed under the logistics category, are subject to review?
Mr Lewincamp —In part and also, as the explanation in the footnote says, because of the recosting of the program savings. The original savings were all costed, as you probably know, in 1996[hyphen]97 on then estimates of the savings to be achieved by reductions in personnel and rationalisation. We had to price update those.
Senator SCHACHT —Has it been because the same saving and resources have been found but, because of inflation or something else, it has gone up, or have you found extra savings to make the increase of $5 million?
Mr Lewincamp —This is an increase in the unallocated of $5 million.
Senator SCHACHT —How did you increase from last year to this year? The unallocated has gone up $5 million. You must have some idea of where it is being allocated to get the $5 million increase? I presume a dart is not being thrown at the board somewhere, is it?
Mr Tonkin —As the process has gone through and we have progressively reviewed what the targets are against the list of reform initiatives, there are some other figures, when you refine it, that have now come down a bit, so the balance goes into the unallocated. It is not a target; it is the result of the other targeted analysis.
Senator SCHACHT —Let me put it this way: can you provide us with a list for the year 1999[hyphen]2000 of the unallocated savings that total $17 million? It is not a mythical figure; something has happened in Defence for you to get $17 million.
Mr Tonkin —We will take that on notice or seek that advice and come back to you.
Senator SCHACHT —Why has it jumped so much for the following year of 2000[hyphen]01 from $17 million to $80 million?
Mr Tonkin —Because all of the achievements of Defence Reform Program savings are phased over time. The review teams at the time of the report analysed when levels of savings were likely to be achieved. It is a time phased process, so it is expected that the rate of realisation of savings would escalate over time. There is a significant step function overall in the amount of savings being achieved in that year.
Senator HOGG —Just on that one alone—that $80 million—that figure could be either higher or lower depending on outcomes in other parts of the program. Is that correct?
Mr Lewincamp —Yes, that is right.
Mr Tonkin —I think it is more particularly—
Senator HOGG —I am getting a nod from—
Mr Tonkin —I think it is at the margin because—
Senator HOGG —It is at the margin?
Mr Tonkin —there is a range of initiatives which were not allocated. What we will do on notice is tell you which initiatives fall into the presently untargeted group.
Senator SCHACHT —Thank you. And can you do that for the $17 million figure and can you do that for the big jump to $80 million figure?
Mr Tonkin —Yes.
Senator SCHACHT —Thank you.
Senator HOGG —Those can be identified without being—
Mr Tonkin —Yes. Targeting as we receive, as against—
Senator HOGG —And then, having worked through the program, you allocate those against one or the other initiatives?
Mr Tonkin —Yes, through either one or the other initiatives, or we say that it is a new initiative and it has got to be done somewhere else. But we have to find the area of the organisation that is going to undertake that initiative to generate the identified efficiency gain.
Senator HOGG —In respect of the $539 million that we see being required in the longer term for the $50,000 ADF project and the period leading up to that—that is the $45 million, the $338 million, the $434 million and then the $539 million—are you able to allocate how that resource will be used in terms of the reinvestment? Is it possible to say that it will go into Army, Navy or Air Force? Is it possible to do that?
Senator SCHACHT —That is when the brawl starts between services.
Mr Tonkin —I think we could take that on notice just to be able to work through how that is being reallocated against those three services. Essentially, it is a buying back across each of the three services.
Senator HOGG —That is right; you are increasing the numbers.
Mr Tonkin —If you want to know what the delta is that drives that, we can calculate that for you.
Senator HOGG —That would be good.
Mr Lewincamp —Accepting that this is again built on assumptions about what the draw down of the personnel is, the buyback will have to be based on the same assumptions about the results of market testing programs.
Senator HOGG —Yes, but this will give us some idea of where we are going for the supplementary estimates and the additional estimates.
Mr Tonkin —On the present planning and indicative basis, we will have a look at how we can split out how that is related to each of the services.
Senator HOGG —That would be helpful.
Senator SCHACHT —Besides being a matter of argument between the services wanting to get a cut of it, the real rationale for the reallocation of $539 million is based against the capability of achieving your overall outputs and outcomes for the overall Defence Force?
Mr Lewincamp —Yes.
Senator SCHACHT —So it is not the usual old style brawl between Army, Navy and Air Force—who wins the vote in a certain committee, who gets an extra destroyer and one less tank. Is that correct?
Mr Tonkin —We are seeking to drive our resource allocation process to determine what is the appropriate balance between the 22 outputs. That is the whole point of output budgets.
Senator SCHACHT —Yes, of course. The three services have all accepted that rational approach?
Mr Tonkin —Yes.
Senator SCHACHT —You say that with a dead straight face, Mr Tonkin. Congratulations. I just want to go back to table 1.2, which is in the Defence Reform Program that we are still on. I have a couple of extra questions. I got a good answer from General Mueller about the explosive ordinance project, the 525. The other heading that really stands out is `Defence Integrated Distribution System'. Is that another name for stores?
Mr Tonkin —And related things.
Major Gen. Mueller —The Defence Integrated Distribution System is a project whereby previously independent or semi[hyphen]independent distribution centres—in other words, warehouses and associated freight distribution—will be integrated into one coherent network in a way which I would describe as being consistent with best practice in the private sector.
Senator SCHACHT —That means that, wherever possible, the three services distribution will be done as one?
Major Gen. Mueller —Not wherever possible; it will be done as one—full stop.
Senator SCHACHT —That means the introduction of all those new technologies of bar coding and other things as well, if they have not already been introduced?
Major Gen. Mueller —Where they have not already been introduced. More importantly, it will lead to significant rationalisation. At this point in time, I would anticipate that the number of warehouses would be reduced. I would see an opportunity for significant improvements in cycle times across the distribution system.
Senator SCHACHT —With the 1,550 for the market testing, if the private sector is bidding and Brambles says—and I do not know whether they could be interested—`We've got a better warehouse at West Melbourne than you have at Laverton. Therefore, we can make this even more efficient by using one of our existing warehouses that has not only all the latest bar coding but automated fork lifts and shelving and so on,' does that come into the picture as well?
Major Gen. Mueller —Other than where there may be operational reasons where we would have a preference to specify, for example, that a particular warehousing activity or associated minor maintenance activity be carried out in a specific location. If market testing is to maximise the value that it adds to the activity, then we have to focus very much on specifying the outputs, but not telling the people who are bidding, including the in[hyphen]house option, how they are to deliver those outputs.
Senator HOGG —I understood that that project was very much involved also with the drawing together of a number of disparate inventory systems by which you kept—
Major Gen. Mueller —Sorry, what do you mean by inventory systems?
Senator HOGG —Computer systems which kept track of stock.
Major Gen. Mueller —That is a related but slightly separate issue. What you are alluding to here is the standard defence supply system, which in a previous Senate legislation committee I discovered is used in different ways by each of the services. That is a legacy which we have inherited, and amongst other things it is the task of the Joint Logistics System Agency to first of all rationalise the business processes that SDSS uses, so that wherever possible we use common processes. That will be reflected in the software package that complements those processes.
Senator HOGG —So how far off development is the program?
Major Gen. Mueller —We think we have got a solution. It becomes an issue of funding, and that involves my organisation putting forward a business case which can demonstrate an appropriate return on investment. It then must be considered in the context of competing bids for limited resources by my colleagues in Canberra.
Senator HOGG —Now that you have said all of that in those nice terms, where is it in here?
Senator SCHACHT —Where is it in the PBS?
Major Gen. Mueller —You will probably find somewhere in the PBS some comment with regard to the rationalised—
Senator HOGG —What output are you?
Major Gen. Mueller —Don't worry about the outputs. You look for us under group 6.
Senator SCHACHT —Support Command. Is that it?
Major Gen. Mueller —Yes. For example, on page 147 you will see:
. rationalising, standardising and improving common business practices;
. operating within a quality management system;
. . . . . . . . .
. migrating to integrated, reliable and user[hyphen]friendly information systems . . .
Senator WEST —What does that mean when it is not in military speak?
Senator Newman —A better system.
Major Gen. Mueller —It means that we integrate with reliable and user[hyphen]friendly information systems. I can assure you that some we have got at the moment are not user friendly. In other words, the demands on the individual who uses them are at times quite excessive.
Senator WEST —So this means you are going to get the support materiel to the pointy end more quickly?
Major Gen. Mueller —Yes, but it will also lead to a lot of other improvements, such as improved inventory management, improved asset visibility and so on.
Senator SCHACHT —We will come back to this later when we get to the section with the groups, but I just want to point out again a function of accrual accounting. It is rather interesting that you have there, Mr Tonkin, that the group contribution to outputs for 1999[hyphen]2000 is $1,700 million, as a one[hyphen]line contribution, whereas—and I will raise this again—there are some areas where I would have thought that in future it might be useful if you broke that figure down a bit and put it against your performance targets, et cetera. We have got goals 1 through 6 appearing again.
Mr Tonkin —Somewhere—Mr Lewincamp may help me—we actually show how that $1,700 million is split up.
Mr Lewincamp —It is at page 22.
Senator SCHACHT —This is designed to trap me all the time, is it?
Mr Tonkin —It is there to help you. Support Command Australia is shown there, at the top.
Senator SCHACHT —On page 22?
Mr Tonkin —On page 22 we have SCA—Support Command Australia—and, at the bottom of that column, the number you have just quoted, $1,720.4 million.
Senator SCHACHT —And then it is shown against group output, so I go to group output 1—on what page?—to find any explanation of the first part of that, how the $19 million is spent.
Mr Tonkin —You will not find it broken down, because we are not required to provide that sort of breakdown. The question you asked was how the Support Command contribution money has been broken up by output, and page 22 breaks it up by output.
Senator SCHACHT —Yes, and then you go to SCA, group output 1, $19 million. Where is the $19 million listed?
Mr Tonkin —It is not listed, because it is all part of either employment cost or another services cost. What we are reporting against each output is the presentation form which we have been asked to report in this first cycle of this documentation. What we have provided is the cross[hyphen]wall to show how the total of that group is spent.
Senator SCHACHT —Group output 1 is output 1. Is that right?
Mr Tonkin —Yes.
Senator SCHACHT —I go to output 1 on pages 61 through to 63, and an explanation of how the $19 million is spent is—of course, as you point out to me—utterly missing.
Mr Tonkin —That is right.
Senator SCHACHT —But now you are telling me that, if I asked you one by one—if I went through every one of those goddamn lines—you would tell me from the list somewhere in all those piles of files you have got that the $19 million was spent on capital and on wages or something? Is that right?
Mr Tonkin —It will be spent on a mixture of employees cost and, I would expect in that one, most of it will be spent under the heading of `other expenses' because that is what the Support Command Australia is providing.
—Other expenses! So this just goes round and round. Then you will refer me back—I will say, `What about the other expenses?' and you will say, `Go back to
page 146 or that other table,' until finally, in desperation, I get a note saying, `You are due in another estimates committee' and I will go off defeated.
Mr Lewincamp —As a learning organisation.
Senator SCHACHT —That is a disowner.
Mr Lewincamp —Perhaps we should just delete the group costs.
Senator SCHACHT —The point is, I would argue—and I will come back to it; I did it in the briefing, Mr Lewincamp, as you know—that, on some of these figures, one line or to have $1,700 million with a two[hyphen]page explanation is a bit skimpy, quite frankly.
Mr Tonkin —But, again, as Mr Lewincamp points out, we were not required to provide any data on groups at all. We could have not had page 22.
Senator SCHACHT —Mr Tonkin, I understand that that is the agreement with DOFA on the layout. As this is a two[hyphen]way cooperative experience of accrual accounting, we are also making suggestions where we think it is not unreasonable to follow some piece of money down the right burrow and end up with the rabbit rather than the bloody ferret biting my fingers off or whatever because you will not give me the answer.
Mr Lewincamp —But on that point, Senator, if I may, the focus of the hearing now ought to be on the outputs we deliver rather than the inputs that contribute to that output.
Senator SCHACHT —Okay. When we come to the annual report, for this column of 1.12 on page 22, in the annual report will I get an explanation of whether the $19 million met your outcome and outputs?
Mr Lewincamp —The principal explanation in the annual report will be looking at the total cost of each of the outputs.
Senator SCHACHT —The whole $1,700 million?
Mr Lewincamp —No, we are talking about the far right[hyphen]hand column here, which is the cost of the outputs.
Senator SCHACHT —Which will be output 1, $582 million?
Mr Lewincamp —That will be the principal explanation. We will provide for you an explanation of the output delivered in terms of the performance achieved and the cost that it took. At this stage I am not sure whether we will provide the group information.
Senator SCHACHT —So the cross[hyphen]referencing across output 1 is such that you get $582 million. There is the output that has been achieved, you will say. Then you go down the other way and you find your $1,700 million broken up as you go down the column, and then you will say, `That has also been achieved as an outcome and an output.' So what?
Mr Lewincamp —No. That is the cost of the service that was delivered in support of the outputs.
Senator SCHACHT —Is that an input, then?
Mr Lewincamp —It is. That is giving you a costing of Support Command Australia as an organisational unit.
Senator SCHACHT —Then it is not unreasonable, without destroying accrual accounting, to say of the input going down the column on page 22, the $1,720 million, that I want more of a break-up on each of those figures? If I want it, you can provide it?
Mr Lewincamp —I am not sure that we will continue to provide those figures in the future. That is now a matter for some consideration within our organisation and in consultation with the Department of Finance and Administration about the future requirement.
Senator SCHACHT —We know what they will say. It will be, `Don't provide anything ever.' That will save them—
ACTING CHAIR —Senator Schacht, is that a helpful comment?
Senator SCHACHT —It is a helpful comment. I am helping you, Chairman, about what Finance will try to do.
ACTING CHAIR —I think the officers would disagree. Have you got any further questions of substance?
Senator SCHACHT —So this table 1.12 will not appear again next year?
Mr Lewincamp —This was done to assist the senators' understanding about the contribution that our organisational units make to the production of the outputs.
Senator SCHACHT —And it is there by your good grace?
Mr Lewincamp —More or less. It was not a requirement under the reporting regulations.
Senator SCHACHT —It would be helpful if that table continued for a couple of years at least.
Senator Newman —Madam Chair, could I just say, as I said to the last committee at which I was present, that it is recognised that this process would be difficult for officials and also for senators. The best arrangement, surely, to not waste time but to make sure that everybody is accommodated as well as he or she can be for next time, is for committees to make recommendations about the format of the PBS or any other information that they felt was unhelpful or not in the best form possible. Could we not do that as part of a committee report rather than take up the time of the inquiry now?
Senator SCHACHT —I agree with you, Minister, but until Mr Lewincamp quite nicely explained to me that table 1.12 might disappear next year I would not have known to ask the question or raise it with the committee. Can I then put on notice to the department: which information in this PBS as part of a transitional arrangement will not be provided in next year's PBS?
Mr Tonkin —We could not provide an answer to that question on notice because we would not know by the time we got the answers back what it is. Firstly, we need, as the minister has just said, to receive the committee's views and to consider what the overall view of the people managing the process is. With all the best will in the world we cannot answer that question.
Senator SCHACHT —You did tell us that 1.12 will probably hit the fence next time around.
Mr Tonkin —It is not a required element under the present arrangements.
Senator SCHACHT —Could you list what are not the required elements?
Mr Tonkin —Everything in the budget overview and everything on groups.
Senator SCHACHT —Everything in the budget overview.
Mr Tonkin —The overview section is something which the Department of Defence put in the PBSs some years ago to assist the deliberation of the committee in looking at strategic issues in the consideration of the Defence estimates. It is not required as part of the structure before our budget measure statements. Material in relation to groups, similarly under output budgeting, is not required.
Senator SCHACHT —So section 4, from page 128 to 164—
Mr Tonkin —That is not required.
Senator SCHACHT —Not required?
Mr Tonkin —No.
Senator SCHACHT —I have to say that, if you are going to recommend that that gets knocked off, you will have a big brawl.
Senator Newman —Senator Schacht, you might like to recommend that it is not discontinued in the comments that are going to be made.
Senator SCHACHT —Are you suggesting that we cannot ask questions specifically about defence headquarters—Navy, Army, Air Force, Intelligence—under the groupings that most ordinary Australians understand because most of Australia has not picked up on accrual accounting yet, Mr Tonkin?
Mr Tonkin —I am not suggesting that at all, Senator.
Senator SCHACHT —You just said it was going to get knocked off.
Mr Tonkin —No, I did not, Senator. What I said quite clearly was—
Senator SCHACHT —You are not required.
Mr Tonkin —that in section 1 and section 4 it is not required. I did not say, nor did I intimate or indicate in any way, that it is our intention not to provide that. What I said was that I could not provide you and the committee, in the time provided for the answers to questions on notice, any answer to that question because the position will not be determined. That is what I said, not anything else.
ACTING CHAIR —Mr Lewincamp, did you want to make a comment at this point?
Mr Lewincamp —On page 196 of the PBS there is a checklist that indicates what is required under the guidelines.
Senator SCHACHT —Do you want to hear the sound of one hand clapping?
Mr Lewincamp —No. Senator. You asked what was required and what was not, a check of what is in here compared to this. This gives you that.
Senator SCHACHT —Thank you. You will be able to report back in your discussions with the Department of Finance and Administration about any views expressed at least by some senators that the excellent information you have given in section 4 and section 1 is most useful to us. I have already suggested to you that the goals listed may not be useful in one form because they do not seem to be able to be measurable nevertheless. I cannot chase down where the $19 million went.
Senator HOGG —I have just a couple more questions on this DRP. I notice that on page 10 the paragraph in the middle of the page says:
The Army has commenced the development of an expanded Ready Deployment Force. Other specific combat capability enhancements include the formation of the 1st Intelligence Battalion to support land task force operations, and the Chemical, Biological, and Radiological Response Unit to support the Olympics and provide ongoing counter[hyphen]terrorist capability.
On that last one, is that new?
Air Marshal Riding —No, Senator. It is providing ongoing counterterrorist capabilities. It is the role of the special forces.
Senator HOGG —All right. I needed to know what its status was so that I can follow that later on. Are both of those initiatives being funded out of the DRP? Is that correct?
Air Marshal Riding —We have not disaggregated the allocation of funds to the services to the extent that that conclusion could be drawn.
Mr Lewincamp —Certainly a number of the personnel components are being funded by the DRP as part of the buyback, which is why it is under the heading of `Retaining the Australian Defence Force at 50,000'.
Senator HOGG —So it comes under that umbrella?
Mr Lewincamp —Yes, some of the personnel for those units are being bought under this initiative.
Mr Tonkin —The raising of the Intelligence Battalion certainly is funded under DRP.
Senator HOGG —The other unit?
Air Marshal Riding —The CBR, the Chemical, Biological and Radiological Response Unit also is a new capability.
Mr Tonkin —There are lots of things that we do which are new which are not necessarily DRP funded, but are funded out of the overall—
Senator HOGG —No, it is just that it is under this section. I am wondering if it is being funded, and if so—
Mr Lewincamp —That is what I am saying: the people part is being funded by DRP but I am not sure that all the equipment is.
Senator HOGG —Where would we find it under the DRP?
Mr Lewincamp —It is part of the 50,000 buyback.
Senator HOGG —One last question on that 50,000 buyback: those figures are still fairly fluid, as I understand it, and there are still costings to be done there—is that correct?
Mr Lewincamp —It is explained in the front part of the PBS. Our executive, our senior body, has been looking again at the rate at which we should draw down to the 50,000. They are currently reviewing that. The portfolio budget statements are based upon achieving an average funded strength of 50,000 in this financial year, 1999[hyphen]2000. We think that might be a little quick and the actual average funding strength achieved might be slightly higher than 50,000. That is still being reviewed.
Senator WEST —If you do not reach the 50,000, you are obviously not going to have the same level of savings.
Mr Lewincamp —That is true.
Senator WEST —How is that going to affect your reinvestment programs?
Mr Lewincamp —If we have to fund additional personnel costs above what is budgeted here, we will find that within overall Defence funds.
Senator WEST —So your DRP reinvestment will continue at the same level? You will find the savings from somewhere else? Is that correct?
Mr Lewincamp —That is correct. If you look at the totals on page 15, table 1.4, the resources available for reinvestment are $474 million. The total reinvestment so far is $447 million. So there is still $27 million there on these projections that has not yet been allocated.
Senator WEST —Twenty[hyphen]seven million is not a large amount of money in your terms.
Mr Lewincamp —No, but the extent to which we will not achieve 50,000 will be reasonably small. The strength of the ADF, the actual strength on 1 July this year, we expect to be somewhere around 51,600, perhaps 51,800. It will come down quite close to 50,000 average funded strength next year. It might be 50,400, but 400 extra personnel would cost no more than $15 million or $20 million.
Senator WEST —And it is Air Force, looking at the table on pages 168 and 169, that has to do the biggest drawing down. Is that correct?
Mr Lewincamp —Yes, that is true.
Senator WEST —I suppose that is an appropriate thing to ask in Air Force, but I am interested that on page 169 there are no changes to the one star and above in Navy. They are due to drop six senior officers, 13 officers and 97 ORs. Army is due to drop 36 senior officers—they are also due to drop one star and above—313 officers and 651 ORs, and they are going up 750 in reserves. Air Force has to drop three one star and above, no senior officers, 172 officers and 1,705 ORs. When we get down to civilians, there is no change to the senior executive. You are going to maintain the 1999 senior executive, but senior officers are going to go up by 243 whilst the others will go down by 502. What is so special about the senior officers? When everybody else is going down and we have a senior Public Service grouping—
Mr Lewincamp —Can I make a couple of points about these tables. One is that the initial savings and reductions made under the DRP were made in the senior officer level and the one star and above level. If you look back at the first year or two of the program, there were some very quick reductions made at those levels.
Senator WEST —Yes, I recall that.
Mr Lewincamp —You would then expect to see not quite the same pro rata reductions continuing over the next couple of years. In terms of the senior officers, part of the explanation there is that there is a civilianisation process going on. These are overall numbers; these do not relate to DRP reductions, so you would expect some of that to go up. I cannot account for that complete figure. I would have to take that on notice.
Senator WEST —I am not talking about the increase in numbers in military.
Mr Lewincamp —I am talking about the civilian senior officers.
Senator WEST —Yes.
Mr Tonkin —It is primarily in acquisition and science and is primarily due, as Mr Lewincamp says, to the replacement. One of the recommendations in DER was to reduce the proportion of people in the Defence Force in the Acquisition Organisation. Those functions still have to be performed. It is necessary, therefore, to recruit people at that professional level, described as senior officers grades A, B and C, to do those functions. It is a matter of acquiring the right sorts of skilled people who fall into that category. If you want the job done, that is the category into which they fit. That is what drives the figures. If you take group 10, DSTO—and the same issue applies; we are trying to improve the quality of defence science—you have 120 gone up. If you look at group 9, acquisition, there are 20 which have gone up. What we are trying to do is to invest our human resources at the right skill levels, and the classification breakup of this places them into the category called senior officers.
Senator HOGG —Is this the appropriate place to ask a question to try to relate what one sees in those two tables on pages 168 and 169 to what is happening in the DRP?
Mr Tonkin —Yes.
Senator HOGG —If I could just take you, under group 2, to the officers and the other ranks and go down to Navy. My reading of the figures—and it might be a simplistic way of looking at it—is that there is an increase over the estimated 1998[hyphen]99 outcome of 317 in officer ranks and 427 in the other ranks. If you look at the next column, Army, you will find that the increase at the officer level is 338 and that in the other ranks it is 414. If you go to group 4, you will find there is an increase of 431 officers and an increase of 579 in other ranks.
Mr Tonkin —The other ranks have gone down, haven't they?
Senator WEST —The ORs in Air Force have actually gone down.
Senator HOGG —I am sorry, that has decreased.
Senator WEST —So the officers have gone up and the ORs have gone down.
Senator HOGG —I am just trying to put this all into the picture of what is happening under the DRP—the actual numbers.
Mr Lewincamp —This is the actual number of Army personnel operating within the Army group that has gone up.
Senator HOGG —That is correct.
Mr Lewincamp —So we are actually moving people in uniform back to where they ought to be: in uniform in Army units. That is what this table is indicating.
Senator HOGG —Let us look at Army, where the figure goes from 2,896 to 3,234.
Mr Lewincamp —That is right.
Senator HOGG —That is an increase of 338 officers.
Mr Lewincamp —Yes.
Mr Tonkin —If you look at the `total' column—right across the side—for Army as a total organisation, and take senior officers in Army, it has gone from 544 senior officers in Army in 1998[hyphen]99 down to 508 senior officers in 1999[hyphen]2000, across the total strength of the Army. So, as Mr Lewincamp is pointing out, we are reducing overall the size of that level of people in the Army, but those reductions are occurring in what we describe as the enabling groups; whereas in group 3, which is the group which delivers Army capability, the numbers have been adjusted—in that case slightly down, but the next level of officers has gone up from 2,896 last year in the general officer ranks to 3,234. So we are increasing the assets, the people, in the Army group to deliver Army capability while, overall, reducing the number of officers in the Army totally as we come down, which is precisely what we are trying to do.
Senator HOGG —All right. But there is only an increase of 414 in the other ranks. So it is almost—
Senator WEST —It is almost 1[half ] ORs to one officer.
Mr Tonkin —That brings you to the next aspect, that what we are doing is getting rid of a lot of support functions which employ lower classified, lower ranked people. As the technological complexity of our activities increases, you are going to have more people of higher levels, particularly officers, undertaking those functions. Even despite the changes we are making, we still broadly relate remuneration to rank: the more complex the task, the more you have to pay, the higher the rank.
Senator HOGG —So, in effect, we are seeing now a reflection of the changing structure that is coming about as a result of the DRP where proportionately there is a higher increase at the officer level than at the other ranks level. If that is the case, will that continue?
Air Marshal Riding —It will continue while outsourcing of support functions within the Army, Navy and Air Force continues.
Senator WEST —Does that mean you are going to have enough ORs to fill positions with all these officers? Are you going to have those force structure ratios—
Air Marshal Riding —We recruit at the base rank for officers and at the base rank for other ranks. We grow the structures from those two bases, with some flow through of other ranks into the officer ranks. But the vast majority of other ranks and officers are recruited directly into those corps.
Senator WEST —There used to be a formula: so many ORs to so many officers of each different level.
Air Marshal Riding —There was never any formula applied; it was really a case of the nature of the capability that you were referring to.
Senator WEST —So there was never any—
Air Marshal Riding —The higher the technology, generally, the lower the number of other ranks to officers.
Senator WEST —Looking at page 13, it says:
The Government has established a high level Strategic Management and Reporting Team to enhance the profile and maintain the momentum of the Defence Reform Program.
What is the need to enhance the profile?
Mr Tonkin —In reviewing our progress to date, we felt—and I have said this on the record in previous hearings—that we had not done as well as we should have or could have in explaining to our own organisation the broad intentions of DRP and the progress and achievements to date. One of the ways of assisting people with this process is to explain to them and show them the benefits of what is occurring as it is occurring, and also to have a general community understanding of what it is that we are doing. We believed, and the government believed, that having some extra effort in this area was a productive investment.
Senator WEST —So there has been the review done. Is the review—
Mr Tonkin —The review has not been done. We have established an organisation, a team, which is tasked with a range of functions, one of which is that.
Senator WEST —But even before that review has been completed you see the need to enhance the profile?
Mr Tonkin —That is a general assessment we have made ourselves at a management level. It did not require a review to do it; we formed our own conclusion.
Senator WEST —Is that an indication that morale is not as good as it used to be?
Mr Tonkin —Morale is always difficult when you are going through a process of this sort of change. We would certainly not wish to misrepresent the fact that there are some difficulties in people confronting change on this scale. You cannot change an organisation as we are doing, you cannot market test the range of positions, without individuals feeling affected and, in some ways, threatened by that process. That is unavoidable. What you can try and do is provide them with the best possible information so they can understand why you are doing it and what the time lines are, and so that you can run a process, which we do, of looking after the people affected in terms of outplacement counselling and so on. It is an overall package.
Senator WEST —Thank you.
ACTING CHAIR —We now move on to the budget summary.
Senator HOGG —Mr Lewincamp, you might answer the question that I asked you earlier this morning about the major changes in the Defence budget as a result of the move to accrual based accounting and output budgeting.
Mr Lewincamp —The key change in moving from a cash based budget to an accrual based budget is that you register the full cost of your activities, the full expenses and revenues, when they are incurred rather than simply when cash changes hands. Rather than registering, for example, cash expended on major capital equipment, you register consumption of the major capital equipment through depreciation; rather than registering the purchase of inventory items, you actually register the consumption of the inventory items; and when you are talking about employee costs you look at the full accrual cost, which includes things like accrued leave entitlements, superannuation benefits and things of that sort. So there is quite a distinct difference in terms of the expenses and revenues registered under an accrual system compared to those registered under a cash system.
There are some other elements about the way in which the budget itself is constructed as a result of that. On page 18, table 1.7 is probably the best table to talk about there, looking at the overall level of Defence funding.
The initial component of Defence funding is the cost of producing departmental outputs. You see at the start of that table that the cost of producing the outputs has two components: an appropriation from government and a capital use charge. Under the new accrual budgeting framework, the government has applied a 12 per cent capital use charge to the net asset base of an organisation. This is to indicate the opportunity cost of the funds the government ties up in the agency's activities; the 12 per cent taken as being six per cent as the cost of money and six per cent roughly as a risk factor. So the cost of our outputs includes a capital use charge, and that generates that figure—one[hyphen]third of the way down that table—of the revenue from government for the departmental outputs.
We also receive some revenues from independent sources—from sales of services, for example—and that gives you a total price of outputs. Also included in our budget now are administered expenses. You will recall under our previous cash based arrangements we talked about Defence function outlays and that was defined in last year's portfolio budget statement. That did not include administered items, and administered items for us consist largely of military superannuation. When you include the administered items, that gives you the total resourcing of the Defence outcome. Then there are two other elements of the funding for Defence. One is an equity injection and the other is receipts that we gain from the sale of specialist military equipment and assets. That gives you the total Defence funding line at the bottom.
Senator HOGG —Your total budget for the year is just over $18 billion?
Mr Lewincamp —No. I should distinguish between total funding of Defence and total budget. If you look at table 1.8 on the next page, page 19, it shows the total appropriations for Defence, and that is $17.5 billion. The two items that are not included in the appropriations that contribute towards the total Defence funding are the departmental revenues from independent sources and the capital receipts. Those two items give you your overall Defence funding but, because the revenue comes from non[hyphen]government appropriations, it is not part of our budget. The overall Defence budget, if you like, the full amount of the appropriations government gives to Defence, is $17.5 billion.
Senator QUIRKE —What does that represent as a percentage of GDP?
Mr Lewincamp —I am not sure what it represents as a percentage of GDP. The figure we have used in the past was Defence function outlays. Page 20, table 1.10, derives an equivalent figure because, of the $17.5 billion that we have talked about here, $4[half ] billion is capital use charge which the government supplements to us on 1 July and then charges us with on 30 June at the end of that year. So it is basically a book entry that is almost entirely notional. If you take that out and take out the administered items, the level of Defence funding that is the closest thing that was in the past Defence function outlays is $11.093 billion, on page 20, and that as a percentage of GDP is 1.8 per cent.
Senator QUIRKE —So, if you strip away all of the accounting stuff that we are now required to do here, you are talking about $11 billion of new money each year, which represents 1.8 per cent of GDP?
Mr Lewincamp —That is right. Our percentage of GDP is still falling slowly because Australia's GDP itself is increasing. But we are maintaining Defence funding at current levels in real terms and, if we continue to leave it at current levels in real terms, the percentage drops gradually.
Senator QUIRKE —I understand that.
Senator HOGG —You say that you are being maintained in real terms?
Mr Lewincamp —Yes, at zero per cent real growth. That was the government's commitment and that is reflected in this document. The table on page 20, over the forward estimates period, is zero per cent real growth. These prices are all out[hyphen]turned: that is, we have made an estimate based on government parameters on what the price and exchange variations would be for future years. So that explains the slight increase over that period, but that is based on zero per cent real growth on that figure.
Senator HOGG —It has been put to me that you are $750 million short?
Mr Lewincamp —No. As I explained during—
Senator HOGG —Can you explain to me, if that is not the case, that a formula has been applied which has guaranteed you in real terms what you previously had?
Mr Lewincamp —I can guarantee you that because that is my job within the Defence organisation. If I do not deliver that, then I will get sacked. That is the understanding from government, and I can assure you that this is zero per cent real growth. I am not sure how a figure of $750 million shortfall was generated.
Senator HOGG —It is just the figure that had been run by me, not having at my disposal the ability to know how to calculate that.
Mr Lewincamp —I would be happy to analyse that figure for you, but I can assure you there is zero per cent real growth in here.
Senator HOGG —If you could give me some brief explanation that would be helpful indeed.
—If we look at the figure $11.093 billion that is in table 1.10 on page 20, that is the baseline for the forward estimates period. You have to make some adjustments to that figure based on one[hyphen]off adjustments in year. For example, we had to pay back some money for excessive price supplementation during 1998[hyphen]99. We got some money back from the Department of Finance and Administration because we had a shortfall in exchange. And you may recall that three years ago we did some rescheduling of capital equipment: we took $82 million out in, I think, 1996[hyphen]97 and rescheduled it in two years, 1998[hyphen]99 and 1999[hyphen]2000—$41 million in each. They are one[hyphen]off adjustments that need to be taken off that figure of
$11.093 billion. If you make those one[hyphen]off adjustments to that figure, you will then find that the percentage increase from 1999[hyphen]2000 to the next year is about 1.9 per cent and for each of the following two years is about two per cent.
Senator HOGG —That $82 million has got to come off?
Mr Lewincamp —No, $82 million was taken off us in 1996[hyphen]97, and given back to us as two sums of $41 million in 1998[hyphen]99 and 1999[hyphen]2000. So that has to come off that figure of $11.093 billion to establish the baseline for the forward estimates period. Similarly, there were two other adjustments made for price and exchange variations during 1998[hyphen]99, where we made repayments or were given extra supplementation in our budget this year to compensate for what happened last year. If you make those adjustments to the budget funding there, as I say—
Senator HOGG —What were those adjustments worth—how much?
Mr Lewincamp —It was about $120 million in total. I can provide you with a breakup of that if you wish. Then the percentage variation, on that new baseline, from 1999[hyphen]2000 to the next year was 1.9 per cent and for the two following years was two per cent. That is a global figure. The way in which our price exchange updates are done is on a series of parameters provided for us by Treasury, and those parameters range from about 1.6 per cent to about 2.6 per cent, but the net effect of that was an increase in our funding each year of about two per cent. So I can give you a complete assurance that we have maintained zero per cent real growth; otherwise I will resign.
ACTING CHAIR —Be careful!
Senator HOGG —No, Mr Lewincamp. But you are a very game man.
Mr Lewincamp —I am happy to be transferred.
Senator WEST —There is a difference between being transferred and resigning.
Senator HOGG —I think you have covered the second question that I needed to raise. The next question is: how was the price of Defence's outputs determined? Was it a `throw a dart at the board' sort of thing?
Mr Lewincamp —No, it was not.
Senator HOGG —Was there a bit more precision than that?
Mr Lewincamp —It is looking at the overall costs of our operation in terms of employees, of support to our capabilities. The principal factor that is different is looking at the depreciation of our assets as a significant element of that cost. Our asset base that we are operating on, in terms of calculating that depreciation, was what was audited by the National Audit Office for the 1997[hyphen]98 financial year.
Senator HOGG —What does that cover in terms of assets?
Mr Lewincamp —If you look on page 41, at the statement of assets and liabilities in our balance sheet, plus some of the explanatory notes that are referred to in that table, that gives you a clear indication of the assets that are covered. It is on the basis of that that we constructed the depreciation costs and then got to the full cost of the outputs, applying, of course, the capital use charge as well at 12 per cent.
Senator HOGG —Yes, I understand the capital use charge. How was the equity injection determined that we see there? What will it be used for?
—The theory of the equity injection is that it is a considered assessment by the owner of a business of how much it needs to invest in the business in the future in terms of building up the assets to deliver the services required or to deliver the outputs. The
way in which the equity injection was determined for Defence for this budget was to be the balancing line between the cost of our outputs and zero per cent real growth. It is as simple as that. Working through the various calculations I have mentioned to you, it is the balancing line to determine that we maintain zero per cent real growth.
Senator HOGG —Yet, in the outyears, it is a declining figure?
Mr Lewincamp —It is declining over the period because of the increasing number of assets coming onto the balance sheet and, therefore, the depreciation expense going up. Therefore, the price of the outputs is going up and therefore the balancing line to zero per cent real growth is going down.
Senator WEST —Given that your assets that you are getting depreciation for so that you can maintain the asset or replace the asset, particularly for you with replacement and even refurbishment, the cost of your improvements to your asset are never going to be able to be covered by what you are paid in depreciation, I would have thought. Because of the increase in technology—
Mr Lewincamp —That is true.
Senator WEST —you are going to always require, I would suspect, some fairly significant equity injections?
Mr Lewincamp —Yes. That is true for two reasons. One thing I should say is that, under our previous cash based arrangements, there was an implicit equity injection all the time. It was built into our capital funding. I agree completely with your point that depreciation on the assets is not sufficient to replace them.
Senator WEST —Absolutely.
Mr Lewincamp —We are finding that the real cost of our capability, particularly in terms of buying major equipment, is going up at above the rate of inflation. Therefore, depreciation does not provide sufficient funds to replace the assets.
Senator HOGG —So that means you will have to come along to the government of the day at some stage and say, `We want to buy this you[hyphen]beaut new whatever it might be.'
Senator WEST —We have got this amount—
Senator HOGG —And you will look for a substantial equity injection. Is that the correct way to view it?
Mr Tonkin —No, that is precisely the issue about real growth for the Defence budget in the future to meet this block obsolescence.
Senator HOGG —I am sorry?
Mr Tonkin —That is precisely ultimately the calculation that you will get to in terms of meeting the block obsolescence.
Senator HOGG —Yes, but you will not do that if you have got zero growth?
Mr Tonkin —Precisely.
Mr Lewincamp —It will be a choice that the government will have—
Senator HOGG —So you will have to go to the government of the day and ask for major injections of equity to enable you to buy the you[hyphen]beaut whatever it was?
Mr Tonkin —That is what the argument of real growth is all about.
Senator WEST —And government has got some fairly serious decisions to make then given the block obsolescence that is coming up in the next five to 10 years?
Senator Newman —We could go to Mr Beazley and ask him to contribute. He was the minister responsible for the block obsolescence; he might have a few dollars to spare out of his own pocket.
Mr Lewincamp —There are several steps in the process. The first is to ensure that the price of the outputs is the right price—in other words, that we are delivering the outputs as efficiently and cost[hyphen]effectively as possible. That is what the reform program is all about. You want to make sure that the government is paying the right price for the outputs we are currently delivering. Assuming that that is as efficient as we can be or that any greater efficiencies will be in the margins, the government then has a choice about whether to accept a decline in the overall level of capability, to inject more funds for us to maintain the level of capability or to increase it.
Senator QUIRKE —This is based on the six per cent that we were talking about before. The way you put it before—it may have been Mr Tonkin—was that the cost of every Defence asset accounted for in the new budget process—whether it be a ship, aircraft or whatever—is accounted for as six per cent to government for money that could have been used for something else and six per cent for depreciation, which adds up to 12 per cent of that asset. Is that it?
Mr Lewincamp —No, Senator. The depreciation is quite separate from the capital use charge. The capital use charge is charged at 12 per cent on our asset base.
Senator QUIRKE —That is right. That is what you said.
Mr Lewincamp —It is 12 per cent and it is based on two components: a six per cent factor for the cost of money, broadly speaking, and six per cent as a risk factor, to give a 12 per cent estimate of the opportunity cost to government of tying up its money in the defence capability. If they had invested that money somewhere else as a company, they would expect to get about 12 per cent, so they have lost that ability by tying it up here.
Senator QUIRKE —How do you work out your depreciation then?
Mr Lewincamp —Depreciation is a straight line method based on the overall value of the asset and its useful life, dividing the value by the useful life and depreciating it by that proportion each year.
Senator QUIRKE —And, in fact, what you are saying is that that bears no resemblance to the actual asset replacement further down the track?
Mr Lewincamp —If we are now talking about a capability worth $100 million with a 20[hyphen]year life, at the end of that period we have built into our depreciation $100 million and I can tell you that, in 20 years time, that will not buy the asset.
Senator QUIRKE —Yes.
Mr Lewincamp —It is that simple.
Senator QUIRKE —Yes, irrespective of inflation rates, which would make it worse.
Mr Lewincamp —Yes.
Senator WEST —Where do you invest your money? Is it with the Reserve Bank?
—We do not put all the depreciation aside. If I am depreciating a submarine or a destroyer at the moment, I do not invest all of that money and wait until 20 years time to spend it on submarines only. We have a rolling program of major capital investment. So
the depreciation that we are accumulating at the moment for a submarine or a destroyer can be spent this year on a fighter aircraft, a tank or something else. We just need to balance that over time. So the depreciation reserve plus the capital injection plus the capital receipts all go together to give us a capital budget. We spend that capital budget on new capital equipment and it is a rolling program.
Senator HOGG —I turn to page 24, table 1.14. You outline the `Defence Capital Budget' with `Major Capital Equipment Projects' at $2,750.2 million, and you then proceed to outline what those projects are in the paragraph below. How do we sort out what are ongoing projects and which are projects that are getting new money or new projects? It is obviously something that we could go through in the PBS, but it becomes a painstaking—
Mr Lewincamp —It is the three columns of the table, Senator. The first column, $60 million, is new projects.
Senator HOGG —No; which are the actual projects?
Mr Lewincamp —You are looking for a list of those that are being approved by government in the budget?
Senator HOGG —Which are the new projects attracting—
Mr Lewincamp —Immediately below the table, under the dashes, are the new projects approved in this budget, with expenditure on those projects adding up to the $60 million.
Senator HOGG —All right. So $60 million for those. Where are the ongoing projects? Are those the ones that are—
Mr Lewincamp —They are the major capital equipment on the next page, ongoing, and we have a description there of the 20 most significant ones. Those projects, in total, add up to the $2.69 billion expenditure this year on ongoing projects.
Senator HOGG —As I can see, those costs are attributable across a number of outputs. That seems to be the case.
Mr Lewincamp —In general, they apply to one output. Each of those projects will be within one output.
Senator HOGG —Yes. I accept that, but there are a number of different outputs.
Mr Lewincamp —Certainly there are.
Senator WEST —Night fighting surveillance capabilities in outputs 10 and 11.
Mr Lewincamp —Yes. There are some that go across one or two.
Senator HOGG —All right. When it comes to the annual report, how do we test the allocation that is indicated under this heading `capital budget' against what has been achieved?
Mr Lewincamp —It will be part of our reporting to you on the capital budget itself and also part of the reporting by the Acquisition Group on its performance in terms of managing capital projects.
ACTING CHAIR —Are there any further questions on the budget summary?
Senator WEST —I am just interested in knowing if there is a dollar amount that has been put on the initiative of bringing the 2nd Brigade and associated units to 28 days readiness?
Mr Lewincamp —As we said at the start of the portfolio budget statement, at the time of printing this document we were still working through those costs. The cost at the moment is somewhere above $200 million and we are currently looking at ways of funding that within our existing resources.
Senator WEST —Do we know when that cost is going to be finalised—the estimation of that?
Mr Lewincamp —The cost of the initial phase of that will be finalised very shortly. As you are aware, I think, part of the readiness requirement will be met by the redeployment of resources, people and equipment from existing units into the higher readiness units, so there will be a remediation program of replacing that equipment in their source units. That will take a little bit longer and it might take us a little bit longer to work out that cost.
Senator WEST —Thank you.
Senator HOGG —Can I just come back to that table 1.14. There was another aspect I wanted to ask about. Whilst there is a heading there `New projects this year', can I therefore assume that these will be ongoing projects?
Mr Lewincamp —Yes. Next year they will be in the next column.
Senator HOGG —They will be ongoing and I will be able to search through the list of ongoing projects to see how much has been allocated for the outyears?
Mr Lewincamp —If they are in the 20 most significant, they will then appear there because we are trying to give you a broad indication here of the most significant projects by value.
Mr Tonkin —If you look on page 29, table 1.15, you will see the 20 major projects, total project cost, expenditure to date and the budget estimate. If any of those projects are approved this year, for example, the acquisition of reconnaissance helicopters, that is a large project so that most certainly would be a top 20 project.
Senator HOGG —Right. On the budgeted financial statements, could I just take you to page 39, just nearly halfway down the page in table 2.1 there is an interest amount.
Mr Lewincamp —That is an estimate by the Department of Finance and Administration of the interest that we will generate because under the accrual accounting framework we are now going to manage our own bank accounts. We have just established our own accounts with the Reserve Bank and most of our money will be given to us in 26 instalments, fortnightly. Any money that we are carrying overnight we will get interest on. This represents an estimate of the total interest that we will generate.
Senator WEST —Why the drop between—
Mr Lewincamp —Senator, this is the initial estimate of what interest we will generate. I should say that the government has decided that that interest will be returned to overall budget revenue. So our bottom line budget has been reduced by $14 million in anticipation of that interest receipt.
Senator HOGG —It has just been drawn to my attention that we are going to deal with a certain matter for Senator Faulkner under the heading of `Capital budget'. We might just break from this issue and return to the capital budget issue to enable Senator Faulkner to ask his questions.
ACTING CHAIR —Perhaps at this point I should also say that Senator Faulkner has put a number of questions on notice and that officers will be given a copy of them in due course.
Senator FAULKNER —I thought that would save some time for the committee and witnesses.
ACTING CHAIR —We are grateful.
—I thought that on this occasion you may be grateful, Madam Chair. I indicated informally to officers at the table that I had some questions in relation to the
Scherger base. We are dealing with this under `Major capital facilities projects'. I was not sure whether we were up to that in the overview or not. I gather that things are moving a little more slowly than we had anticipated. I appreciate the committee's assistance. First of all, could someone just quickly indicate to me what the timing is in terms of the use of Scherger for Crocodile 99? I would like a little more understanding of the time frames than I have currently.
Air Marshal McCormack —Senator, Crocodile 99 field training exercise east is planned to be conducted during September[hyphen]October this year.
Senator FAULKNER —Thank you very much, Air Marshal. I understand that there has been some recent upgrading of the base, particularly in relation to the pouring of quite a significant amount of concrete. Could you give me some background on that?
Mr Corey —The RAAF base Scherger has been developed over the last three or four years progressively. We are now finishing it off effectively. There has been no new initiative apart from completing the construction of the base. There was a $137 million program for that project and it is all but complete. The last stages of it are just being completed now.
Senator FAULKNER —Could you just outline for us the last stages involved?
Mr Corey —The aviation fuel storage facility, airfield lighting and some minor works around the base.
Senator FAULKNER —So has a significant pouring of concrete occurred this year? I am talking about perhaps 500 cubic metres.
Mr Corey —There has been some significant amount of concrete for storage facilities, but I am not sure whether it has amounted to that quantity.
Senator FAULKNER —Is there anyone who might be able to assist me in this?
Mr Corey —I could probably come back to you with the details. It would make it easier if I could find the thrust of your question.
Senator FAULKNER —I am just trying to establish whether this has taken place or is going to take place in the near future. I am particularly interested in concreting at the base.
Mr Corey —The only works that would have involved concreting this year would have been the aviation fuel storage facility. That is presently at contract.
Senator FAULKNER —And that was tendered for?
Mr Corey —That was tendered for.
Senator FAULKNER —Obviously that tender process has been concluded, if it is at contract now.
Mr Corey —The work is being undertaken now.
Senator FAULKNER —Who is undertaking that work for the RAAF?
Mr Corey —S.F. Constructions I think are the prime contractor, and there are a number of subcontractors working to that prime contractor. The details of all of those I am not aware of.
Senator FAULKNER —I see. Would it be possible for us to find an official who might be able to assist us with more specific details in relation to this work at Scherger?
—Yes, we could do that; but it would make it better if I knew where the questioning was going and I could get the specific detail. How we manage our contracts is this. We have a project manager. In this case it is Gutteridge Haskins and Davey who are project managing the Scherger construction. They would go out to contract, including with
my project director, call tenders and put a prime contractor in place. The prime contractor would then go and subcontract with the industry. So we are pretty much at arm's length from it. If I knew specifically what you were looking for—
Senator FAULKNER —I am interested in understanding who the subcontractors were in regard to this particular—
Mr Corey —The only subcontractor that I am aware of is a firm called Weipa—Weipa Constructions or something like that. The only reason I am aware of that is that there is an ongoing dispute between S.F. Constructions and their subcontractor Weipa—or whatever their name is. That has not come to this level yet. Presently, it is still a dispute between the contractor and his subcontractor.
Senator FAULKNER —It is not that particular dispute that interests me, although I am interested in the subcontracting process. I am not necessarily expecting you, Mr Corey, to be apprised of all the details of that. I wonder if there is an officer we might be able to find who was.
Mr Corey —I could get you the detail if I knew particularly what you were looking for. I can get you the detail of what contracts are outstanding, who the prime contractors are and who the subcontractors are. But that is probably all the information that we could get to you.
Senator FAULKNER —What I would be interested in doing is exploring in some detail that particular process and the nature of the works that have been undertaken at Scherger, why and who has been involved, and how that process is developed.
Mr Corey —Are you talking about the whole project?
Senator FAULKNER —In particular I am interested in the subcontractors undertaking the sort of work I have indicated to you.
Mr Corey —Are you only interested in this financial year?
Senator FAULKNER —I think so, yes. I would like to establish that I am only interested in this financial year, but I think I am.
Mr Corey —It is just that the contract has been going for some four years and $140 million worth of contracts have been let, including a lot of them by the Army engineers. This financial year has been restricted to about $5[half ] million worth of work, and we can get you the detail of that. If you want to go back further then—
Senator FAULKNER —I certainly think this is work that has been commissioned over the past six months, as I understand it.
Mr Corey —Okay. I can come back to you with some detail on that.
Senator FAULKNER —Would you have an officer who might be able to come to the table at some stage during this estimates hearing?
Mr Corey —I think I could probably get sufficient detail to either answer myself or have somebody here. Yes.
Senator FAULKNER —Do you think we might be able to do that a little later in the afternoon?
Mr Tonkin —We can.
Senator FAULKNER —I would appreciate that. Again, Madam Chair, thanks for the committee's cooperation, and to the officers at the table. We might revisit it a bit later.
ACTING CHAIR —Thank you, Senator Faulkner. We will advise you when the appropriate information arrives. We now go back to financial statements.
Senator HOGG —Could I go back to where we were prior to passing over to Senator Faulkner. There is that amount of $14 million in interest in 1999[hyphen]2000. Yet, in the outyears, there is no estimate for interest at all. What is the reason for that?
Mr Lewincamp —It is simply because the Department of Finance and Administration have not yet done the calculation for that. There will be an interest figure in future years and we do expect an adjustment to our bottom line probably to reflect something close to that figure. It is just that it has not been calculated yet.
Senator HOGG —So that is more a problem created by DOFA than by you?
Mr Lewincamp —It is something we do jointly. The calculation has just not been done yet.
Senator HOGG —What about the line above, `Net gains from the sale of property, plant and equipment'. There is an estimation for 1998[hyphen]99, but no figure for 1999[hyphen]2000 and beyond. What is the reason for that?
Mr Lewincamp —I feel like I should be one of those newsreaders with a microphone. The balancing line is, if you look under `Expenses', that we have gone from a net gain in 1998[hyphen]99 from sale of property, plant and equipment of $21.6 million. For the rest of the budget estimate and the forward estimate period you will see fifth line down under `Expenses', `net losses from sale of property, plant and equipment'. So it has turned around from a revenue to an expense.
Senator HOGG —Why is that? It is a substantial turnaround.
Mr Lewincamp —Grab a chair, Mark, and introduce yourself.
Senator HOGG —I think that is the better way to do it.
Mr Lewincamp —I did not think I was doing that badly.
Senator HOGG —You have offered to resign once this afternoon.
ACTING CHAIR —Take a transferral[hyphen]
Senator HOGG —And a transferral. We have got a fair bit of negotiating going on here.
Mr Tonkin —If you have got anyone suffering from jet lag, he will not remember the offer.
Senator WEST —It is on the public record though.
Mr Jenkin —The net loss and the net gain are based on the book value of assets in our asset register and the assets that we aim to sell in coming years. Included in that, of course, are Defence Estate assets and military equipment assets as well—surplus assets. I cannot give you an all[hyphen]encompassing reason for the loss but it is based on the asset sale program we have, in particular, facility sales, and I would suggest that it would show that overall—without having the details in front of me—proceeds from sales are less than depreciated book value in those forward estimates years and in the budget year.
Senator HOGG —That is the area covered by Australia's leading real estate agent.
Mr Jenkin —I would have to get the details on the breakup of that line which I do not have in front of me.
Senator HOGG —I am getting a few nods around the place. I thought a better performance would be undertaken. I will therefore go back to the top of the page. Again, there are two items there—the fourth line under the heading `Expenses'—interest which shows no outyear, and write[hyphen]down of assets.
Mr Lewincamp —The interest relates to a finance lease for the Falcon aircraft. The lease is due to expire in the year 2000 and that is why there is nothing further out.
Senator HOGG —Right. So that anticipates no replacement then?
Mr Jenkin —It is being replaced with an operating lease rather than a finance lease; therefore you would not see an item like interest expense relating to an operating lease.
Senator HOGG —Right. And the write[hyphen]down of assets?
Mr Jenkin —That particular item, that $60 million, relates to a loan from ADI which the Department of Defence was entitled to. That money now is going to go back to the Department of Finance and Administration so therefore we wrote the asset down in our books.
Senator HOGG —So there are no assets being written down.
Mr Jenkin —We do not normally budget for write[hyphen]downs, but you will find in the annual report, no doubt, in the financial statements for the end of year, assets written down in the course of the year. But you do not normally budget for that.
Senator HOGG —If we can go down about midway down the page—sorry to be jumping backwards and forwards like this but it is the way it has evolved—to `Asset revaluation increment'. There is nothing in 1999[hyphen]2000 or the outyears.
Mr Jenkin —Defence has a program, a cycle of revaluations, for most of its major assets over a three[hyphen]year cycle basically. We cannot really know in advance what those assets are going to be revalued to. It is not normal to budget in advance for the revaluation effect, but there will be revaluation amounts you will see in the financial statements.
Senator HOGG —From time to time.
Mr Jenkin —Each year depending on the rolling cycle of revaluations.
Senator HOGG —As a portfolio with some very major assets, one would expect you are going to have some significant figures there as time goes on.
Mr Jenkin —Yes.
Senator HOGG —Are all assets revalued at the same time, or is it a rolling program?
Mr Jenkin —It is a three[hyphen]year rolling program.
Senator HOGG —The other line that interests me there is the operating result which comes out at a neat zero.
Mr Jenkin —That is right.
Senator HOGG —I cannot believe anyone can balance so well.
Mr Jenkin —There are instructions.
Senator HOGG —They are your instructions. But as I understand it, that has not necessarily been the result achieved under other PBSs. Is it really a little bit unrealistic to expect that you will get a neat, even result in putting together the forecast?
Mr Lewincamp —It is certainly what we plan to do. In previous years under a cash regime we planned to expend a certain amount of money and we got within $1 million over the last four or five years. Now we are planning for an operating result of zero, as this says.
Senator HOGG —I will be watching with interest. I will now take you to page 41, the departmental assets and liabilities. There is a note there on leases, note No. 5. I must say that when I read note No. 5 I was none the wiser as to what it was about.
Mr Jenkin —That lease is the lease of the Falcon aircraft. That is basically the only finance lease we recognise in the financial statements. Of course, we have a number of operating leases, particularly for the Defence Estate but they are not recognised in the balance sheet as operating leases. It is only the finance lease for the Falcon aircraft which is due to expire and will be renegotiated or replaced by an operating lease.
Senator QUIRKE —The Falcon lease was scheduled to expire, if I remember rightly, in August last year. Was it extended for some time?
Mr Jenkin —Yes. My understanding is that it has been extended and is due to expire some time in 2000, but there might be others who have more detail on that.
Air Marshal Riding —We have a project to replace the five Falcon aircraft that will take effect in 2000[hyphen]2001. As I recall, two aircraft are to be replaced in 2000 and three aircraft in 2001.
Air Vice Marshal Conroy —As part of the VIP aircraft replacement project we extended the leases of the existing Falcons. The first two Falcons will be withdrawn in late 2001. The last three will be progressively withdrawn between September and November 2002. But you were correct, Senator: the original lease was planned to expire in October of last year.
Senator QUIRKE —At the risk of upsetting my Western Australian colleagues who are not in the room here right now, have you made a public statement yet as to what aircraft will be replacing the Falcons?
Air Vice Marshal Conroy —No, we have not. We have issued a tender and a request for tenderers. It closes at the end of June.
Senator QUIRKE —So it has gone no further than that? That is June this year?
Air Vice Marshal Conroy —The tender closes in June and we would hope to have a source selection announced in the third quarter of the year.
Senator QUIRKE —I will warn the committee that I will probably be mugged between here and my office by Western Australian senators who take a very keen interest in this issue, not seeing the light of day in the provision of decent aircraft. Thank you very much.
ACTING CHAIR —Thank you, Senator Quirke.
Senator QUIRKE —Mr Tonkin, the two current railway bidders, one is to Alice Springs and the other to connect Darwin to the rest of the world via every town that you could ever think of. Do you people have any interest whatsoever in either of these projects? Have you been part of any of the briefings?
Mr Tonkin —No. It is my understanding that defence has no specific interest but I might defer to my esteemed colleague.
Mr White —Senator, we in the Department of Defence, of course, have a keen interest in infrastructure around Australia but successive governments have held that the particular strategic benefits to us of a railway to Darwin would not warrant substantial investment of defence resources and for that reason we have remained somewhat at arm's length from the processes of consideration of this issue over quite a few years now.
Certainly, our judgment continues to be that there is no strategic reason for defence sums to be put into the Darwin[hyphen]Alice Springs project, or any other bit of that railway infrastructure.
Senator QUIRKE —Thank you.
ACTING CHAIR —Thank you, Senator Quirke. We will suspend the hearing until a quarter to four.
Proceedings suspended from 3.27 p.m. to 3.52 p.m.
ACTING CHAIR —This estimates hearing is resumed and we will look at output 3—capability for major surface combatant operations.
Senator HOGG —I did ask, on the occasion of the additional estimates, questions in respect of the weapons and ammunition security and each of the various areas responded. I was advised that there was an audit and the findings were:
Nine sites were visited in NSW, Queensland, Vic and the NT during the review.
And the results were given. Your response to me was:
tick Weapons and controlled parts accounting,
tick Storage of weapons,
tick Training in weapons and ammunition accounting,
tick Ammunition accounting . . . and
tick Storage of ammunition.
MAB identified some units which required improvement in:
x Weapons and controlled parts accounting,
x Storage of weapons,
x Ammunition accounting (Disposals), and
x Ammunition Storage
I must say that it was an odd answer that was returned to me in the sense that of the things that got ticks as the strengths, four out of the five got crosses as being weaknesses. That was not a very effective way to report, in my view. The outcome was that corrective action was taken at establishment or ship level and management responses were included in the capping report. What corrective actions were taken as a result of the audit carried out?
Mr Tonkin —I might ask the Inspector[hyphen]General to give you an overall answer to that question.
Senator HOGG —It is just that I got a response out of Navy, a separate response out of Army and a separate response out of Air Force. So I thought I was doing the right thing. If the Inspector[hyphen]General wants to answer all three now, I am quite happy to take those answers now.
Mr Tonkin —We may as well take it now as it has come up.
Senator HOGG —Okay, that is fine.
Mr Lewincamp —Just for the record, the audit was conducted by the Inspector[hyphen]General's staff of all three of those areas. It was group 14 that undertook the activity. The Inspector[hyphen]General's staff conducted the surveys and provided the response.
Senator HOGG —It may well have been, but the heading at the top says `Group—Navy', `Group—Army'.
Mr Tonkin —But it was conducted by the Inspector[hyphen]General.
Senator HOGG —I understand where it is conducted; that is not my problem.
—What you received in answer to your question were the summaries of the audits that were conducted by the Management Audit Branch staff over a period of time. So that is why you have strengths and most units are being effectively managed, but then you have some units at the bottom there requiring improvements. I think I said last time that most
of the commanders involved have actually taken on board this issue and have been trying to overcome the weaknesses—I think that is the best way to put it.
Senator HOGG —It was a bit of a strange report, though, one must concede, on the very basic style that it was couched in. Is this for security reasons or is this to protect the innocent?
Mr Neumann —These are summaries of reports. These are not the actual report itself. The actual report itself is quite detailed. One of them—I cannot remember which one—actually tries to summarise something like a few dozen, if I remember rightly. I think the Army one, in fact, involves something like 118 units.
Senator HOGG —It says 118 sites were visited. Again we want to be careful what we say for security reasons, but are we able to identify any sites that were particularly worse than others? And, if so, has the appropriate remedial action been taken in those places to ensure that the weaknesses have been overcome?
Mr Neumann —We would need to follow those up as we went through. Different sites did have different things. If you take the corporate support summary sheet, which I think you also have, you can see there that it was only ammunition, accounting issues and returns at a particular site that were an issue. All the rest were strengths. Otherwise, for the Army, we would have to go through the 118, or whatever it was, and break them down into where they were and which ones were particularly weak, if that is what you want.
Senator HOGG —I do not think it is necessarily wise to put on the Hansard record, or the public record, where those weaknesses might be. I am not seeking to do that. I am seeking more peace of mind given that there was a deficiency exposed and that, whilst the response that I received to the question was a simple response, it did not necessarily do everything to reassure me that the appropriate actions had been taken. I think I am seeking a reassurance, particularly given some of the anecdotal stuff that has been floating around.
Mr Neumann —This was a summary that was done, I think, up to a year ago—or maybe even longer in some cases. We would revisit, to make sure this had actually happened, in another series of programmed audit visits. That is the only way you can be sure. You can give this to a commander and they can say, `Yes, we are doing this, this and this.' We are putting in place a tracking system now to say, `What have you done about that?' and they can say, `We have done this, this and this.' But then you go out and audit it again and that gives you the final assurance: either it has happened or it has not happened.
Senator HOGG —When will the next audit be?
Mr Neumann —It is not planned at the moment for these, because we have just finished them. It is probably a couple of years down the track.
Senator HOGG —So one would assume that there are going to be other sites that will be subject to audit as part of the ongoing program in this area.
Mr Neumann —Yes, there are. There also are—
Senator HOGG —Could you tell me how many sites will be covered this year, whether it be for Navy, Army and/or Air Force?
Mr Neumann —I cannot tell you that offhand. I do know that some have already been done for this next six[hyphen]month period.
Senator HOGG —In the next round of audits?
Mr Neumann —Yes.
Senator HOGG —With regard to the next round of audits, have any of the deficiencies that were shown in the previous audit come to light in sites that have been visited on this occasion? In other words, have the forces learnt from the experience of the previous audit and put contingency plans in place to ensure that the weaknesses that were identified previously on other sites have been remedied on sites that you are now visiting?
Mr Neumann —From my recollection, on the last one the answer would probably have to be no. Basically, these were all done in a short period, so you would not expect the lessons to be passed along, I suppose. I do not think there was sufficient time to do that. But with the tracking and follow-up system we have got now, we will be able to pass the lessons on to people. This is just a summary that went to all the senior commanders, for example.
Mr Tonkin —If perhaps I could move the discussion on to a more general area of policy: one of the things that the Defence Audit Policy and Evaluation Committee—which is the highest level body which looks at the results of audit outcomes—is now putting in place is to categorise audit findings into three levels of significance. We are going to record them on three levels in the same way as the ANAO does for its audits of our accounts, to identify more effectively the nature of the significance of audit findings and to aggressively track to ensure that those findings are followed through in a more structured way. We can then come back and in that committee, on an annual basis at least, we will be reviewing the progress against the various findings of internal audit and performance reports, ANAO reports and so on.
That process will give us greater confidence that the accountable management areas are taking the relevant actions which have been recommended—whether it relates to weapons security or anything else. Some of the issues which will have been found in these audits of weapons security are more process in nature. Some of them will have been more significant in respect of security matters than something else. It is possible.
Senator HOGG —It is the significant ones, obviously, that I am interested in—without your disclosing the sites.
Mr Tonkin —What I am saying we are putting in place is recognising that a structure was needed, as a part of Defence's general management, to more aggressively identify those issues of significance in audit findings and track them, and more aggressively pursue them as part of our corporate governance type accountability. This committee is chaired by me, with the Vice Chief and some other senior Defence officials as well as representatives of ANAO and an external member. The job of the committee is to review and report to the Defence Chief Executive on those sorts of issues.
Mr Neumann —Senator, to give you an example of a particular distribution centre rather than just the unit holdings: the sorts of things that are in hand at the moment are the allocation of $3.4 million for physical weapons improvements, the acquisition of a metal detector to prevent parts from being smuggled out and the improvement of the armed response capability to any intrusion. They are the sorts of things that are in hand now.
Senator HOGG —Parts being smuggled out? Who would be doing the smuggling out? That implies that defence personnel would be—
Mr Neumann —Or contractors, yes.
Senator HOGG —How much is being smuggled out? Do we know?
Mr Neumann —No, we do not. We do not have any fixed amount but we know it does happen—or has happened in the past. Anyway, there are allegations of its happening, so we would still want that to be checked. So we just put barriers in place.
Senator HOGG —Is there a review in progress to seek out—
Mr Neumann —No. This detector is actually being put in place. It is being acquired at the moment.
Senator HOGG —What about on other sites? Do we know if much has been smuggled out there, or it is purely guesswork?
Mr Neumann —It is difficult to know. It depends. At the small unit holdings the numbers of weapons are fairly small and they seem to be pretty well managed. It is at the bigger distribution centres, where you have got a large volume of weapons, that we have had allegations that there have been problems.
Senator HOGG —Are these allegations being tested currently?
Mr Neumann —Yes, we have had a number of reviews after the MAB report on one particular site; we have also had a security review which has recommended a number of measures, all of which should be completed by the end of this year.
Senator HOGG —Has it been shown that any of the allegations are in effect correct?
Mr Neumann —No, we cannot prove any of them.
Senator HOGG —What would be the response if it is shown that the allegations are in effect correct? I presume that would lead to military charges or civil charges.
Mr Neumann —It depends. If you have got an unbroken chain of evidence, then you can have a criminal prosecution.
Mr Tonkin —These particular allegations relate to one particular site, and the investigation has become a Federal Police investigation that is being managed by them rather than by us. It started as ours, with Federal Police involved; it is now Federal Police led. It has been Federal Police led since May 1998, and they are pursuing their way through the chain of evidence, et cetera to bring that investigation to finality.
Senator HOGG —That investigation is still under way?
Mr Neumann —Yes.
Mr Tonkin —It is still under way. It is now really a matter for the minister for justice, rather than us, as an issue.
Senator WEST —There is only one that has gone to the AFP?
Mr Tonkin —This is a large[hyphen]scale investigation—it is the whole of that particular issue. It goes back to that Bulletin article a couple of years ago. The totality of investigating all those allegations is embraced in that one study.
Senator HOGG —What size weaponry are we looking at? We have just had a discussion here that it would be a bit hard to smuggle out a tank or something like that.
Mr Neumann —You are looking at everything from pistols right through to anti[hyphen]armour weapons. They have got to be held somewhere, so they are held at distribution centres.
Senator HOGG —All right. That may well be an issue that I revisit as time goes on, just to hear updates of how you are proceeding in your audit process and the outcomes of the audit process. Thank you very much for that.
ACTING CHAIR —No further questions on output 3?
Senator HOGG —You are very good, Chair, but don't build your hopes up! I understand that HMAS Perth will be decommissioned in late 1999. Is this earlier than originally programmed?
Vice Adm. Chalmers —No, that is being paid off as it reaches its end of life, and as planned.
Senator HOGG —It has been suggested to me that the reason for the decommissioning at that stage is because the Navy are unable to crew HMAS Perth . Are there any legs to that allegation?
Vice Adm. Chalmers —No. We did indeed stop training of DDG sailors so that we would pay these ships off without a surfeit of people trained in those ships, and we are planning that very closely so that the ships will be paid out of service as planned. Recently we have had to go forward with a completion incentive for technical sailors in DDG so that we can continue to steam them up to their paying off dates. The paying off dates have not been changed.
Senator HOGG —Will the decommissioning of the Perth affect the Navy's operational capabilities at all?
Vice Adm. Chalmers —It was planned to be paid off. When those ships go, they are leaving at the same time as we are introducing Anzacs into the fleet. We in fact need the ships' companies from those ships to man the Anzacs. It is part of the force structure plan that has been in place for many years.
Senator WEST —The capabilities of the old DDGs: are they superior in some ways to the FFGs and the Anzacs?
Vice Adm. Chalmers —As an old DDG sailor, yes Minister! Yes, Senator. There are differences. They are still—
Senator WEST —What is their area of superiority?
Vice Adm. Chalmers —They are still probably our best anti[hyphen]air warfare ships—our best air warfare ships—in that they have more redundancy than we do in the FFG and the Anzac systems.
Senator WEST —They have `more redundancy'. Please translate that into English.
Vice Adm. Chalmers —More redundancy in the combat system—in other words, there are more alternate routes of continuing to fire the weapons, if you like; the weapons and sensors probably degrade a little more gently than they do in an FFG or an Anzac. The other element is that they have a combat system which can support a task group commander at sea, which, although it can be done and has been done in an FFG, is easier to do in the DDG.
Senator WEST —Are we doing anything to overcome the loss of those resources and that facility?
Vice Adm. Chalmers —Yes, and that will be over time. There are two projects in place. One is the FFG upgrade, which is designed to upgrade the air warfare systems in the FFG, the surface system and the subsurface systems. There is also the Anzac war fighting improvement program.
Senator WEST —So that is the reason I found those in—
Mr Tonkin —Sixty[hyphen]six and 67, Senator.
Senator WEST —I was not aware that the reason for the upgrades was—
Vice Adm. Chalmers —That is only part of the reason. The main reason for the upgrade of those ships is to continue to upgrade them through life so that they will be able to deal with the sort of capabilities that are becoming prolific in the region.
Senator WEST —Right. Does it say when those upgrades are going to be—
Vice Adm. Chalmers —The FFG upgrade contract was signed on 31 May. The first ship goes in in 2001 and—
Senator WEST —Who won the contract?
Vice Adm. Chalmers —ADI.
Senator WEST —Whereabouts are they—Perth?
Vice Adm. Chalmers —Australian Defence Industries. And, no, that work will be done in Sydney.
Senator WEST —How long is it expected to take?
Vice Adm. Chalmers —The last one will be upgraded and returned by 2006. It is all six of them, that will be the sixth ship, and they are being done in the order in which they were built originally.
Senator WEST —So you are looking at one a year, basically.
Vice Adm. Chalmers —Essentially, yes.
Senator WEST —This is the FFGs. Are the Anzacs as good as the DDGs or have they also got—?
Vice Adm. Chalmers —The Anzac was built as a tier 2 ship; it was built as a ship to replace the destroyer escorts that we had. They were built for that purpose so that they could have a lot of space remaining in them, a lot of volume remaining, that we could—
Senator WEST —Which they have.
Vice Adm. Chalmers —which they have, and we can then improve those ships. We are still very much in the development phase of that project. We are doing some work already in the surface warfare area and in the subsurface warfare area. The area that is still being developed is the air warfare area where we are looking to make those ships capable against the sort of missiles that will proliferate in the region over the next 15 years.
Senator WEST —How vulnerable does this leave us with the FFGs undergoing their refits over the six[hyphen]year period and with the Anzacs still to have—
Vice Adm. Chalmers —Still to have the warfare improvement program completed?
Senator WEST —Yes.
Vice Adm. Chalmers —It leaves us a little thin on the ground but, given the strategic circumstances that we find ourselves in at the moment, I think that is a quite reasonable risk; but it is one where we really do need to do the upgrades.
Senator WEST —Thank you. Varying the tack, I understand the Melbourne went to the gulf in April.
Vice Adm. Chalmers —Yes.
Senator WEST —What is it doing at present?
Vice Adm. Chalmers —Melbourne has gone up as part of the multinational Maritime Interception Force in the gulf. She will be identifying, boarding, and, if necessary, detaining ships that are breaking the embargo into and out of Iraq.
Senator WEST —How long will she be there? When will she be back?
Vice Adm. Chalmers —She will be out of the country for six months—four months on station.
Senator WEST —Will there be a replacement vessel going up afterwards?
Vice Adm. Chalmers —That is yet to be determined but I would say from our pattern in the past that we will take a turn amongst a group of other countries in providing that ship. I would not expect her to be replaced on station.
Senator WEST —Was this turn expected or was it brought about by the events further to the north?
Mr White —This is the ninth time since resolution 678 was established in 1990. That was the starting point for the enforcement of these sanctions against Iraq and we have contributed ships to the MIF. The government has periodically deployed ships up there on MIF duties. What has determined the occasions and the frequency that we have done it has been, firstly, the government's overall commitment to supporting sanctions against Iraq particularly in relation to its obligations in regard to weapons of mass destruction.
Secondly, there is the requirement with allies and coalition partners to make sure there is enough support there both to enforce the sanctions and to demonstrate international commitment. So there is, if you like, an operational and a presentational aspect to it. We make those decisions in consultation with allies that are involved in the coalition.
On this occasion I think we had not been there for two years and the government thought that in view of those long[hyphen]term interests it was about time we made another contribution. It was not so much related to specific events in the gulf over the last year or 18 months but more a long[hyphen]term commitment to maintaining the national support for the sanction's effort.
Senator WEST —I was thinking further to the north, perhaps north[hyphen]west, the NATO forces then being deployed.
Mr White —I do not believe it had any direct relationship with that. I guess events elsewhere, wherever they might be, might affect the capacity of other countries to contribute but I think in this case it was a decision made before that situation blew up with the force that it has over the last couple of months. It was more a long[hyphen]term interest in providing support and taking our turn every so often.
Senator WEST —If NATO continues in the Balkans for a longer period than presumably expected, will that place a greater pressure on us to actually replace the Melbourne or will there be other—
Mr White —I would not have thought it would have a very direct impact. The sorts of vessels involved do not have a very high profile in the sorts of operations that NATO has been undertaking in the Balkans over the last couple of months. I would not have thought it would have a very direct connection.
Senator WEST —Okay, thank you.
Senator HOGG —The next issue concerns the safety issues that are being addressed in the upgrade work being done on the FFGs.
Vice Adm. Chalmers —The safety issues in the FFGs. Could we take that on notice so we can get you the full list?
Senator HOGG —It says here, at page 67—
Vice Adm. Chalmers —It just says `safety issues'.
Senator HOGG —Under table 3.3.1 on page 67 of the PBS it says, `and to address a range of safety issues.' I am just wondering what the safety issues are.
Vice Adm. Chalmers —The only one I can think of off the top of my head is that we are looking at replacing the halon firefighting systems in those ships and that is because halon is an ozone depleter. That is certainly one safety issue. I would have to take the others on notice.
Senator HOGG —Take that on notice and, also, whether there is any risk to Navy personnel working on these vessels during the upgrade.
Vice Adm. Chalmers —During the upgrade?
Senator HOGG —I presume there would be Navy personnel that would be working.
Vice Adm. Chalmers —They will be doing some work on board. The majority of this work will be done by contractors as part of the—
Senator HOGG —But they might not necessarily be involved in the upgrade work itself. They may well be performing other duties. Is there any risk to these people whilst the—
Vice Adm. Chalmers —We have a very complex ship safe system in place where we actually review the risk to our people and anything that is worse than about one in a million is an area where we would take a serious look at what we were doing.
Senator HOGG —There is an article in the Daily Telegraph of Friday, 28 May `Navy copters too long on the ground' which says:
The Navy's $23,000[hyphen]an[hyphen]hour Seahawk helicopters spend almost four times longer than they should on the ground being fixed, a new report said.
I think that refers to the ANAO report No. 44, Naval Aviation Force , of 1998[hyphen]99. The article goes on:
The Australian National Audit Office report also revealed that the Navy did not recruit any pilot trainees during 1998 because many existing pilots could not be given a flying job due to restricted flying hours.
I am just interested in the allocation of funds to restore logistic support to adequate levels for the Seahawk helicopters on the FFGs. The ANAO report into this revealed that the Seahawks spend, as I said, almost four times longer than they should on the ground to be fixed. What steps are being taken to address this difficulty? And, whilst the figure of $23,000 was quoted in the article, I noticed in the actual report itself there was a figure of about nearly $25,000 per hour to run the helicopters.
Vice Adm. Chalmers —The ANAO report, in fact, follows on from what was one of my top priorities when I first took on this job which was to reinvigorate the Naval Aviation Force. To do that we actually needed to invest heavily in support and we have done that. Our aim was to generate flights to get back to sea and we now have six flights back at sea. There were shortages of aviators, in particular, though, tactical operators. We resolved that issue with a completion bonus that was paid to 42 targeted aviators last year for periods of three, four and five years and we chose what we offered them. So that resolved quite a lot of our manpower problems.
We are not out of the woods yet but we are generating flights. We have, using the Navy's activity based management system, gone in some detail and with some precision predicted the sort of support that we would need to reinvigorate the force. We have had those resources—not all of them but about 85 per cent of the resources that we bid for we received—and those resources are actually to be spent only on the Naval Aviation Force in its reinvigoration. And
that has happened. In fact, the ANAO report follows on from a report that we had in Navy called the Naval Aviation Force management report.
Senator SCHACHT —On the Seahawk and the Sea King, and the operating costs per hour, it says in the report that:
NAF overall costs are expected to rise in the next few years. NAF does not regard its costs as unusually high but has not benchmarked against performance measures used by other operators such as the US and the UK Navies.
Do you have a response to that comment that it is not benchmarked in cost of operation?
Mr Wallace —Benchmarking was one of a range of recommendations which the ANAO report alluded to. There has been some addressing of this in the work that the Chief of Navy has just alluded to in looking back over what the accumulated shortfall problem was, including comparisons with the cost drivers that the US Navy, who are operating these aircraft, had also experienced in terms of attempting to forecast what it might cost us to recover the logistics support necessary to sustain the rate of effort and the number of embarked flights that the Chief of Navy alluded to. I think the question of benchmarking is a quite valid one and, in proceeding with the reinvigoration program that was referred to, it will need to be undertaken.
Senator SCHACHT —Do you have any idea what it costs per hour for the British and American navies to operate the Sea King and the Seahawk?
Mr Wallace —I am sorry, I do not have that detail with me.
Senator SCHACHT —Is that readily available?
Mr Wallace —I am sure that, from to time, we do gather such information. I apologise that I do not have it with me.
Senator SCHACHT —Do you know whether our figures are outrageously higher? I do not know if that is what is implied in the report from the Audit Office; it might be indirectly. Are our costs per hour inordinately high?
Mr Wallace —I think there is a combination of factors at play. The size of the fleet that we operate and the overheads that need to be applied to arrive at a per hour rate need to be taken into account. In a sense, that is a fact. On that basis, whether or not they are outrageously high is a question of what you are trying to achieve with those aircraft, what circumstances you are operating them in, what sort of sensor and so on you have fitted to them.
As I say, I think the question of benchmarking is one that we need to pick up out of the report. I do not think we would accept that it is outrageously high. Indeed, part of the problem we are trying to recover is to get to a better equilibrium between the rate at which the resources are applied to the activity and the deliverability and efficiency with which the money is spent to achieve those hours. There were a lot of poor practices that were exposed in the aviation force management review and in the ANAO report in relation to things such as cannibalisation and so on. We were clearly keen to move past those sorts of practices.
Senator HOGG —What about the issue of spare parts? If there was cannibalisation, there would have been problems, therefore, in spare parts. Has that been addressed?
Mr Wallace —Yes, that is indeed exactly what the reinvestment out of the DRP is aimed to do: to recover the logistics support, including spare parts, repair costs et cetera, so that the operation of the force is not being unduly constrained by logistics difficulties.
Senator HOGG —How many aircraft are now back in operation?
Vice Adm. Chalmers — I think it is probably quite difficult to answer how many aircraft are actually back in operation. But we have generated six Seahawk flights.
Senator SCHACHT —Out of 16 you have listed here in the audit report? That is 16 Seahawks and helicopters?
Vice Adm. Chalmers —That is all together. We can generate six flights at sea. We have aircraft that are flown from NAS Nowra in the squadron. How many aircraft are serviceable is a day to day thing. Our primary aim at the moment is to train air crews so that we can generate the flights. Sorry, it is not six flights—it is five.
Senator SCHACHT —Where is the performance indicator for Navy aviation?
Vice Adm. Chalmers —Naval aviation supports a number of different outputs. It supports output 3, which we are looking at; output 7, which is the capability for a float support; output 9, which is capability for amphibious lift, and also output 6, which is for our survey ships.
Senator SCHACHT —When I look here on page 68 at performance indicators, where you have flying hours, the Seahawk and the Sea King are listed. Is that the total flying hours in output 3? Are there no other flying hours added on in other outputs?
Mr Wallace —That is correct. For presentational purposes, we simply listed the whole flying hour program here.
Senator SCHACHT —Are all of those five Seahawk flights at sea or are some of them from land training as well?
Vice Adm. Chalmers —The five flights are flights that are named to ships, but they would not necessarily be on those ships. They might be back at the squadron at Nowra. The rest of the aircraft also are at Nowra, unless they are in deep maintenance. The 4,000 hours that you see there in the table are for the whole of the squadron.
Senator SCHACHT —Is it possible to separate how many of those hours are from the ships at sea and how many are from the base at Nowra? In the hourly performance, the most potent part of their work should be from ships at sea. But if overwhelmingly their training and flying hours are from Nowra, does that detract from the capability of the training of the crew?
Vice Adm. Chalmers —It really depends where the priorities are: whether they are in conducting operations or in training and generating flights to send to sea. At the moment, our priority is in the generation of flights and training. That is not to say that those flying hours that are undertaken from Nowra are only undertaken in that area. They would be flying to ships for training purposes.
Senator SCHACHT —So of the 16 Seahawks, we have about five or six operating at sea.
Vice Adm. Chalmers —There are five flights capable of operating at sea. It does not mean the other aircraft are in a lesser state of readiness. What it does mean is that we do not have hulls to put them in.
Senator SCHACHT —That is what I wanted to come to. What is the total number of hulls—to use your phrase—that you have available to put the Seahawks in if all the hulls were operating?
Vice Adm. Chalmers —If all the hulls are operating, we have six FFGs, and the Anzac ships can also carry a Seahawk, although they are going to be fitted with another helicopter. At the moment, we will aim to generate flights for the first two Anzacs at least.
Senator SCHACHT —All up, how many flights is that? You have capability for six at the moment. If all the hulls were available, does that mean you have to have a demand for 10 or 12?
Vice Adm. Chalmers —We could have eight flights. When we acquire this helicopter, we have the option of putting two or one helicopters per flight into the FFGs. If all FFGs were running, you could deploy up to 12 Seahawks into FFGs.
Senator SCHACHT —Right.
Vice Adm. Chalmers —But we do not do that as a matter of course.
Senator WEST —Has Melbourne got any?
Vice Adm. Chalmers —Melbourne has got a Seahawk.
Senator WEST —She has got a Seahawk with her, so that is one of the line.
Senator SCHACHT —How much is the capability of Seahawks affected by the lack of capability of hulls?
Vice Adm. Chalmers —The two things come together. We do not look at the Seahawks or the aircraft as being a separate force element. They are a weapon and sensor that belongs to the ship. It is an integral part of the ship.
Senator HOGG —While Senator Schacht is just musing about that answer, could I ask a question. Obviously there has been severe down time for the pilots as such. As these aircraft come back on line, will that put stress on those resources that are coming back on line, in terms of the hours allocated under the PBS?
Vice Adm. Chalmers —We are generating the pilot experience at the same time as we are generating flights. That is an integral part of that. We have had some problems with our Squirrel helicopters and flying them at sea which in fact slowed that down. We came to an arrangement with the Royal Navy, who happened to be short of some mid[hyphen]seniority lieutenant pilots and tactical operators, and we have a group of them serving in the Royal Navy at the moment, which is helping us out.
Senator HOGG —How many?
Vice Adm. Chalmers —About six.
Senator HOGG —That is the Squirrel?
Vice Adm. Chalmers —No. We use the Squirrel as a lead[hyphen]in aircraft between training and going to the front[hyphen]line aircraft.
Senator SCHACHT —The description in the audit report says, `Six Squirrel helicopters (restricted largely to non[hyphen]maritime tasks)'. So they are not actually performing what they were procured for?
Vice Adm. Chalmers —We have been using the Squirrels as a lead[hyphen]in helicopter for some time. In fact, we used to embark them in the FFGs. They are used as a training aircraft. There was an accident ashore, maybe 2[half ] years ago now, and as a result of that we have been restricted in what we can do with that aircraft. We will not fly it to the deck of a ship until it has a second hydraulic system fitted to it.
Senator SCHACHT —To the aircraft?
Vice Adm. Chalmers —To the aircraft.
—You have got the Melbourne out in the gulf, so the training that would be being obtained there and the experience for the pilots would be extremely valuable, given
all these problems that you have had. Have you only got one pilot crew or have you taken the opportunity to send additional pilot and crew with the Melbourne ?
Vice Adm. Chalmers —Melbourne would have a full flight. A flight normally has three pilots.
Cdre McCaffrie —A flight might normally consist of two pilots and perhaps two tactical coordinators, and a number of air crewmen in the rear seat as well, but the aeroplane normally flies with one pilot and one tactical coordinator in the front seat. We would not be carrying more than a normal flight on that deployment.
Senator WEST —So you have got two flight crew, meaning the pilot and the tactical person?
Cdre McCaffrie —Yes.
Senator WEST —Who are getting some good experience there above the rest of their mates, aren't they?
Cdre McCaffrie —Yes.
Vice Adm. Chalmers —Mind you, when they go down to the Southern Ocean and places like that they get pretty good experience.
Senator SCHACHT —Saving yachtsmen.
Vice Adm. Chalmers —I was actually thinking about saving the Patagonian toothfish.
Senator SCHACHT —I noticed that in the Senate the other day. Has Senator Hill sent you down to say that?
Vice Adm. Chalmers —No, he did not.
Senator SCHACHT —I am just waiting for Senator Hill to find the mahogany glider in Queensland. Perhaps the Navy can help. Have you heard of the mahogany glider, Admiral?
Vice Adm. Chalmers —No, Senator.
Senator SCHACHT —We have got a program to save the rain forest but no[hyphen]one can find it.
Vice Adm. Chalmers —The rainforest or the mahogany glider?
Senator SCHACHT —The mahogany glider. I understand it is a very rare bird or bat or something.
Can I turn back to paragraph 15, the key findings of the audit report. It says:
The Seahawks have achieved actual rates of effort (RoE) of less than 3,000 hours p.a. against targets of 3350, 4050 and 3400 hours from 1995[hyphen]96 to 1997[hyphen]98.
You have a target for the Seahawk of 4,000 in the outcome for 1999[hyphen]2000. With a capability of six, will you achieve 4,000?
Vice Adm. Chalmers —That is 4000 hours for the whole squadron. We are confident that we will achieve that 4,000 hours in the coming year.
Senator SCHACHT —How many hours of that 4,000 hours would be the capability of the six which are working off the ships or going out to the ships, et cetera?
Vice Adm. Chalmers —I cannot answer the question directly but I will get an answer to you if you want it. The maritime commander actually assigns hours to individual ships. I have them here and I can go through them, if you would like them.
Senator SCHACHT —Just give me an idea, a taste.
Vice Adm. Chalmers —These were for this year, for what we achieved this year. That was on the 3,500.
Senator SCHACHT —Okay.
Vice Adm. Chalmers —About 350, 345, 360—those sorts of numbers.
Senator SCHACHT —What should they have been getting to get close to your target of 3,400?
Vice Adm. Chalmers —The numbers here are 345, 315, 363—
Senator SCHACHT —That was what they flew or that was their target?
Vice Adm. Chalmers —That was the allocation for 3,500 last year.
Mr Wallace —We will not have the outcomes until the end of the year.
Senator SCHACHT —Of course.
Mr Wallace —At the moment the indications are that they are on target. Again, it is a reflection of the reinvigoration program that the hours are being achieved, rather than being planned and then not achieved. The reinvigoration program is progressively ramping up the number of hours to the agreed rate of effort for the particular aircraft.
Vice Adm. Chalmers —Could I add that the rest of the squadron was allocated 1,830 hours this last year.
Senator SCHACHT —And they got that 1,800?
Vice Adm. Chalmers —Every indication is that they will achieve it.
Senator SCHACHT —They will get that?
Vice Adm. Chalmers —Yes.
Senator SCHACHT —The 3,400 was for 1997[hyphen]98. What was the allocation for 1998[hyphen]99 in hours?
Mr Wallace —That was the one for 1998[hyphen]99.
Vice Adm. Chalmers —It was 3,500.
Senator SCHACHT —It was 3,500 for 1998[hyphen]99?
Senator HOGG —There is a table at page 93, Senator Schacht, which will help you.
Senator SCHACHT —Thank you very much. Yes, 3,500, and it has to be filled in yet. On the setting of these figures, including Seahawk at 4,000, did you now set the higher figure because you have ramped up the effort under your program for the NAF overall? Or is that what you need for capability?
Vice Adm. Chalmers —We believe that we need that rate of effort for the maintenance of capability.
Senator SCHACHT —Right.
Senator HOGG —Does that include additional pilot training?
Vice Adm. Chalmers —That rate of effort of 4,000 hours includes all the pilot training we need within that squadron.
Senator SCHACHT —You indicated that you paid extra money to keep pilots or something like that. Is that correct?
Vice Adm. Chalmers —That was tactical coordinators. Yes, we put a program in place for a completion bonus, so we have not paid any money at all yet. If they do not complete the three, four or five years that they have signed up to, they do not get anything.
Senator HOGG —When is that three, four or five years from?
Vice Adm. Chalmers —It was from June last year.
Senator SCHACHT —Just for the record, would a tactical operator be the equivalent of a lieutenant?
Vice Adm. Chalmers —They will be lieutenants and lieutenant commanders.
Senator SCHACHT —Without the completion bonus, what would they be earning, roughly?
Vice Adm. Chalmers —About $60,000.
Senator SCHACHT —How much is the completion bonus on top?
Vice Adm. Chalmers —The largest completion bonus, for five years, was $90,000.
Senator SCHACHT —Over five years?
Vice Adm. Chalmers —Yes.
Senator WEST —An additional $90,000 or taking their salary up to $90,000?
Vice Adm. Chalmers —No, that is an additional $90,000.
Senator SCHACHT —Almost $20,000 a year extra.
Vice Adm. Chalmers —Yes.
Senator SCHACHT —So that takes them up to more than members of Parliament get. Very good. I hope you are not tying them to our salary, Admiral?
Vice Adm. Chalmers —No, Senator.
Mr Wallace — Madam Acting Chair, while are looking at the flying hours table in output 3, I need to advise against the Sea King figure in table 3.3.3 that Senator Schacht was referring to. The figure there of 1,750 hours is a publication error: it should be 2,000 hours.
Senator SCHACHT —It should be 2,000?
Mr Wallace — Yes. That is in the PBS, sorry, not the ANAO report.
Senator WEST —Against which aircraft?
Mr Wallace — The Sea King and—
Senator WEST —It should be three.
Vice Adm. Chalmers —The 1,750 should be 2,000.
Senator SCHACHT —Where does the most competition come from for the pilots? They get offered better jobs outside the service: is that why they leave? Or is it because of the frustration of not enough flying time, not enough excitement?
Vice Adm. Chalmers —I think there is a mixture of all of that. The tactical coordinators we were losing to the airlines largely where they were being employed as operational managers. They are not actually pilots.
Senator SCHACHT —I see.
Vice Adm. Chalmers —But the pilots were also being poached from us, but not as much as, let us say, the Air Force.
Senator SCHACHT —But a tactical coordinators is usually a former pilot who has been—
Vice Adm. Chalmers —No, he is trained as a tactical coordinator. Those who do that job consider themselves to be the brains of the aircraft and the pilot is merely a truck driver.
Senator SCHACHT —Oh, I see. You said that, not me.
Vice Adm. Chalmers —That is what they say.
Senator Newman —That is very similar, I think, to previous such programs in the past when there have been various elements. It may not have been anything to do with the Air Force. It might have been electrical fitters, or whatever, when there has been a manpower or a womanpower shortage.
Senator SCHACHT —I just wanted to get on the record the matter of pressure.
Senator Newman —It is a traditional way of retaining people who are valuable to us.
Senator SCHACHT —I support the program. I just wanted to get on the record where the pressure comes from, where people get attractive offers to go off to civilian life.
ACTING CHAIR —I was wondering if you were arguing for its extension to apply to politicians.
Senator SCHACHT —No, plenty of people would argue that the—
Senator HOGG —That is called preselection.
Senator SCHACHT —Yes, that is right.
Senator HOGG —You have got to have the numbers.
Senator SCHACHT —No, I support those programs. We have always had problems over many years, whether it is Air Force or Navy.
Senator HOGG —So one can assume that all the recommendations in the report, whilst they were agreed to, are in the process of being implemented?
Vice Adm. Chalmers —That is correct. I think there was but one there with which we disagreed and that was actually in the report. It was to do with the command structure of our aviation force.
Senator SCHACHT —In the summary, in the audit report, it says:
Assets used by NAF have a book value of some $600 million, excluding facilities and some armaments.
The operation of depreciation and the capital user charge: over a period of time, how much depreciation would you get that would mean anticipating a replacement program? How much would you have stored away under the program and how much would you need to seek to have supplemented by budget to go into the replacement program? Some departments I have been to—they are not dealing with helicopters, frigates, F18s or anything—anticipate, by and large, that the depreciation payment each year over a period would be equivalent to the replacement cost. I do not think that is the case in Defence, is it?
Mr Tonkin —As we have discussed earlier, Senator—I do not think you were here—
Senator SCHACHT —If it has already been discussed, I do not want to waste time.
Mr Tonkin —It is funded by the equity and by the depreciation plus the equity injection, which reflects exactly the fact that depreciation will not fund the replacement. The global budget reflects both the depreciation and an equity injection to do that.
Senator SCHACHT —But the equity injection is the supplement to the depreciation.
Mr Tonkin —You take the total cost of deferring Defence business and add the equity injection. That gets you your zero real growth budget and that funds the replacement. Then you come to the issue of increased defence funding.
Senator SCHACHT —But that would still mean that, anticipating increased costs, whatever, you would not, out of that fund, automatically have available enough money to buy a new series of—
Mr Tonkin —No, not necessarily automatically.
Senator SCHACHT —Pardon?
Mr Tonkin —No, because the cost of future equipment is greater than inflation, you have the cost pressure on reinvestment.
Vice Adm. Chalmers —We tend to evolve these platforms through life, of course.
Senator SCHACHT —You keep adding to them—much to Finance's disgust, I suspect, but nevertheless.
Senator WEST —On page 68, just below the performance indicators for the helicopters, non[hyphen]combat related tasks in assistance to the community, whilst it appears as output 21—there is nothing much written there—the Sydney to Hobart Regatta, that is the 1999[hyphen]2000 target.
Vice Adm. Chalmers —That would have been the—
Senator WEST —The forward one; are you anticipating another big blow?
Vice Adm. Chalmers —I must say that, every year that I can recall, we have always had a number of aircraft on stand[hyphen]by from Boxing Day to cover anything untoward that might occur in the Sydney to Hobart race.
Senator SCHACHT —How much does it cost you to have it on stand[hyphen]by?
Vice Adm. Chalmers —What it costs us is that we have a number of crews that do not go away in the usual stand[hyphen]down for their leave. We have to make special arrangements for the leave.
Senator SCHACHT —Do crews get agitated about not being able to go away for the Christmas period?
Vice Adm. Chalmers —I think we are lucky in that we only have one major flying base, at Nowra, and most of the aviators tend to live in that Nowra region.
Senator WEST —And it is on the route. Last year's Sydney to Hobart, do you have any idea what it cost you? Or are you going to say that that was offset as a training exercise?
Vice Adm. Chalmers —It would have been offset as a training exercise, but I am sure that we could recover the cost because there would be the cost of not only the aircraft and the hours but also the FFG that went to sea.
Mr Wallace —I am pretty sure that figure has already been provided to the committee.
Senator SCHACHT —I think it is useful to keep providing it because—
Mr Lewincamp —The additional cost of that was $.48 million—just under half a million.
Senator SCHACHT —I think the Navy should keep providing that cost because it indicates to the public that there is a cost in providing its service—such as rescuing those yachts in the Great Southern Ocean. You got a lot of publicity for pulling off a great achievement, for safety and rescue. It is a cost in the end and I think it is good for the Navy to have that cost there; you do not come cheap, quite rightly.
Mr Wallace —It would be difficult to forecast what such things might be because, as I think Mr Lewincamp explained earlier, there are a lot of contingencies. We know things are going to happen, but we do not know exactly what is going to happen. Certainly, once it has occurred, there is a record and we can make those figures available.
ACTING CHAIR —How many people did your aircraft rescue? How many lives were saved?
Vice Adm. Chalmers —I do not recall the numbers, but I know the majority of the night time rescues were done by naval helicopters. Someone else behind me might know exactly how many we picked up. I can get that number for you.
ACTING CHAIR —It seems to me that less than $.5 million for many lives saved is money fairly well spent.
Senator WEST —When Navy saw those weather forecasts on Boxing Day[hyphen]Boxing night, what was Navy's estimation of what the seas were going to be like? Did Navy think they were going to be going out into a 50-foot swell.
Vice Adm. Chalmers —My recollection of this was that we had a fairly good idea of how rough this might have been going to be and my understanding is that we got crews back into the base before anything happened.
Senator WEST —When Navy saw or heard the weather forecasts, did they know the size of the blow?
Vice Adm. Chalmers —I do not know whether that is quite true, whether they came back then. When it started to blow, we started to mobilise our people quite quickly.
Senator WEST —I realise that we probably have to be a bit cautious because I think there is still a coroner's inquest to go.
Vice Adm. Chalmers —We would not have been able to predict how bad or how destructive that storm was going to be. Clearly, there was a storm, and when there are yachtsmen out there racing, quite often there is a requirement to rescue someone.
Senator WEST —Okay, thank you.
Senator SCHACHT —Are we still on the various programs?
Senator HOGG —We are going through.
ACTING CHAIR —We are on output 3. If there are no more questions on output 3, we will move to output 4—capability for patrol boat operations.
Senator HOGG —On page 70 of the PBS, under the heading `Equipment condition', it says:
The age of these vessels and their systems is degrading their operational effectiveness against an increasingly sophisticated peacetime threat, and is affecting their maintenance and reliability.
What is the increasingly sophisticated peacetime threat? It is mentioned there. Has it been identified and what form does it take?
Vice Adm. Chalmers —Senator, these boats, as you are well aware, spend the majority of their time conducting patrol and response with regard to fisheries, customs and other tasks. In the fishing area, our experience in the past has been that, generally, they have operated against illegal fishermen using fairly unsophisticated boats, generally made of wood. More often now, we are starting to see boats that are quite large steel fishing boats. They are quite fast and they are being commanded or driven by fishermen who can be quite aggressive and use their speed. That is what we mean by the increased threat.
Senator WEST —Are they faster than the patrol boats?
Vice Adm. Chalmers —Not faster than the patrol boats but, at the moment, some of them are faster than the boats that we put in the water with the boarding parties.
Senator HOGG —Does that refer in any way to the weaponry that might be on some of these boats?
Vice Adm. Chalmers —No, it does not.
Cdre McCaffrie —Senator, it might refer to the fact that they are starting to carry more advanced electronic equipment themselves which enable them to detect us coming, just as we can detect them.
Senator HOGG —So the sophisticated peacetime threat does not necessarily refer to the number of boats carrying illegal immigrants into Australia and the fact that, whilst they are fairly crude, they are, as I understand, in their outfit—their radar and global positioning systems and everything else—fairly sophisticated?
Vice Adm. Chalmers —Certainly. We have seen fishing boats with quite sophisticated electronic detection devices on board as well.
Senator WEST —They are not getting more sophisticated than us, are they, in their equipment?
Vice Adm. Chalmers —No.
Senator HOGG —What is being done to replace the ageing Fremantle class patrol boats?
Vice Adm. Chalmers —The Fremantle is still a simple boat and it does its task well. At the moment, we have a program in place to life of type extend these boats for another eight years, and the first boat is due to go into this life of type extension in March 2001. There will be about one a year done. We will be replacing, for instance, the main engines and a lot of other equipment in those ships—the electronics, the radars will all be replaced—and we are looking towards being able to put a more sophisticated and faster rigid inflatable boat on board that will be able to carry our whole boarding party in one go and overcome the speed deficit that we have at the moment.
Senator WEST —Can I just get that clear, there is a life of type extension for a further eight years?
Vice Adm. Chalmers —For a further eight years; I am sorry.
Senator WEST —And that starts in 2002.
Vice Adm. Chalmers —It starts in March 2001. I am sorry, it is not going to take eight years to implement it because the first one we will start paying off in 2008. The first one comes back in September 2001 and we will receive the last one back finished in May 2005.
Senator WEST —So they are not taking 12 months to do?
Vice Adm. Chalmers —No.
Senator WEST —Because I was out to about 2016 and thinking, if you add eight years to that, that is 2024; will we ever—
Vice Adm. Chalmers —No, we are starting them in 2001 and we will have all 15 of them back by 2008. When I said one year apart, I had in mind—
Senator HOGG —You mean, 2005.
Vice Adm. Chalmers —Yes, 2005.
Senator HOGG —When will their life cease?
Vice Adm. Chalmers —The first we get back will finish in 2008.
Senator HOGG —Right, and then it will be a phased program after that.
Vice Adm. Chalmers —There will be a phased program after that. We would be looking to replace them with a similar sort of boat—a fairly simple patrol boat.
Senator HOGG —Is there any project under way now to make a determination as to what might be needed, even though we have taken the decision to extend the life of the existing boats by a further eight years?
Vice Adm. Chalmers —No, we have not actually got a program, I do not think.
Air Marshal Riding —We are planning to make a decision on a replacement in 2002[hyphen]2003.
Senator HOGG —Right.
Air Marshal Riding —So we will start project definition probably over the next 18 months.
Senator WEST —On page 70, under the next dot point after life of type extension, it says:
Complete studies into alternative options and the preferred commercial arrangements for the acquisition of a coastal surveillance and patrol capability.
Does that mean that you are going to CSP that activity?
Vice Adm. Chalmers —Where are you looking?
Senator WEST —I am on page 70 of the PBS, about two[hyphen]thirds of the way down, third dot point, second one after capability enhancement initiatives.
Vice Adm. Chalmers —That would be the replacement boat.
Senator WEST —You are looking at a commercially viable—
Vice Adm. Chalmers —We are probably looking at a commercially viable patrol boat, fairly simple, and something that is available, not quite off the shelf but almost.
Senator WEST —So I should not be paranoid and read into that that you are going to be CSPing their roles and their activities.
Vice Adm. Chalmers —No.
Senator FAULKNER —Senators should never be paranoid.
Senator HOGG —On the same page, under the equipment condition, it says:
The most significant limitations of these vessels are their limited sea keeping ability, lack of modern sensors and systems, poor seaboat handling arrangements and the limitations imposed by the small rigid inflatable boat carried.
That does not buoy one with a great deal of confidence. Does this mean that we have an impaired capacity currently in our coastal surveillance operations?
Vice Adm. Chalmers —These are our ships that are really the response vessels; they patrol and respond. They are not part of the surveillance organisation as such. We will overcome all of those deficiencies, and against the majority of vessels which we now intercept these ships are quite satisfactory. There is only this occasion where we get some of these more sophisticated fishing boats in the north which can outrun the rigid inflatables with the boarding party on board. We will overcome all of those deficiencies there in the life of type extension with the exception of the sea keeping capability.
Senator WEST —What is sea keeping ability: when she is in a decent sea and you just see a breaker breaking over the top?
Vice Adm. Chalmers —One of the things that deteriorates the capability of these ships is their inability in heavy sea and what that does to the crew in terms of making the crew less efficient and effective and tired.
ACTING CHAIR —That is a nice way of putting it, Admiral.
Vice Adm. Chalmers —Thank you.
Senator HOGG —To increase the operational capacity of these, do you have rotation of crews to keep them at sea longer?
Vice Adm. Chalmers —No, we do not rotate the crews in them. These ships do about 150 sea days per year, which is the maximum personnel tempo that we have for all our ships. We can meet the national requirement in that, which is to provide 1,800 sea days a year for response.
ACTING CHAIR —Any further questions on output 4?
Senator HOGG —Not on output 4.
Senator WEST —Somewhere in output 3, 4, 7 or whatever in the Navy, I want to ask about the naval ammunition facility at Eden. Where should I ask about that?
Mr Tonkin —Under Defence Estate would be the most appropriate place, when we get to group 11.
Senator WEST —That suits me fine, as long as somebody does not let me forget it.
ACTING CHAIR —Before we move to output 5, I am advised that the officers who are able to answer Senator Faulkner's questions have now arrived. I ask them to come forward to answer some questions on the Scherger base. This is under the portfolio overview, under capital budget: major capital equipment projects and major capital facilities projects.
Mr Corey —Senator Faulkner, on the question you asked about additional works at Scherger, we have done our homework and you were right to send me out to get the official. The Operational Facilities Flight of No. 1 Combat Logistics Squadron, based in Townsville, have been in Scherger during this year doing some works that were not part of the project originally or were deficiencies that were identified when the Air Force went in to operate the facility the first time.
They did some works that involved about 440 cubic metres of concrete. That involved a variety of works, including putting a pavement outside of a warehouse, building a couple of vehicle ramps and doing some minor modifications to the entrance to the fire station. That was done by contract to Cape York Concrete. I am advised that it was done by competitive tendering, but we still need to confirm that. The concrete was mixed on site at Scherger. Cape York Concrete provided the cement and sand and the vehicle to mix the concrete in. The aggregate was provided by the base because we had put a lot of aggregate on the base in building the airfield.
The other question you asked was about large quantities of sand. In this particular contract the sand was provided by Cape York Concrete as part of mixing the cement. There was a large quantity of sand procured by the project in relation to the aviation fuel tank project. That was done by TSF Engineering, who were the primary contractors, through an organisation of subcontractors called Weipa Earthmoving who provided that sand. How Weipa Earthmoving procured that I am not sure, but we understand that they quarried it themselves from a quarry in the Weipa area.
Senator FAULKNER —I thank Mr Corey for that information. Part of it I indicated to Mr Corey in the margins to try and assist him with what I was interested in, and I do appreciate him providing that information. Mr Corey, do you have any more information, apart from the three specific purposes you mentioned, on what these 440 cubic metres of concrete were used for, or is that the limit of your knowledge in relation to that? Or can you indicate to the committee if the concrete usage was limited to those three particular applications?
Mr Corey —There are four particular applications: the two vehicle ramps, outside the warehouse and the adjustment to the entrance to the fire station.
Senator FAULKNER —Are there any particular loads for this concrete, any prospect of heavy vehicles—I assume not aircraft, obviously, from what you have described—using this particular concrete?
Mr Corey —They would be used by large forklifts and that type of vehicle, and the compression that I have got in front of me is that it is in access of 32 mPa. We do not know what the exact stress level of the concrete was, but it is in access of 32 mPa.
Senator FAULKNER —Would you mind taking the precise stress level on notice? I would appreciate that. Were the project engineers that you mentioned earlier on—Gutteridge Haskins and Davey—actually involved in this particular project in any way at all?
Wing Cmdr Nicholson —Yes, I can answer that briefly. GH&D have been our project manager on Scherger for five or six years now, so they have had an overall responsibility for project managing the project to date. What has happened here is that the Operational Facilities Flight, though, has undertaken these relatively minor works, but, given the administrative system we had in place for the project, we processed the accounts back through our project manager in that regard. So, although the Operational Facilities Flight undertook the works and did the arranging for the supply locally, we did administer it through our project manager.
Senator FAULKNER —Is that the way it normally works in these sorts of circumstances?
Wing Cmdr Nicholson —Given that it is a training role for the Operational Facilities Flight, the bulk of the project has been the normal commercial provision of all materials and works up there, and this has been a specific training role for the Operational Facilities Flight, who have to practise this sort of thing in remote localities.
Senator FAULKNER —Would the Operational Facilities Flight actually be responsible for going out and getting quotations, and so forth, as opposed to the project engineers or managers?
Wing Cmdr Nicholson —Yes. In this case, as it was a training role, part of their function was to source the supply for these materials—the steel, the concrete and so on.
Senator FAULKNER —Are you saying to the committee that, really, in this case, the project manager's role is really limited effectively to a billing role at the end of the process?
Wing Cmdr Nicholson —Yes. GH&D was not primarily involved in the procurement.
Senator FAULKNER —Can someone indicate to me whether it was because this was a short notice arrangement that this was done by the Operational Facilities Flight, whether it was part of the works program for the base or whether it was a short notice arrangement outside of normal contracts?
Wing Cmdr Nicholson
—Over a 12[hyphen]month period, the Operational Facilities Flight would try to have a number of training elements allocated in various locations. When some deficiencies were noted around the middle of last year when the RAAF really first took over
the base and worked their first exercises out of there, it was decided that this was suited to the role of the Operational Facilities Flight, which is to do simple, civil works in a remote area. That was what these works were deemed to be. They are not capable, for example, of installing a fuel farm. That is just beyond their capability. They are relatively small in numbers, have relatively minimal equipment, so the sort of training role that we are looking for for them is some simple civil works, and these works match their capabilities and their training needs.
Mr Corey —To add to that, the need was identified in September, at relatively short notice, but not so short that it could not have been done by other means. It was more for the training benefit that was seen for the Operational Facilities Flight.
Senator FAULKNER —When you say the need was identified in September, could you explain to the committee who identified the need?
Air Marshal McCormack —We opened the base up—in fact the Prime Minister opened the base—in about September last year. At that stage we flew aircraft in and out. It was the first time we had used it and the first time people from the Air Force had used that airfield, and they noted some deficiencies.
Senator FAULKNER —So what you are saying to me is that RAAF identified the need for these works.
Air Marshal McCormack —The users.
Senator FAULKNER —The users?
Air Marshal McCormack —Yes.
Senator FAULKNER —That is helpful, but I just wonder if you could be any more specific than that. I suppose I had assumed that that was the case. Could you be any more helpful than `users'? That is helpful, but could you perhaps elaborate on that a little for us?
Air Marshal McCormack —The combat support squadron that has to deploy there to use it to open the base up for aircraft to go in would identify deficiencies. These may not be the last of them—there could be a lot more as we continue to use the base.
Senator FAULKNER —Thanks for that. That is helpful. As I understand it, the Operational Facilities Flight made the decisions in relation to these comparatively small works; they made the supplier decisions in relation to these small works.
Mr Corey —Yes, they did.
Senator FAULKNER —Thank you. What you have indicated in relation to these works is that the concrete was supplied to the RAAF by a company called Cape York Concrete?
Mr Corey —That is right.
Senator FAULKNER —I see. I just want to be clear on this. That means that the cement was supplied by Cape York Concrete?
Mr Corey —Yes.
Senator FAULKNER —The sand was supplied by Cape York Concrete?
Mr Corey —Yes.
Senator FAULKNER —The aggregate was not supplied by them—that was already on base?
Mr Corey —Yes.
Senator FAULKNER —Cape York Concrete also effectively supplied the vehicles for mixing the concrete?
Mr Corey —They mixed the concrete.
Senator FAULKNER —Would that also include the labour for actually laying the concrete?
Mr Corey —No.
Wing Cmdr Nicholson —The OFF, the Operational Facilities Flight, would have been involved in putting the reinforcing steel in and spreading the concrete, getting the levels right.
Senator FAULKNER —So OFF effectively take these works from the time the concrete is ready to be poured. In laymen's language, that would be when—
Mr Corey —They would take it prior to that. The only contribution Cape York Concrete would have made was to actually provide the concrete. We provided the aggregate for that concrete. But all of the forming up, all of that preparatory work, would have been done by the Operational Facilities Flight. All Cape York Concrete's role was was to mix the concrete and pour it into the—
Wing Cmdr Nicholson —The basic earthworks would have been done by the Operational Facilities Flight.
Senator FAULKNER —I see. So, as you say, that would include formwork, therefore the reinforcing and the like.
Wing Cmdr Nicholson —Yes.
Senator FAULKNER —Thanks very much. Just so I am clear about the lines of responsibility, who would actually supervise this particular work on base?
Wing Cmdr Nicholson —The Operational Facilities Flight would have had their own supervisors. They have various levels of supervisors, but they are able to do relatively straightforward civil works, such as this, and be able to confirm themselves that they are getting the levels right and that sort of thing. Essentially, the Operational Facilities Flight would have supervised it.
Senator FAULKNER —I see. Is there an issue in relation to the sand for this particular concrete? Is there an issue in relation to sand quality that you are aware of? I am not, but I just wondered if there was.
Wing Cmdr Nicholson —No, we are not. A problem with sand quality has not been raised with us. The only thing that we are aware of is that some sand that is available on the base has a relatively higher kaolin content, I believe, and it is not suitable generally for mixing into concrete, as far as we understand. But I am not aware of other sand problems.
Senator FAULKNER —You raised the issue of kaolin content. Do you know if Cape York Concrete supplies washed or unwashed sand?
Wing Cmdr Nicholson —No, I do not know the answer to that.
Senator FAULKNER —I assume you are not aware of that, Mr Corey?
Mr Corey —No, I am not.
Senator FAULKNER —Wing Commander, if you could take that question on notice for us and provide an answer, I would appreciate that. I would also appreciate knowing if the quality of the sand does have an effect here on the longevity or the quality of the finished job itself. I think you have indicated that you do not know that, and I do not expect you to know that here at this estimates committee today, but you might take that on notice in relation to the stress levels and so forth.
Wing Cmdr Nicholson —Yes. The only other thing on that that we are aware of is that some concrete is made that is called bauxite concrete, and the aggregate that is used tends to be bauxite aggregate rather than a more solid aggregate. In this case we were using good quality aggregate; it was not a bauxite aggregate that was used. When you are up in the 30 mPa concrete, I understand you cannot use the bauxite as the aggregate.
Senator FAULKNER —I appreciate that. I suppose when you are looking at purposes such as vehicle ramps and the like, that becomes relevant, so thanks for that. Mr Corey, I wonder if you could now outline for the benefit of the committee what the process was that RAAF engaged in in terms of ascertaining the best price for this particular work.
Mr Corey —We tried to find that detail for you this afternoon but we were not able to contact the people involved. We have been advised by both the project manager and the person in Canberra who has been in contact with the Operational Facilities Flight that they were instructed to seek competitive quotes for all materials that were supplied in aid of the project. We have not confirmed that as yet, but we are assuming that that is the process that was followed.
Senator FAULKNER —So we know that they were instructed to do so, but we do not know at this stage whether that occurred or not?
Mr Corey —No, we do not. The people who actually did the work we could not contact this afternoon.
Senator FAULKNER —Who would have been in the tendering process—
Mr Corey —The Operational Facilities Flight would have all the documentation and the paperwork, and we tried this afternoon to contact the people who actually did that work but we could not get them.
Senator FAULKNER —So the OFF would also have responsibility for the tendering process from go to whoa?
Mr Corey —They would, yes.
Senator FAULKNER —When do you think we might be able to have information provided to us?
Mr Corey —Tomorrow.
Senator FAULKNER —Okay. I do not know how we are travelling here, Madam Chair.
ACTING CHAIR —Flexibly, patiently.
Senator FAULKNER —Under your chairmanship I knew it would be flexible. I was more wondering how we were going for time. Is it your expectation that the committee will still be here tomorrow?
ACTING CHAIR —Most certainly.
Senator FAULKNER —On this occasion, Madam Chair, I cannot be blamed. I think others will have to take the responsibility for that. We might come back to that, if we can, tomorrow. I would appreciate understanding a great deal more detail about the tendering process in relation to this particular provision of concrete by Cape York Concrete. You are confident that we might be able to understand all that by then?
Mr Corey —I am sure we will be able to get hold of the people who were involved.
Senator FAULKNER —We will definitely be here tomorrow morning, will we?
ACTING CHAIR —We will be here all day, I would think.
Senator FAULKNER —Perhaps we could deal with that matter tomorrow morning. There are some related matters, but they really come out of the tendering process, and I think it is appropriate that we canvass that tomorrow.
Wing Cmdr Nicholson —I just add that the total value of the supplies is around $200,000, but I do not have the exact details.
Senator FAULKNER —But do you know what element of that Cape York Concrete were contracted for?
Mr Corey —We will come back to you with those details tomorrow.
Senator FAULKNER —I would like to question the officers tomorrow, and I give them notice of a whole range of details in relation to the contract and the tendering process. I am very happy to deal with that tomorrow, and I thank again the officers for providing the information that they have.
ACTING CHAIR —We will now move to output 5—Capability for submarine operations.
Senator HOGG —In terms of output 5, I understand that there are other questions to be raised on this by Senator MacGibbon. We had an understanding that we would not proceed with that until he is available, which I understand is tomorrow afternoon. It will be an inconvenience, but we will leave that question until then.
ACTING CHAIR —We will go on to output 7.
Senator HOGG —On page 78, under `Equipment Condition', it says:
HMAS Westralia 's capability is limited by its speed, size, deep draft and ability to carry only fuel. As a single skinned tanker over 30,000 DWT the ship may be denied access to foreign ports when the International Convention Against Pollution at Sea is progressively implemented after 2000.
Why is that the case and will that affect our operational capabilities?
Senator Newman —Buying the wrong boat is the main problem.
Senator HOGG —I am just asking.
Senator Newman —And I am giving you the benefit of my wisdom on the matter.
Senator HOGG —Is someone else going to have a crack at the answer as well?
Vice Adm. Chalmers —The International Convention Against Pollution at Sea will be progressively implemented after the year 2000. Westralia is a large tanker, and tankers that are single skinned can, up to the year 2008, continue to operate providing they do not put fuel in their wing tanks. Therefore, they become a virtual double[hyphen]hulled tanker. Westralia carries a lot of fuel—three times as much as Success —but is not as flexible as Success . Quite frankly, we are with only one tanker at the moment. We can really only deal with one contingency, and we certainly need the second tanker.
Senator HOGG —What ports would that limit us getting access to?
Vice Adm. Chalmers —Until 2008, it will not limit our access unless we were to put fuel in the wing tanks, but we will not do that. We do not have a need to do that. We can operate the ship without fuel in the wing tanks.
Senator HOGG —After 2008?
Vice Adm. Chalmers —After 2008 you will just have to have a double[hyphen]hulled tank.
Senator HOGG —Given that it is out of operation currently, how many international ports would it have visited in its time? Do we know—just off the top of your head? Is it a regular occurrence?
Vice Adm. Chalmers —These new rules are only starting to come into force in this next year.
Senator HOGG —No, I am just trying to get some idea of the frequency with which it would have visited international ports?
Vice Adm. Chalmers —It would have visited international ports when it had task groups with it as part of task group visits. Before we acquired the ship from the Royal Navy, it would have visited ports all around the world. It started life as a cargo tanker in the Royal Fleet Auxiliary.
Senator HOGG —Thank you very much.
Senator WEST —It says at the bottom of the last sentence of the page:
Funding for HMAS Westralia's repair has been partly sourced from Defence Reform Program savings.
Vice Adm. Chalmers —Yes, it has been funded partially from DRP savings. What we have essentially done is that we have brought forward a refit that would have been done in the year 2000[hyphen]01 and we have brought that forward and are doing it early. We are also implementing all the recommendations bar two from the Westralia board of inquiry, and for some of those we will need resources which we would not normally have set aside.
Senator WEST —So you are using the DRP savings to fund those ones that you would not have set aside.
Vice Adm. Chalmers —I do not think we could identify exactly which ones are being funded by DRP savings but there are some DRP savings being put into this.
Senator WEST —Which were the two recommendations from the BOI that you did not accept.
Vice Adm. Chalmers —The two that we have not accepted: one was to do with the exclusion of aircraft in the vicinity of a ship on fire. There are perfectly normal rules for dealing with that. The second was having a separate MOU with the Port of Fremantle specifically for this ship in Fremantle. I guess it would not be in the normal way in which you would operate. No other ships have an MOU with the Port of Fremantle and so we are not going to do that.
Senator WEST —Tankers would go into that.
Vice Adm. Chalmers —Tankers would just follow the normal procedures that all ships do.
Senator WEST —What is happening with compensation and payments to families? Is Navy handling that or is that personnel?
Vice Adm. Chalmers —It would probably be best if personnel answered that.
Senator WEST —That is all I have got on output 7.
ACTING CHAIR —Any further questions on output 7?
Senator SCHACHT —I have been attending another estimates committee hearing. I have been doubling up and I just wanted to ask a couple of questions on output 5.
ACTING CHAIR —We have put output 5 off until tomorrow because Senator MacGibbon would like to take part in that and will not be available until tomorrow.
Senator SCHACHT —That is fine. I wondered how you got to output 7 so quickly.
ACTING CHAIR —You have not missed anything, Senator Schacht. Are there any further questions on output 7.
Senator WEST —Output 6 I understand we should be dealing with across the three services.
Vice Adm. Chalmers —Output 6 will be dealt with by the VCDF, who is the manager for that, unless there is a particular Navy issue.
Senator WEST —No.
ACTING CHAIR —Any further questions on output 7? If there are no questions, we will move to output 8.
Senator WEST —What is going on to enhance clearance diving capability?
Vice Adm. Chalmers —We have a project in place to upgrade the clearance diving equipment that we have. In addition to that, of course, the clearance divers take on a very large role in the overall mine countermeasures capability, particularly in the new Huon class.
Senator WEST —You have actually expanded the role of the clearance diver?
Vice Adm. Chalmers —Yes.
Senator WEST —Does that mean an additional establishment of clearance divers?
Cdre McCaffrie —Yes, it does. The number of clearance divers will grow from about 170 to 200 over the next couple of years.
Senator WEST —Are they all still being trained over on the west coast?
Vice Adm. Chalmers —No, the clearance divers are trained in Sydney. We have an operational diving team on the west coast and one on the east coast. The diving school is at HMAS Penguin in Sydney.
ACTING CHAIR —If there are no further questions on output 8, we will move to output 9.
Senator HOGG —I have a quick question on the refit and modernisation of HMAS Manoora and HMAS Kanimbla . Where are we at with the refits and the modernisation?
Vice Adm. Chalmers —There are two elements to the work going on in HMAS Manoora and HMAS Kanimbla . Part of it is an upgrade and there are packages being undertaken there which are being done in Newcastle. At the same time we are carrying out a refit, which is dealing with refitting the ship, bringing it to naval standards and quite a lot of emergent work. Where we are at the moment is that HMAS Manoora is the lead ship and she should complete production in September this year with the ship's company having moved on board in the first week of July. There will then be a light off examination which commences on 4 October and sea acceptance trials are likely to start on 4 November with the ship returning to Sydney on 10 December this year. She will do a work up in the last few weeks of December, and in the first part of the running year—next year—and by March next year she will have a capability which would be sufficient to replace HMAS Tobruk , which has not refitted since 1991. She is running well at the moment but her state I would describe as being quite fragile. The second ship, HMAS Kanimbla , will follow on and she will do her operational readiness evaluation in about September 2000. She is about six months behind.
Senator HOGG —What will happen to HMAS Tobruk then?
Vice Adm. Chalmers —HMAS Tobruk will go into refit in the first part of next year.
—When the refit of HMAS Manoora and HMAS Kanimbla is completed, how much will that have cost, apart from a lot? Could I suggest to the department that, as these refits are about to be completed, there should at least be a note in this section of the PBS. If something is being completed, there should be the figure of the project cost in
total. I wonder whether that is possible under this new output arrangement. Is it correct that we have just completed a major refit and modernisation of HMAS Manoora and HMAS Kanimbla ?
Mr Tonkin —I think it is still ongoing.
Senator SCHACHT —When is it due to be completed?
Vice Adm. Chalmers —Manoora is not going to complete—the acceptance trial is probably a good date—until early December.
Senator SCHACHT —Is there somewhere in the PBS—I have missed it—another list of the total cost of the project for the Manoora and Kanimbla ? I just suggest on these sorts of projects, which have been around for a while, that in the output it might be mentioned, at least as a note, what the expenditure was for the Manoora and the Kanimbla . What is the all[hyphen]up figure now?
Mr Tonkin —It is something, Senator, that is best seen in the annual report, because this is a prospective document rather than a reporting document.
Vice Adm. Chalmers —Senator, I do not have that figure with me.
Senator SCHACHT —Okay.
Vice Adm. Chalmers —It would be fair to say that there has been a lot of emergent work, but that would have been expected in ships for which we paid little money, and that is essentially what we are seeing.
Senator SCHACHT —Are you now very confident that all the rust has been got rid of?
Vice Adm. Chalmers —Senator, they were very heavily built ships and, although it looked like a lot of rust, there was still a lot of plate there.
Senator SCHACHT —I accept that. But have we got rid of it? Has it all been cleaned up?
Vice Adm. Chalmers —Yes.
Senator WEST —There has also been some media about the acquisition of two new high[hyphen]speed catamarans, which is actually here on page 83. What can you tell us about them?
Senator Newman —We did cover that at the additional estimates only three or four weeks ago. Weren't you here then?
Senator WEST —No, I was busy sitting where you were, in another estimates.
Senator Newman —Were you!
Vice Adm. Chalmers —When the defence department raised the readiness level of an extra brigade, we saw a need to be able to support that brigade. The catamaran was an innovative way of going. There was a catamaran available from industry which required very little change and that was available from Incat in Tasmania. We have leased that catamaran for two years. It is a bareboat charter and there will be a separate contract for maintenance of the catamaran and another contract—a cleaning contract; and two ships companies of 20 people in each. You run this ship more like an aircraft than a ship. It does 43 knots; it can carry 1,000 people; it will carry 450 troops plus vehicles at 43 knots.
Senator SCHACHT —Forty[hyphen]three knots. Is the rough range in the range at which they provide these commercially?
Vice Adm. Chalmers —No, we have in fact covered up the long distance fuel tanks in it so that we can actually trade fuel off for cargo and increase the range considerably.
Senator SCHACHT —Fine.
Vice Adm. Chalmers —It commissions on Thursday in Hobart.
Senator SCHACHT —Is this the Austral catamaran?
Vice Adm. Chalmers —No, this is the Incat. It will be commissioned in Hobart on Thursday and it will be called HMAS Jervis Bay .
Senator SCHACHT —It is a leasing arrangement; is that right?
Vice Adm. Chalmers —It has been leased. The lease cost—I guess you are interested in—is about $11[half ] million per year with a $1[half ] million per year maintenance contract.
Senator SCHACHT —How long is the lease arrangement for? How many years?
Vice Adm. Chalmers —The lease arrangement is for two years with an option to extend, with an option to buy and with an option to upgrade to a larger one, should we wish to do so at any stage during the lease.
Senator SCHACHT —So after two years you will have paid $22 million or $23 million for the leasing compared with a purchase price of those things at around, what, $40 million?
Vice Adm. Chalmers —No, a bit more.
Senator SCHACHT —$50 million?
Vice Adm. Chalmers —$US44 million, I think, is the cost of that one offhand.
Senator SCHACHT —Is the reason you have taken the lease to see how they go basically?
Vice Adm. Chalmers —That is part of it. We wanted to get this capability. We wanted to get it quickly. We wanted to have a good look at this innovative technology but we did want to get something that was straight off the shelf and without changing it.
Senator SCHACHT —Yes.
Vice Adm. Chalmers —The only things we are changing on it are the fuel tanks, adding another radio and putting some more airconditioning in it.
Senator ABETZ —And painting it.
Vice Adm. Chalmers —And we painted it grey.
Senator SCHACHT —But so far you have not put in a bid to put any sort of armament on it?
Vice Adm. Chalmers —No, and we will not. It is a typical bare boat charter and as such it has to be returned in the same state as we got it.
Senator SCHACHT —The same state.
Senator WEST —It can carry 400 troops.
Vice Adm. Chalmers —It can carry 450. We have to take out every second seat so that they can put their packs in. It will take 1,000 passengers normally.
Senator SCHACHT —Does this have the capacity to have vehicles underneath?
Vice Adm. Chalmers —Yes. It can carry a mixture of vehicles, and quite a lot of them. It can carry all vehicles in the Army inventory except for the main battle tank.
Senator SCHACHT —Is the multiple of the range classified?
Vice Adm. Chalmers —It is a range in cargo, a pay[hyphen]off. If you are interested, I could provide that on notice for you.
Senator SCHACHT —That is if it is not classified. I think anyone could work it out commercially because of the way in which people do the figures on these vessels.
Senator WEST —What is the capacity of the Tobruk as she exists at present?
Vice Adm. Chalmers —I will have to get someone behind me to answer that.
Cdre McCaffrie —I think it is about 500 troops, but we can get an answer for you on that.
Senator WEST —What about Kanimbla and Manoora ?
Cdre McCaffrie —It is a battalion group.
Vice Adm. Chalmers —They are about the same.
Senator WEST —About 450 to 500?
Cdre McCaffrie —It is a battalion group between the—
Vice Adm. Chalmers —Between the three of them, you can get a battalion group and its equipment. That is between the two LPAs and Tobruk .
Senator SCHACHT —With this catamaran, if you had two of them, you could put one battalion on both of them?
Vice Adm. Chalmers —I think you would have to look at how you would use this ship. You would not put this ship in harm's way if you could possibly do so.
Senator SCHACHT —Is that because you are leasing it and do not want to lose it?
Vice Adm. Chalmers —It is not protected and not built to warship standards—those sorts of things.
Senator SCHACHT —Is speed one of its advantages?
Vice Adm. Chalmers —Yes.
Senator SCHACHT —The fact is that it can go for a fair way at a pretty high speed.
Senator QUIRKE —Rockets go more quickly.
Senator SCHACHT —That is true, but a rocket will make a mess of the Tobruk .
Vice Adm. Chalmers —Yes, but it will make a bigger mess of this. A large part of this is built out of aluminium.
Senator SCHACHT —And it will burn, just like the Sheffield did.
Senator WEST —What implications does that have for the safety and security of our personnel on board?
Vice Adm. Chalmers —The ship actually has fully automatic firefighting systems on board which are remarkably—
Senator WEST —Did the Sheffield have that?
Vice Adm. Chalmers —No. It would not have had automatic systems to the extent that this ship does.
Senator WEST —You don't think that our personnel are in any extra danger? Apart from the automatic fire systems, why do you think they are not in danger?
Vice Adm. Chalmers —It does have the automatic fire systems. There are very large life rafts in this ship that have been specifically designed. They carry 100 people and have been built here in Australia. They can actually evacuate this ship incredibly quickly. It is rather like evacuating out of an aircraft.
Senator QUIRKE —I suppose that is one of the issues really and why you are leasing it for the next couple of years. If you are going to build one of these things, to have a purpose[hyphen]built one, you would build it out of steel or titanium or something like that that did not burn as well.
Vice Adm. Chalmers —But then you would not get the speed or the range.
Senator QUIRKE —That is the argument with the frigates now though, isn't it? Most of the frigates these days are built of steel whereas 10 or 15 years ago, before the Falklands, they were aluminium from the waterline up.
Vice Adm. Chalmers —You still get plenty of aluminium in them from the main deck up on the modern ship. This is the sort of ship that would be remarkably useful if we had to do an evacuation of Australians out of PNG or Indonesia—somewhere like that.
Senator SCHACHT —But do any of the armed forces in those areas of the South Pacific have rockets?
Vice Adm. Chalmers —None that I would worry about.
Senator SCHACHT —If they did, we would all be scratching our heads, I think.
ACTING CHAIR —Are there any further questions on output 9 before we move to group 2, which is a general session on the Navy. Senator Hogg, do you have any further questions on output 9?
Senator HOGG —No.
ACTING CHAIR —Are there any questions on group 2?
Senator HOGG —Could you give me some idea of the number of publications that the Navy produces and the cost of producing those publications? I do not care what general format they are in—promotional publications and publications within Navy as a means of communication.
Cdre McCaffrie —Are you talking about publications for communications purposes or the whole range of publications?
Senator HOGG —It could be a whole range of publications.
Cdre McCaffrie —We would have to take that on notice because there would be a substantial number.
Senator HOGG —Yes, I thought that you would.
Vice Adm. Chalmers —They range from a video that we do quarterly called Scuttlebutt through to the Navy Annual .
Mr Wallace —The question is a very open[hyphen]ended one. Perhaps if there was some specific indication—
Senator HOGG —Printed communication, in particular.
ACTING CHAIR —And recruitment.
Senator HOGG —It could be in recruitment areas.
Mr Tonkin —But this is not things like normal Navy training publications and such. You are talking about publications which are communicating information either to the Navy or externally.
Senator HOGG —Hold it up, Admiral. Yes, that is the sort of thing.
Mr Tonkin —So it is not normal Navy publications which relate to the conduct of naval training or professional issues. It is the communication of messages inside and outside the organisation.
Senator HOGG —Yes, the communications within the Navy.
Vice Adm. Chalmers —We could take that on notice.
Senator HOGG —And the cost of those publications.
Vice Adm. Chalmers —Just before we go on: we break even, in fact, on things like the Navy Annual through sponsorship.
Senator HOGG —Again, those are the sorts of things that we are interested in if you can tell us them. The other thing is the Chief of Navy's personal staff. What does it consist of?
Vice Adm. Chalmers —My personal staff?
Senator HOGG —Yes. What are the positions? Are there cooks, drivers, valets?
Vice Adm. Chalmers —Everybody is multiskilled in this organisation these days.
Senator HOGG —That is what I am interested in; I do not know whether all your colleagues are.
Vice Adm. Chalmers —I have a flag lieutenant aide, who is a lieutenant commander at the moment, and she acts as my staff officer as well whenever I travel. I have a chief petty officer, who is not only the driver but also the protocol officer, and he also runs the secretariat side of the office. There is a cook, who I share and who is responsible for the corporate mess in the overall headquarters. I have a valet, who not only acts as a driver but also has another job in the office in an administrative position.
Senator HOGG —Do you know how you compare with your other opposite numbers?
Vice Adm. Chalmers —Probably much the same.
Senator HOGG —Much the same. I will be asking them the same question.
Senator SCHACHT —What about the head of the ADF?
Vice Adm. Chalmers —Much the same.
Senator SCHACHT —And what about the secretary to the department? Mr Tonkin, I know you are not head of the department yet.
Mr Tonkin —There is no need to frighten people! The secretary would not have that level of personal staff provision because he does not operate in a command capacity. The support that is provided to chiefs of service reflects, if you like, the operational role that they also undertake—some of the 24[hyphen]hour[hyphen]a[hyphen]day aspects—and the representational roles which they undertake, which are not undertaken by the secretary.
Senator SCHACHT —Are these positions looked at in the Defence Reform Program?
Mr Tonkin —These positions are looked at, and to take an example—
Senator SCHACHT —But they are never changed?
Mr Tonkin —No. To take an example, one of the aspects of the contract, which was announced last week for garrison support in the ACT and southern New South Wales, includes the sweeping up of the cooks and chefs of the chiefs in the DF. They are now embedded as part of that contract, so that the provision of that support will now be done on a more cost[hyphen]effective basis. A range of those sorts of support functions are picked up and have been rationalised as part of the Defence Reform Program.
Senator SCHACHT —Is that in Canberra?
Mr Tonkin —In Canberra and in the ACT region, which is where the chiefs are based.
Senator SCHACHT —So the five have now been rolled into what?
Mr Tonkin —The five are still in existence, but instead of having an overhead support in, for example, the chef that supports the Chief of Navy being based out of HMAS Harman , and support in those arrangements, they can rely on a large and more efficient system, so that the support that he provides can be done more cost[hyphen]effectively.
Senator SCHACHT —So he can provide something for the Army and Air Force heads as well, unless the menu is totally different.
Vice Adm. Chalmers —What has happened is that my chef, who was at Harman , was not only responsible for victualling at Harman and in the messes out there but also working for me. It is not as if I had a chef who worked for me full time; it was really only when we were entertaining.
Senator SCHACHT —Just out of curiosity, compared with the sacrifices the secretary to the department makes—who, according to Mr Tonkin, has no requirement for corporate entertainment—how often would you, as the head of Navy, have what we might call `corporate entertainment' when you would have to call on the services of a chef?
Vice Adm. Chalmers —Sometimes that can be as much as three times a week; other times I might go for a few weeks without having any. It depends on what visitors we have coming through Australia.
Mr Tonkin —I should clarify that when the secretary is undertaking official entertaining in the combined suite of the secretary and CDF, then he is supported by the CDF chef. So the CDF chef provides support for activities that go on there.
Senator SCHACHT —Does that mean there is now going to be common linen, cutlery, crockery, porcelain and so on for everybody?
Mr Tonkin —No.
Senator SCHACHT —It is not? So the plates are all different for the different services?
Mr Tonkin —There are some aspects of those sorts of points, of very fine detail, which reflect historical assets that are possessed by the services.
Senator SCHACHT —Has that all been listed in the capital usage charge?
Mr Tonkin —No, I would not have thought so.
Senator SCHACHT —I am sure it should be.
Mr Tonkin —They are expense items.
Senator SCHACHT —Mr Lewincamp, have you finally cottoned on to this, too?
Mr Lewincamp —I have been watching with interest!
Senator SCHACHT —When does your bid start, Mr Lewincamp?
Mr Lewincamp —These are not assets. We have a capitalisation threshold of $25,000, and the sorts of things that you are talking about are not classified as assets.
Senator SCHACHT —What? Do you mean individually? What about when you put the lot together? Is it more than $25,000 worth of silverware, candelabras, porcelain, crockery and tablecloths?
ACTING CHAIR —This type of questioning is not related to estimates.
Senator SCHACHT —It is on the estimates.
Mr Lewincamp —There is some grouping of assets with individual values of less than $25,000 for some categories of assets. Things like Steyr rifles are a good example where they do appear on our balance sheet because of their grouping. But I do not think that silverware and crockery would fall into that category.
Senator SCHACHT —Is it depreciated?
Mr Lewincamp —If it is below the capitalisation threshold it is a consumable. You do not depreciate them.
Senator SCHACHT —But I would have thought that, unless you are smashing the crockery in a Greek performance, it would actually be maintained, and, if it has lasted a few years, it might even have an antique value?
Mr Lewincamp —I think not.
Senator SCHACHT —So what happens when you get rid of it?
Mr Lewincamp —If you buy additional crockery, then that is a consumable and an expense item; it is not something that is an asset and is depreciated.
Senator SCHACHT —So do you wait until you break every plate before you buy a new set?
Senator Newman —As I understand it, there has been no change in the way these things have been administered from previous governments, except to the extent that they are now more transparent and that there are greater efficiencies in the system, as the vice admiral was explaining about the multiskilling of his staff. I would have thought that was an improvement for the taxpayer: getting value for dollar.
Senator SCHACHT —Minister, I never said that this was an accusation against your government or any other. It is just a matter of information.
Senator Newman —May I remind you that things have actually improved rather than gone the other way.
Senator SCHACHT —You always say things improve, Minister; that is your job.
ACTING CHAIR —Are there any further questions of substance?
Senator SCHACHT —You do not put it in the capital or in the assets—right?
Mr Lewincamp —It is not on the balance sheet as an asset.
Senator SCHACHT —It is not on the balance sheet, but sooner or later someone somewhere, in a different mess at any level, is going to put claims in that the crockery, the cutlery, and all those sorts of things, have to be replaced. Is that put on as a straight one[hyphen]off charge or is there a depreciation allowed?
Mr Lewincamp —No, it is a consumable item.
Senator SCHACHT —So those things are consumable?
Mr Lewincamp —Yes.
Senator SCHACHT —Treated the same as spuds and carrots?
Mr Lewincamp —The same as personal computers, Senator.
Senator QUIRKE —Are PCs an expense item?
Mr Lewincamp —I would think so.
Senator SCHACHT —Hardware?
Mr Lewincamp —No, not the hardware. If you are talking about a personal laptop which is worth $3,000 or $4,000, yes, that is below the threshold. It is not an asset. But if you are talking about a computer network or a local area network, then it is.
Senator QUIRKE —TV sets, the whole lot?
Mr Wallace —Madam Acting Chair, there would certainly be asset control systems in place to monitor those individual assets. The definition of the threshold, of whether it is classified for the purposes of assets and depreciation on the balance sheet, is another question.
Senator SCHACHT —Let us take the personal computer and hardware turnover: what happens to the old one? Do they hand that back in? Is that sold at auction? Does it have any value: is it just sold as junk, as scrap?
Mr Tonkin —They are sold for the best value we can get for it. They are sold and we yield the return, depending on what the value is. Or else we cascade those computers. So if you have a high end use computer, when that is upgraded, because the high end use software grows in its capacity, et cetera, you can often cascade that PC down to a lower level user which has a lesser requirement until you reach the point where the computer is no longer economically useful, in which case you dispose of it for whatever you can get, and we yield that as a receipt.
Senator SCHACHT —And where would that show up in the annual accounts?
Mr Tonkin —As a non[hyphen]appropriated income item—I forget the technical term.
Senator SCHACHT —Non[hyphen]appropriated income.
Mr Tonkin —Revenue from independent sources.
Senator SCHACHT —Revenue from independent sources.
Senator HOGG —To go back to my original question, have there been any significant changes in your entitlement in recent times?
Vice Adm. Chalmers —I think the staff might be one less than when I started, and, of course, they are multiskilled and they are now fully integrated into the office, which they would not necessarily have been in the past.
Senator HOGG —Thank you.
Senator SCHACHT —Vice Admiral Chalmers, your two-year term or contract as Chief of Navy runs out, I think, in July.
Vice Adm. Chalmers —On 2 July.
Senator SCHACHT —That means that you have served two years as Chief of Navy.
Vice Adm. Chalmers —Yes.
Senator SCHACHT —Has that been about the average of Chief of Navy over the last 15 years?
Vice Adm. Chalmers —No, it has generally been longer than that. In fact, until recently, it was a three-year tenure.
Senator SCHACHT —A three-year tenure.
Vice Adm. Chalmers —Yes, and my predecessor had a three-year tenure.
Senator SCHACHT —Did he get it in one hit or did he have two years plus one?
Vice Adm. Chalmers —No, he had three years.
Senator SCHACHT —Three years. So when you were appointed, you only got two years.
Vice Adm. Chalmers —I was appointed for two years.
Senator SCHACHT —Most previously have been appointed for three.
Vice Adm. Chalmers —In Navy all have been appointed for three. The last Chief of Army and the last Chief of Air Force were both appointed for two and got a one-year extension.
Senator SCHACHT —And you did not get a one[hyphen]year extension, obviously?
Vice Adm. Chalmers —No.
Senator SCHACHT —Did the Defence Reform Program have anything to do with the fact that you and the others were only offered two to start off with?
Vice Adm. Chalmers —I think that was just a change of policy by government.
Senator SCHACHT —Government? Were you surprised that you did not get another year's extension?
Vice Adm. Chalmers —I would have like another year's extension, of course, but no, my time was up.
Senator SCHACHT —Does the new Chief of Navy, Admiral Shackleton, have two years or three years?
Vice Adm. Chalmers —Two years.
Senator SCHACHT —Does everyone get two years now?
Vice Adm. Chalmers —Yes.
Senator SCHACHT —We will wait until after your retirement for your views on not getting another year's extension.
Vice Adm. Chalmers —I will not comment on it.
ACTING CHAIR —Senator Schacht, is that productive?
Senator SCHACHT —It is very productive.
ACTING CHAIR —I do not think it is related to the estimates.
Senator SCHACHT —Yes, it is. The admiral is paid by public money.
ACTING CHAIR —The admiral has made it clear that he finishes his contract in July.
Senator SCHACHT —Yes, and he pointed out that, unlike his Army and Air Force colleagues, he was not offered an extra year's contract.
ACTING CHAIR —Gratuitous remarks about—
Senator SCHACHT —I will now ask the Minister: is there any particular reason why Admiral Chalmers was not offered an extra year's contract like his colleagues in Army and Air Force?
Senator Newman —That is not a matter that I am going to comment on. You would understand that, Senator.
Senator SCHACHT —I thought you might have.
Senator Newman —No, not at all. There are people right throughout the Defence Reform Program who have no doubt left the defence forces earlier than they would have personally liked. That is from the top to the bottom.
Senator SCHACHT —Admiral Chalmers—
Senator Newman —I am not giving you any explanation as to the personal circumstances. I feel it is offensive to do it in these public circumstances. It is not fair.
Senator SCHACHT —The lack of an offer of an extra year, you are saying or implying, was to do with the Defence Reform Program.
Senator Newman —No, I was drawing an analogy. I think for you to pursue that now is not fair and it is not dignified.
Air Marshal Riding —To clarify one matter, neither the Chief of Army nor the Chief of Air Force has been offered an extension. They are both on two[hyphen]year contracts, as I am.
Vice Adm. Chalmers —Are you speaking of the previous chiefs?
Senator SCHACHT —Yes, the previous chiefs. Is everyone now on two years?
Vice Adm. Chalmers —In the current cycle, all the chiefs are on two years.
Senator SCHACHT —Mr Tonkin and Mr Lewincamp, are you also on two years?
Mr Lewincamp —No, we are permanent public servants.
Mr Tonkin —Most likely even longer.
Senator SCHACHT —Which lasts forever?
Mr Tonkin —If we can negotiate it, unless we get time off.
ACTING CHAIR —Are there further questions on group 2?
Senator HOGG —Yes. How many ships of the fleet are not operational at the moment? We know about Westralia , but how many others are not operational?
Vice Adm. Chalmers —Ships become operational once they have completed a work-up and are then at MLOC. When they are in refit or working up, they are non-operational.
Senator HOGG —I might not be using the correct terminology, or your terminology, but Westralia is non-operational—that is quite clear. How many others are there?
Vice Adm. Chalmers —Of the major units, this year we are planning to have 2.3 DDGs.
Senator HOGG —What page is that?
Vice Adm. Chalmers —I am back on 68. There are six FFGs and two anzac frigates. The FFHs are anzac frigates. In terms of output 4, we will have the 15 patrol boats when they are not in refit. Typically, there will be two in refit a year.
Senator HOGG —If one were to look at the forthcoming year, just on those patrol boats, I understand the refit in those does not start until next year some time.
Vice Adm. Chalmers —Yes, but there are patrol boats refitting as a matter of course. We would expect to get 4,349 patrol boat days this coming year. That takes account of the refit cycles. We will have patrol boats running at their normal rate. In regard to submarines, I am confident that we will have one submarine available throughout the year capable of going on operations.
Senator HOGG —So we cannot get any idea of the down time that would be involved.
Vice Adm. Chalmers
—Typically, ships of a destroyer type have an availability of about 70 per cent for DDGs but FFGs and Anzacs, for instance, have a technical availability of just over 80 per cent. We do not operate them for that long in peacetime because we would have to double crew them if we did. Our patrol boats are much the same. With our submarines we are limited, of course, by where they are in the cycle. We have one Oberon that is currently
available. By the end of this year I am confident that we will have the first of the Collins able to be put in harm's way.
We have only one of our amphibious ships of the three, plus the catamaran. Of the LCHs—the smaller landing craft—we would have five in operation and they are all actually on line. That leaves Westralia , which clearly is not, but Success is. Of the minehunters, one of them has been accepted and is commissioned and there are none that are actually offline. They are coming into service on time.
Senator SCHACHT —You mentioned patrol boats, and I do not know whether this is particularly in your area. The Defence Cooperation Program provided patrol boats in the late eighties, early nineties, to a number of countries in the South Pacific. Do we have any information about where those patrol boats are now or how well they are operating, et cetera?
Mr Lewincamp —That is output 20.
Senator SCHACHT —So the Navy does not answer that question?
Mr Lewincamp —No.
Senator SCHACHT —You are lucky, I suspect. I have some general questions at the end. I just want to ask Admiral Chalmers: for some years a number of ex-veterans organisations, naval associations, have been lobbying—and I have to say against, Minister—governments of all persuasions about medals for able[hyphen]bodied people like Teddy Sheean and Captain Rankin.
Senator Newman —Can I just say that it is group 8.
Senator SCHACHT —I want to ask the Navy.
Senator Newman —I am just telling you the advice I have is that that is group 8.
Senator SCHACHT —Yes, I know it is group 8. I know that General Dunn is probably going to handle those and that he is getting ready for when I ask him these questions.
Senator Newman —It is hardly fair to your colleagues when you jump the gun to another area.
Senator SCHACHT —What? You cannot ask the Navy about medals for naval personnel? Why not? It is just a couple of simple questions.
Senator Newman —Yes, but then you hold up people who have things on the immediately following programs, groups or whatever. You really take the time of your colleagues as well as the whole of the committee. I think you are unfair.
Senator SCHACHT —I am not unfair at all.
Senator Newman —Yes, you are. You are very selfish.
Senator SCHACHT —I would have finished the questions by now if you had not interjected. I just wanted to ask: does the Navy have any strong view about the pressure from veterans organisations that there should be some reconsideration of people like Captain Rankin and seaman Taylor from the Yarra and seaman Sheean for either new medals completely or an upgrade.
Vice Adm. Chalmers —I think it is fair to say that I am lobbied very heavily on this matter, including by those who served in the Malayan campaign as well.
Senator SCHACHT —The strategic reserve, yes.
Vice Adm. Chalmers
—Personally I have some sympathy with those who lobby me on this matter. With regard to at least one of those cases, that is the Malayan campaign, there is an inquiry that is about to get under way. I believe that the veterans association, the naval
association in this case, will actually take the umpire's decision, and that one will finally be put to bed. In terms of the others, unfortunately the matter is closed. In many ways I think what Teddy Sheean did was quite remarkable. He was a remarkable young man. He actually has something, though, that I think is better than a VC: he has a living memorial to him, and it is a submarine.
Senator SCHACHT —I accept that point about it. But the Navy has not yet received a Victoria Cross, the highest award, through two world wars. Now there is the information about Sheean, about Rankin, about Taylor, and the other day I had a veteran from HMAS Perth in the Second World War lobbying about Captain Waller, I think it was.
Vice Adm. Chalmers —Captain Waller.
Senator SCHACHT —Yes, Waller, the captain of the Perth , and what he did. I know that the end of the war list is completed, but it does seem to me a bit odd in history, when you look at any of those performances, that in the end the Navy did not get a Victoria Cross somewhere along the line. That is just a comment that I make. I am interested to know that you get lobbied as much as I am getting lobbied as shadow minister.
ACTING CHAIR —Senator Schacht, your colleagues have some more questions on group 2.
Senator SCHACHT —I am finished with that.
ACTING CHAIR —Thank you. We are optimistic of being able to complete group 2 before we break for dinner so that these officers will not need to return after dinner.
Senator HOGG —General Dunn, do not walk too far—you may be needed. I do not know whether this is the correct place to ask this question, but at the last round of additional estimates Admiral Oxenbould said that this year recruitment figures had dropped off and that Navy would have trouble reaching that 14,000 figure by 2001. He said that the average funded strength for this financial year was going to be 13,850 but, with the combination of wastage rates, separation rates and not achieving recruiting targets, it would be in the order of 13,500. Are those figures still accurate and, if so, how is Navy going to address the shortfall?
Vice Adm. Chalmers —There are a number of issues here. One is that Navy started the DRP process of resizing by being a navy of just over 14,000, and our share of the 50,000 is 14,000. We are required to reshape the Navy somewhat in terms of our trades and the people we have in the Navy, so it was inevitable that we were going to drop below 14,000. Recruiting this last financial year has not been as good as it was in the previous financial year and we are going to undershoot our numbers. At the end of this next financial year I would anticipate that the actual number of people we have in the Navy will be about 13,400.
Is that going to stop ships going to sea? The answer is no. The reason the answer is no is that we have a sea[hyphen]shore ratio. We are indeed, if you like, eating into that sea[hyphen]shore ratio and we will have some categories where sailors will go to sea more often than they would normally have expected to. We are working hard to overcome that. We have some particular areas, for instance, in the Mark 92 fire controllers[hyphen]maintainers in FFGs, where we are down to very low numbers. Again, we are using a retention bonus there, a completion bonus for them to stay on to get us through this problem.
Senator WEST —Why are those numbers down?
Vice Adm. Chalmers —They are a very small category in raw numbers, and you do not have to lose too many of them before they become non[hyphen]self[hyphen]sustaining.
Senator WEST —Why are they going?
Vice Adm. Chalmers —Because they are getting too much sea time.
Senator WEST —So the sea[hyphen]shore ratio for them is actually going through the roof?
Vice Adm. Chalmers —Yes. However, we are already seeing results of this retention bonus, and some who had put in their notification that they were leaving have now removed that.
Senator WEST —How long is the retention bonus for?
Vice Adm. Chalmers —These were for three years.
Senator WEST —Will that enable you to bring more on[hyphen]stream, recruit more and actually train them up to those levels?
Vice Adm. Chalmers —Yes.
Senator WEST —Do you think they will actually stay there three years. Do you think their spouses at home might get too—
Vice Adm. Chalmers —The difference between this bonus and others that we have used in the past—in fact, we did the same with the tactical operators that I spoke of earlier—is that it is a completion bonus. So they sign on for the bonus, they do not get it until the end of the period, and if they leave they do not get any of it.
Senator WEST —So how many other categories are you down where you are having to offer retention bonuses?
Vice Adm. Chalmers —There are the DDG technical sailors that I spoke of, there are these FFG fire control technicians and there is one very small category in the submarine area.
Senator WEST —The DDG personnel—why are they leaving?
Vice Adm. Chalmers —We stopped training DDG sailors because they are coming to their end of life and we are just trying to make sure that we can keep enough of them in a couple of critical areas so that we can keep steaming those ships.
Senator WEST —So what areas are you short of there?
Vice Adm. Chalmers —Marine technical propulsion, what we used to call stokers in the old days.
Senator WEST —The person who makes the thing go.
Vice Adm. Chalmers —Yes.
Senator WEST —Do they have a capacity to go across to the FFGs?
Vice Adm. Chalmers —They will be retrained to go across there—to go to FFGs or anzacs; in fact, most of them have been retrained into anzacs over the years.
Senator WEST —What is their bonus to stay on?
Vice Adm. Chalmers —They work for three years, $35,000.
Senator WEST —So you started two years ago offering these bonuses to the—
Vice Adm. Chalmers —No, just weeks ago.
Senator WEST —When does the last DDG go?
Vice Adm. Chalmers —2002.
Senator WEST —So the bonus you have just offered now hopefully will keep enough.
Vice Adm. Chalmers —Will just carry us through to there.
Senator WEST —What happens if you do not get enough takers?
Vice Adm. Chalmers —I am confident we will.
Senator WEST —This is a serious question; what happens if you do not get enough takers for these bonuses?
Vice Adm. Chalmers —They are not just offered to everyone; we have been offering them to specific people to carry on and do this work. We have taken into account that one of the DDGs pays off later in the year, and this bonus is being offered to cover the gap. I am confident that it is going to work.
Senator WEST —What happens to their promotional expectations if you are keeping them in an obsolete vessel that is about to be paid off in the next couple of years and you are not allowing them to get into the FFGs or the anzacs and to progress their way up—
Vice Adm. Chalmers —They will get that cross[hyphen]training when they come to the end of the time in these ships. Most people actually enjoy serving on these ships; they are real warships.
Senator WEST —You obviously have a preference for them, Admiral, but I am thinking in terms of the professional development of your people who are staying on in them. Are they going to be disadvantaged a couple of years down the track in comparison to their colleagues who have not taken the bonus and have gone across to the FFGs or the anzacs?
Vice Adm. Chalmers —No, they will not be disadvantaged. We have done this before; we did it with the destroyer escorts: when they all paid off, they were all trained. We have been doing it, of course, with the Oberon class submarines, retraining our sailors into the Collins. No[hyphen]one is going to be disadvantaged.
Senator WEST —In how many other areas have you got critical sea:shore ratios?
Vice Adm. Chalmers —I think I have actually just about been through them. Our submariner numbers overall are fairly fragile in numbers but we will be able to man all the submarines. We did know that this was going to be a problem when we got to this stage of manning. We need to man the last two of the Oberon class submarines—Sheehan and Rankin are the last two of the Collins—and that cross[hyphen]training takes a little bit of time.
Senator WEST —So you do not think that this shortfall in personnel is going to affect your operational capabilities?
Vice Adm. Chalmers —It will not affect our operational capacity. What it will do in the short term is eat into that element of preparedness which is sustainability. In other words, it will eat into the sustainability, but we can keep people at sea for the time being running at the normal rate. We are not that critical, except in those couple of areas that I have mentioned.
Senator WEST —But with the old classification of the stokers and the DDGs, if you do not have those you are not going anywhere anyway, are you?
Vice Adm. Chalmers —Yes, but we have, and we will have enough. I believe we have, just in time, got this remedial action in place.
Senator WEST —I suppose we will wait and see to assess whether it has been—
Major Gen. Dunn
—The completion bonus system is something that we have been working with for a couple of years now. It has proven to be very successful, it is most applicable in
these types of circumstances, and, as the Chief of Navy has said, the indication with the DDG sailors is that there will be a good take[hyphen]up. There has been a good take[hyphen]up on the other bonuses, and to date it would appear, as I said, that this is one of the most effective means of holding critical people in a position whilst we either run a particular capability to its end of life of type or, indeed, increase the numbers in a particular capability.
Senator WEST —You obviously need to increase the numbers in the particular capability. What is being done? I think it was you, Admiral, who said that recruitment was a bit slow.
Major Gen. Dunn —Recruitment is slow at the moment, and we have not been achieving our targets; but I would point out that one of the reasons for that is that the number of jobs that are available out in the civilian community is at an all[hyphen]time record high. That means that we have to enter a very, very competitive market because we are after particularly highly skilled people.
We are adjusting constantly our recruiting targets and our recruiting campaigns, and we are adjusting those upwards now to try and cater for the downturn in the number of recruits. It is also the worst time of the year to be advertising and recruiting people—the middle of the year. We will gear up, particularly towards the end of the year and over the Christmas period, to increase the numbers against that competition.
Senator WEST —Couldn't you have foreseen some of this drop[hyphen]off? It is not something new.
Major Gen. Dunn —We monitor the recruitment market very, very closely, and the spike in jobs availability is something where, although we saw the increases coming, the job numbers that are now available have increased rapidly in the last six months. At the same time, we have been reorganising recruiting, and we are now in a position where we are seeking to increase the recruiting effort across all three services, not just the Navy.
Senator SCHACHT —Admiral, the Navy I think was the first service to make all positions available to women—recruitment of women to combat positions—including submarine, the last, I think. Do you anticipate that when the first Collins class goes into service there will be women serving in the first submarine?
Vice Adm. Chalmers —The answer to the submarine question is yes, we have 13 women at sea in submarines now and we will have our first qualified submariner with a badge on in about two weeks time. We have not opened every category to women yet; they still have the clearance divers to go, and that is currently being staffed.
Senator HOGG —There are a few more questions, but in view of the fact that we are due to take a break between 6.30 and 7.30, and there are a couple of broad questions that we want to put in relation to a number of issues, probably for about another 10 to 15 minutes, it appears silly to ask Navy to come back at 7.30 to answer 15 minutes of questions, when they are coming back tomorrow to handle output 5. It would seem to me a sensible proposition that we can take it that for this evening we are finished with Navy; as a result, when we come back, we will commence with Army. We will ask you the other few remaining questions after we have finished with the Collins class tomorrow.
Senator Newman —Senator, thank you. Would you mind talking to the officials as to the particular areas so that you do not get Navy people who are not necessarily going to have to be there tomorrow.
CHAIR —People under output 5—Capability for submarine operations.
Senator HOGG —One is a very simple question in respect of Navy's involvement in newcastle disease on the central coast. I understand they were involved and I want to find out a bit more about that.
Mr Tonkin —That will probably come under—
Senator HOGG —The other question goes to a question that I asked at the additional estimates on drugs, and I want to pursue that.
Proceedings suspended from 6.31 p.m. to 7.34 p.m.
ACTING CHAIR —The committee will resume with outputs 10, 11, 12, 15, and group 3 Army, taken as a block for the purposes of the questions this evening.