CHAIR (Mr Bevis) —I declare open this public hearing on the review of the Defence annual report 2007-2008, conducted by the Defence Subcommittee of the Joint Standing Committee on Foreign Affairs, Defence and Trade. The subcommittee, during the course of the day, will scrutinise a number of aspects of Defence operations. This morning we will hear from officers of the department involved in procurement and capability development, and then later in the day we will hear from those involved in recruitment and retention, human resources and pay systems. They are important areas of Defence’s activities. They are clearly not exhaustive, and it is most likely that the subcommittee will conduct further hearings next month. The subcommittee appreciates that necessary duties have taken relevant senior officers away from what would have been their appearances here before the committee—in some cases away from the country. We understand that. Even without that we probably would have, as we have in the past, ended up with another day or so of hearings, but clearly in the absence of a number of senior officials we will look to get together at a mutually convenient time next month where those relevant senior officers can also participate.

The first session is dealing with defence procurement, and I would like to invite those members of the department involved in giving evidence to the subcommittee on defence procurement to take their seats. I welcome the representatives. Whilst the subcommittee does not require you to give your evidence on oath, I should advise you that these hearings are legal proceedings of the parliament and therefore have the same standing as proceedings of the respective houses. Would you like to make any opening statements for the benefit of the subcommittee in these hearings?

Mr Gillis —No, not at this stage. Noting the shortness of the time available to the subcommittee, I think it is appropriate for you to ask us questions.

CHAIR —I guess that in many respects you guys are in the interesting part of the hearing process, because there is always lots of money flowing through defence procurement. The top 30 projects get special mention here and in the Joint Standing Committee on Public Accounts and Audit and get special notoriety with Auditor-General’s assessments as well as provision in the annual report. I know there are a number of matters I am keen to pursue, but before I take the chairman’s prerogative in kicking off are there any questions that other members of the committee would like to raise?

Mr BALDWIN —I ask the people who are involved in intellectual property—the BAE/Hornet upgrade program at Williamtown—to come to the front.

CHAIR —It is a matter for the department officers as to who wants to answer, but given that you are going to be asking questions about that there is no problem in having others at the table.

Mr BALDWIN —I ask you at the very beginning to provide us with an update on the issue in relation to the contractual arrangements with the contract that was let to BAE and then taken back from BAE because of intellectual property in relation to the Hornet and the contract pertaining to Williamtown.

Air Vice Marshal Thorne —The short answer to that is that the contract with BAE was signed last week, so the matter is now settled. When you last examined the issue, of course, there was some uncertainty about whether or not BAE had the intellectual property to sign a contract and there was some toing and froing and some examination of the legal contract behind that. We were able to sign that contract with BAE and L3 as a partner in that contract last week.

CHAIR —So there are no outstanding issues of intellectual property rights with Boeing in relation to the F18 and this contract?

Air Vice Marshal Thorne —No, there are not.

CHAIR —They have signed the intellectual property right over to BAE? I understand that there was an issue —as provided by Boeing—that the carriage of the intellectual property, even though they are in a joint-venture in Canada with L3, did not actually carry through to Australia.

Air Vice Marshal Thorne —That was what was reported at the time. As it transpired it appears that when L3, the party that was in coalition with BAE Systems Australia, examined their intellectual property rights they found that they had, for the Australian component, rights in perpetuity. So, it is on that basis. There were some conditions on those rights which have been honoured in the contract that we have signed with BAE. But, no, that issue has not come to play.

Mr BALDWIN —Have there been any damages claimed for the delay in the contractual arrangements?

Air Vice Marshal Thorne —No, there have not been any delays in the contractual arrangements. We did not suffer any damages. We had interim arrangements that were signed with both BAE and Boeing to fulfil the work that was needed to be done in that interim period and we will shortly transition to the new contract arrangements.

Mr BALDWIN —For the clarity of the whole of the committee, can you actually outline what this upgrade program will contain in relation to that now the contract has been assigned to BAE?

Air Cdre McPhail —There are two contracts that have been let recently, and they may tend to get confused. The first one is the one that has just been signed by BAE with L3 as a partner. That covers the structural refurbishment elements of the Hornet upgrade and some of the routine servicing. That is the contract that was signed last week. Boeing has just been selected as the preferred tenderer for a second contract which is the incorporation of electronic warfare upgrades of the fleet. They are the preferred tenderer and we would expect that worked to commence in May. So both BAE and L3 will be working on Hornets and Boeing, if they are successful with the contract negotiations, will work on the electronic warfare upgrades.

Mr BALDWIN —Do you know at this stage where Boeing will be conducting that work on the F-18s?

Air Cdre McPhail —At Williamtown in the government hangar.

CHAIR —I turn to some of the key projects—the top 30 projects, details of which were in the annual report. The air-to-air refuelling was something that we spoke about in the last annual report review as well. Can you give us an explanation of the reason for the substantial variation between budget estimate and actual expenditure and tell us where that project is now?

Air Vice Marshal Thorne —The main reason for the difference between budget estimates and actuals had to do with a stop-payment. By that I mean that in contracts like the air-to-air refuelling, we have major stop-payments on critical milestones; if they are not reached, we do not pay beyond that. Broadly speaking, that contract is half milestones and half earned value payments, and when we hit a stop-payment we stop paying both the milestones and the earned value payments. There are a series of stop-payments in that contract, and we have released one of those stop-payments and recovered some of that underspend. We anticipate, however, that before the contract is finished we are likely to encounter other stop-payments on that contract.

On the status of the project at the moment, we need to be careful about which aircraft we are talking about here. The prototype aircraft, which is being put together in Getafe, near Madrid, in Spain, was completed and flight-test ready in December of last year and is undertaking testing in Spain as we speak; it is in flight tests at the moment. The second aircraft is in conversion at the Qantas Airways conversion centre in Brisbane Airport and is expected to be completed in about July, with some additional work probably going through till September. It is our plan at the moment that that second aircraft will then be flown to Spain to join the test program, and we will have a two-aircraft test program through the latter part of this year.

CHAIR —To put that into context, with the scheduled program of acceptance of the aircraft and its entry into service, as opposed to the now anticipated acceptance of aircraft, what sorts of delays are we looking at?

Air Vice Marshal Thorne —We are anticipating a delay of between six and 12 months at this stage over what was previously anticipated.

Mr KELVIN THOMSON —Is it appropriate for me to ask questions about the Seasprite?

CHAIR —By all means.

Mr KELVIN THOMSON —The Seasprite project was cancelled in March last year. Its problems seem to have centred to some degree on software development. Are there any lessons or do you have any view, given the experience with the Seasprite project, about the management of complex software development tasks?

Major Gen. Fraser —The biggest issue for integration, as you quite rightly point out—the biggest task—was understanding the risk and difficulties of integrating a complex software system into an older analogue airframe. On those issues, we started without being able to make that true assessment carried through. Some of these issues will be reported in the ANAO report coming up shortly as well. It was our ability to solve those that faced us with the greatest challenge, both in the tactical system for the combat system and in the flight control system.

Mr KELVIN THOMSON —This was a unique project. Does that increase the risks? Do you think that there are issues in relation to projects meeting specifically Australian needs that increase the risks?

Major Gen. Fraser —You are right, Mr Thomson. This project was first developed in 1994 and a contract signed in 1997. Since then, and since the formation of DMO in 2000, we have had the Kinnaird review and the implementation of that from 2003 onwards. Indeed, the Mortimer review will strengthen that to make sure that we truly understand what those risks are and, where necessary, still take an appropriate level of risk but make sure that appropriate resources, schedule and cost are apportioned to the risk reduction requirements for the introduction of that equipment.

Mr KELVIN THOMSON —In what circumstances do you decide that equipment needs to be customised to Australia or Australianised? What are the criteria for when that is warranted?

Major Gen. Fraser —I will take the lead on capability development. Clearly there is a strong push for us to try and take off-the-shelf where we possibly can. If we take the Chinook, for example, we have kept that at US-standard configuration as closely as possible. That has provided us with an aircraft with some modifications specific to Australian airworthiness requirements or to our requirements. For the Chinook, for example, we fitted some hoists to it; the standard US Chinook does not have a rescue hoist. Because we have so few helicopters, we tend to multirole them more than, perhaps, the US might. So we try to keep those sorts of modifications to that level.

Mr KELVIN THOMSON —Do you have any other examples of where Defence needs to acquire customised military equipment?

Major Gen. Fraser —For some smaller parts, such as crash locator beacons and those sorts of things, we tend to have a slightly higher standard than some other areas. I go back to the Chinook. In the same year that a contract was signed for Seasprite the UK ordered Chinooks for their special operations as well. Recently reported were the difficulties they had trying to integrate the software into that particular aircraft. Those aircraft have still not entered service, and they are going to demodify them back to standard Chinook configuration because of the certification issues. So it is certification to our standards that is as much an issue for us as it was to the UK to their standards, to make sure that we are quite comfortable in the safety and the flight control for those purposes.

Mr KELVIN THOMSON —Here is the final question from me on the Seasprite project. There was a newspaper report back in March last year suggesting that an agreement with the prime contractor meant that Australia could recoup $40 million from that project. Is that right, or have there been any developments in that regard?

Major Gen. Fraser —What we negotiated between command and ourselves was that command would take ownership of the aircraft and equipment to try and resell them and provide us with some funding back. That was subject to US government approval. That US government approval was obtained on 6 February this year, and the transfer was exchanged for bank guarantees on 12 February this year. Command are actively marketing the aircraft and equipment at this point in time, and we have started to get some flow of sale from some of those parts. It is a small amount at this point in time, but we are comfortable that they are at least trying to sell them. We are working cooperatively with command to maximise the best possible sale value, but command is taking the liability and the warranty issues, to rectify the issues that we were not able to bring the aircraft into service for. It was $39.5 million, just to clarify.

Mr BALDWIN —I understand from a newspaper article only a matter of weeks ago that there has been a contract signed for the sale of the Seasprites.

Major Gen. Fraser —No, that is not the case. There is no contract yet for the sale of our Seasprites. I am not aware of any others.

Mr BALDWIN —It was in one of the US clippings. I think it is called Defense Industry Daily.

Major Gen. Fraser —They might have misinterpreted the marketing activities and/or the fact that we had gained US government approval and that US government approval was required in order for command to be able to sell the aircraft. That in itself was a major activity because that is not normally provided. There is a rule in the US that prevents the original equipment manufacturers from taking back the aircraft and/or equipment to be able to sell them. So to achieve that has been something that we think is quite useful, clearly, to enable command, in particular, to be able to sell the aircraft.

Mr BALDWIN —One of the perennial issues in relation to military acquisitions is a thing called scope creep. How much did scope creep play in the demise of this aircraft?

Major Gen. Fraser —With Seasprite the issue was, right from the word go, trying to integrate sophisticated tactical systems and digital flight control systems rather than any change of scope.

Mr BALDWIN —I understand the New Zealanders are flying them with analogue systems—is that correct?

Major Gen. Fraser —That is correct. It is a standard configuration. Similar to the example I provided on the UK Chinook issue, we ended up going that way versus taking a straight-off-the-shelf issue. Out of the Mortimer review and out of other things, it is certainly driving our higher appetite for off-the-shelf ware that can possibly be done.

Mr BALDWIN —Much was made in the media at the time about the age of the airframes. What was actually the problem?

Major Gen. Fraser —The issue was just trying to integrate and certify to Australian standards. Our expectations changed, the contemporary standards changed over that period of time, informed by the two major helicopter accidents that we had during that period of time. So the Australian appetite—both the military and public perception—was for a greater degree of certainty about the certification and other issues for the aircraft.

Mr BALDWIN —As I understand it, the air frames were rebuilt, the engines were rebuilt—basically, they were stripped right down to every component, checked and rebuilt. So was it more of an issue of software integration, or was it one of structural integrity?

Major Gen. Fraser —It was primarily the issue of integration.

Mr BRUCE SCOTT —Thanks to Defence for being here this morning. My first question is about the Hornets upgrade. Can you tell the committee which aspects of the Hornet upgrade are affected by the problem of intellectual property and whether the problem has been resolved, and whether it can be resolved?

CHAIR —I asked a question about this this morning.

Mr BRUCE SCOTT —Sorry I was late.

CHAIR —For Mr Scott’s benefit, you might give a quick answer.

Air Vice Marshal Thorne —You used the words ‘Hornet upgrade project’. Really the IP issue had more to do with repair and maintenance of the aircraft, what we call a maintenance and modification project. The issues with that but are now resolved. We signed a contract with BAE Systems Australia and L-3 last week for that maintenance. L-3 was the main provider of engineering services under that arrangement and the IP was under a cloud and they managed to resolve the situation to satisfaction, and Boeing are not opposing that at the moment.

Mr BRUCE SCOTT —I want to ask something about the UAV, if I might, the unmanned aerial vehicle. Could you tell the committee why arrangements to buy the UAV capacity for the ADF were terminated? What is the current state of moves to acquire the UAV or is it totally terminated and of no interest?

Air Vice Marshal Thorne —Can I clarify whether you are talking about the tactical UAV under JP 129—

Mr BRUCE SCOTT —JP 129.

Air Vice Marshal Thorne —The reason for contract termination really had to do with lack of performance on the part of the contractor and the subcontractor. We have not terminated the project; we have just terminated the contract. At the moment we are attempting to restart that contract. We are looking at what our contemporary requirements are for that project and whether there is any adjustment needed. Fundamentally, we were reaching a point where the company, Boeing Australia Ltd at the time, and its subcontractor IAI MALAT of Israel were not converging to a solution and we were falling behind at a rate greater than we were progressing.

Mr BRUCE SCOTT —How important is the UAV to the ADF and what sort of role do you think it would play when we acquire them?

Vice Admiral Tripovich —In my role I am the sponsor for all the projects before they get first and second pass approval. The UAV is applying a very important role at the moment and we are operating with and using and accessing some ally resources in the UAV. They provide intelligence surveillance and reconnaissance in the battlefield. A summary of where we are on this project now, as Air Vice Marshal Thorne said, is that the contract was cancelled. It came back to me to have a close look over our requirements to make sure that the requirements are still valid and if there are any requirements that we needed to change, as a result perhaps of our experience through that contract or contemporary experiences in the field, where we would want to adjust our requirements. Certainly we are taking a very pragmatic approach to our requirements now, having learned a lot through that first contract. We have agreed the requirements now and are working closely with the DMO to be able to get a request to tender out to the industry again, to start the process. I might say that we are working at an accelerated process so that we can get quickly back into contract with the appropriate solution and getting into service. In the meantime we have UAVs in service but on lease and those that we own in the field and so there is no loss of capability, if you like, for current operations.

Mr BRUCE SCOTT —So you accelerated the process of looking at how we would acquire one based on our operational needs.

Vice Admiral Tripovich —That is right. Government has given a second pass for a particular solution at a particular cost. That solution was not successful, so we will have to come back to government with a new solution and a new cost to get them to give us a new second pass approval, if you like, then go on to contract for a new UAV.

Mr King —Following up from Mr Thomson’s question as to whether we are learning lessons, I think the identification of the difficulties of JP 129 is an example that we are. We are doing internal reviews to make sure programs are keeping track. This one highlighted that there were difficulties early. In fact, when we looked deeply they would not have been overcome. So, instead of inheriting a program that may be around three, four or five years and then find we had troubles and leave the ADF short of capability, our new processes actually found that there were difficulties. We took proactive action with capability development, the Chief of Army, terminated the contract early and are now moving outside. I think we would like to use that to highlight the fact that we are learning lessons and we are addressing programs’ difficulties early.

Mr BRUCE SCOTT —Thank you.

CHAIR —I appreciate that we are probably traversing the first two listed topics between DMO and capability development, but I think it suits everybody’s purposes if we do that. Unless somebody has a problem I am happy to let that process continue. We will deal with it in that way.

Mr ROBERT —General Fraser, I wish to ask some questions about ARH, MRH90, the Seahawk replacement and Caribou. Firstly, in relation to the ARH you would be aware that the defence committee visited Oakey and the manufacturing facility and we were reasonably impressed with how things are going. We dealt with slippage issues at the last committee meeting. Are there any other issue that might cause slippage on which the committee has not yet been briefed?

Major Gen. Fraser —It is tight schedule for us to achieve the September milestone this year and it is based on a test and certification to finalise the aircraft to hand them over in a complete stage to army for its initial operational test evaluation. As you recall, in the middle of last year we based three aircraft in Darwin and that has been successful. The issue with that and the aircraft in Adelaide is that the rate of effort is not quite as high as we would like to continue the flying rate of effort. No major issues are confronting us. We are comfortable with the contractors. The relationship with the contractor is the result of the resolution of the dispute and the deed of agreement and it has given us confidence in schedule and their ability.

Let me give you an example of the mature reading of the aircraft. In January this year we put a new software load into the aircraft. It used to take three weeks to complete its verification but it took us one sortie of 1.2 hours. Software was taken from France through our software facility based in Australia and it was then put into the aircraft and it performed as predicted. To me that revealed that the aircraft has reached a level of maturity that I would regard as off the shelf. It is now just a matter of keeping up with the work rate in order to achieve the milestones.

Mr ROBERT —As some of the integration issues were covered by defence projects, how has the integration of Hellfire and the gun and rockets gone?

Major Gen. Fraser —For most we went for off the shelf. However, here we took a United States weapon system which gave us great concern about the issue that was raised earlier by Mr Thomson. We made sure that we resourced and adequately integrated this higher risk concern and it worked exceptionally well. We have now fired 13 Hellfire missiles out to between six and eight kilometres. The most it has been inaccurate at eight kilometres has been 33 centimetres from the centre of target. Wherever the laser is pointed that is where it hits. That integration has gone exceptionally well. Indeed we have cooperated with our French equivalent DGA. We facilitated them to be able to fly and fire the missile from the aircraft. As a result of that information they were able to make an informed decision. They are now going to equip the second lot of their aircraft—40 odd aircraft—with Hellfire as well. That will help us considerably with the software development across a larger pool and the upgrades to the aircraft needed to keep that weapon and the aircraft relevant.

Mr ROBERT —Was that 33 centimetres of target over eight kilometres, General?

Major Gen. Fraser —That was over eight kilometres.

Mr ROBERT —How does that compare with testing of Hellfire on United States platforms?

Major Gen. Fraser —It is consistent with wherever the Hellfire sits. Of course I need to be careful with this. However, it is consistent with the weapon system of that missile.

Mr ROBERT —Were there any integration issues with the gunner?

Major Gen. Fraser —No, the gunner has been outstanding. It is designed as an air-to-air weapon system and the software for that is outstanding. It has been able to prove its testing on the higher speed envelope for the full left and right. As you saw during your visit you can slave it, so wherever the pilot is looking it is slaved to the helmet. That in itself is a significant technology leap for us in the helmet system and for army aviation operations in particular as the helmet is also used for sighting systems and weapons engagement processes. That in itself is above what the others in the world are using in Tiger.

Mr ROBERT —How has the army been receiving the rocket array as part of its open system?

Major Gen. Fraser —The rockets have an issue. We have not yet completely resolved the rocket issue. We are not satisfied with the efflux out of the rocket and some work has been done to reduce that. We have a testing plan for that in about three months time.

Mr ROBERT —I am led to believe by the manufacturer that the helicopter can fly upside down. However, army has assured me that we do not have a plan to do that.

Major Gen. Fraser —It is not planned for us to do that normally, no.

Mr ROBERT —Nice.

Mr Gillis —Mr Chairman, I think it is appropriate to reflect that two years ago the DMO set up a specific helicopter systems division to answer that question about resourcing, ensuring that we have that important capability, which our helicopters required for the ADF. We have a specific division with those resources led by an experienced general in army aviation, and with a team of aviators and senior project managers who are managing that area. The sorts of performances we are seeing now on these new platforms are a testament to that resourcing.

Major Gen. Fraser —I concur.

Mr ROBERT —General, I believe that the French are going to deploy a helicopter to Afghanistan; is that correct?

Major Gen. Fraser —The announcement that France has made is that it is considering deployment but it has not formally announced a deployment of the aircraft. We will wait to see what is to be done. Clearly, that carries resourcing implications and lessons. We are cooperating closely through an army-to-army relationship. Our relationship with France on Tiger development in particular has been excellent. They are continuing to feed us information, as indeed we are to them, on aircraft development. We will wait to see where that goes. Clearly, there are lessons for us if that were to occur.

Mr ROBERT —Can I assume, General—which is a dreadful phrase to use—that if the French were to deploy a Eurocopter overseas that obviously you would be leading a team of some sort to closely evaluate how it goes in Afghanistan?

Major Gen. Fraser —We have had discussions with France if it does deploy that we would be seeking to gain those lessons and perhaps visit and locate. As you know we have two Chinooks across there serving with our soldiers and performing exceptionally well. We will continue that cooperation with France to gain those lessons as best we can on Tiger operations in Afghanistan.

Mr ROBERT —Notwithstanding any commercial in confidence, and if there is, please tell the committee, is France happy for you to take a team over there if indeed it deploys a Eurocopter into battle?

Major Gen. Fraser —It is a different issue. It is an army-to-army issue and security aspects would be associated with that. My understanding is that France would be happy to receive that at the appropriate time. Like all of us, I think if you are up for an initial deployment you would be pretty much focused on that. At an appropriate time we will ensure that we get the information. France has offered to provide the information to us.

Mr ROBERT —I am happy to move on to MRH90, unless the committee wants to discuss ARH at all?

CHAIR —Any questions on transport? You referred to the committee’s recent visit to Oakey. I should take this opportunity to thank all those involved. It was a particularly interesting and enthusiastic day for us. The quality of what we saw is exemplified in the sorts of program outcomes that have just been described. Members of the committee and I suspect defence can learn a lot from the high cutting-edge good quality stuff coming out of there—not the sort of thing you normally hear at a defence committee hearing of this kind. We place our thanks as a committee on the record for the work that is being done there.

Major Gen. Fraser —Thank you Mr Chairman. I will make sure that I pass that on. Clearly, a lot of people have been working long hours over time to ensure that we develop this capability for the army.

CHAIR —You tend to get plenty of brickbats but not too many bouquets in these sorts of areas.

Major Gen. Fraser —Thank you, Mr Chairman; it is greatly appreciated.

Mr ROBERT —I refer to the MRH90. Last time we met the committee was ecstatic—and I do not use that word lightly—to hear about its second and third customer, that it is first of a type, that it is on time and on budget, and that it is almost a dream project. Can we still say the same about the MRH90?

Major Gen. Fraser —For us the MRH90 has been typical for the other countries that are ahead of us Mr Robert. The rate of effort has not been to the level that we would desire, in fact, not to the level that we require to meet the training requirements. We believe that we will still achieve navy’s milestone in the middle of next year for its initial operational capability of first aircraft at sea. At this point in time the army training is behind. The contractor input—I think you were briefed by the chief executive officer of Australian Aerospace, and I found that company to be very open with how it is approaching these issues for MRH90 rate of effort—has some initiatives on offer that we will take to try to restore the rate of effort to what it should be in order to catch up. But at this point in time we are behind schedule for army.

Mr ROBERT —Do you have any idea of what the schedule application is, if at all?

Major Gen. Fraser —If it continues as it currently is, it will be six months behind schedule for what was to be an April 2011 milestone for four aircraft—a deployable troop of four aircraft for army. Therefore, at the moment we are looking at a September or October time frame. We will take as much action as we can to recover that, but that is where it currently sits, due to the low rate of effort.

Mr ROBERT —My understanding is that we have four airframes currently in Townsville. Is that correct?

Major Gen. Fraser —We have accepted five aircraft now and they are all in Townsville. There are five and we are about to accept the sixth aircraft. In order to recover some of that one of the things we have done is to deploy the crews across to simulator training. Last time we met I think your question was specifically about being able to use simulators. We are using overseas simulation—it is a generic simulator—whilst ours is being constructed.

Mr ROBERT —Noting that the ARH simulator is accredited to the highest level, which means that an hour in the simulator is the same as an hour in the frame itself, is the simulation we are using for MRH90 of an equivalent standard?

Major Gen. Fraser —It will be, Mr Robert. It will be the highest level of fidelity, the level 5 level D accreditation that we are working towards.

Mr ROBERT —As we now have five airframes working at level 5 aviation, are the soldiers happy with it? Have we learned some lessons?

Major Gen. Fraser —The aircraft will be outstanding. We are yet to gain army’s confidence with the aircraft. Let me use the analogy of either a Ford or a Holden driver. Once you have been brought up in that way it is difficult to change over to another aircraft or another type when it is brand new. We require it to be performing to the best of its standard and it is not yet there. We will do that; we will gain their confidence by getting them some rate of effort. The outstanding features of the MRH90 will take it past the uses to which we are currently putting our aircraft, with weather radar and with a forward looking infrared system. It has available a large cabin and a ramp. We are yet to gain their confidence but we are working to do that and we need to prove that through the project, and working with the contractor to develop this rate of effort to the level that it should be.

CHAIR —Does anyone else have any questions on MRH90?

Mr ROBERT —I could move on to the Seahawk replacement, General. Currently, what is the military’s province of your role in DMO and what is the military’s plan for Seahawk replacement?

Major Gen. Fraser —I will ask Admiral Tripovich to answer that question but I will refer to the fleet issue of the current Seahawk. We have taken action to improve part of the Seasprite cancellation to try to improve the rate of effort. We have been successful in increasing the aircraft availability of Seahawk until a replacement is provided, whenever that is to be.

Vice Adm. Tripovich —The project is pre-first pass. In the first of what might be a frequent response to you today, unfortunately, we will have to wait for the white paper. Wherever I can I will be able to give you some information. A project will replace the Seahawk helicopter called AIR 9000, Phase 8 which exists in the current DCP. The white paper will have examined the type of aircraft we need and the numbers. As a general response to most of your questions for capability development, following the white paper a new defence capability plan will lay out the projects for the next five years or so, and the details of timing, years of decision, level of investment and number of aircraft will flow from it. We are working fast at a plan to be able to react to that.

Mr ROBERT —What is the current plan for the phase out of the Seahawk? What year does end of life happen on the frame?

Vice Adm. Tripovich —I think it is around 2016 or 2019, Mr Robert.

Major Gen. Fraser —The issue for us is to ensure that we can carry obsolescent management through to that point in time. We have some parts that are more difficult to obtain, which is all the more reason for us to go off the shelf wherever we go if there are some unique parts. Right now we are trying to work through those. An assurance program is under consideration to extend the life of the current components to make a life of type for the Seahawk.

Mr ROBERT —On the extension of life through to 2019 is this only a component extension, or is it an avionics upgrade, an electronic upgrade, or an integration of different systems?

Major Gen. Fraser —I need to be clear on this as my expression is probably not right. Currently the Seahawk has a life of type through to 2019. In fact it was originally through to 2025. We are looking at things such as the flight control computer and we are trying to upgrade the flight control computer to ensure that it continues in reliability as much as anything else. We are keeping the parts for it and the radar for it up to specification.

Vice Adm. Tripovich —Just to make it clear, there is no upgrade project for the Seahawk because of its life of type. As General Fraser described it, it is a capability assurance program to make sure we retain the level of capability in the Seahawk until the end of its life. To do that, as the General said, components will have to be replaced because of their obsolescence. Sometimes, by replacing old with new you get a lift in capability, but it is inherent; it is not your objective, if you see what I mean.

Mr ROBERT —Can I paraphrase you, General, to say that defence has no plan to implement a project that will upgrade the Seahawks, apart from those minor upgrades to flight control computers, radar and those sorts of things?

Major Gen. Fraser —that is correct, to ensure the level of capability until the end of its life will not be replaced by the replacement helicopter through AIR 9000 Phase 8.

Mr ROBERT —How long does a normal replacement helicopter for the navy take from design through to acceptance certification and delivery?

Vice Adm. Tripovich —It would vary depending on certain issues. The left-hand of arc obviously is the Seasprite experience and the right-hand of arc would mean that you bought a helicopter or any aircraft or platform off a production line that is already there. I guess the right-hand of arc would be something like the C17 program where we bought an aircraft off a production line—in fact, off a slot that was already in a production line. So we were able to bring it into service very quickly.

Mr ROBERT —I am cognisant of the fact that you have only 10 years, which sounds odd in itself.

Vice Adm. Tripovich —Kinnaird talked about spending time and effort and, importantly, money, to get your facts right before you go to government and second pass. That is really important. In the bad old days, 10 or more years ago, we went to government to get its agreement before we knew what the requirements were and before we knew what were the costs or the risks. In the old days they would claim that you got approval from government very quickly. But then we were doing a lot of stuff that we should have been doing before we went to government. Now we frontload all that effort and it takes a long time to get to second pass.

The theory is that you have a request for tender or an offer from an FMS case, or a foreign military sales case, and you know the risks, the costs and the schedule, and you have sufficient provision. Theoretically, shortly after the government gives approval you can come back and sign a contract and get going. The decision point has moved further out but the action you have to take to activate the government’s approval can happen relatively quickly. Once again, it depends on the maturity of the solution and whether or not any more work has to be done. With the C17 you are literally buying them off the shelf.

Mr ROBERT —Can I assume, Admiral, that you remain confident that it will have a process and a capability cognisant of government’s approval that will seamlessly move through to a 2019 replacement?

Vice Adm. Tripovich —Absolutely.

Mr ROBERT —I am happy to move on to Caribou and to AIR 9000.

Mr BALDWIN —I have a question relating to Land 121 Phase 4. It was revealed that in October the government gave $40 million to split amongst three United States consortiums—to AM General, General Dynamics Land Systems; to Lockheed Martin and BAE Systems Holdings Division; BAE Systems of York, Pa; and Navistar. That was to develop nine prototypes—three from each—for the joint light tactical vehicles. Who in defence made the decision not to include or provide an initial RFP to Australian industry and, in particular, to Thales, given their success with the Bushmaster program to be involved at that stage?

Vice Adm. Tripovich —I am responsible for taking the proposals to government. Just to clarify, the government has approved that we participate in the joint light tactical vehicle program, which is a United States program. We have contributed our money to their money and their program has selected those three companies to deliver a number of prototypes for evaluation. As part of the number of prototypes that will be delivered, nine of them will be delivered right-hand drive, for example, for us to test some Australian requirements. But it is part of the entire program. A lot of what we will be doing is testing for the United States, and a lot of what they are doing on their left-hand drive vehicles is testing for us. It all comes under the one program.

The United States program office conducted an evaluation and chose those three contractors to deliver the prototypes. The phase that we are in is purely prototyping to see what will be the requirements. The United States program, in doing its project, will then release a tender and go back to the market. We are leveraging off the considerable investment that the Americans are doing and we are getting the benefit from that. When we went to government no Australian development program was known to us. It was only after the government gave its approval for the joint light tactical vehicle that Thales popped up its head and said, ‘We have been working behind the scenes.’

As a result we have approval to release a request for proposal, and we are in the process of doing the paperwork to see which companies are available in Australia that might be able to perform similar activities in Australia. It is a request for proposal and we will see what proposals come back. When we get the proposals we will go back to government and tell it whether or not there is any substance to these proposals.

Mr BALDWIN —Which vehicles in the Australian military are these designed to replace?

Vice Adm. Tripovich —The B-class vehicles which I would describe as lightly armoured.

Mr BALDWIN —How many seats? What is the seating capacity?

Vice Adm. Tripovich —There are various forms from transport that carries about six people down to what I would call a two-seater that carries one tonne of stores. There are various configurations. Basically, there are four configurations at which we are looking.

Mr BALDWIN —What will be the requirement of the Australian Defence Force for these joint light tactical vehicles?

Vice Adm. Tripovich —Around 1,200.

Mr BALDWIN —Given that the former government and this government both championed the quality of the Bushmaster project, did people in defence not consider that it might have been worth talking to them at the same time?

Vice Adm. Tripovich —We consulted industry, as we do with all these projects, to see whether or not anything is out there. At the time nothing was being proposed and nothing was on the horizon for us to say to government, ‘An Australian alternative is being worked out.’ Trust me—

Mr BALDWIN —With respect, there is no United States alternative; they are developing prototypes.

Vice Adm. Tripovich —Correct.

Mr BALDWIN —Why did the department of defence not go to Australian industry, which has a proven track record, and ask, ‘Do you have the capacity to build this to design technology, to develop a prototype along the same lines and with the same requirements? ‘

Vice Adm. Tripovich —We joined the joint light tactical vehicle program which had been underway for a long time and there was nothing else on the market. Nothing else was going at the same time. Australian industry did not have—

Mr BALDWIN —Did you simply ask Thales or its previous variant before Thales bought it? I do not know what your involvement in the joint light tactical vehicle has been. Did you ask them at any time whether they had the capacity, a design, a draft, or an opportunity?

Vice Adm. Tripovich —I did not. I will take on notice your question to establish whether or not we asked them for that.

Mr BALDWIN —I would like you to come back to me with information on that. After discussions with people at Thales I am concerned that they were not even approached. The first that they heard about this was the release that came out of the United States declaring that $40 million of Australian money had been invested in a United States prototype project. Are you considering providing comparable funding to Australian industry to develop its prototype so that it can be on a level footing?

Vice Adm. Tripovich —We are awaiting our proposals but it is certainly something that we would consider. Trust me: if the proposal—

Mr BALDWIN —Hang on, I am the politician; I am the one that you should trust.

Vice Adm. Tripovich —As long as you say, ‘Let me reassure you.’ Let me reassure you that if proposals come back that would allow an industry involvement we will take that back to government. It would require money to facilitate it and that is something we would be recommending to government. However, it is for the government to decide whether or not to do that.

Mr BALDWIN —Given that the Bushmaster program has now been acquired by the Dutch—I think the British have them under order and I am not sure who else—surely there was an opportunity for such a prototype to be developed and perhaps we could have sold that to the Americans.

Vice Adm. Tripovich —With respect, it would be up to Thales to make that decision, Mr Baldwin. The important thing is that now that we know there is an opportunity, we are moving quickly to get a request for proposal out and to get industry to tell us what it can do.

Mr BALDWIN —When did those in charge of the project determine that there was an Australian capability?

Vice Adm. Tripovich —One of the senior directors from Thales came to my office and gave me a rough sketch outline of a proposal on which he had been working.

Mr BALDWIN —When was that?

Vice Adm. Tripovich —Maybe a couple of months ago; in that sort of time frame.

Mr BALDWIN —When does the RFP go out?

Vice Adm. Tripovich —We are aiming to get it out by the end of the month.

Mr BALDWIN —Just so that I can be assured, looking at Australian defence industry, there will then be an opportunity for those that put in an RFP that is successful to attract financial support from the government for the development of their prototypes?

Vice Adm. Tripovich —We will look at the proposals when they come back, but I imagine that if those proposals required some financial contribution to enable them to be fairly developed I think I would be making that suggestion.

Mr BALDWIN —Would you consider it to be a bit of an unlevel playing field if we are providing $40 million to the United States to develop prototypes at the expense of Australian jobs and industry if we do not provide comparable funding to Australian industry to develop its prototypes?

Vice Adm. Tripovich —I think a level playing field is a good way to describe it.

Mr BALDWIN —Sorry?

Vice Adm. Tripovich —I think it is important to have a level playing field. As I said, depending on what comes back in the proposals, we will consider them and make some recommendations to the government.

Mr BALDWIN —Just so that I am clear, it is for around 1,200 or 1,300?

Vice Adm. Tripovich —It is 1,200 to 1,300, yes; it depends on the combination.

Mr BALDWIN —Is there basically a one tonne or two tonne capacity vehicle?

Vice Adm. Tripovich —The vehicle is designed to carry loads. It is designed to carry one tonne.

Mr BALDWIN —Basically, it is a replacement for the Land Rover?

Vice Adm. Tripovich —That is correct.

Mr BALDWIN —Are there specific blast deflection requirements?

Vice Adm. Tripovich —They will have to meet contemporary requirements from our lessons learned in the Middle East.

Mr BALDWIN —How many kilograms of explosives in an IED will they be required to be able to withstand?

Vice Adm. Tripovich —It is described in a standard NATO standard. I do not have the precise details in front of me, but it not as heavy as you would imagine a heavy armoured vehicle to be.

Mr BALDWIN —I understand that the Bushmaster has to be able to withstand 12 kilograms of explosives and the comparable measurement of a vehicle is one tonne of vehicle weight for one kilogram of explosives. I also understand—and I ask you to confirm this for me by taking this question on notice—that this vehicle has to be able to withstand seven kilograms of explosives; therefore, it will weigh in the vicinity of seven tonnes.

Vice Adm. Tripovich —I will check that in the break and get back to you.

Mr BALDWIN —I look forward to your comments.

Senator O’BRIEN —You outlined certain steps to the project and you referred to the decision making to enable you to engage in the project with the United States. When the decisions were taken for those steps and the timeline subsequently there was an engagement with Australian industry in relation to a similar—

Vice Adm. Tripovich —It is probably best if I obtained those statistics in the break, Senator.

Senator O’BRIEN —I am happy for you to do that or to take that question on notice.

CHAIR —After the break we might look also at one of the issues that I flagged in correspondence with the department about how we go about identifying Australian industry capability. Mr Robert had a further question that might involve General Fraser.

Mr ROBERT —We can finalise the Caribou and then come back to the issue of armoured fighting vehicles. I believe that the Caribou is being withdrawn from service some time this year? Is that correct?

Air Vice Marshal Thorne —That is correct, by December 2009.

Mr ROBERT —What is defence’s plan to take up the slack for the capability loss?

Air Vice Marshal Thorne —There is a plan for an interim light transport capability—the lease of five B350 King Air aircraft. Obviously that does not completely replace the Caribou’s capability and, in time, the AIR 8000 Phase 2, the light tactical aircraft, is intended to do that.

Mr ROBERT —Are the B350s short take off and landing aircraft?

Air Vice Marshal Thorne —No, it is not. I have some statistics with me which are 3,300 odd kilometres, and 35,000 feet maximum cruise speed at 578 kilometres an hour. It is quite a capable light transport aircraft, mainly for passengers and not for cargo.

Mr ROBERT —Can it take a tractor?

Air Vice Marshal Thorne —No, it cannot.

Mr ROBERT —Can it land on all the airstrips in the Torres Strait?

Air Vice Marshal Thorne —I would have to take that question on notice, but I would imagine so. I think the main difficulty it would have is high altitude short strips in Papua New Guinea and the like.

Mr ROBERT —So it would struggle with the Fogey airstrip in Papua New Guinea?

Air Vice Marshal Thorne —Yes.

Mr ROBERT —Can it land on all airstrips on which a Caribou can land at ground level?

Air Vice Marshal Thorne —No, it would not.

Mr ROBERT —So it will struggle with things like Mabuiag Island and places such as that? I am cognisant of the 51 FNQR uses of Caribou to move troops and equipment, tractors for islanders, and mobile mammography machines in support of medical work up north and so on?

Air Vice Marshal Thorne —Yes. As I said before, it is not a direct replacement for all the capabilities of the Caribou. As you know the Caribou is a unique aircraft. That is why it was introduced in 1964 and it has taken this long to work through anything like a replacement.

Mr ROBERT —Have you identified exactly what capability gap we will lose with the withdrawal from service of the Caribou?

Air Vice Marshal Thorne —I will have to defer to the Chief of Air Force for that.

Mr ROBERT —Obviously there are things that we now cannot do. It will be out of service.

Air Vice Marshal Thorne —Yes. I would have to defer that question to the Air Force. However, I make the comment that the Caribou capability was costing us considerable amounts of money for what was not a considerable amount of aircraft capability. Currently, we are flying 13 Caribous. If I look at the average statistics of serviceable aircraft I find that we were getting, on average, about three of those serviceable. It really is the FJ Holden of aircraft. Getting them serviceable was an issue. In theory, yes, they are very capable aircraft. They are capable of getting into some of those short strips, but very few of them were available to fly on a daily basis, for what was a large sustainment investment.

Mr ROBERT —I move on again to light armoured vehicles.

CHAIR —Before you move off the Caribou, I have a couple of questions about them. I appreciate the limitations of the Caribou. It has been in the process of replacement for at least the past 15 years, and I suspect even 20 years or more. I am trying to figure out how a King Air B350 will replace any of the activities undertaken by the Caribou. Looking at the B350 on the screen I can see that it is a comfortable enough executive passenger jet.

Mr ROBERT —It cannot carry a tractor.

CHAIR —No, it cannot carry a tractor but I see that it is used for some training within the RAAF. But why was it selected? It looks like a low-entry executive turbo-prop aircraft that probably seats only 12 to 16 people.

Vice Adm. Tripovich —I was right on the periphery of that discussion, you might say. There are issues of lift, which Mr Robert has identified, and there are other issues of training, continuation training, maintaining the skills, and the aircraft maintenance force. I know that they were all considered. It is probably best if after this session we were able to provide to you a briefing or a document from the Air Force to explain the whole rationale. Would that be acceptable to you, Mr Chairman?

CHAIR —I would appreciate that. Those of us who have followed this debate for some years comprehend the efforts for 15 or 20 years to identify an aircraft. A platform that would do what the Caribou was able to do when it was fully serviceable is simply not out there in the marketplace, not as a fixed wing, or in any form. I understand the dilemma of trying to replicate the Caribou, but I do not understand what we are going to do with these aircraft that will not fill any of the roles filled by the Caribou.

Vice Adm. Tripovich —Following my leave Air Vice Marshall Thorne said that the economics of sustaining the Caribou were becoming a problem. We have a project—

CHAIR —That is not the question that I am asking. I appreciate that the Caribou has been band-aided as much as it can be after successive programs to find replacements. Successive governments have not been able to come up with any options. I am not arguing, but others may, that we should be putting more band-aids on the Caribou to try to extract another ounce of blood from it. I am trying to comprehend what we are doing to fill the gap. I am having trouble comprehending what you are telling us, that is, that this B350 aircraft will somehow fulfil some of the tasks that the Caribou was listed to perform. I am keen to know what they are because it does not seem to me to have the attributes to fulfil many or any of those tasks.

Major Gen. Fraser —I might be able to help. For some years now the army has been leasing three B350s. Sometimes we have used them for 51 FNQR and for some other support tasks. Clearly, they do not fulfil the role performed by the Caribous, but we have been using them as support for troops. We have also used them for some more classified equipment that we have been carrying on board for some of the sensor systems, camera systems and evacuation. What it offers over Caribou is speed and range, which has been terrific, but it does not have a short landing capability, so there are some strengths but there are also some negatives. However, we have been using them in the army for the past seven or eight years.

CHAIR —Presumably only personnel are being carried; you would not be putting cargo or equipment in them?

Major Gen. Fraser —Some, but nowhere near what you would normally associate with a Caribou task, that is correct. So Chinook and helicopters have been picking up some of that role in some areas, but clearly it is not quite as quick as Caribou. In some circumstances it does not quite have the range, unless you are carrying the extended fuel range systems in Chinook. The Chinook has a similar sort of lift capacity and we have used it in some cases for that tasking.

CHAIR —We will take you up on your offer. If you can provide additional information either today or subsequently that would be appreciated. Mr Robert had another question.

Vice Adm. Tripovich —Mr Chairman, it is probably best if I take that question on notice and I will provide you with a document after the session.

CHAIR —That is fine.

Mr HALE —I refer to the joint tactical light vehicles. Given that the IEDs are a major feature of the ADF’s experience in Afghanistan, could you tell the committee about the ADF’s current level of preparedness in this respect? How well are Australian troops protected in current military vehicles?

Vice Adm. Tripovich —I would be straying into areas that are not my responsibility so I will talk about this generally. They certainly are a threat in the region. We have seen enough of the damage that they have caused. The Bushmasters are performing magnificently over there and, as Mr Baldwin said, we have seen the benefit of having great vehicles like that. The lessons that have been learned importantly have been figured into Land 121 Phase 4 requirements to ensure that life protection is inherent in the vehicle. As I said, I will obtain the information for you.

CHAIR —We will stay with armoured vehicles for the moment.

Mr ROBERT —I refer to the Land 106 M11 upgrade and ask: Where are we up to with the full upgrade of the M113s?

Mr Sharp —Mr Robert, the original program for M113s contracts, the latest contracts that were done in 2002, had some technical problems. We have overcome those problems and we are now into the full production phase with BAE Systems, which took over the contract from Tenix Defence Systems. We were behind with the technical problems. Before we went into full production we were a year behind, which has been well canvassed in the public.

We are now looking at clawing back a year of that schedule and the company is committed to delivering all the 350 vehicles by December 2010 in accordance with the original contract, which is a terrific effort for the project and the company. Usually when you get that far behind in a project you do not deliver; that lag position remains. So we have done pretty well. At the moment the company is behind its planned production rate; it has had capacity problems at its Bandiana facility. However, we have seen it establish parallel facilities at Williamtown in Victoria and also in Adelaide at its Wingfield plant. It is doubling its rate of hole stretching and it has the capacity to put the assemblies together at Bandiana in Victoria, so we are watching.

This is still a high-risk program, but the company is committed to delivery of these 350 vehicles by December 2010, in accordance with the original contract. There are further orders under the enhanced land force of another 81 vehicles and they are due to be delivered by December 2011. All indications are that that program will be delivered in accordance with the contract timetable. In any event, the production rate at which army can receive the vehicles is ahead of that schedule. Referring to where army will put the vehicles and conduct the training, we are still ahead of that schedule.

Mr ROBERT —By the time the schedule is finished and by the time all 431 are delivered, will that upgrade our entire fleet of vehicles?

Mr Sharp —Yes, it will. Often there is confusion about what is the entire fleet. The original M113A1 that was introduced in the 1960s was around 776 vehicles. The project for the upgrade was initially to do 350 vehicles under the current contract. Under the enhanced land force there are an additional 81 vehicles. Yes, it is fulfilling the full requirement in its seven variants, but it is not the original 776.

Mr ROBERT —Can I assume that the other 300 have just been phased out or chopped up?

Mr Sharp —There has been damage, the hulls have been used for the upgrade of the vehicles, and parts are being used for the upgrade of the vehicles, yes. The rest of the hulls will be disposed of.

Mr ROBERT —What is Defence’s plan to replace the M113 in time?

Mr Sharp —Perhaps I can hand back to Admiral Tripovich.

Vice Adm. Tripovich —Once again the white paper is examining our future requirements. We can expect to see projects in the defence capability plan, or at least the capabilities talked about in the white paper that will replace—

Mr ROBERT —I am keeping score of how many times you say ‘white paper’, Admiral.

Vice Adm. Tripovich —I am sorry. I know that after the white paper is out I will not be able to say that.

Mr ROBERT —Let us move on to 112, which is the ASLAV. How many ASLAVs do we currently have in service?

Vice Adm. Tripovich —We have 257.

Mr ROBERT —Do not go too far admiral! What is defence’s plan to replace the ASLAV, either to upgrade it or to replace it in time?

Vice Adm. Tripovich —Upgrade projects are already in place.

Mr Sharp —The capability of the ASLAV has been progressively upgraded with remote weapon stations contacts, ball liners and bar armour systems put into 59 that were initially deployed to the MEAO to enhance the protection. We are proposing to look again at the armouring of the ASLAV as a further in-life upgrade, I suppose. I do not want to go into too many details because we have not formed a contract and we have not gone out to make a decision. It is very much within the scope of capability development and the government’s decision.

Vice Adm. Tripovich —Once again the longevity is a constant annual process anyway, but more specifically in a white paper year. On an annual basis we examine the suitability, durability and life of type of all our platforms in the ADF. That determines the planned withdrawal date and it helps to inform the adjustments you need to make in the timing of projects in the DCP, their start, the delivery of the new capability and the requirements. Once again, I have to say that all will be clear, hopefully to both you and to me, when the white paper is out and the subsequent DCP will have the timings. The next time we meet I will be able to give you a lot more information.

Mr ROBERT —What is the current end of life of the ASLAV?

Mr Sharp —I believe it is 2020. I can get back to you on that, but I believe it is 2020.

Mr ROBERT —Can you give us a brief explanation of Land 121, the Project Overlander?

Mr Sharp —A brief explanation? Yes, Mr Robert.

Mr ROBERT —That does not include ‘white paper’.

Mr Sharp —It is a complex project. Initially it was a $3.1 billion project to replace all of army’s light, heavy, medium vehicles, trailers and modules—some 12,000 pieces of kit. It was divided into three segments—three RFTs for the heavy medium, the light lightweight capability, and the trailers. The light lightweight segment RFTs are on track and the heavy medium and the trailer segments are going to plan. The heavy medium ran into a glitch and it is about a year behind.

The glitch was that, basically, industry could not provide the vehicle that they said they would in the tender, and subsequently the scope could not be met by the industry bid. So there were two aspects there. We had to adjust the scope after testing in the market. The selected company is now coming back with proposals to meet that program and we are assessing those bids.

Mr BALDWIN —The contract was with Stewart and Stevenson in the United States, was it not?

Mr Sharp —Yes, it was.

Mr BALDWIN —Was there scope creep on that from what we originally asked them to tender on, or did they put in a bid that was never going to comply from the very beginning?

Mr Sharp —I do not think I can answer that question because I do not really know.

Mr BALDWIN —If you could find out and inform us that would be good.

Mr Sharp —Yes, I will do that; I can give you a full brief. However, I want to say that it is not quite that simple; it is not a black and white issue.

Mr BALDWIN —It is amazing that someone would spend so much money putting in a tender if the tender was not going to comply from day one. Then the issue was that defence should change the specification requirements and it could not comply. However, that is a totally separate issue.

Mr Sharp —That is not what happened.

Mr King —Mr Chairman, could I be excused for 15 minutes? I have been asked to attend a meeting. I note that you are looking at AEW and C and AWD, and I can handle those when I come back.

CHAIR —If there are any matters that are your responsibility I am sure someone will tell us, but there are certainly a number of issues that we have not touched on—the submarine escape facilities, the JSF, the AWACS and the Wedgetail.

Mr King —I will be only 15 minutes.

CHAIR —That is fine; we understand. We look forward to your return.

Mr Sharp —To continue, this is within the Kinnaird process. One of the good things about the Kinnaird process is that all these things were found between first and second pass and we could take the decision to government. In testing the market we expect companies to position themselves at either a cost or a capability trade off. It is difficult for companies and it is difficult for the requirer when they are going for a whole new capability. This is a complex project; it is about the modules and the module fit and there are many variants within each sector.

To get specific, when a company bids it has to position itself to trade off and to provide the most capable vehicle at the least cost. In that capable vehicle there is a trade off between numbers and capability. Again, companies are positioning themselves to say, ‘I can provide you with a very capable vehicle and fewer numbers of them. I can provide you with a lower capability or at least I can meet the essential requirements. It is a lower cost and you can get more of them.’

Mr BALDWIN —As I understand it, and correct me if I am wrong, the issue was that there was a change in the ballistic protection and the motor vehicle with the required levels of ballistic protection were not able to carry the weight of the ballistic protection and still perform. That specification changed after the contract was let.

Mr Sharp —The contract was never let; that was the thing about the Kinnaird process. We did not get to contract with them. In the testing of the vehicle the vehicle did not meet the requirements that we wanted. Subsequently, in looking at the re-tender, the ballistic protection requirements had moved on with the threat in the MEAO and capability said, ‘Now is an opportunity to re-look at the heavy medium and recast that scope.’ It is not a linear process.

I think we are quite proud of the ability of the DMO—or at least I am—to be able to re-position itself without prejudice to the contractors to say, ‘The capability requirement is moving and we will take every opportunity in the Kinnaird process to deliver that high capability.’ I recognise the difficulty of companies in positioning in these complex projects to read the messages of cost verses capability and where we are putting our weight.

Mr BALDWIN —Is there not a third factor in that, not just cost capabilities but creep?

Mr Sharp —‘Creep’ is a pejorative word. If you are talking about an—

Mr BALDWIN —It is an ever-evolving specification.

Mr Sharp —In this case I understand exactly what you are saying. It is different from the position that you might be in where someone says, ‘Let us get a project into contract and while we are negotiating it we should increase the capability at that point.’

Mr BALDWIN —Let me give as an example the Bushmaster. I followed that from the early days. In a recent trip to Bendigo I saw the original Bushmaster prototype that was approved, which looks nothing like the Bushmaster that is currently being used. IED ballistic protection was not an issue. After seeing some of them being blown to pieces I am thankful for the level of protection that they afford. When you look at it from an industry point of view you find that, when you keep changing the specification, sometimes that original frame will not carry the load, which I understand is the issue with the Stevenson vehicles.

At times an industry player might not have the capability, despite having done all the work, the preparation, the costing and the tendering. What compensation is paid to those people who have spent considerable amounts of money but who can no longer be involved in a project, yet they were given an indication that the original product that they submitted was okay, that it was suitable and that it met the specifications? However, then you changed those specifications.

Mr Sharp —Sadly, that is not the case, so we did not have to get to the point of compensation in that case. In the case of tenderers who were invited back to look at the new requirement after the first round, that is not scope creep. That is what I was distinguishing between in my first answer. The creep part of scope creep is about bad practice—putting out a requirement and then in the negotiating phase increasing the requirement beyond that tolerance so that a company has to increase its costs and you then change the project approval or whatever.

That is not what happened in this case; the vehicles did not meet the specifications. After that, capability looked at what could be met and what had to be met. So it was not creep; it was a question of, ‘This is what our requirement is after we have tested the market and seen what can be provided.’ We have now gone back again.

Mr BALDWIN —I have to tell you that that seems at odds with the press releases put out at the time by the Minister for Defence.

Mr Sharp —You will have to remind me of the question.

Mr BALDWIN —I do not have them with me but I clearly remember the context of them. The contracts were let, the minister had to step in and he cancelled the contracts because Stevenson did not have the capability to deliver the product. The minister, therefore, had to cancel the contracts.

Mr Sharp —Mr Baldwin, I will have to take that question on notice and obtain those press announcement. I will provide you with a statement of that when I can explain it.

CHAIR —Some of the matters about which you have been talking remind me of an exchange during the hearings last year with Mr Gumley. This might be something that we want to pursue with DMO or perhaps with Mr Gumley when he is available. We must ensure that there is a clear paper trail that identifies the requirement of the customer, that it is clearly understood and agreed with DMO in advance of these wheels turning. If there is to be some adjustment it should be quite clear what that adjustment is, why it is being made and what are the consequences of the adjustment.

During the hearings last year I remember some discussion around that point. I am not sure whether it is appropriate now to get some further clarification on that policy, but I am mindful of the fact that Mr Gumley is unable to be here today and it might well be something that the committee wants to engage in directly with him. If anyone present has any thoughts about that I think it goes to the broader policy question.

Mr Sharp —Let me clarify this and put it in simpler terms. There are a large number of specifications on these vehicles, and rightly so, to discriminate between contenders and to settle the requirement. They are graded as essential, important and very important. When bidders come back they have a range of capabilities that they can offer. Bidders might be strong in some areas but they might not comply with others. In the negotiation period it becomes a matter of cost. In the initial assessment there was no scope creep. That is what I want to get across.

Subsequently the scope changed quite fairly and companies have been re-bidding on that scope. But it became clear that the vehicle that was tendered at the cost it was tendered gave it an advantage. In a large number of cases it did not meet the requirements that we wanted. To do so, the costs were adjusted up significantly, which made it necessary to go back to government and to say, ‘This is not the solution that we want.’

Mr Gillis —Mr Chairman, I think it is important to state that this is the Kinnaird process working. We did this test and evaluation; we have the tenders in; we have evaluated the tenders; and we found that they did not meet the requirements. We then said to the tenderer, ‘No, we will not progress.’ That is not what we were doing 10 or 15 years ago. We would probably have selected somebody and we would then have found out what was going wrong. This process is working.

Just to reflect on what Mr Baldwin was saying earlier, this environment of vehicles is probably one of the most sensitive in respect to operational requirements that we have across the ADF at the moment because of the IED threat. It is changing daily and weekly. We have to be cognisant of that environment, of scope requirement change, or contemporary requirements. Those grid requirements are changing to meet the support of the soldiers in the field.

We believe that those requirements are good requirements and that is why we work closely with capability development to ensure that things that are changed are changed in a structured and logical way after negotiations have occurred with industry.

One of the things with which we were so successful with Thales and the Bushmaster is that the changes in the evolution of the Bushmaster were done in consultation with Thales. Thales responded very well in making those changes. We have now reached the point where we have world’s best practice in theatre vehicles—not the vehicle that we had—

Mr BALDWIN —It seems to be a front-line contender for a joint light tactical vehicle.

Mr Sharp —On the Thales vehicle, which was the ADI vehicle at the time, you have to remember that at that point we coaxed that project through. It was won by ADI in both the manufacturing and support project. The prototype that was tested could not be developed by that company and it was significantly delayed. It is years behind its original project. We nursed that through and we moved with the requirement with the company. In recent times Thales has a mature vehicle in its export market. They understand the technology and they have mature production. They are innovating without side of defence money, and we are cooperating hand in glove with requirements to develop that vehicle in concert with other countries. That is a success story, but there was a difficult gestation period with that vehicle.

Mr BALDWIN —That is because the original concept that was asked for and what was finally asked for were totally different.

Mr Sharp —It is not because; that is what happened.

Mr BALDWIN —Yes.

Mr Sharp —The vehicle that was required could not be developed by that company at the time.

Mr BALDWIN —By Perry Engineering?

Mr Sharp —By ADI. They had a prototype that we accepted. We went through the ballistic testing but the company could not produce it.

Mr BALDWIN —Did the requirement not change from the initial RFT or RFP to the ballistic testing stage?

Mr Sharp —No.

Mr BALDWIN —All right.

Mr Sharp —We have moved on to where it is a capable vehicle because of the production capability maturity of the company.

CHAIR —We might look at some of the other platforms. Because of Mr King’s absence I am not sure whether or not we are in a position to talk about Wedgetail. Give me advice.

Mr Gillis —Wedgetail and AWACS are the two issues that Mr King will be dealing with. We expect him back within five or 10 minutes at the most.

Mr ROBERT —Mr Gillis, you indicated that the current focus on vehicles is to face the threat of IEDs. I am cognisant of the fairly long lead-in time for projects. One of the things on which we need to focus is the next threat. What is the next threat, considering the fact that we are already facing IEDs? I invite comments from Brigadier Nikolic because of his experience overseas in Afghanistan. Currently we are facing an IED threat primarily because of our service in the Middle East. I think that the Bushmaster is an outstanding example of a vehicle that is well geared for that, although it was not primarily, and our helicopters need to be geared for the future. In the view of capability development what is the next significant threat for which our vehicles, and indeed our aircraft, need to be prepared?

Vice Adm. Tripovich —Clearly, I cannot go into anything classified, and we should not do so. Let me reassure you that, together with our allies in those theatres, looking as far as we can to try to predict what the enemy might do, the role of intelligence is really important. That is a much shorter cycle than our ability to provide a hard answer for it. It takes a long time to upgrade a vehicle. This year with the white paper we are really focusing on that, obviously so that we can inform the white paper and inform a defence capability plan. I will not go into what might be the next threat other than to reassure you that we constantly try to deal with the next emerging threat.

One of the advantages of the current enemy force is that it can move very quickly because it is using asymmetric techniques. To return to the generic capabilities, whether it is IED or future new solar technology, we have to predict where industry, technology and science are going. There is a great role for DSTO in this, along with the intelligence community. We are seeing where science and technology can go to counter that threat and then being able to get a project lined up and in service in time to meet it. It is trying to be ahead of the arrival of the future missile, if you see what I mean. It is a constant cycle.

Mr ROBERT —Who can best answer questions on rapid acquisition—the rapid acquisition project within DMO?

Vice Adm. Tripovich —That particular project?

Mr ROBERT —My concern relates to the M14 short barrel for the SAS. On an SAS visit they expressed some concern to the minister, or to the parliamentary secretary at the time, the Hon. Greg Combet, that they had requested short barrels for the M14. When we met with them it had been 18 months and only 14 had been delivered. My understanding is that it was a MOTS product; it was a military off the shelf product.

Mr Gillis —I do not have that data with me.

Mr Sharp —Mr Robert, I will have to take that question on notice. I do not have data for the M14.

Mr ROBERT —That is fine. On face value—and I could be wrong—my understanding is that there was a rapid acquisition request and I believe that in the early days everyone was immensely impressed with it. Projects were delivered rapidly and net specifications for equipment were delivered quickly on the ground. My understanding is that as more and more requests have gone in perhaps the rapid acquisition capability has been bureaucratised. However, I am only surmising. It would be good to know what rapid acquisitions are on the table right now; exactly how long it has taken for each one from the request to delivery, with a specific emphasis on the M14 short barrel.

That special force indicated that it had been waiting for 18 months for a short barrel, only 14 had been delivered at the last defence visit, and it is military off the shelf. Obviously we grabbed an M14, looked at the short barrel verses the long barrel, chucked on a silencer, and the weapon started to grow and grow. The longer the weapon is, the more difficult it is to get around the corner and shoot someone. It would be good if we could get information on the M14 and, specifically, the other rapid acquisition projects. Exactly how long is rapid acquisition taking at the moment?

Mr Sharp —I can do that. The rapid acquisition process and support to operations are our highest priorities in the inland systems division and the DMO. We put through a lot. I would not say that it was bureaucratised because often the requirement is very clear. It is an identified materiel solution, it is operationally urgent and we can go straight for it. The only obstacle of which I am aware is that sometimes the unit thinks it has an approved requirement, and it is not approved. It might have gone through the system but it is an army requirement and an army decision to ensure that it really wants that.

The next step is government approval and funding for that rapid acquisition. Finally, the only hold up is the provisioning lead time. Sometimes these items are much sought after by the United States and they are not available to us in the production run, in which case we go FMS if it is the United States, or some other mechanism to ensure that we can get onto that production line. Usually that is successful. I will certainly come back to you with that information.