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FOREIGN AFFAIRS, DEFENCE AND TRADE LEGISLATION COMMITTEE - 13/11/1997 - DEPARTMENT OF DEFENCE

CHAIR --Good evening. I welcome the minister, Senator Newman, representing the Minister for Defence, and I welcome officers of the Department of Defence. The committee has before it the particulars of proposed additional expenditure for service for the year ending 30 June 1998 (Document A), the Portfolio Additional Estimates Statements for the defence portfolio, the annual report, statement of savings and the final budget outcome 1996-97.

The committee will first put questions of a general nature and then consider the rest of the particulars of the proposed additional expenditure on a program basis, commencing with program 1. The committee will consider the annual report at the same time. Because of the different departmental structures in 1996-97 and 1997-98, I ask for tolerance and flexibility on all sides in considering the documents together. I note in passing that we are talking about a budget of $10 billion and additional expenditure of $27 million which is only 0.03 per cent variation.

I remind senators that the Finance and Public Administration Legislation Committee is continuing its inquiry into the Portfolio Estimates Statements and the Portfolio Additional Estimates Statements. As we go through the documents, if you have any comments about their format or contents, you may wish to put them into the Hansard record. Minister, do you wish to make an opening statement?

Senator Newman --No, thank you, Mr Chairman.

CHAIR --Senator Bourne has lodged some questions on notice, and these have been referred to the department for provision of answers. Are you happy to take those on notice?

Rear Adm. Briggs --Yes.

Senator HOGG --As we embark on this evening, I would refer you firstly to the annual report. The last sentence in the first paragraph of the second column at page 15 refers to:

. . . Defence has mandated that the non-operational storage, maintenance and distribution of guided and non-guided explosive ordnance will be subject to market testing under the CSP.

At what stage is that at now? Are there security implications to that? What particular safeguards are being pursued in that particular issue?

Mr McNamara --I have responsibility for the commercial support program and responsibility for the particular CSP initiative that you have asked about. We are at the relatively early stage, the activity definition stage, of the process. This is an intriguing one in the sense that it reflects the thrust of the defence efficiency review and the defence reform program as well in the sense that we are aggregating the storage activities of the three separate services as a first preparatory step. That is being done through our colleagues in the Navy element of logistics. Simultaneously but in a slightly staggered way we are preparing the market testing through the commercial support program for the initiative. You asked about the security implications. That is some way down the track, but we would obviously need to take that into account in formulating the tender documentation as it emerges.

Senator HOGG --So there are no special security measures that are being considered at this stage, but that will be part of the ongoing development of this process.

Mr McNamara --That is part of the ongoing development, but they would be integral to the consideration of the--

Senator HOGG --When do we look like reaching some conclusion on this?

Mr McNamara --I would not hazard a guess on that at the moment. We probably have some material. I can take that on notice and get you an answer on that but it would be somewhat speculative at this stage. It is going to be a very large initiative, so I would need to get some better advice than I have in my hands at the moment.

Senator HOGG --Do we know the actual savings that will be involved?

Mr McNamara --From our experience with the commercial support program we do not seek to estimate in advance the quantum of savings that would occur in any particular instance. It has varied from five to six per cent to of the order of 50 or 60 per cent, depending on the initiative. So we do not seek to make an assessment ab initio of what savings we might accrue.

Senator HOGG --I move on now to page 30.

Senator Newman --This is at a great rate. We are doing well.

Senator WEST --Do not get too enthusiastic, Minister.

Senator HOGG --This is only the annual report, Minister. The second last paragraph in the second column at page 30 states:

By the end of 1996-97, the initiatives had generated continuing annual efficiency gains of some $503m.

Is that an accumulative figure or an ongoing annual figure?

Mr Lewincamp --That is the annual saving and it is ongoing.

Senator HOGG --Those savings that have been made in that particular area have been held by Defence?

Mr Lewincamp --Yes, they have. They have been reallocated within Defence.

Senator HOGG --If I can turn to the bottom of page 31--I may well duplicate some of this section in discussion about some of the audit reports that I have before me--there is a comment about, I presume, the joint performance information review. I presume this is the comment relating to that report down the bottom of the page where it says:

The review identified a number of major shortcomings in current Defence processes, including little systematic or comprehensive reporting of performance; a wide variance in performance measurement and assessment; and duplication of effort in meeting differing reporting requirements.

So there are three key areas: little systematic or comprehensive reporting, a wide variance in performance measures and duplication in effort in meeting different reporting requirements. What steps have been taken to overcome those deficiencies that have been identified? When will we start to see some progress being made in that area?

Mr Lewincamp --The progress is being made already. The performance information review that was jointly signed off by the Minister for Defence and the Minister for Finance and Administration has an implementation strategy to overcome these shortcomings. Part of the process we are going through at the moment, for example, is a review of evaluation within the Department of Defence which will be taken by the defence management committee in the next month or two.

Senator HOGG --Who is responsible for that?

Mr Lewincamp --The responsibility for carriage of the performance information review was with my division, but we are jointly working with defence headquarters to introduce the revised performance measures and performance processes. As an example of those processes, there will now be formal biannual reports by all programs to the Defence Management Committee and there will be a much more structured reporting process within the organisation than there was previously.

In relation to the second point about the performance measurement and assessment, we are trying to make sure that our performance measures used by the programs and subprograms are more meaningful and that the reports of performance actually use those measures to report against. The final one, the duplication of effort in meeting different reporting requirements, relates as much to the external reporting requirements, as you are aware, as it does to the internal ones, where we have different guidelines imposed upon us by Prime Minister and Cabinet and Finance, for example, in the preparation of the annual report and the portfolio budget statements.

Mr Chair, following your comments earlier about comments we would like on the record, one of the things that we would like in the process of reviewing the overall reporting arrangements is to make sure that those requirements imposed upon us externally are more consistent. That was a theme of a submission taken by government recently and we expect to see some developments in that area in the near future. So next year we would hope to see far greater consistency between the external reporting requirements.

Senator HOGG --How much will this tie in with your requirement to meet accrual accounting? Is there a relationship?

Mr Lewincamp --Not entirely. The relationship is more closely connected with the introduction of output budgeting, which is coming in in the same time frame as accrual budgeting. Accrual budgeting will simply require us to report across a different range of measures. Rather than just cash management, it is the full management of our financial position, including things such as assets and inventory. Accrual accounting will add to the reporting workload, if you like, rather than change it dramatically.

Senator HOGG --Within the same section of that report, evaluation and audit, there are mentioned a number of audit reports. Firstly there is report No. 15, Management of food provisioning in the Australian Defence Force, then there is No. 17, Workforce planning in the Australian Defence Force, and the other one that I have an interest in is audit report No. 34. Would it be your desire to deal with those now or at some stage later when we start to get into the various programs?

Mr Lewincamp --I would like us to deal with them now rather than come back to them.

Senator HOGG --I will deal firstly with report No. 15, Management of food provisioning in the Australian Defence Force. On the last occasion that we had estimates, I showed an interest in how the various audit reports of the audit office were being progressed by Defence. I believe these reports are important and I know your department treats them very seriously. I want to pursue a couple of issues out of each report in a little bit more depth this evening. Whilst I note that in many instances the Defence response that is flagged in the report is agreed to, and that is all well and good, I think it is important that in some of these instances we continue to monitor what is happening. For example, page 14 of report No. 15 talks about planning for rations. Point 3.4 says:

. . . rations planning systems in the ADF do not appear to function efficiently. Rationing units have difficulty obtaining exact numbers . . .

In the same paragraph, it goes on to say:

. . . there is no adequate way of predicting future workloads for budgeting purposes.

The recommendation of the audit office stated:

. . . that the Services communicate timely and accurate information on Defence personnel movement between and within Services to ensure more effective and efficient ration planning.

Whilst it says `Agreed' I would like some details as to what steps Defence has taken to implement that, because it seems to me there are some real efficiencies to be achieved for the budget in that particular area.

Major Gen. Mueller --Responsibility for this matter is in the process of being passed from strategic logistics division to my program. I will tell you the progress to date on the main tasks that are embodied in that report. Firstly, an ADF catering policy has been drafted. I understand that it will be ready for my signature when I return to Melbourne after this committee concludes. It will be issued before the end of this calendar year.

Performance measures and indicators have been developed. They will be performance indicators and measures which apply to catering both under a CSP arrangement and under a non-CSP arrangement. An electronic accounting system has been agreed to and a generic statement of requirement for an ADF food accounting information system is currently being developed. An ADF catering manual is also currently being drafted. Where it is cost effective and practical to do so, food supply contracts are being amalgamated on a regional basis.

Army in particular has conducted an extensive trial of a new system of food provisioning in order to reduce wastage. It has also introduced a revised ration scale which enables rations to be drawn based on the forecast numbers of diners per meal. Based on the revised scale, the Army implemented an attendance based ration system in July of this year. Initial reports have indicated a significant reduction in the number of rations being demanded and wastage has decreased considerably.

Senator HOGG --You mentioned some trials. Where are they being conducted?

Major Gen. Mueller --I am not aware of where the trials are being conducted.

Senator HOGG --Are you aware of when those trials will conclude?

Major Gen. Mueller --As I understand it, they are going to conclude at the end of this year.

Senator HOGG --When will we see your new performance standards and everything that you have fully in operation?

Major Gen. Mueller --I anticipate that it will be in operation early next year, but I attach one caveat to that, and that is that the responsibility for the implementation of these recommendations is in the process of being transitioned to me at this time.

Senator HOGG --I accept that caveat; it is just that I have an interest in that area. You mentioned performance there. If I could take you to the next recommendation that I looked at on measuring performance, it says:

Performance information such as user satisfaction, full cost per head per meal, levels of wastage and health statistics . . . could provide a basis for comparing performance for the three Services.

The report goes on to say:

. . . much of this information is not available.

Can I assume that your trials and what you are proceeding through now are fleshing out this type of information to allow the efficiencies that are foreseen in this report to be brought in?

Major Gen. Mueller --I assume that that is the case, but again the detail of how the performance measures and indicators are being developed is something which I do not have a detailed knowledge of at this stage.

Senator HOGG --The only other thing that is mentioned there in the audit report is:

. . . the methodology for measuring performance needs to be consistent and interpreted uniformly by those measuring the performance.

Could you find out if that is the case? I would be interested in that. It then goes to the recommendation:

. . . the three services develop cost effective performance indicators . . . including indicators relating to the cost of providing the service, to assist with management decision-making, consistent with HQ ADF policy guidance.

If that is happening, I would be pleased to see some information on it.

Senator WEST --Following on from meals, ration packs, et cetera, you mentioned that there was an attempt being made to target the number of meals prepared to the number of bodies which are going to eat them. How effective has that been?

Major Gen. Mueller --This was on a demand rather than a forecast basis. That was the essence of the trial that was being conducted by Army. As I mentioned earlier, the advice I have is that the trial has been very successful.

Senator WEST --So nobody has missed out on a feed?

Major Gen. Mueller --No, not that I am aware of. That, as I understand it, is the system that has been used for some time by Air Force and Navy.

Senator WEST --What implications has that had for the procurement of supplies?

Major Gen. Mueller --None that I am aware of.

Senator WEST --It has not cost any more, or saved anything?

Major Gen. Mueller --Every indication is that it will realise savings.

Senator WEST --Have field ration packs been changed at all? Are they part of this or not?

Major Gen. Mueller --The only change to field ration packs that I am aware of is that a decision was made to increase the kilojoule content of certain types of combat ration packs, and this had some impact on the ingredients. Other than that, I am not aware of any consequential impacts on ration packs.

Senator WEST --Presumably that would have had an impact on cost as well.

Major Gen. Mueller --Yes, that initiative to which I just referred did have an impact on cost; of what order I do not know.

Senator WEST --Is it possible, on notice, to find out?

Major Gen. Mueller --Yes, it is.

Senator WEST --Thank you. That has not been for all field ration packs, I take it?

Major Gen. Mueller --Whether there is any broader applicability outside combat ration packs, I do not know.

Senator WEST --You did say that some of the ration packs had a kilojoule increase.

Major Gen. Mueller --Combat ration packs did. Whether there is any other form of ration pack that does not come under that generic heading that has been affected by that change in kilojoule content, I am unaware.

Senator WEST --Can you give some indication of what the kilojoule content has gone from and to?

Major Gen. Mueller --I think it is from roughly 10,000 to about 14,000, but I would have to take that question on notice too.

Senator WEST --Ten thousand kilojoules are about 2,500 calories. If you can give it in calories, that would make it easier for us old fogies who understand calories rather than kilojoules. That might tell me the reason why the kilojoules have been increased. Somebody in combat would be a high demand heavy user of calories, and if 10,000 kilojoules is 2,500 calories that is not an excessive amount for somebody who is involved in heavy physical labour. So that might be the reason. I would be interested in the rationale behind that and the cost increase behind that. Thank you.

CHAIR --Senator Margetts has to go to another meeting, but she has some brief questions on program 1.

Senator MARGETTS --This is probably overview stuff or subprogram 1.1, but I am not entirely sure, so I will ask the questions in the overview. Defence is currently undertaking a strategic review. When is it likely to be completed?

Rear Adm. Briggs --The review has been completed and there is due to be an announcement by the minister in December this year, I understand.

Senator MARGETTS --And that will be published at that time?

Rear Adm. Briggs --There will be an unclassified version of the review available.

Senator MARGETTS --At the same time or soon after?

Rear Adm. Briggs --I would anticipate that it would be available at the same time.

Senator MARGETTS --Would you consider that climate change is a factor to be taken into account in assessing regional security and defence commitments?

Rear Adm. Briggs --Climate change in the sense of global warming, et cetera?

Senator MARGETTS --Yes, and the implications of the various aspects that come with that.

Rear Adm. Briggs --I would not expect it to be a primary factor, but the environment overall, in its broadest sense, is important to the setting of a strategic review and is very much a part of the examination.

Senator MARGETTS --I will give some examples. For instance, could it promote political instability in our region, refugee flows, disputes over resources such as water or demands for humanitarian aid in case of drought, cyclones or extreme weather events? Have those kinds of factors been taken into consideration in the defence review?

Rear Adm. Briggs --To the extent that you can predict any of those, they would be considered. But I do not think the strategic review, as I understand it, spends too much time indulging in hypotheses of what might happen as a result of that.

Senator MARGETTS --But there is a fairly strong scientific prediction that those kinds of events are happening and will happen on an increasing basis in our region. So they have not actually been taken into consideration, considering the likelihood of those kinds of events?

Rear Adm. Briggs --Let me hand the ball to my colleague here.

Major Gen. Abigail --The issues you raise have not been driving factors in determining what we see as the long-term trends with respect to our security environment other than to recognise that issues of humanitarian assistance, disaster relief and the like are tasks that the Defence Force has to be able to undertake. That is reflected in the roles that are espoused in the strategic review.

Senator MARGETTS --Over the last six months, has the Department of Defence been involved with assistance in drought in Papua New Guinea or firefighting in Indonesia?

Rear Adm. Briggs --The Department of Defence is currently heavily involved in drought relief in PNG. We have not been involved directly in firefighting in Indonesia.

Senator MARGETTS --What kinds of resources were involved in the drought in Papua New Guinea?

Rear Adm. Briggs --The department is acting under the direction of AusAID, which is itself involved with the PNG government national disasters emergency system. So we are responding to their requests. We are carrying food, primarily, but some medicine and taking it into category 4, category 4-5 and category 5 areas. There is a sliding scale of the degree of shortfall in food. At one they are okay; at five there is significant hardship. So we are carrying into category 4-5 and category 5, but only those areas which are only accessible by air. The precise number of aircraft allocated varies to meet the demand. At the moment, it is two C130s, three Caribou, a pair of Chinooks and three Black Hawks.

Senator MARGETTS --With the costs that are involved, does Defence virtually give an account to Foreign Affairs and Trade? Is that the way it works?

Rear Adm. Briggs --We are presenting an account to AusAID for our additional costs involved in flying it. The department will still be out of pocket. In due course, we will come forward, I would expect, for supplementation.

Senator MARGETTS --What kind of magnitude are we talking about in figures?

Rear Adm. Briggs --You would appreciate that it is an ongoing operation, so I really cannot give you a total figure. I do not have the current figure at hand. Someone will, I suspect.

Senator MARGETTS --I am happy for you to take that on notice--if we could have some figures itemised of what kind of assistance Defence has been providing.

Rear Adm. Briggs --Yes, we can certainly give you an indicative figure of what has been involved.

Senator MARGETTS --And perhaps an estimate of what might be involved in the operation.

Rear Adm. Briggs --We are dependent there on the PNG government organisation and AusAID in their predictions. That is highly vulnerable to what happens. If it rains in December, which it hopefully will, then some of our problems will be eased. But, of course, the food supplies will not return to normal for four to five months after the receipt of rain.

Senator MARGETTS --So even though Defence is involved in things which cost money and resources now, you have not actually structured those kinds of potential ongoing events into your defence review?

Rear Adm. Briggs --Defence has a capacity to assist the civil power, and that is what this is, and to assist our regional neighbours in these sorts of situations. It is not something for which we structure in a force capability sense.

Senator MARGETTS --Is Defence aware that the cyclones which have ravaged the Cook Islands and parts of South-East Asia, the drought in Papua New Guinea and the fires in Indonesia are considered by many to be linked to the El Nino weather patterns?

Rear Adm. Briggs --Yes.

Senator MARGETTS --Is Defence aware that the head of climate analysis at the United States National Centre for Atmospheric Research has stated that the human emission of greenhouse gases into the atmosphere will make the impacts of El Nino worse and more difficult to deal with?

Rear Adm. Briggs --I am not aware of that statement, but it sounds thoroughly plausible.

Senator MARGETTS --Would Defence consider that the kinds of extreme climatic events that we have seen in the last few months in Australia, Asia and the Pacific are exactly the kinds of events whose frequency is predicted to increase if greenhouse gas emissions are not curbed?

Rear Adm. Briggs --It is possible, Senator, but climatic catastrophes come and go and it is hard to spot what the trend may be.

Senator MARGETTS --What impacts would an increased frequency of extreme climatic events have on Australia's security and on our responsibility to provide humanitarian assistance?

Rear Adm. Briggs --I would anticipate--and it is a hypothetical--there would be extra demand on this type of assistance.

Senator MARGETTS --Has the Department of Defence taken any role in developing Australia's stance on greenhouse?

Rear Adm. Briggs --Not that I am aware of.

Senator HOGG --I only have one further question on page 34 of Audit Report No. 15, under the heading `Setting standards'. Paragraph 7.32 states:

Defence believes that SUPMAN 4 sets a minimum standard required for catering contractors but could not provide evidence that contractors adhere to this standard.

My first question would be: has that been redressed? If it is a standard, do the contractors adhere to it? What steps have you taken to ensure that the contractors adhere to the standard?

Major Gen. Mueller --Senator, would you repeat the question please.

Senator HOGG --At page 34, paragraph 7.32 states:

Defence believes that SUPMAN 4 sets a minimum standard required for catering contractors but could not provide evidence that contractors adhere to this standard.

If that was the case, as was found by the audit office, have you taken steps to ensure that where you use that standard it is being adhered to?

Major Gen. Mueller --I would have to take that question on notice.

Senator HOGG --The second part of the question goes to a further finding of the audit office, where they say that, in their view, effectively SUPMAN 4 has reportedly little regard to advances in food technology and they could not see a reason for it being continued. As a result, one finds in their recommendations that they recommend deleting the need for catering contracts to refer to SUPMAN 4 and equivalent documents. Whilst I note that the response of the department is that it was not agreed, has that been reviewed by the department?

Major Gen. Mueller --Again, I would have to take that on notice.

Mr McNamara --The food provisioning policy that Major General Mueller talked about earlier is going to incorporate the response to the first part of your question. In terms of our attachment to the manual on food provisioning SUPMAN 4, we see advantage in retaining that, but it is a document that is not exactly brand new and we will be looking at that in the context of the transition to Major General Mueller's empire of the policy document. We are not going to throw the manual out--it is helpful to have some of these standards laid down--but by the same token they are being developed as they are transitioned down to Melbourne.

Senator HOGG --The first part of their recommendation states:

prepare detailed guidelines for catering contract documentation to help the Services in the development of catering contract arrangements for their own needs.

Are we having a formula that is common to all three services or are we having something which will be developed for each individual service?

Major Gen. Mueller --As I understand it, it is common right across the Australian Defence Force.

Senator HOGG --Thank you very much; that is that audit report.

Mr McNamara --I come back to my answer before when I was unable to give you the dates on the explosive ordnance CSP activity. I have now been able to find it in fine detail somewhere. The market testing initiative involves the work of 440 people. A project management directive, which sets the rules of engagement, was issued on 10 January this year. That is very much a preliminary part of the process and, as I said, it is stretching on to the future. At this stage we expect a request for tender will issue on 25 August 1998. We are looking for a decision at the end of April 1999.

Senator HOGG --So that is a fair way off. Undoubtedly, as the future unfolds, we will follow that question up just to find out where you are at. I now turn to Audit Report No. 17. I refer to page 32, under the heading `Future requirements', subheading `Workforce for new capabilities'. Paragraph 4.6 talks about solutions to, as I understand it, the planning of the work force for new projects. It says:

One solution would be to have a clear process to define the cost-capability trade-offs in project management. One possibility is the Cost of Capability system recently introduced by Air Force.

It then recommends that:

Navy and Army introduce a coordinated approach to defining the costs of introducing a new capability to support, among other things, workforce planning for new projects.

What steps have been taken to do that? Is it part of the DER? If so, what cost savings do we expect to see? Was there a cost saving attributed to it in the DER?

Brig. Traynor --The whole issue of work force planning has been undergoing a very significant change since 1 July. It has come about in the context of the DER and the DRP in the sense that one of the recommendations that is in that report is to bring together the work force planning staffs--and we have actually effected that. We now have a strategic work force planning directorate, which represents all three services.

Specifically, to pick up your point, inside that organisation, we have a future requirements element. Their task is to address that particular issue, and they are actually undertaking that. But the directorate is building its capability at the moment, bearing in mind that it is there to serve the requirements of the three service chiefs in defining the personnel requirements to meet their combat capabilities. In terms of actually achieving cost savings as a consequence of this process change, at this point we cannot identify those, no.

Senator HOGG --I will follow that up again at some later stage. The last thing to which I want to refer in this particular report is at page 40 and is in respect of the Navy. The heading on the previous page is `Making the peaks and troughs of future Navy requirements'. Referred to there is the fact that there is approximately, in the view of the audit office, $120 million savings to be made. I believe this comes about because of there having been some overarching done, which sees people putting things out into the future and having just a little too much fat, I suppose, if one could call it that, out there.

Of course, the recommendation of the audit office was, to avoid the excess personnel, `Navy plan for its future strength to be closely aligned to predicted requirements.' If one looks back into the text preceding that, one sees that, according to the audit office, there are substantial savings to be made--savings in the order of $120 million. That one leapt out at me and I thought that perhaps we could get an explanation as to whether that is proceeding. I saw that Navy agreed in principle, but then there seemed to be, `Yes, we agree, but.' What stage are we at? Are we actually going to move down the line of the recommendation of the audit office and perhaps see those savings come into being?

Brig. Traynor --That actually comes out in two recommendations--No. 11 and No. 13--which both pick up on the points that you have made. No. 11 refers to the savings potentially of $40 million a year and No. 13 talks about predicting future requirements.

The important point here is that this is actually the essence of work force planning. That is really what it is about. Work force planning is about identifying the costs, the numbers, the characteristics of the work force across time, and matching those as closely as we can to the force structure requirements of the ADF.

It was suggested in the report that it is necessary that in Navy's case--and, indeed, it applies to the other services as well--we do have a very close look at the organisations and say, `Have we got the numbers right?' Navy have a particular problem, which is a tougher one than the other two services, in the sense that they have people at sea for a long time, and it is necessary that they have a structural overlay behind that to support them. That makes it more difficult for Navy, of course, than it does for the other services.

Senator HOGG --Do they have too much fat?

Brig. Traynor --That is a judgment that has to be made. We are going through that process at the moment. As a consequence of the shifting of some of the force from the non-combat to the combat force, it will be very necessary for us to get quite precise about the numbers of people that we need in all of our combat components and then, in addition to that, the numbers we need outside the combat component to do our training requirements, meet our staff requirements and provide issues such as respite for postings, and so on. The point that I guess I would leave you with is the fact that all of the three services are currently under examination on these particular issues. Are we progressing? Yes, we are.

Senator HOGG --But, in the case of the Navy, it seems to be particularly something that the ANAO jumped on. They are advocating there quite substantial savings indeed. Whilst I can accept that there is probably going to be some structural overlay, whichever service we look at, it seems to me that the ANAO report has focused fairly clearly on, `There is a bit more fat in the Navy than we otherwise should see.' You did indicate that there is a review. Who is conducting the review?

Brig. Traynor --The work force planning staff. They are part of my staff.

Senator HOGG --When will that be--

Brig. Traynor --It is an ongoing activity. It is a permanent activity as part of our force now. We respond to the capability requirements of the Defence Force, and then we define the personnel requirements to support that capability requirement; it is not the other way around reasonably. The point that I would also make too, though, with respect to Navy is that Navy have tied their future strength requirements to their future capability requirements, and we are in the process of working out what those numbers are in detail.

The other issue that is really important in this, of course, is that defence is a closed work force and, because it is a closed work force and we cannot readily bring our numbers in laterally or through any other process, it is necessary sometimes to have larger numbers than you might otherwise choose to have to support your combat capability--who are not actually on a ship in Navy's case or in a unit in Army's case and so on. We cannot change the structure rapidly because of the closed nature of the work force, which of course is because of the specialised nature of our business.

Senator HOGG --Accepting that last point that you made and you might not be able to change the structure rapidly, nonetheless, though, is there some way in which you can move towards the achievement of the goal that has been outlined here? And, if so, is there some way in which you can indicate to people like me that that is an achievable goal, rather than to say in the report (and I am not being critical) agree in principle--and I can understand that you do that with the best of intentions--but then leave people like me coming back ad nauseam saying to you, `Where is the $140 million? Did you save $140 million or did you save $100 million? Why only $75 million?' So I can understand that there may well be a difference between what the ANAO may report and what you can realistically achieve. I think what I would be looking for is some indication from you as to what is achievable. I am not talking about tonight, by the way.

Brig. Traynor --We have agreed in principle with the ANAO recommendation because we thought it a very worthwhile principle. If we can release $40 million a year from Navy by virtue of adjusting more tightly the numbers that they require, then that would be a great bonus to Navy because we could redeploy that $40 million into their combat capability. As a principle, that is a very sound one for us.

I cannot give you a figure, sitting here now, and say that we have identified at this point in time $40 million worth of personnel savings from Navy as a consequence of examining their requirements in detail. We have commenced that process. We only took this report earlier this year, as you are aware, I guess--

Senator HOGG --No.

Brig. Traynor --And we are in the process of working it through, as I said before, for all three services. I would hope at some future point we could give you a figure. But, certainly, at the moment I cannot guarantee you that, out of this particular exercise, we will turn up $40 million a year.

Senator HOGG --My other concern is that at some stage in the future, rather than needing a great prompt, you could identify for us that this is a direct response to the ANAO report No. 17. That would be helpful and would save time in these things.

Brig. Traynor --It will get blended, of course, into the DRP activities which are seeking to make the changes I described before.

Senator Newman --I will just interpose that they are all going in the same direction so it will always be hard, I expect, to divide the results into results of ANAO, DER or whatever.

Senator HOGG --Yes, I accept that, Minister.

Senator Newman --They are all heading for the same goal.

Senator HOGG --One of the difficulties that I have is that sometimes some of these recommendations get lost.

Senator Newman --Don't I know it! You just keep right on!

Senator HOGG --Yes, I thank you very much for the encouragement. If I can turn to report No. 34 on Australian Defence Force Health Services--again, I am not going through the whole report--there are just a couple of points I picked out that I would like to pursue, particularly under the heading `Medical Officer staffing structure'. That particular section outlined the fact that there was an absence of specialist medical officers, such as surgeons and anaesthetists. It went on to analyse the issue and came up with the recommendation that:

. . . Defence examine the present medical officer structure with a view to providing more flexibility, . . .

I am just wondering where that particular recommendation is at because, of course, there were competing views within the ANAO report as to whether that would produce a cost efficiency within the defence forces or a cost burden. Whilst the Defence response was to agree, I just want to find out where that recommendation has got to.

Air Vice Marshal Mueller --That recommendation was agreed, and I think we have responded in part in the past that it was wrapped up in the flexible career process by the personnel organisation that was addressing the issue of medical officers, among other things. I think the concept of providing flexibility in the careers of medical officers is advancing in conjunction with activities in the personnel area with methods to employ medical practitioners in the future with completion bonuses for set periods of time. That is part of the flexible career process.

As for the issue of employing specialist medical officers--in other words, specialists--as I think I said before there are specialists in uniform, but very few. There are some in the dental profession and I think there are a very small number in the services. The question is to attract and retain those people. That is a problem, bearing in mind that we have a competent Reserve force which has specialists who have regularly supported us throughout, both in operations and in peacetime. I cannot comment any further on any other directions that are being taken in terms of specialist medical officers.

Senator HOGG --So we are taking no initiatives to attract specialists?

Air Vice Marshal Mueller --There are specialists currently being trained within the medical side of the house who are serving practitioners--dental ones and there is the odd medical practitioner undertaking specialist training but that is not a program as such.

Senator QUIRKE --As I understand it, there is a very large reserve of medical expertise that comes into the various armed forces, in particular the Army. I just wonder if you could tell us what are the numbers of medical specialists that are involved in reserve capacities.

Air Vice Marshal Mueller --I cannot give you those numbers. I would have to take that on notice and provide that information.

Senator QUIRKE --I would be quite happy for that to go on notice. I am told by some people I know--constituents, in fact, who are in the Reserve--that they certainly feel that in relation to the provision of basic equipment--and they have gone to great lengths of making suggestions in this case to the Army about what is required for mobile hospitals et cetera--they are getting very little in the way of resources.

Air Vice Marshal Moller --Resources in terms of?

Senator QUIRKE --In terms of basic equipment that they believe they need to perform the tasks that are required in peacetime as well as in any potential conflict we may get involved in.

Air Vice Marshal Mueller --Our focus, clearly, is on the support to operations. We have Reserve members who form the major part of review processes, both in pathology and in radiology, and who regularly take advice from consultant specialists on equipment which is compatible with the operational requirements that we must meet. I am not aware of the difficulty that you have stated. In fact, we regularly seek Reserve consultants' advice in each service for deployable equipment and, as I said, we have committees formed for both pathology and radiology so that we can get commonality in equipment across the services and thereby achieve efficiencies in savings.

Senator QUIRKE --This is an issue that I can come back to at some stage in the future. I just wonder if you could also take on notice: what level of resources are made available to the Reserve medical formations in the three services? Again, I am happy for that to go on notice.

Air Vice Marshal Moller --If you are referring to training day matters in terms of allocations--

Senator QUIRKE --I am talking about dollars.

Air Vice Marshal Moller --I cannot answer that presently. That would be for the personnel area to answer.

Senator QUIRKE --I would be quite happy for that to come back for future exploration.

Senator HOGG --I refer to page 40. Under the heading `Underutilisation of health facilities', paragraph 4.21 says:

Defence has limited data on the utilisation and cost of running its health facilities and, consequently, does not analyse usage of ADF or civilian hospitals, including number of bed days, or the comparative costs . . .

Then the recommendation says:

a) undertake a detailed costing of all ADF hospitals and medical centres; and

b) rationalise the provision of these beds where their costs exceed the costs of beds . . .

Has a program been undertaken to do a detailed costing of all ADF hospitals and medical centres? If so, when can we see the results?

Air Vice Marshal Moller --Senator, that has not commenced. But, in saying so, I point out that, in concert with other recommendations within the report, a CSP review team has been established within the office of the Surgeon General, comprising a permanent staff member on our staff and two additional staff from the Director General, commercial support program.

They are currently addressing three major issues: the review of the central health records for market testing, the proposed memorandum of arrangements with the Department of Veterans' Affairs for in-patient care, and the review of the contract at Puckapunyal. The future work program that they have recommended includes undertaking a detailed costing of the ADF hospitals and medical centres, as you have defined. But that work has not commenced and will require a dedicated team, that team, and consultancies.

Senator HOGG --I was going to say that it is a substantial task in its own right, and that is why I was asking. It seems to me to be one that should be given reasonably high priority, given the cost benefits that can come from that analysis.

Air Vice Marshal Moller --I agree.

Senator WEST --You made some comment about Puckapunyal. What was it?

Air Vice Marshal Moller --The review team is addressing the contract for medical services at Puckapunyal. As you may well know, the Puckapunyal area is under a commercial support program, and the medical services are buried within a more general contract. We are trying to dissect out the actual costs for the medical element of that global contract.

Senator WEST --When you say `medical element', what precisely do you mean?

Air Vice Marshal Moller --The medical element of employing doctors to provide services at that facility at Puckapunyal.

Senator WEST --What about the occupational therapists, physios, nursing staff?

Air Vice Marshal Moller --I do not know precisely what is at Puckapunyal. Whatever is covered globally under the contract that provides those health services in general is to be dissected out so that we have a base with which to compare the costs of that medical or health contract with other contracts which we wish to put into place.

Senator WEST --So you do not know what medical services are CSPed out at Puckapunyal?

Air Vice Marshal Moller --They are all CSPed, but I do not know the cost because it is within the contract, as I understand the advice given to me.

Senator WEST --When was Puckapunyal put out for--

Air Vice Marshal Moller --I would need help on that. I cannot answer that.

Senator WEST --Was it two years ago, three years ago, 10 months ago?

Mr McNamara --It would have been four or five years ago. It was one of our very early CSP initiatives.

Senator WEST --So a review of that is taking place?

Air Vice Marshal Moller --Please, I do not wish to mislead you. There is not a review of the contract. What we are determining is the health element within the general contract that is in force at Puckapunyal, so that, when we know what that particular element is, it is not as if the health element was contracted separately to anything else. It was buried within the base support contract, as I understand it.

Senator WEST --In your review, will you be looking also at the problems that could be confronted by the ADF, if suddenly an element that was at Puckapunyal had to relocate somewhere else for active service, and what they would do for medical support, given that they presumably would not be able to take what they have got with them at Puckapunyal to wherever they were relocating for some active, real business?

Air Vice Marshal Moller --As I understand your question: if an element of the Army at Puckapunyal moves somewhere else, who would provide their health care? That presumably would be provided by the Army because those elements would be supported by whatever was in the local facility, unless it was a brand new location.

Senator WEST --But I am thinking in terms of when there is actually conflict and they are called to theatres of war. Presumably you are not going to put your civilian medical teams where there is a potential conflict. If you have a whole lot of your medical teams civilianised, what are the impacts of that going to be upon the provision of medical services at the sharp end?

Brig. Traynor --The deployment elements that we have located in Puckapunyal are not very large in number and they are land units. If they were deployed to a combat formation, their medical care would be picked up by the existing medical component of that combat formation.

Senator WEST --That is fine, but the point I am driving at is that you are looking at the medical costs of Puckapunyal as CSP. But what is the impact if, for a whole lot of your bases, you have CSP medical services and then you require field hospitals, and whatever else, to travel? Where are you going to get your--

Air Vice Marshal Moller --Perhaps I will answer it in this way: the determination of the health capability required to support ADF operations would be made first, and after that determination is made, in accordance with advice that has been given in ANAO and other reports, then we would CSP below that level, in that sense. In other words, the operational requirements, health wise, would be preserved and we would not be CSPing, or market testing, elements of health which might be required for operational purposes, to my understanding.

Senator WEST --So in the review that is currently under way as a result of this--if you are going to be looking at Puckapunyal and all of these--you will be doing a review or an assessment of the operational medical needs, will you?

Rear Adm. Briggs --Senator, the test of operational necessity is one of the first ones applied generally to any CSP situation, not just medical.

Senator WEST --I happen to have an interest in medical.

Rear Adm. Briggs --But you are looking at CSP and, as the Surgeon General has said, the first consideration is what level of medical capability do we need for our combat support. Only the surplus is considered for CSP.

Senator WEST --I am interested in knowing what is going to be happening with the assessment of the operational medical needs.

Air Vice Marshal Moller --That will, in part, be determined for us by the calculation of the members required in uniform to meet the operational needs of the service. Once that determination is made, any health staff that are required beyond that to support the peace time force will be addressed for market testing.

Senator WEST --Who is making that assessment?

Air Vice Marshal Moller --A joint project No. 20-60 is looking at the operational health requirements for the ADF. That is a triservice project that has been supported by each of the services--

Senator WEST --The membership contains what?

Air Vice Marshal Moller --It contains a staff within the deployed force health support area of my organisation, with a methodology that has been developed and run in conjunction with DGFDL joint, I would imagine.

Senator WEST --Can you expand that acronym please?

Air Vice Marshal Moller --Director General, Force Development (Land) is the sponsor for joint project 20-60. My staff are the key staff involved in that project. There are representatives from the Army, the Navy and the Air Force in the health arena working in conjunction with the sponsor staff and in addition to consultants to define the operational health requirements in a methodology which is progressing. I think we are now at stage four of that methodology. We are awaiting advice from consultants to assist in that project. That will define formally, against a methodology which is not only a health methodology but also a defence methodology, what we require for operational purposes.

Senator WEST --Who are the consultants?

Air Vice Marshal Moller --That consultancy has not been let, to the best of my knowledge.

Senator WEST --Are there any terms of reference for that consultancy?

Air Vice Marshal Moller --I believe so. I cannot answer that question; I will have to take it on notice.

Senator WEST --I am happy for you to take it on notice. Is it possible to get a copy of the terms of reference?

Air Vice Marshal Moller --It is not classified.

Senator WEST --I am happy for you to take it on notice.

Air Vice Marshal Moller --Thank you.

Senator WEST --You say that your staff are involved. What health professionals are involved?

Air Vice Marshal Moller --The Army is represented by a general service officer, the Navy is represented by a medical administrator, and the Air Force is represented by a United States air force exchange officer working with the Air Force.

Senator WEST --Are these all doctors?

Air Vice Marshal Moller --No. There is one medical practitioner and two administrators.

Senator WEST --So you have no input from nursing.

Air Vice Marshal Moller --Yes, we do, because that group consults within the office of the Surgeon General for specialist advice as required against all of the areas within the office.

Senator WEST --Are you involving the college of nursing as well?

Air Vice Marshal Moller --No.

Senator WEST --Are you involving the college of surgeons and some of those speciality--

Air Vice Marshal Moller --Not that I am aware of, Senator. This is an operational determination against set methodology which is purely defence.

Senator WEST --A word of advice: if you get the college of surgeons involved, you had better get the college of nursing involved as well. They are both the professional standard setters for their professions. I will continue to watch that with a great deal of interest.

Senator HOGG --I would like to return to where we left off about 10 to 15 minutes ago.

Senator WEST --Sorry.

Senator HOGG --That is all right. I would like to get a bit more detail on the group that is going to undertake the detailed costing. You said that there will be a need for outside consultants. Is that correct?

Air Vice Marshal Moller --I do not believe we have the expertise nor the assets to do that level of work. The advice to me from the team is that a detailed costing of that nature will require additional external assistance.

Senator HOGG --When do you think we could see this project come on stream?

Air Vice Marshal Moller --I do not have a time line for it. I would anticipate, because of the nature of what we are trying to do, that it will be in the next calendar year in 1998.

Senator HOGG --So it is still a fair way off yet.

Air Vice Marshal Moller --Yes.

Senator HOGG --I note that there is a further recommendation on page 51 in respect of costing information. I presume that when you do this you will be addressing issues such as this one. It refers in paragraph 5.12 to a number of areas of expenditure that are difficult to monitor. In paragraph 5.13 it says that the ANAO found that Defence last undertook a detailed analysis of bed costs in the ADF hospitals in 1987 and that the cost per day then was $285. I would imagine that, as we move into accrual accounting--or even if we do not--one would need an update on that figure. I presume that it will form part of that other exercise. Is that correct?

Air Vice Marshal Moller --That is correct, and the purpose is to determine if it is more efficient to use our facilities or to use external facilities.

Senator HOGG --How accurate are the costings that we have before us in respect of medical services if we are working off a 1987 figure for bed costs?

Air Vice Marshal Moller --Can I clarify that point? As I understand the way that the report was written, they are the assessed bare costs for our facilities, not what we are buying from health providers external to the Defence Force.

Senator HOGG --Can you tell me what the difference is between what you are buying externally and what you are using from within your own facilities? Is it a substantial difference from $285?

Air Vice Marshal Moller --That figure, I think, is outdated and I would not accept that figure as the current cost of beds. It would be more than that obviously from 1987.

Senator HOGG --I understand that, but do we know how far out it is?

Air Vice Marshal Moller --No, I cannot give you an estimate of that, and I would prefer not to until that costing is undertaken. The bed costs that we pay in hospital are external when we refer patients and vary from state to state.

Senator HOGG --I understand that. Could I just go back a step. Does that cost impact on the figures put out in the various budget statements?

Air Vice Marshal Moller --No, I do not believe they would, simply because the budget statements refer to the expenditure we make for the provision of in-patient services external to the Australian Defence Force--in other words, in the hospitals we use outside our own.

Senator HOGG --The last issue that I want to ask about is on page 78--`Review of therapeutic substances'. At paragraph 9.5, it refers to the fact that in 1994 the average expenditure was about $200,000, in 1996 it was about $280,000, and they tried to identify why the significant increase in costs had taken place. Recommendation No. 17 states:

The ANAO recommends that the Surgeon General conduct a comprehensive review of the availability and usage of therapeutic substances in the ADF.

Has that review been commenced, who is actually doing the review and when will it be completed?

Air Vice Marshal Moller --A review was commenced, and I think the report does refer to that. I commenced a review of the therapeutic substances with an aim to addressing the total costs. Somewhere within that report that is recognised. That recommendation came from the very fact that we had identified the issue of therapeutics as an area that needed to be rationalised in the formulae that we would use in the Defence Force to contain costs.

The continuation of that review is now dependent, following restructuring of the organisation, on staffing into the respective areas that will do that. It was commenced, and it has been held in abeyance with a number of other changes, but it will not be left. It now requires some staff support in the posting cycle in the early new year to reactivate that review. But it is a priority review we need to do, and it will be done.

Senator HOGG --When can we expect to see the result?

Air Vice Marshal Moller --I would expect the result by the middle of next year.

Senator HOGG --There is only one other audit report I would like to address. It is not mentioned in the annual report, and that is this most recent report, Performance Management of the Defence Inventory. Do you want to deal with that now or later?

Air Vice Marshal Moller --Let's do it now, Senator.

Senator HOGG --Firstly, I refer to pages 29 and 30. Recommendation No. 3 is on page 30. I will have some other questions that I will raise in a more general sense after this. This refers to `Logistics performance management "centre of excellence"' and paragraph 2.64 states:

Another factor inhibiting the rapid adoption of leading performance management practices in Defence has been the fragmented nature of the development effort.

It goes on:

Development within each Service has occurred largely in isolation, with little inter-Service communication.

This is an area where we have, at the front of the report, identified substantial problems indeed in terms of spares, consumables and repairable items, excluding explosive ordnance, valued at $3.9 billion and with $1 billion expended annually on further procurement and maintenance of repairable items. So we are dealing with substantial amounts of money and, as we all know, it was the subject of some media comment.

Just addressing that issue, the ANAO identified that there is little communication between the services. I realise that this is a very recent report, so I am not expecting the world to be turned on its head overnight, but this undoubtedly must have stirred people into some sort of action. Could I have some comment on that particular aspect?

Major Gen Mueller --My program was established on 1 July, and prior to that my colleagues and I were allowed two months to get an overview of logistic business processes, information systems and performance management regimens across the Australian Defence Force. What was clear was that those processes and those information systems are not standardised, and in many cases they are not integrated; and, as a consequence, one of the early decisions we made was that on the formation of the command on 1 July we would initiate a project to establish a joint logistics systems agency. That will be jointly manned by Navy, Army, Air Force and, where appropriate, civilian officers. Its principal task will be to integrate, rationalise and align logistic business processes and related logistic information systems. There is a project team working on that initiative, and the joint logistics systems agency will be raised on 3 February next year.

Senator HOGG --So it will be operational?

Air Vice Marshal Moller --As from 3 February next year, yes.

Senator HOGG --I would imagine that this is receiving some priority because of the very nature of the report itself. Has that required extra personnel?

Major Gen. Mueller --At this stage, no. There are, in essence, four or five initiatives which we put in place in July which relate directly to observations made in this audit. The first is the establishment of a joint logistics systems agency, the second is a project to review the defence inventory, the third is to establish a defence integrated distribution system and the fourth is to establish arrangements to manage purchasing as a corporate activity within the command.

Senator HOGG --So this would mean that you are going to have to break down a number of barriers where people have built their own little empires, so to speak, over a number of years?

Major Gen. Mueller --That is true and that is one of the opportunities which Support Command Australia offers. Obviously, with that is the requirement to put substantial effort into culture building, which we are doing.

Senator HOGG --How is that being handled: by outside consultants or internal?

Major Gen. Mueller --It is being done both internally by commanders and supervisors at all levels and, as of next year, because of the large turnover of personnel at the end of this calendar year, we will embark on an 18-month program in which we will be assisted by a consultant to build a joint culture to complement the single-service culture.

Senator HOGG --In going through this process, because of the significance of this report, in my view, at some stage in the future are you going to be in a position where you will be able to report back to us as such--not directly to us, of course--in a form that will enable us to see the implementation and the progress of the recommendations that are contained in this report?

Mr McNamara --I would like to help answer the first part of that question because you made some comments about the generic issue of monitoring our progress on these reports. We have in place an arrangement where our minister reports on a six-monthly basis to the Minister for Finance and Administration and to the Australian National Audit Office on progress with implementing the recommendations so that the chances of them disappearing into the ether are relatively remote. We also have a defence audit committee internally now, as a consequence of an initiative of the Auditor-General, which involves staff from the Auditor-General. We will be reporting in that context.

You will recall Mr Lewincamp talking earlier about the reporting arrangements, which our performance review has looked at in some detail. I would suggest that, similarly, we will be subjecting ourselves to external scrutiny in this context, and that will involve this committee. That is a long-winded way of saying that we will be producing a number of reports and then coming back here as well.

Senator HOGG --I was going to refer to a number of recommendations that are dotted throughout this particular report. If I just look at recommendation 16, for example, it says that:

. . . Defence articulate a strategy and a timetable, including milestones and performance indicators, to guide the development of logistics executive information system to support consistent . . .

Whilst the strategy is in place and the timetable is unfolding, we cannot necessarily see all the signposts at this stage. I would presume that your 3 February date, when you will have your group finalised, would be about the time we would start to see these things unfold.

Major Gen. Mueller --The task is quite formidable. The first stage in remedying a lot of the shortcomings that were identified by the ANAO will be consistent with one of their recommendations to do an audit of and to complete the detailed mapping of core business processes that impact on the distribution chain end to end. That will be followed by measurement of existing performance, which will then be built on by a business process re-engineering exercise. Those processes will have to be remeasured to confirm that the business process re-engineering exercise has been successful.

In parallel with that there will also be a requirement to develop a logistic information architecture. That is, of itself, a formidable task. I would make the observation that, prior to the defence reform program, Navy, of its own volition, instituted a consultancy to look at such a prospect for naval logistics systems alone. The advice of the consultancy was that something of the order of two years might be necessary to complete such a task.

Senator HOGG --How many years?

Major Gen. Mueller --As many as two.

Senator HOGG --Two! Where does that leave us in terms of some of the other things that I have noted in this report? For example, it talks here about something that came out of the DER, at paragraph 641:

The DER recommended that the value of the ADF inventory be reviewed to ensure its accuracy.

Undoubtedly, one of the things that the ANAO found in its travels was that the inventory was not very accurately valued. Of course, this is a concern to all of us. Is this a separate exercise? Or is it something that will take place at the same time? What sort of time frame are we looking at?

Major Gen. Mueller --That will be a separate exercise. We will have to do that in consultation with RFP division. The intention at this point in time is to do that in a way that will be consistent with the way that we are to value plant, property and equipment, and inventory under an accrual reporting and budgeting regime.

Senator HOGG --So your target is to get in line with the need for the accrual budgeting?

Major Gen. Mueller --Yes.

Senator HOGG --That raises the issue of: what sort of test mechanisms will you put in place to ensure that the values that are arrived at are fair and reasonable values?

Major Gen. Mueller --When you talk about values, are you alluding to book values?

Senator HOGG --I do not think we need book values under accrual accounting.

Major Gen. Mueller --Book values, I would suggest, are the quintessence of accrual accounting.

Senator HOGG --Yes. I am sorry. You are correct. What will you put in place?

Major Gen. Mueller --That will depend on the methodology which is to be used to first of all depreciate non-current assets and then, if necessary, to revalue them periodically, basing that on deprival value or doing it in accordance with the appropriate technological or industry index. I would have to get guidance for that from RFP division.

Senator HOGG --By the way, is the inventory of the defence forces the biggest inventory in Australia?

Major Gen. Mueller --I would have to take that question on notice.

Senator HOGG --But one would reasonably expect that it would have to be.

Major Gen. Mueller --It would certainly be the most complex. Whether it is the largest in terms of book value, I do not know.

Senator HOGG --So the management of that asset is a very important issue arising out of this report and it needs to be addressed?

Major Gen. Mueller --That is correct.

Senator HOGG --I thought the audit report at one stage alluded to the fact that there were about 60 inventory information systems. Am I understanding correctly from what you have said this evening that we are going to see an amalgamation of all of them or of a substantial number?

Major Gen. Mueller --It is too early to answer that question. What one can say with confidence is that it will be a matter of progressively migrating from where we are now towards arrangements that are demonstrably more integrated than those under which we currently work. But there will be a cost attached to that, and it will be a matter of determining what the options are and what the cost capability trade-offs will be.

I might make the observation that the Royal Air Force has a problem of probably not dissimilar magnitude. They are now in the process of aligning their processes and their information systems. They are doing that over a 10-year time frame and, if my memory serves me correctly, they are contemplating an investment of the order of about #300 million.

Senator HOGG --So at this stage we have no idea of the cost associated with achieving a better inventory for our defence forces?

Major Gen. Mueller --When you say `a better inventory', if you are talking in terms of enhanced business processes complemented by integrated information systems and an appropriate performance measurement regimen consistent with those processes, at this stage the answer to that is no.

Senator HOGG --Do we have any idea of the degree of duplication of inventory systems throughout the defence force? Or does the left hand not know what the right hand is doing?

Major Gen. Mueller --There are a substantial number of logistic information systems which, because to a degree the services have developed these things in isolation, are doing similar or what amount to similar tasks. As I mentioned earlier, the establishment of my command now provides the opportunity for us to remove that duplication.

Senator HOGG --So that is one of the positives we will see out of the whole defence reform program? It will drive the agenda to cut down the duplications that exist and to come together with an integrated process which, theoretically at this stage, everyone could or will link into?

Major Gen. Mueller --Correct.

Senator HOGG --Does the fact that we have such a fragmented system at this stage in any way reduce the capability of our defence forces in times of emergency? You might not wish to comment on this, and I would understand that.

Major Gen. Mueller --That is a very difficult question to answer, and my response to that would be: on balance, no.

Senator HOGG --They talk in the report about $1 billion of savings being identified by the defence efficiency review by selling low usage stock or selling vendor held stock. Is that correct or have I misinterpreted something I have seen in there?

Major Gen. Mueller --Offhand, I do not know whether the statement you have made is correct. If it is, I do not know what the basis of that assessment by the ANAO is. Certainly, vendor held stock for high volume, generally low-cost, readily commercially available items is consistent with modern inventory management practice in the private sector and is an initiative that we will pursue.

With regard to low usage items I think considerable care needs to be taken there. For example, in all three services we carry things called insurance items. In the case of Navy, for example, that would include propeller shafts and propellers and spare gun turrets. One would hope, on balance, that the usage of those would be not low but nil.

Senator WEST --Are you saying that, to a certain degree, Defence has a need for an inventory that most organisations and businesses that keep an inventory do not really have a need for?

Major Gen. Mueller --I think the ANAO report itself recognises that the characteristics of the defence inventory do differ significantly from that of a normal commercial enterprise. One of the recommendations they make--and it is a very valid one--is that there is a need to better segment the defence inventory. Those segments of the inventory, for example, which generally speaking represent the sort of inventory which could be carried by a commercial enterprise would be managed in a way that would be similar to modern management in the private sector. Other items, such as the insurance stocks that I just mentioned, have to be managed quite differently.

Senator HOGG --I think they have identified that there are surplus and obsolete stock that you carry. Are you able to identify those yourselves and, if so, what do you do with those surpluses and obsolete stock?

Major Gen. Mueller --If the stock is surplus, obviously the intention is not to purchase but to run it down to what is the appropriate inventory level. If it is obsolete, then we dispose of it.

Senator HOGG --They also referred in the audit report to a large proportion of unserviceable repairable items. Do we have any idea of what percentage?

Major Gen. Mueller --There are figures, if I recall correctly, that are mentioned in the report. The percentage of repairable items which are other than serviceable is in some cases substantial. The policy which has been used up to this time by all three services and I imagine would continue is that repairable items are only repaired at a rate consistent with the forecast demand for planned rates of effort.

Senator HOGG --Could you convert that into real English for us?

Major Gen. Mueller --Essentially we get from the combat and training forces a forecast of their rates of effort, and we then translate that into what availability of serviceable repairable items will be required. That indicates to the inventory managers the rate at which repairable items should be inducted into the repairable item pipeline.

Senator WEST --Items that are unserviceable are left until--

Major Gen. Mueller --Yes, they are. That is essentially a means of realising economies. There is an opportunity cost attached to the money we spend on repairable items that we do not require because we cannot spend it on something else.

Senator WEST --What sort of time frame are you talking about in getting some of this equipment serviceable again?

Major Gen. Mueller --Are you talking repairable items?

Senator WEST --Yes, unserviceable repairables.

Major Gen. Mueller --It can, if the repairable item has to go offshore, be a matter of as much as in some cases, as I understand it, 24 months. That is not inconsistent with practice anywhere else across the globe.

Senator WEST --You would want a bit of a lead time in finding out that a conflict was going to take place if you have this arrangement for not putting something into the repairable pipeline until you know you are going to need it. If you have a 24-month time delay, you would want to have a bit of a lead time. Gee, I hope the intelligence people are--

Major Gen. Mueller --It is a matter for those force elements which have a higher signed readiness notice. You determine, if you will excuse the expression, the contingency provisioning lead time to get the repairable item made serviceable and you carry in reserve stocks an adequate number of repairable items to cover that time gap.

Senator WEST --So you have duplicates of the ones that take 24 months to repair.

Major Gen. Mueller --Yes. You need more of them. You need stocks to allow for that time.

Senator WEST --With a 24-month lead time, when do you send them off for repair?

Major Gen. Mueller --With a lead time of 24 months.

Senator WEST --So basically you would not leave those hanging around as unserviceable repairables?

Major Gen. Mueller --It really is a question of referring to the model of the RI pipeline for particular repairable items and knowing, consistent with your rates of effort, where your repairable items need to be, in terms of both number and condition, at any given time.

Senator WEST --Do they teach you special language somewhere along the line? I am sorry, General, but--

Major Gen. Mueller --I would probably make a fine politician.

Senator WEST --I will pay that.

Senator HOGG --I hope the Hansard records the length of the laughter. Whilst the report is down, whilst you are doing things, we will not find ourselves in any better situation for at least another two years?

Major Gen. Mueller --If you refer to the recommendations, I think you will see the first recommendation which the ANAO invites Defence to attach some priority to talks about a coherent performance management arrangement. To do that will take time, but there are shorter term performance measurement arrangements which would be less coherent which will be put in place and which will I think realise some significant benefits quickly. That is certainly the aim of the project team that is working on the defence inventory management project.

Senator QUIRKE --During the last three months--in fact since the beginning of the financial year--there has been an eight per cent depreciation in the Australian currency alone. What implications will that have for forward estimates? I gather that you source quite an amount of your inventory from overseas.

Mr Lewincamp --We are supplemented by the Department of Finance and Administration on a no win no loss basis for exchange rate movements, so we will be reimbursed for the loss of our purchasing power overseas.

Senator QUIRKE --Have you any idea of the figure that will be involved in that?

Mr Lewincamp --I do not have an accurate figure. Our estimate at the moment is that it is somewhere in the order of $100 million to $150 million so far this year in terms of our loss of purchasing power.

Senator QUIRKE --That is what will be needed just on the present currency movements?

Mr Lewincamp --That is right. That is on the projection of those movements for the rest of the financial year. But that will be accounted for at the end of the year. If that situation stays the same, we will be fully supplemented by Finance.

Senator QUIRKE --But it still has to be found in terms of extra dollars.

Mr Lewincamp --In year, yes. If we maintain the same rate of expenditure overseas, yes, then we have to find additional money for that.

Senator QUIRKE --Will there be any pressure to slow down procurement as a result of this?

Mr Lewincamp --Not with a movement of that sort. In the size of our budget, $100 million probably will not have a significant effect.

Senator QUIRKE --What about the New Zealand decision not to go ahead with the two Anzac frigates? Is that going to make any difference to our Navy's cost with respect to that program?

Mr Lewincamp --No. As I understand it, that was an option in the contract and it will not have any impact on the existing costs.

Senator QUIRKE --What about the Black Hawks that unfortunately crashed last year? Will they be replaced?

Mr Lewincamp --I am not aware of any plans to replace those aircraft.

Senator QUIRKE --I note that in some of the material that was supplied there is a cost of making the F111C compatible with the F111G. What is involved in that? There are quite a few millions of dollars, I understand, involved in making these aircraft compatible.

Air Vice Marshal Rogers --We have a project under way to improve the compatibility between the two types of aircraft. They are different in both engines and airframe. There is a high degree of commonality over other varieties of the F111. When they were introduced into service in 1993, we looked at the capability of the F111G. It was not equipped with precision guided munitions; it was acquired in that particular condition. We are looking now at improving the capability so that it can carry and release precision guided munitions so that over the remaining life of the F111 fleet, through to the year 2015 at this stage, we have a capability which is common right across the fleet itself. That is from the weapons point of view. We are moving also to improve the commonality between the engines, and there are some in-house programs we are doing there and we are having a lot of success. We are also looking at some of the avionics in the aeroplane, because there is a difference, and how we can make the commonality between the aircraft as practical as we can without incurring great costs downstream.

Senator QUIRKE --The F111G is the one that was procured from the United States?

Air Vice Marshal Rogers --That is correct. We bought those in 1992-93 at the direction of the previous government. I think they were acquired at a cost of about $5 million each. We bought 15 of them.

Senator QUIRKE --You say the airframe is going to last until the year 2015. Is there any evaluation being made of a replacement aircraft for this?

Air Vice Marshal Rogers --Not an evaluation at this stage. We are obviously keeping our options open and looking at what may be on the market at that stage. We are doing the same with the FA18 and the fighter aircraft. Bearing in mind that it takes some 12 to 15 years to develop a new aeroplane, there is nothing on the horizon at this stage. Probably early in 2015 there will be something started to provide that capability for the forces around the world.

Senator QUIRKE --I understand from some press reports that AWAC capability is being looked at very seriously by the Air Force. Can you give us an update about that?

Air Vice Marshal Rogers --Not AWAC itself; that is the American designation. We are looking at a model called the airborne early warning and control, AEWAC. That project has been around for probably about 15 years and it is coming to fruition. We are putting the proposal. You have heard the government say that they support that project. We hope to get that approved in the next round. It is more in the acquisition, but we will be letting some contracts soon, we hope, for the development of a type of aeroplane with the aim of having the first aircraft in service around about the 2002-03 time frame.

Senator QUIRKE --How many of these are being looked at?

Air Vice Marshal Rogers --At this stage we are looking at possibly up to six and possibly seven.

Senator QUIRKE --They would be spread around Australia or concentrated in the one area?

Air Vice Marshal Rogers --We are looking at a home base on the east coast with a deployed base up to the north.

Senator QUIRKE --I turn to the Navy now. In terms of the destroyer fleet, and I include in that the frigates as well, have the anti-ship missile capabilities been fully developed?

Air Vice Marshal Rogers --There are several classes of ships, and that involves both the Anzac ships and the FFGs.

Senator QUIRKE --And there are three of the old guided missile destroyers, aren't there?

Air Vice Marshal Rogers --I do not think anybody in the Navy would call them old; the DDGs are still very capable ships.

Senator QUIRKE --They are almost as old as me, though.

Air Vice Marshal Rogers --I think they were introduced into service in the late 1960s.

Senator QUIRKE --Not as old as me.

Air Vice Marshal Rogers --The anti-ship/anti-missile capability of the Anzac frigates is being improved under a project called the weapons improvement program and the same on the FFGs called the progressive upgrade program, PUP.

Senator QUIRKE --This is a gun system, I presume; is that right?

Air Vice Marshal Rogers --No, it is a missile system.

Rear Adm. Briggs --Senator Quirke, on the issue of the Black Hawks, you asked what are the two airframes that have been lost. The Black Hawk project, I am informed, included three contingency airframes--in other words, three that were not in use. Two of those have been used to replace the aircraft that were lost.

Air Vice Marshal Rogers --That is quite a standard practice. When we assess our requirements through life of the numbers of assets we buy, we do have attrition in there for losses.

Senator HOGG --I have two quick questions on the audit report which should be answered very quickly. I am sorry that it seems like musical chairs but I did not know my colleague was going to venture into other areas. The last recommendation of the ANAO was in respect of education and training. What specific education and training packages are you developing, if any, in view of the monumental task that is confronting you?

Major Gen. Mueller --There are some significant inadequacies in logistic training within my command. It extends beyond issues such as performance management. We are undertaking two initiatives. The first will be a short-term training strategy, which is to be tabled at my command group on 1 December, to cover the calendar year 1998. We have also simultaneously established with head of joint education and training a working group to look at a policy framework and a training needs outcome for logistic training right across the Australian Defence Force. So we have instituted arrangements for both a short-term solution and a longer, more comprehensive solution.

Senator HOGG --I found this in a newspaper report but I presume that it is in this report somewhere. This is from an article in the Canberra Times of 21 October. It says:

At just one air force base, Amberley in Queensland, such costing assisted the RAAF to identify $233,000 worth of wasted work on aircraft parts which were removed prematurely from aircraft.

I am not going to cite that as typical, but undoubtedly there must be that sort of situation repeated right across Australia. As a result of this report, do you have some form of waste watch committee which, apart from getting the inventory side right, is looking at the issue of waste? If so, how is that being handled?

Major Gen. Mueller --No, nothing that represents a waste watch committee has been established. The particular figures that you refer to are, in most cases, repairable items which, when they were in the aircraft, indicated by virtue of automated test equipment that there was a fault in the assembly. They were removed from the aircraft and reworked and it was found subsequently that there were no faults. I understand from the advice that I have had from engineers that this occurs in all complex platforms and combat systems and can be as high as about 15 per cent.

Senator HOGG --So that is not the sort of issue to be addressed in this exercise?

Major Gen. Mueller --No, that is an engineering issue.

Senator HOGG --Are there examples, though, of where there is waste and where it is being looked at specifically as a result of this?

Senator HOGG --Yes, that is one of the principal outcomes being sought by the project team working on the defence inventory.

Senator HOGG --Thank you.

Sitting suspended from 9.26 p.m. to 9.43 p.m.

Senator HOGG --I refer to page 18 of the overview in the PAES. I note that the Defence Efficiency Review key findings recommendations in the Defence Reform Program Implementation Status has been detailed there for us. My first question is to Mr Lewincamp. Are there any changes to that as printed now? If so, could you guide us to those changes.

Mr Lewincamp --There are a couple of developments from the version that is printed in the table in the PAES. We have counted three more of the recommendations as having been completed. They are recommendation 8 on page 20, recommendation 15 and recommendation 31. Would you like me to indicate briefly why we believe those to be completed?

Senator HOGG --Yes, I would appreciate that.

Mr Lewincamp --I refer first to recommendation 8. Our operational managers through the department have always had a considerable amount of flexibility to move resources between inputs. Most of our resources are allocated in two major appropriations--running costs and equipment and stores. Together, they account for some 90 per cent of the funds that we allocate to program managers. There is considerable flexibility there. We have reminded operational managers of the flexibility that they have and of programs to devolve that flexibility to people further down the chain.

Senator HOGG --What is the real impact, therefore, of that having been completed?

Mr Lewincamp --The impact is that the operational managers have the flexibility that the defence efficiency review sought for them.

Senator HOGG --Does it make any physical difference?

Mr Lewincamp --In a sense, no, because under our existing resource management regime they have had that flexibility. In some cases, that has not been devolved as far down the program line as we would like, and we have simply ensured that that is devolved and the local managers are aware of it.

Senator WEST --There is adequate accountability built in? I assume with flexibility you have to have accountability.

Mr Lewincamp --Certainly we do, yes.

Senator WEST --And is there any impact upon costs?

Mr Lewincamp --No, there is no cost impact of that.

Rear Adm. Briggs --If I can just add to that, I think in a practical sense it has a great influence in the workplace. People do appreciate the responsibility. So I am sure you do get an efficiency gain, although it will not turn up in the bottom line.

Senator WEST --I guess we will see with practice, won't we?

Rear Adm. Briggs --There is no-one so mean as a petty officer with a budget.

Senator WEST --But what about those underneath him or her?

Mr Lewincamp --The next recommendation was 15, which was the one related to the establishment of the Defence Capability Committee. That has been established. It is now doing all of the things that the recommendation has suggested. So that is now categorised as `consideration complete'--although, of course, that committee will continue to refine its processes as it continues to operate.

Senator WEST --Has it yet had to coopt CVS or the equivalent?

Mr Lewincamp --The committee does, in its consideration of different matters, coopt the relevant people. Those are the service chiefs, CDS and any other officials that it deems necessary.

Senator WEST --What about the review of the pink book, white book and green book?

Mr Lewincamp --They are reviewing those books together annually, because the people responsible for them are present at those programming meetings.

Senator WEST --Has there been a review completed?

Mr Lewincamp --No. The programming meeting, which is considering the annual look, is in about two weeks time.

Senator HOGG --So how often does the committee meet?

Mr Lewincamp --The committee at the moment, I think, is meeting at least weekly in order to try to get through its business. It has a very, very heavy workload. It has also set up a subsidiary committee at the next level down to consider the smaller projects. So there are significantly different processes now operating in the whole capability area.

Senator WEST --So the reviews of the pink, green and white books will be occurring close to the end of the calendar year each year?

Mr Lewincamp --Yes, it occurs towards the end of the calendar year in order to inform our budget submission, which goes to cabinet at the end of January. Following the DCC consideration of those investment programs, we then have the Defence Management Committee look at the overall defence budget, including determining the amount of expenditure allocated to the investment program. So it is a process that works up into our budget submission.

The next recommendation was No. 31, which was the one concerning `concept or technology demonstrators'. There was a first round of proposals for these demonstrators endorsed by the Defence Capability Committee in fact as early as May this year. There is also a second round of proposals in this area going to the programming meeting in two weeks time. So we now have that process built into the Defence Capability Committee consideration.

There are additional actions on about nine or 10 further of the recommendations being actioned. You will appreciate that one of the difficulties we have is that some of these recommendations will not be fully completed until the end of the defence reform program. For example, secretary in CDF will manage the implementation. That is not something you can call complete until the end of the three- to four-year program. But there are a range of further developments on some of the recommendations. I could give you some examples, but it is probably a bit much to run through all of them.

Senator HOGG --Perhaps the simplest way would be for us to go through these various recommendations--and it is not that we have a wide range of issues to raise but would be just a check list more or less--to find out what is happening. You then can tell us whether we are on the right track.

Mr Lewincamp --As best I can, I will, yes.

Senator HOGG --The first one is F6 at page 18: `the consideration is complete'. But it then goes on `in a review and modification of related defence management processes and structures'. When is that review being conducted and by whom? What stage is it at?

Mr Lewincamp --That is something that will happen progressively right through the defence reform program. As an example, we have already changed some of the management and decision making processes. A good example is the way that the Defence Capability Committee operates. A number of committees have been abolished: the Force Structure Policy and Programming Committee, the Concepts and Capabilities Committee, the Defence Personnel Committee. A range of those have been abolished already, and their functions have been subsumed into other areas or into particular functional areas.

A number of committees have had their membership changed. The Audit Performance Evaluation Committee, for example, and the information management board have had their membership changed as a result of revised processes. So that review of our management processes and structures is really ongoing, if you are talking about a review of ours.

Senator HOGG --Who is actually doing that review? Is there one overarching body that is looking down and controlling the review or is it just a number of disparate reviews?

Mr Lewincamp --The overarching look, if you like, is Secretary CDF, who have responsibility for the implementation, but these matters are considered by the Defence Management Committee as well. There are also specific management processes and structural changes that are occurring within each of the Defence programs. For example, General Mueller was telling us before about some of the things that are happening within Support Command.

Each of the programs is looking at its own structures and processes in the same way. Another example would be that the personnel executive has just decided its new structure, which will be fully implemented on 1 January next year. My own division, for example, we have just restructured, and that was implemented two or three weeks ago. So these things are happening right throughout all of the programs within the defence organisation. It is being overseen in general by Secretary CDF.

Senator HOGG --Having been implemented, is there a review process to see that what has been implemented is workable and sitting well with the people who have been reworked?

Mr Lewincamp --Again, that is a part of this DRP as a very dynamic process. You are probably aware that the defence efficiency review itself was very broad brush and was not at all prescriptive in its solutions. It more or less identified a range of problems and a range of areas and said: Defence, go away and look at that and see how you might manage that better.

As part of this dynamic process, we have engaged in a whole series of reviews right across the organisation which are looking at the way we do business in particular areas. We are implementing the solutions and then testing them in practice, if you like. A good example is the Defence Capability Committee, which is modifying its processes as it develops experience in its new mode of operation. That will happen consistently right through the defence reform program.

Senator HOGG --You have outlined the situation in your answers and you touched on an issue which has been of concern to me and which I raised it at the previous estimates. You are dealing with a lot of change for people. Change is not something that is necessarily accepted readily by people, and change has to be managed. I raised the issue of morale and the effect on morale of the changes that are being brought about by the DER or the DRP, whichever way one wants to describe it.

Seeing you have now gone down the path of implementing a substantial number of changes, how has this affected morale? One hears reports that morale is no good. Then again one might also hear reports that there has been an uplift somewhere else. Do you have any monitoring of the effect of the change that you people have brought about?

Mr Lewincamp --The very broad answer to that is that it is primarily a responsibility of the managers in the particular programs to manage that. As you rightly point out, there is a variety of responses to changes like this. Some people see this as an opportunity. As the defence efficiency review pointed out, a large number of the suggestions for change actually came from people within the defence organisation. So there is a significant body of people there who see this as a significant opportunity and that it is time that we got on and did this.

On the other hand, there are people who feel threatened by the change because their traditional way of doing business or their place in the organisation has been undermined or their future may be in doubt. So there are a wide variety of responses that people have, and each of the program managers is engaged in very significant efforts to make sure that staff are fully informed of what is happening, are consulted in the process and participate in the process of change. So there is a variety of initiatives. The overview, if you like, is again held by Secretary CDF and the Defence Management Committee.

Senator HOGG --Therefore, it would be wise to ask each of the individual program managers about the effect on morale of the DER or DRP, because we now have the full effect of that taking place? I am just wondering if the review process has taken cognisance of the morale of people and the need to manage change. If so, what have you specifically done?

Mr Lewincamp --Certainly the managers right across the defence organisation are very much aware of the need to manage this carefully. I can only repeat the earlier answer that each of the program managers has implemented his or her own strategy for managing this.

Rear Adm. Briggs --I could add another word here, and that is leadership. It is very much a matter of leadership. Clearly there are difficulties in putting through the order of change we are doing, but the underlining rationale is generally understood and embraced by members of the ADF--that is, to redirect resources. So overall I think the program is going probably as well as you would expect for the dimension of turmoil and change that is happening.

Senator HOGG --Do you actually have any monitoring of this?

Rear Adm. Briggs --It would depend on the area. As you would recall, you asked in fair detail at the last committee whether there is an indication in separation rates of an impact of the DRP. That probably remains a pretty reasonable gross indicator.

Senator WEST --Voluntary and involuntary, because there has been a number of involuntary in the process.

Rear Adm. Briggs --I do not think the involuntary would constitute an indicator for this particular problem.

Senator WEST --No, voluntary would.

Rear Adm. Briggs --It is the voluntary ones and their reasons for leaving. I would agree with you that you should ask that of the individual service programs as you come to them.

Senator WEST --What about things like absenteeism? Mind you, it is a bit hard to be absent when you are in uniform.

Rear Adm. Briggs --We have a different word for it.

Senator WEST --Yes, AWOL. But even things like an increased amount of sick leave being taken, stress leave--that sort of thing.

Rear Adm. Briggs --Certainly you could direct that question to the programs as the opportunity comes, but I am not aware of anything like a concern that those sorts of indicators have gone up.

Senator WEST --Everybody else from the other programs, you are on notice.

Senator Newman --There is also a point in any change in any organisation where you are in a sort of an unsettled phase before you come out the other end into a more certain stage. Some of the elements of the Defence Force are probably in about that middle stage at the moment while they wait to see the final outcome for them personally and for the part of the organisation they belong to. In the answers you have had, I think that that is also another element from my experience of watching them.

Senator WEST --I just wanted to know what the measuring is.

Mr Lewincamp --I might answer for my program because I am the program manager for the finance and inspector general program. We are one of the ones that have been least affected in terms of structural change. We moved 160, 180 people to other programs. In terms of the remnant of the organisation, we are finding it very hard to find time to pause and take breath. The challenge of implementing this is so significant that you almost have no time to sit and--

Senator WEST --Is there going to be burnout at the end of this, though? For what length of time are people going to be able to keep up this pressure that you are talking about? Are you in fact seeing some of that already happening?

Mr Lewincamp --Yes, that is a very real problem that we have to manage on a day-to-day basis--we are putting enormous demands on our staff.

Senator WEST --What is the amount of overtime being worked?

Mr Lewincamp --Overtime is not a concept that applies much in my division. You work the time to get the job done. I manage that by giving time off in lieu to my staff rather than paying them overtime.

Senator WEST --How much time in lieu has been taken?

Mr Lewincamp --It depends on the particular task. People are working significantly longer hours and putting in extra effort at the moment. There is no doubt about that.

Senator HOGG --You mentioned in a previous answer F10. Defence appears to have too many committees with too many members, and you mentioned that you have dismantled a substantial number. How many committees have you actually dismantled and how many have you now retained? Is there some organisational structure that we can get hold of to see what you have physically done and which lets us get an understanding of where your program is headed?

Mr Lewincamp --There are two separate parts to that. One is the changes we have actually made to the structure in the committees. I will have to give you an answer on notice on the number of committees. I have given you an indication of some of the senior committees that we have abolished in this process. A whole range of more subordinate committees has also been abolished or changed in the process, and it will take a little while to construct that answer.

In terms of putting out a new organisational chart of how everything fits together, we have been holding off a little on that because everything is in such a state of flux that the moment you print it it is out of date. We are almost to the point where we certainly can put out a senior level structure which starts to have some permanency about it.

Senator HOGG --Could you put it on your list of things to do for the future? As you get to a reasonable stage of development in the process, could you progressively release a chart to us so that we can have a better understanding, when we come to these meetings, of what we are talking about?

Mr Lewincamp --We will certainly do that.

Senator HOGG --Thank you. I next take you to page 20, R9. Again it was an action complete, which was the integrated joint defence headquarters staff, and I think it was formed from 1 July. Have there been any redundancies or any casualties in the process? If so, how many and what ranks are we looking at?

Mr Lewincamp --The way that we implemented the new post DRP structure on 1 July was simply to take all of the existing people and put them into their new organisations, more or less. We are currently refining those allocations. The matter of making these staff savings will be a process over the next three to four years of the defence reform program. We are currently going through a process with the programs, and we have given them a provisional savings target. We are currently negotiating with them the time frames for the achievement of those savings. That will be considered by the defence management committee in December and will form the basis of our budget bids for next year.

Senator HOGG --So can we get some idea of what is happening there physically?

Mr Lewincamp --Following the defence management committee, we should have a senior endorsed level plan, if you like, for the achievement of the DRP savings. The plan that we will try to meet will vary from the middle--

Senator HOGG --How will that relate to the projected DER savings when the DER is released? Will they be different?

Mr Lewincamp --They will be slightly different because part of the process that we have gone through since the start of this program back in April was to look again at the defence efficiency review recommendations and to validate savings. We found some double counts. In fact, the methodology that the defence efficiency review used in its costing was to include all of the recommendations in the Capstone report. Remember the last discussion we had about the thin document and the thick document?

Senator HOGG --Yes, the thin one.

Mr Lewincamp --It included all the recommendations in the thick document and the subordinate reviews in order to derive its figure of some $930 million per annum ongoing savings. A number of those recommendations that were in the subordinate documents were not actually endorsed by the senior review panel or taken up in the Capstone report. So some of those initiatives that are included in the costing for the DER we are not going to take up. Having said all of that--

Senator HOGG --Before you proceed, can you therefore tell us what the baseline was?

Mr Lewincamp --Having said that, the minister has signed up to us achieving at least $900 million per annum ongoing savings. So what we will need to do is look again at the defence efficiency review recommendations, look at the ones that we do not wish to take up, that were in those subordinate documents, and find substitute means of achieving the savings. So the remit within the organisation is to achieve at least $900 million per annum.

Senator HOGG --What benchmark will we be able to test all of this from? Up until now we have had the DER to do it from.

Mr Lewincamp --The benchmark will be the 1996-97 budget figures, which is what the defence efficiency review used. It was our funding in the 1996-97 budget that was the baseline they used for all of their costing. We will use the same baseline for our reporting of defence reform program savings, and we will include our performance against that baseline in each one of our future documents.

So in the portfolio budget statement next year you will see a preliminary report on our achievements so far in 1997-98. It will also include a plan for our achievement over the three- to four-year time frame of the defence reform program. Then in each document, in the same way as we report on other initiatives at the moment, we will give you a detailed report on our achievement.

Senator HOGG --It will be something that will be easily followed, not something that is quite--

Mr Lewincamp --At the moment, as you might imagine, I am contemplating the challenge of exactly how to record them.

Senator HOGG --I am glad that it is your challenge.

Mr Lewincamp --We will try to make it as simple as we can, but in the way of defence things it will not be entirely simple.

Senator HOGG --That is an understatement.

Senator Newman --If the committee has any concrete suggestions, I am sure Mr Lewincamp would be very happy to take them on board. You can make some recommendations to him.

Mr Lewincamp --You can imagine the sorts of discussions we are engaged in at the moment within the defence organisation about who has responsibility for making the savings down to the last dollar.

Senator WEST --Somebody mentioned earlier something about chief petty officers being given the budget.

Senator Newman --We will give them the lot!

Senator HOGG --I will move on to recommendation 14 on page 21. It refers to the fact that in June a draft position paper was agreed to on advanced modelling and simulation in Defence. The paper is being further developed in advance of the Defence Capability Committee's consideration. What is happening there?

Mr Lewincamp --A paper is being developed for the Defence Capability Committee to consider in December this year. It is a broad policy paper which will set the directions and the priorities for enhancing Defence's modelling and simulation capabilities. Attached to that will be a plan for that enhancement that should be endorsed by the DCC in December.

Senator HOGG --I turn to recommendation 20 on page 22, which recommends a reduction in the military staffing of the acquisition executive from about 30 per cent to about 10 per cent. That is agreed to in principle. It then states that the feasibility of this proposal will be addressed in a series of phases. Can you make us more aware of what those phases will be, when they will occur and who will be doing the reviewing to achieve those levels? When we discussed this earlier in the year, it was fairly much a goal but no-one had any real idea of when it would be achieved.

Mr Jones --I am not able to be very specific on the issue. We are in the process of looking at the rate that is feasible to transfer military positions to civilian positions in my organisation. You would appreciate that there is a high level of skill possessed by many of the people in my organisation which has been acquired over a number of years. There is not necessarily readily available civilians with the same skills.

In order to implement the recommendations of the review, we have to do that carefully and over time to ensure that the level of capability in the organisation does not fall significantly. To give you some indication, however, I would expect that, at the end of this year in the posting cycle, something of the order of 60 positions will not be replaced that are currently military positions. They will have to be replaced by civilians through a process of hiring.

Senator HOGG --What percentage will that be?

Mr Jones --That represents something of the order of 10 per cent of the total military population of the organisation. We are looking at figures for the following years, but I guess something like 100 the next year is a number that may be possible. I doubt whether we can go much higher than that. As we test the marketplace to see what is available, we will make those changes at that time.

Senator HOGG --Are those 60 positions that will become available next year people who are being posted to other areas or are they people who are leaving?

Mr Jones --I cannot answer that question. From my point of view, they are reabsorbed into the service organisations. Whether they leave the services or are re-posted would be a matter for the individual service, depending on where they were in their career cycle.

Senator HOGG --So you are seeing a downsizing of your work force?

Mr Jones --Not because of that factor. I am seeing a downsizing in the work force. Essentially, we have been talking about a substitution of civilians for military staff in the organisation.

Senator WEST --What will be the most senior military rank--

Mr Jones --In this organisation?

Senator WEST --Yes.

Mr Jones --At the present time the most senior military rank is a two star--a first assistant secretary equivalent level person.

Senator WEST --Will the most senior military rank remain at a two-star level?

Mr Jones --That is unclear. There is some prospect that the most senior military rank will be a one-star position from the end of next year.

Senator WEST --That is a reduction in senior military.

Mr Jones --The organisation has been both reduced in size and reduced in proportion of military.

Senator WEST --Will that have an impact upon the military's ability to protect its turf in terms of what it wants and what it needs or are we going to see some interesting battles of protection of turf, future desires and needs?

Mr Jones --Others determine what the needs are. The job of the acquisition organisation is to get out and buy them. Some of the turf battles or the priority battles take place elsewhere in the defence organisation.

Mr Lewincamp --We are trying to get away from the concept in Defence of separate turfs. There is now a single joint turf that we are planning together.

Senator WEST --That is fine. The principle sounds wonderful; I am just wondering about the theory. What will you have underneath the one star in military terms?

Mr Jones --Recognising what I was implying--that I am uncertain as to whether the current two-star positions will remain; indeed, I think it is the intention of the Chief of the Defence Force that they should not--I will have seven one-star positions, about 20 colonel equivalents and about 80 or 90 half-colonel equivalents.

Senator WEST --Thank you.

Senator HOGG --R22--again it is in the Acquisition Executive--says:

The DAO has been reduced from six to five divisions.

It goes on to outline a number of initiatives. Do we know what sort of personnel changes? Is that the same as--

Mr Jones --No, this is a different dimension. Whatever the size of the organisation will be now or in the future, we have changed its structure.

Senator HOGG --But my point is: have you reduced the personnel? Are those the 60 that you referred to before?

Mr Jones --No, you misunderstood me if you thought I said the 60 was a reduction--60 is the number that will be transferred from military to civilian.

Senator WEST --What is morale like in Acquisitions?

Mr Jones --That is always a difficult question to answer. One of the things I say to my people as we go through all this change is that the one thing we cannot do is stop doing the work we are doing. We have an enormous program in terms of acquisition. We have got about $35 billion worth of approved projects we are working on, about $10 billion worth of work in progress and probably about $12 billion to go on already approved projects. That is before the next tranche which is being foreshadowed in the press and so on. So it is a very major program by any standards, and I think by and large we have been successful in keeping the momentum going while we go through these quite significant changes. I think you can deduce from that that some people are finding it difficult to adapt to new arrangements, but by and large I think they are coping pretty well.

CHAIR --After those $35 billion worth of projects go out, how far do they run out to?

Mr Jones --We would have expenditure planned on those projects probably until about 2007 or 2008--something like that.

Senator QUIRKE --It says in R23 that there is going to be a collocation into the new Russell buildings. How disparate is the organisation now?

Mr Jones --The organisation is principally based in Canberra, particularly the project organisations. We have some project representatives at the particular facilities, like at the submarine facility, and we have some overseas. But the predominant number of project people are in Canberra, and they would be distributed in probably 10 or so locations around Canberra. It will be a very significant change to get the majority of them in one building.

Senator QUIRKE --It says a saving of 15 to 20 per cent as a result of that collocation. What is that in dollar terms?

Mr Jones --It is implying 15 to 20 per cent of staff, which is in the order of 400-plus people. That is probably $20 million worth, I guess.

Senator HOGG --Under the heading `Industry', R26 states:

The existing DID program is being wound down, and arrangements for the future funding of capability studies and related projects are being examined.

What does that mean exactly?

Mr Jones --We had a program called the defence industry development program, and this review suggested it should be abolished. We accepted that recommendation. Some of those programs are ongoing, so it will be a couple of years before they are fully wound down, but probably about two-thirds of the funds that were previously allocated to that have been returned as savings to the DRP savings.

The question of what substitutes, if anything, for that process has been addressed at least in part by the Defence Capability Committee, which has taken over in recent months a number of proposals for concept technology demonstrators and other similar development programs that many would argue is the intended alternative as implied in the DER report.

Senator HOGG --Turning to R28 on page 24, it refers to defence trade commissioners, and it says:

Action complete . . . a decision has been taken to continue the program in Indonesia and Thailand.

What other countries, if any, were affected by that decision?

Mr Jones --We had three so-called defence trade commissioners. They were not all established at the same time, but the three countries were Thailand, Malaysia and Indonesia. This review looked at the circumstances and recommended to the minister, who agreed that the trade commissioner positions should continue for the time being in Indonesia and Thailand.

Senator WEST --What impact is the Asian currency crisis going to have on that decision?

Mr Jones --I think the impact is unclear. Many of the products that Australia would hope to sell into South-East Asia are not of the nature of some of the big projects you would be aware of, so there is still a lot of activity in the defence export area that these trade commissioners can support.

Senator WEST --Is the Steyr rifle on or off?

Mr Jones --In regard to which country?

Senator WEST --Thailand. Wasn't it being discussed for there at some stage?

Mr Jones --It was at some stage. I am not aware of any current likelihood of Thailand buying the Steyr rifle.

CHAIR --When was the defence trade commissioner withdrawn from Malaysia?

Mr Jones --I would have to take that on notice.

CHAIR --Was that before the patrol boat decision?

Mr Jones --Yes. It could well be nine months or a year. When this DER was in progress and there was some question about this, we took action not to renew the trade commissioner positions pending an outcome and decision from the minister. So it has been a little while since we have had a defence trade commissioner in Malaysia. Austrade, of course, is still represented there.

CHAIR --In posts where there is no defence trade commissioner, who has responsibility for pushing defence sales?

Mr Jones --We have an agreement with Austrade as to how to deal with defence exports. Essentially there is a three-pronged approach. In those countries we talked about in South-East Asia, the defence trade commissioners are appointed. They work very closely with Austrade and with our defence attaches in a combined way to promote defence exports.

In the US and the UK, which looks after much of Europe, I have some staff who directly support defence exports, amongst other functions they perform, again working closely with Austrade. In the rest of the world, Austrade provides a service for us, supported to some extent by our staff out of Australia for trade shows and things like that.

CHAIR --Specifically, with South Africa, who would be responsible?

Mr Jones --Austrade would take the lead with South Africa.

CHAIR --Is there no Defence liaison at all?

Mr Jones --Not to my knowledge. If there were specific trade shows we wished to be represented at, we would send representatives of my organisation. Normally, of course, we would do that as part of an industry team, where we go and set up a stand at a trade show or something like that.

Senator WEST --With regard to R29, the process of privatisation for ADI and the Australian Submarine Corporation, which is being developed for consideration, what is the progress?

Mr Jones --This would be a matter for the Department of Finance and Administration, the Minister for Finance and Administration and the Office of Asset Sales. Defence is not the lead in this activity, although we are being consulted regularly as part of that process. My understanding is that the Office of Asset Sales has engaged a range of people--merchant bankers, legal firms and others--to do, if you like, a scoping study on ADI and ASC to recommend to the government the best way to proceed with the sale. It is my understanding that those studies are proceeding well and that recommendations should be put to the government in the reasonably near future.

Senator WEST --Do you think it will all be over by the end of next year?

Mr Jones --I would think there would be a good prospect of ADI, at least, being out of public ownership by the end of next year.

Senator WEST --Do you know if there is anything in the work that is being done to look at ensuring that it does not go offshore and that it actually stays onshore?

Mr Jones --I think there is little risk of it going offshore, if you mean somebody buying the company, stripping its assets and departing with its intellectual property or plant overseas. I do not think that is in prospect. I would be fairly confident that the sale process would seek a very clear business development plan of what a prospective buyer intended to do with the company here in Australia and, indeed, what it intended to bring to the company to make it grow further. The prospects of a company moving offshore are very remote.

Senator QUIRKE --What percentage does ADI produce--is it 100 per cent--of the small arms ammunition requirements for the defence forces?

Mr Jones --Others may be able to help me, but my understanding is that it is certainly not 100 per cent of all our ammunition requirements. It produces the more common natures, as they are called, of ammunition--5.56 and form filling and things like that. Some of the more specialised ammunition is imported.

Senator QUIRKE --Small arms ammunition, though, is all made there, is it not?

Mr Jones --You would need someone more expert than me on the question of small arms ammunition. They certainly do make the regular 5.56 rounds, but whether they make all of the 5.56 maybe General Hartley can help.

Senator QUIRKE --And the 7.62?

Major Gen. Hartley --My understanding is that they manufacture all of our 5.56 but no 7.62. The other major area in which they manufacture ammunition is the 105-millimetre artillery band. Those are the two principal rounds.

Senator QUIRKE --Where do you source your 7.62 then?

Major Gen. Hartley --I would have to take that on notice. I am not sure.

Senator QUIRKE --That is fine. Is it not a consideration that, if it goes into private hands, you may have to look for other sources or is the contract for the supply of small arms ammunition going to go with the business?

Mr Jones --It is the latter. There is a long-term agreement in place between Defence and ADI. Indeed, I suggest that is one of the more attractive features of the company in terms of the sale.

Senator HOGG --Next is R30. The interest I have there is: is the modelling and simulation capability of DSTO in any way related to the one back in R14?

Mr Lewincamp --It is exactly related. It is covered in the same point.

Senator HOGG --The issue there is the additional funding. In the recommendation it says:

Additional funding will be addressed as part of the allocation of the savings arising from the reform program.

Can I assume, therefore, that that project is very much dictated by the savings being made and accounted for and then transferred across or is it something that is going ahead with additional funding from some other source?

Mr Lewincamp --No, it is part of the consideration that we will give in reallocating the money saved under the defence reform program. As I indicated earlier, we have already started the process of identifying where the savings are coming from. Similarly, we have started the process of identifying where the savings ought to go, and this will be one of the things that will be considered. There is a second source of funds for DSTO's modelling and simulation, and that is out of the investment program as part of specific projects. It may get funding for that as well.

Senator HOGG --Next is R32. It says:

All test and evaluation functions in the Services should be placed in the Science and Technology Program as an integrated unit, where they should be rationalised and used with a greater degree of "user pays".

Has that happened?

Mr Lewincamp --No, this was one of the recommendations that we did not agree with and did not accept. One of the three services is going to retain those test and evaluation functions. At some stage in the future, we will look at options for rationalising that with other similar functions across the defence organisation. But that has not yet commenced.

Senator HOGG --I understand. I saw the `Not Agreed' there and I wondered why, because I would have imagined that there would be some efficiencies in that happening.

Mr Lewincamp --It is a question of where you believe the test and evaluation function more appropriately belongs. The DER took a view that it belonged in the science and technology program. We in Defence have taken the view that it belongs more properly with the chiefs of service so that they can ensure that their equipment is cleared for service, as the explanation says. That is the current state of that.

Senator HOGG --The next two were R36 and R37, and I think they have already been reasonably answered. I would like to clarify something in R37. Are Army going to be given the responsibility for a national ADF warehousing and physical distribution system?

Mr Lewincamp --I am sorry, Senator, that is not being given to Army but to Support Commander--Army. He works for Major General Mueller who is the Commander--Support

Senator HOGG --I am sorry, Major General Mueller, I did you out of something. Someone has highlighted something here, and I did not read the whole thing. Can I assume that that national warehousing system is proceeding? In view of the report we have here on performance management of defence inventory, is that in any way linked in to that recommendation, or can it be?

Mr Lewincamp --Yes, it can be. This is one of the solutions to the problems identified in that report, and you can assume this will proceed.

Senator HOGG --Will there be any degree of outsourcing there? Do we know that or is it too early to--

Mr Lewincamp --I would think that one of the things that support command will look at will be to what extent these functions can be market tested. The defence reform program, as you know, based a large proportion of its savings on the market testing of functions. A considerable number of those are within the support command.

Senator HOGG --The next one I have any questions on is R39. This gets to the issue of who the employer is. Where are we with that dilemma?

Mr Gourley --In the ADF at the moment the Minister for Workplace Relations and Small Business is the employer, in the sense that he and his delegates in the department are responsible for fixing a range of conditions for staff in the ADF and also for appearing as the employer representative in proceedings before the Defence Force Remunerations Tribunal.

Similarly, that minister and his delegates in the department and the Public Service and Merit Protection Commission have had responsibility for fixing civilian pay and conditions within the department. There has been agreement reached on the ADF side on the repatriation, as we have called it, of certain powers now held by the Minister for Workplace Relations and Small Business under the Defence Act. They are to be repatriated back the Minister for Defence, so that that minister will be responsible for the fixing of those conditions. That has not been finalised yet and will require an amendment of the administrative arrangements order to achieve that. There has been discussion between the defence organisation and the Department of Workplace Relations and Small Business about a possible review of the Defence Force Remuneration Tribunal, but that matter has not been finalised at this point.

Senator HOGG --Do we know when it will be finalised?

Mr Gourley --In the not too distant future, I would imagine. So far as the department is concerned, as you may be aware, the government's current policy is devolving out pay and conditions fixing functions to agencies. Each agency is now working to negotiate agreements under the Workplace Relations Act in line with that devolution. That matter will be formalised legislatively when the Public Service Bill, which I understand is now before the Senate, sees the light of day.

Senator HOGG --Thank you. Next is R41 on page 26. It was agreed in principle that there be an integrated job education and training program. That was established on 1 July. Can you give us some idea of the stage we are at with that program? It seems to have a fair degree of responsibility under it and to be very important to the future of the Defence Force. Could we get an outline?

Mr Lewincamp --The program is fully established. It has begun a process of studies of the various types of joint training, to determine the scope for rationalisation. For example, studies are continuing into the rationalisation of catering, common technical and basic medical assistant training. Studies have started on an ADF school of health and also on the feasibility of a defence training systems agency.

They have drafted terms of reference for a study into the rationalisation of military police training and they have started planning for the rationalisation of communications training. They are also planning to relocate ADF dental assistant training and army dental technician training early next year. So progress is being made on a whole range of studies. It will be some time before we see the results of those and see the findings implemented.

Senator HOGG --So at this stage we would not be able to establish any cost savings we might expect to see out of this?

Mr Lewincamp --In all these areas we have indicative cost savings, which the defence efficiency review came up with. As I said earlier, we are conducting a validation process of what the defence efficiency review came up with. We have asked each of the programs to determine for us whether they think those savings are achievable and over what time frame. We are going through that process at the moment. If they come back and tell us that the savings cannot be found in that way, we ask them to nominate alternative ways of finding the same dollar savings.

Senator WEST --The rationalisation of triservice medical training must be leading to some interesting consultation and communication between the three services.

Mr Lewincamp --That is a question you will have to direct to the Surgeon General.

Senator WEST --What is aimed at being covered by triservice medical training?

Air Vice Marshal Moller --The triservice medical assistant training is the basic medical assistant training that is being addressed in that particular study, I understand, and that is the particular program that is in train at the moment. I am sorry; your other question was?

Senator WEST --The line above that says:

The JET Program has been delegated responsibility for rationalising tri-Service medical training, and is planning for the consolidation of civilian administrative training.

Then it goes on to talk about basic medical assistant training, but I am wondering about the triservice medical training. Is it one and the same thing?

Air Vice Marshal Moller --I believe the main thrust of the study that I am aware of is the basic medical assistant training. That is the study that particular program is addressing.

Senator WEST --Does this mean that these medical assistants will actually have a qualification that is comparable to something in the civilian work force when they--

Rear Adm. Briggs --As a previous naval training commander, I can assure you that most of that training is already accredited.

Senator WEST --I might dig out some stuff I got from the last estimates. I would not make a blanket statement about that. What is the establishment of an ADF school of health all about?

Air Vice Marshal Moller --The creation of an Australian Defence Force school of health was a recommendation made some years ago at a chief of staff committee, where a proposal was put that all medical assistant and related health training would take place in one location. That was the proposition and it would be called a school of health, if you wish--along those lines. That is now being progressed by a formal study to determine the benefits that would accrue from having a single location undertake all health training that we undertake in the service.

Senator WEST --Is this training basic training or is this postgraduate and post-specialist type training?

Air Vice Marshal Moller --The concept of an ADF school of health would take in the various parts of the training that we undertake now in various locations, ranging from basic training to advanced training for medical assistants, pathology technicians, as examples--not professional officers or staff in that nature because that training is already done elsewhere, as you know. It is basically the medical assistant and the trade training that is undertaken, and to co-locate that training in one school.

Senator WEST --So you would have core components and then you would have specialist components for each of the services, presumably.

Air Vice Marshal Moller --Precisely. The modules in much of the training have been agreed as being common, and that has been a detailed undertaking. The specific to service training would be undertaken by that single service. It could well be undertaken in a school of health by separate service trainers looking after that particular stream.

Senator WEST --So it is too early to ask where the school of health might be?

Air Vice Marshal Moller --Indeed, because the study is to start.

Senator WEST --Are there terms of reference for it or not?

Air Vice Marshal Moller --I am sorry; you would have to ask the Head of Joint Education and Training about whether that has been set.

Senator HOGG --There are two more recommendations that I wish to address.

CHAIR --That would be a good point to finish, Senator Hogg.

Senator HOGG --Yes; they will be fairly quick. Recommendation 46 on page 26 refers to the establishment of a defence corporate support program from 1 July and says:

Work is progressing on the specific functional responsibilities of the Program.

What are the specific functional responsibilities of the program?

Mr Sharp --The defence corporate support program primary functions, leaving aside the defence legal function and the public information function, cover administrative support on regional centres and bases around Australia. For the purposes of setting up the program, I have tended to divide those functions into two. One set of functions deal with what might be called the physical facilities on a base, such as security, catering management, cleaning, gardening--that type of function. The other type of function I refer to as clerical and administrative. That deals with such things as financial administration, records management, some stores, unit stores--what might be called white-collar type functions.

Senator HOGG --My final question relates to F18--and I will probably expand on this when I get to individual programs--which states:

Consultations with staff have indicated a very good level of support for many of the review initiatives, offset in part by a natural concern with security of future employment.

How have you addressed that issue of the concern with security of future employment? It, to me, is one of the fundamental fears that really send shivers down people's spines.

Mr Lewincamp --As I indicated in an earlier answer, this is really a program manager responsibility and each of the program managers is handling that in a different way, depending upon the circumstances of the program. There are a number whose functions have not changed very much and who will not be expected to make a very large contribution at all to the overall defence reform program savings. So, for example, in those areas you would not expect there to be a great deal of staff uncertainty or insecurity. Other programs--and they are the larger programs, such as corporate support, support command, personnel executive, amongst others--will be facing very significant changes and downsizing of staff or market testing of positions as a result. In each case I think you should address those questions to the program managers. But, in very broad terms, the only way we can manage this is to keep the staff fully informed about what is happening and to let them know at each step of the way where we are heading.

Senator HOGG --How are staff being kept informed?

Mr Lewincamp --Again, that is a question you should address to each of the programs.

Senator HOGG --All right. Thank you.

Committee adjourned at 10.45 p.m.