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Tuesday, 23 September 2008
Mr BALDWIN (4:21 PM) —I rise to respond to the ministerial statement of the Minister for Defence and the tabling of Going to the next level, the report of the Defence Procurement and Sustainment Review. Let me start by stating that this report is evolutionary, not revolutionary—it is evolving from Kinnaird, not getting rid of Kinnaird; it is building on the foundations of Kinnaird. It is obvious that, after five years, you would need to review how the implementation of the 2003 Kinnaird review commissioned by the former Howard government was progressing. The Kinnaird review was critical in establishing a new methodology in procurement of the assets important for our Defence Force in providing security for our nation. The Defence Materiel Organisation has over $100 billion of military equipment under sustainment, in the process of acquisition or being planned over the next 10 years. This includes the management of some 230 major projects worth over $20 million each and the sustainment of over 100 Australian Defence Force fleets, platforms and weapons systems. The size of this task has seen DMO grow to an organisation with over 7,000 employees and an annual budget of nearly $10 billion.
On behalf of the coalition I take this opportunity to congratulate Mr David Mortimer AO on the review. Mr Mortimer is highly credentialed. He is currently chair of Leighton Holdings and Australia Post—and, after all, it was the Howard government that appointed Mr Mortimer as the Chairman of the Defence Procurement Advisory Board in 2004. I also extend those congratulations to Major General Tony Fraser, currently head of helicopter systems division in the DMO, who headed the review team secretariat.
This report is the evolution of review of practices and principles that have evolved since the process of the management refinement of acquisition in ironing out the difficulties. But, in listening to the Minister for Defence today, what we continue to hear from the minister is a crisis in confidence and the continual condemnation and undermining of the professionalism and ability of those in Defence and DMO. Since becoming minister he has set out to play the blame game, even blaming the previous Howard government for projects initiated by the former Hawke-Keating Labor governments. It is very clear that it is the Parliamentary Secretary for Defence Procurement, the Hon. Greg Combet, with the interest and administrative ability with respect to the very important issue of capability acquisition for the ADF. It is the Minister for Defence, through his words and actions, who has sought to introduce a crisis in confidence in those we entrust to supply the necessary systems and platforms for the defence of our nation.
In playing the blame game on acquisitions, costs and delays, the Minister for Defence has overlooked a statement by Dr Stephen Gumley, CEO of the DMO, on 10 July 2008 at the hearings of the Defence Subcommittee of the Joint Standing Committee on Foreign Affairs, Defence and Trade into the 2005-06 Defence annual report. Dr Gumley said:
The biggest problem we are facing in Defence equipment acquisition is schedule. As we have benchmarked ourselves against other countries and as we have looked at our own performance, we find that, once you make corrections for foreign exchange, inflation, changes of quantity and transfers to other parts of the Defence organisation, that post second pass or post contract formation we are bringing in most of the projects at/or around the budget. In other words, cost is not the thing that gives us deep concern. The statistics we have are that in 239 major projects—and we define a major project as over $20 million—closed over the last 10 years with an accumulated value of $27 billion, when you make those corrections for foreign exchange, inflation, quantities and transfers they came in on average at 98 per cent of the budget.
So that starts to belie the statements made by the Minister for Defence. Importantly, Dr Gumley went on to say:
When you look at the data it shows that about 20 per cent of the projects go over in cost, about 20 per cent of the projects come in or around the budget, and about 60 per cent actually come in under.
The cost problem is primarily up to second pass. I am not saying we do not have a few costly projects afterwards, but primarily the pattern is estimating up to second pass.
Further, in his statement to the committee, he said:
That leads us to what I think is the major problem with Defence acquisitions, and that is schedule—in other words, delivering the projects on time. Typically the more complex the weapons system, the greater the project delays. Most of our major projects run two or three years late. We have been doing quite a bit of analysis on the causes of those schedule delays.
One of the greatest challenges facing defence procurement is in the continual changing of performance specifications, known as ‘scope creep’. A clear example of this was the major time and cost blow-out in the Bushmaster program. But who amongst us would want to compromise the safety of those who serve our nation on the battlefield and who use these assets? Again, in phase 3 of the LAND 121 project scope creep was the thing that made the project go back to re-tender. But I cannot see us ever faltering in continuing to develop programs and look for further and better ways of providing protection to our men and women.
However, where the two-pass system from the Kinnaird review has been applied it has actually supplied some discipline in the procurement process. There is a danger in what appears to be a suggestion that this system should be partially dismantled for so-called less complicated acquisition decisions. The devil is in the detail here and also in the definition of ‘less complicated’. Further, who will make the decision that an acquisition will be less complicated? It appears that the Mortimer report is suggesting that there be two approaches to acquisition—a ‘two-and-a-half pass’ system for complex procurement and a ‘one-and-a-half pass’ system for less complex procurement. Further evaluation of that by the DMO, Defence and industry needs to be explored.
Further, I note that in chapter 5 of the report, ‘Driving Cultural Change in DMO’, Mortimer reiterates recommendation 6 of the 2003 Kinnaird review that the DMO should become an executive agency. He states, and I agree, that to ‘drive further reform there must be a clear separation in the financial and non-financial resources allocated to and used by each agency’.
Even though the formation of DMO as an executive agency reporting directly to the minister was originally recommended by Kinnaird, the evolution of the process of acquisition management reflects that now is the time to put forward the legislative framework for DMO to become an executive agency with a separate budget allocation and clear lines of separation in management of acquisition and responsibility for the through-life sustainable costs of projects. The coalition agrees that DMO should become an executive agency and that Defence should become a customer of DMO. Again, to quote an extract of the Mortimer report:
Prescription of DMO has not delivered the necessary accountability, authority, independence and control over inputs for it to be fully results driven and commercially orientated.
However, to my concern, after an initial, very brief read of the report, it would appear that recommendation 5.1 suggests that DMO should be both an executive and a prescribed agency. This itself appears to be fraught with danger. How does one agency separate itself cleanly? I would urge the government to do some further research into whether this has been done before and whether it is even possible. The danger in treating sustainment differently to acquisition is that you would endanger the integration of acquisitions and through-life support. While in 2006 Dr Gumley thought that being totally separated was the wrong answer, in June this year he said:
It’s the greatest frustration that as a prescribed agency I’ve got accountability for outputs, but my inputs are controlled and that leaves you in a very difficult position.
In particular, I’d like to make the DMO workforce more commercial and more professional.
In relation to major acquisitions, what we have seen from the minister is a continual dithering and a lack of faith in our experts. This was most evident in the issue of the acquisition of the 24 Super Hornets as a replacement for the F111 and continues on with the lack of a solid commitment to the Joint Strike Fighter. One minute, the minister was creating a crisis in confidence among those we entrust to make informed decisions in Defence, DMO and DSTO about acquisitions by publicly denouncing the acquisition of the Super Hornet, and then, shortly after, he was proclaiming it the best aircraft of its type currently available.
Prior to the election, Labor was committed to the Joint Strike Fighter and the Super Hornet projects. On 30 October 2007, the member for Hunter, Joel Fitzgibbon, said:
The Howard government has committed us to both the JSF and the Super Hornet and we accept that they will be part of our air capability mix.
Then, on coming to government, the story changed. Labor was now backing away from this commitment, putting at risk millions of taxpayers’ dollars and industry investment in Australia and threatening our air combat capability. Then, after his little charade, in March the Minister for Defence said the Labor government would go ahead with the plan to buy 24 Super Hornet fighter planes from the US Navy for over $6 billion. His tune has changed so much that he was quoted as saying:
… based on the advice of the air capability review, the new Government is satisfied that the Super Hornet is an aircraft with significant capability and more than capable of meeting all of Australia’s defence needs …
Labor were all over the place on whether they supported these vital acquisitions and were not even aware of the obligations surrounding these contracts should they be terminated. Termination liability for the Super Hornet contract would have been, to cite Dr Gumley, around $400 million, escalating at between $80 million and $100 million per month. The minister is creating a crisis in confidence in the defence industry, not a refined procurement regime. Perhaps, with his lack of judgement, he should step aside and let the parliamentary secretary step up to the plate.
There is no doubt that the Howard government got on with the job. Some of the major acquisitions during the term of the Howard government that allowed the Australian Defence Force to grow in size, flexibility and firepower with significant investment in new and expanded capability included, for our Army, 59 new Abrams tanks, 40 new multirole MRH90 helicopters and the Bushmaster vehicle, which now is proving so effective that it is being exported—to name but a few projects. Our Enhanced Land Force means that Australia will have eight regular Army battalions by 2010, up from five in 1996, each with greater strength, better equipment, mobility, combat weight and networked capabilities.
For our Navy it included 14 Armidale class patrol boats, the commencement of three new air warfare destroyers, the commencement of two new large amphibious ships, a new replenishment ship and an upgrading of our frigates and Collins class submarines to be an effective part of our systems platforms.
For our Air Force it included four new C17 heavy lift aircraft—the C17 was one of the best executed off-the-shelf procurements and was instigated by the Howard government—and the 24 off-the-shelf Super Hornet multirole aircraft and six Wedgetail airborne early warning and control aircraft. As the minister would know, it will always be a problem when you acquire leading edge technology such as this project, as Labor would have known from their experience with the JORN project and the Collins class submarine, to name but two.
I now refer to the Seasprite helicopter, a project commenced in 1994 under the former Labor government. The minister has made only one decision of note since taking his position, and that was to terminate the Seasprite at a cost to the taxpayer of $1.1 billion. There was no haggle, no resistance; he just threw up the white flag. There was not even a serious contemplation of litigation, which was quoted to the Senate to cost about $20 million. This minister’s first act of significance was to surrender and then to sign a release and discharge in favour of the contractor, disposing of the taxpayers’ capacity to recover anything like the money spent. That was the first thing the minister did: wave the white handkerchief.
Back to the report: the Mortimer recommendation on the early adoption of commercial acquisition strategies is commended. These strategies set the plan for the department and for the industry to allow government to exercise an appropriate level of control over both the capability being acquired and the method of acquisition. As I have said, on an initial speed read, it appears that this Mortimer report is evolutionary, not revolutionary. It is evolving from Kinnaird, not getting rid of Kinnaird. It is building on the foundations of Kinnaird.
The minister raised the issue relating to the incidents last week on 18 September in the southern region of Tarin Kowt. This unfortunately led to the death and wounding of a number of Afghanis, including the Chora District Governor and tribal leader, Rozi Khan. My understanding from the information provided to me is that the Special Operations Task Group were fired upon from a number of locations, and, in self-defence, they returned fire. I understand from the information provided to me that at all times our Australian troops acted within their rules of engagement.
We should never underestimate the seriousness of the situation that our brave Australians find themselves in in such areas. In fact, on the injured soldiers, I am glad that we have seen a return of some of the injured nine back to Australia. I am also thankful for the treatment provided by both US and other forces to our injured nine in Afghanistan. I know that all of us in this House and, indeed, all Australians extend our prayers and thoughts to those who have been injured and pray for the safety of those who go to defend the freedom and democracy of people other than Australians.