Senator SHERRY (Parliamentary Secretary to the Minister for Primary Industries and Energy) —I present the government's response to the report of the Joint Committee on Foreign Affairs, Defence and Trade entitled `Stockholding and Sustainability in the Australian Defence Force'. I seek leave to have the document and a tabling statement incorporated in Hansard.

  Leave granted.

  The response read as follows—

Defence stockholdings are a vital component of our capacity to sustain ADF operations for the defence of Australia. Defence policy is to maintain sufficient stock levels for all appropriate force elements to meet credible contingencies—low and escalated low level conflict, which remain our focus in accordance with approved strategic guidance. Collectively, our stocks of missiles, munitions, spare parts and other consumable combat equipment represent an investment in the order of several billion dollars. Hence a review of the matter by the Joint Committee on Foreign Affairs Defence and Trade was appropriate.

At present there is no identifiable military threat to Australia. However, there are many uncertainties in our strategic outlook. Defence preparedness to meet any possible threat in the shorter term needs to be balanced against the need for continuing development of the force structure, specialist skills and infrastructure to meet the uncertainties of the medium to longer term.

The determination of ADF sustainability and hence stockholding requirements is a complex matter. The nature, scope and duration of a possible contingency for the defence of Australia are unclear and there is no simple means of determining the stocks of ammunition, missiles, spare parts and other consumable stores which the ADF might require in these circumstances. Because of this, we must depend on assumptions and judgements by our Defence planners based on Government approved strategic and financial guidance.

Defence continues to review its sustainability and stockholding requirements. Major studies were undertaken during 1992 to consider the sustainability and stockholding judgements which have been made in the past and it was assessed that the present arrangements are appropriate to our current strategic circumstances and outlook.

The Joint Committee has placed considerable emphasis on the use of stockholding to assure sustainability. The holding of large reserve stocks of fuel, missiles, ammunition, spare parts and other consumable stores is expensive and this fact must be considered along with all other factors in determining appropriate levels of stockholdings. Government policy is to balance the maintenance of reserve stocks with force development consistent with strategic and financial guidance. Also, government-to-government agreements and arrangements with industry, have been developed to ensure stockholdings should our strategic circumstances deteriorate.

Given the unlikely requirement for the ADF to have to mount operations for the defence of Australia in the shorter term, larger Government outlays on reserve stocks are inappropriate. The situation is kept under review, so as to assure national security.

In the introduction to its Report, the Joint Committee criticised Defence for withholding some classified information on stockholdings. Detailed information on the preparedness of individual components of the ADF, including stocks of missiles, ammunition and spares, is highly-classified. Officers of the ADF and my Department are bound to protect classified matter and hence they were acting entirely properly in withholding these details during the public hearings. The Committee was informed about some classified information during an in camera hearing.

The Committee's conclusions appear to reflect some misunderstanding of Government policy on Defence preparedness objectives, which limits the value of some of the recommendations made in the Report. Current approved strategic guidance specifically provides that "The planning and conduct of ADF operations, and the development of its force structure, must comprehend all the levels of conflict of which the adversary is capable." (Australia's Strategic Planning in the 1990s, paragraph 4.7.) ADF preparedness takes into account all levels of credible conflict, which in the present circumstances includes low and escalated low level contingencies for the defence of Australia.

Recommendation 4, concerning Foreign Military Sales contracts, and Recommendations 10 and 11, concerning the Defence National Storage and Distribution Centre, appear based on considerations which are difficult to relate to Defence and other submissions presented to the Committee. Recommendation 12, concerning Warehousing Strategy, is based on information (provided at Appendix 4 to the Report) which had not previously been placed on the public record. Hence, Defence was unable to comment comprehensively on these issues before the Committee's Report was tabled. This was unfortunate as the Committee's deliberations might have been enhanced had they been able to consider the countervailing Defence viewpoints.

Detailed comments are attached for each of the specific recommendations made by the Joint Committee.

  ATTACHMENT 1

RESPONSES TO INDIVIDUAL RECOMMENDATIONS

Recommendation 1

The Committee recommends that Defence take immediate action to procure the reserve stock and unit equipment components necessary to meet capability criteria.

Agreed in principle.

Defence policy is to maintain sufficient stock levels for all appropriate force elements to meet credible contingencies. The level of stock actually required is a matter for judgement given the lack of an identifiable threat. Judgements on readiness levels for each force element are reviewed annually as are the consequent judgements on reserve stocks. Defence is conducting detailed Sustainability and Stockholding studies to enable the adequacy of judgements on reserve stocks to be reviewed. The degree of immediacy recommended by the Committee does not appear warranted in the present benign strategic climate.

Recommendation 2

The Committee recommends that judgements be applied in determining activity levels and usage rates appropriate to the highest level of credible threat, and that the policies be developed without further delay.

Agreed

As indicated in the covering statement, Defence planning does take into account all levels of credible contingencies which in the present strategic circumstances includes low and escalated low level conflict. Action is continuing to determine activity levels and usage rates, but the difficulty of quantifying them must be recognised, in view of the need for many broad judgements and assumptions, in the absence of an identifiable threat.

Recommendation 3

The Committee recommends that separate provision be made for a range of United Nations commitments which would be acceptable to and agreed by the Government and that funding be provided as an extension of the Defence budget.

Not Agreed

The wide range of ADF options available for Government to contribute to United Nations commitments invites consideration of a large and diverse range of stocks to achieve the Committee's objective. In the present financial climate, it would be difficult to allocate sufficient priority to provide the necessary additional funding. It is also not necessary. The present arrangement of using ADF reserve stocks to outfit forces committed to UN operations is effective and has a minimal impact on Defence preparedness because replacement stocks are acquired where necessary during the course of the UN commitment. Estimates for replacement stocks are included in costings for supplementation by Government of the Defence Budget.

Recommendation 4

The Committee recommends that commercial and Foreign Military Sales contracts within capital equipment projects include specific clauses which permit the return for credit of support spares identified as surplus to requirements within five years of delivery into service of the new capital equipment.

Not Agreed

There is no evidence to support an argument that frequent or systemic surpluses are generated, as a consequence of excessive initial support provisioning funded by major capital projects, which would warrant inclusion of contractual clauses to deal with such infrequent arisings. Evidence to the Committee did not imply that initial support procurements result in any significant surplus, rather, the Department noted that "judgements are made . . . as priorities are assessed and resources allocated to sustaining and improving the support base initially set up by the project." (Defence Submission Page 34).

Negotiation of clauses recommended by the Committee will certainly prove difficult to achieve with contractors, and may incur a cost premium to the Commonwealth, demanded by the contractor to cover his contingent liability arising from having to accept any unwanted spares. Contractors could incur costs as a result of being obliged to accept unwanted spares because:

the progress of technology over time may cause the spares to be of no interest to other customers;

many major acquisitions for the ADF involve, at least in part, unique equipment or equipment modifications for local conditions. Surplus spares may thus also not have a ready market elsewhere; and

the contractors would bear administrative costs for the return of unwanted spares, as well as freight costs, costs of disposal and provision of storage facilities.

Recommendation 5

The Committee recommends that Defence arrange for the development within supply systems redevelopment projects of a system to actively monitor production and supply leadtimes for combat oriented and other important stock items.

Agreed in Principle.

The importance of leadtimes in determining stockholding levels is recognised and indeed is fundamental to the entire process. Leadtimes are presently able to be reviewed as part of the automated provisioning review process for operating stocks, but it is accepted that current systems do not react automatically to variations in leadtimes. SSRP does possess the capability to flag specific items such as `combat oriented and other stock items', and a system to monitor their associated leadtimes could be developed. For active inventory items sufficient data may be available from current systems to support such a facility. However, for low usage items not generating regular procurements the regular monitoring of production schedules would require dedicated additional effort. The costs and benefits of implementing such a system will require further examination and will drive the funding priority to be attached to it.

Recommendation 6

The Committee recommends that Defence examine objectively alternative logistics support arrangements including new supply sources, indigenous production and the maintenance of strategic reserves in order to reduce the level of dependence on government to government agreements as a single supply source.

Agreed in part

Defence already regularly examines its logistics support arrangements to ensure they remain effective. Consistent with the policy of self-reliance, Defence continually seeks Australian Industry sources of supply, but acknowledges that some reliance on foreign sources is unavoidable. In respect of foreign sourced equipment, a government to government agreement is seen as the best assurance that support will continue in foreseeable circumstances. In those cases where Defence equipment can be obtained only from overseas, there is usually little or no practical scope for any diversity of suppliers of specific items, e.g. missiles or spare parts, after an initial capital equipment procurement decision has been made. Strategic reserves of such items are maintained in Australia at levels which reflect judgements based on the prevailing strategic circumstances.

Recommendation 7

The Committee recommends that in regard to long lead items, Defence examine alternative supply arrangements, including new sources of supply, indigenous production and the maintenance of strategic reserves.

Agreed in principle

As indicated in the response to Recommendation 6, many of the foreign sourced long lead items, including missiles, in service with the ADF are produced only by a single supplier or within a single nation, usually for economies of scale in production. Having selected a parent equipment, the ADF is generally committed to relying on the sole supplier. The maintenance of reserve stocks and government-to-government agreements provides insurance for assured supply. The size of reserve stocks is reviewed regularly to ensure that it remains appropriate to our strategic circumstances.

Recommendation 8

The Committee recommends that within the development of Australian Defence Force preparedness and stockholding policies, Defence address the mix of resources, the strategic location of stocks, the distribution needs of the Australian Defence Force and the likely effects of threat levels on the continued responsiveness of supply sources and civil infrastructure arrangements.

Agreed in Principle.

The current approach to preparedness development and mobilisation planning, which encompasses stockholding policy development, does comprehend the mix of resources, the location of stocks and distribution requirements. As stated in Defence's Supplementary Submission No 4, transportation effects are already taken into account for operating stocks. As further progress is made in defining the requirement for credible contingencies, the issues raised in this recommendation will be extended to reserve stockholding and indeed to all resources required for mobilisation at that level of conflict.

As also noted in the Supplementary Submission, most of the deficiencies in transportation arrangements identified in the evidence from which this recommendation was drawn relate to more substantial conflict. While some action is being taken to progress this matter (see response to Recommendation 9), work on the requirements for more substantial conflict must take a low priority until requirements for credible conflict have been met.

Recommendation 9

The Committee recommends that Defence take immediate action to initiate Defence Power legislation and to develop civil transport infrastructure and industry support arrangements which are responsive to all levels of national emergency.

Not Agreed

It is important that timely and appropriate access to industry and infrastructure support be assured for all levels of national emergency. While arrangements, including legislation if required, need to be in place in advance for those contingencies which might arise in the shorter term, it is not believed that additional legislation for more substantial conflict is needed at this time. Rather, Defence needs to be aware of the legislative steps that would be required.

In consultation with the Department of Transport and Communications as well as with industry, Defence has begun to examine the requirement for regulations which might be needed for access to appropriate transportation support at any level of conflict. This action represents a progression from the current range of Memorandums of Understanding (MOU) which have proved effective in meeting Defence's requirement for responsive access to civil transportation for likely operational tasks, eg the Somalia commitment.

In relation to industry support more generally, the development of appropriate relationships and mechanisms will be considered in the follow-up to the November 1992 Report on Defence Policy and Industry, which was prepared under direction of the Parliamentary Secretary to the Minister of Defence.

Recommendation 10

The Committee recommends that the Defence National Storage and Distribution Centre proposal be cancelled.

Not Agreed.

See response to Recommendation 11.

Recommendation 11

The Committee recommends that the existing smaller and more reactive wholesale warehouse facilities be retained.

Not Agreed.

The Defence National Storage and Distribution Centre (DNSDC) is a significant warehousing activity which is central to the effectiveness of Defence's endorsed approach to the supply function. While offering substantial savings, its main focus is on more effective support of the ADF. This will be achieved through the elimination of an entire level of stockholding for Air Force, as well as through the replacement of relatively inadequate and inefficient facilities across the ADF.

The report overstates the new Defence warehousing strategy's effect on stock vulnerability. Dispersion arrangements for Army and Navy essentially will not alter at all. Air Force's significant levels of dispersion will be retained, albeit on a different basis—ie by weapon system rather than by commodity. The more modern facilities at the DNSDC and at the user level will be less vulnerable to natural disasters such as fire. There will also be little change to risk levels from military action.

It should be noted that optimum efficiency in warehousing facilities has less to do with their physical size than their rate of transactions. While the DNSDC's storage requirement is large due to the nature of military stores, the transaction rate will be relatively small. For example, it will be less than half that of K Mart's new facility at Hopper's Crossing Vic.

Recommendation 12

The Committee recommends that Supply Systems Redevelopment Project and Defence Logistic Redevelopment Project staff jointly investigate and report on the cost effectiveness of installing proved automated warehouse systems and equipment within base and regional warehouses. The potential to achieve improved responsiveness and manpower savings in warehouse operations should be given equal emphasis.

Not Agreed.

The cost effectiveness and appropriateness of the SSRP and DLRP approaches has been the subject of extensive Departmental consideration. The level of warehousing technology selected for the DNSDC and the regional warehousing upgrade programs has resulted from those considerations. The selected level of warehousing technology is considered to be the most cost effective for the type of inventory stored at these locations. Modern automated warehousing technology will in fact be introduced, but only where the volume of transactions justifies it.

The appropriateness of the chosen approach will of course be validated in the project's implementation, but a further investigation into the selected level of warehousing technology is not considered warranted at this time.

Recommendation 13

The Committee recommends that no Australian Government should agree to the Australian Defence Force participating in United Nations operations without uninhibited access to agreed Australian Defence Force weapons and equipment.

Agreed

Recommendation 14

The Committee recommends that, in the event of weapons and equipment being withheld from Australian Defence Force personnel participating in United Nations commitments, without agreement, the units should be withdrawn.

Agreed in part

Units deployed on UN operations are manned and equipped according to the role that they are given. Although the withholding of some stores by Moroccan authorities threatened the ability of the Australian contingent to MINURSO to perform its role, adequate alternative arrangements were made to allow it to complete its assigned mission without seriously affecting the capability and safety of the troops involved. In such instances, it is not considered to be sufficient reason to withdraw ADF personnel merely to make a point to intransigent authorities. Withdrawal of ADF personnel on apparently minor issues could be perceived by the UN as a lack of resolve, and would threaten Australia's credibility within the international community. However, where a unit's ability to achieve its mission is jeopardised or the safety of troops is compromised, then withdrawal from a mission may be warranted.

Recommendation 15

The Committee recommends that Defence take immediate action to increase training stocks, without waiting to complete the preparedness and stockholding policies.

Not agreed

In Australia's current strategic circumstances only those force elements, which are at very short notice to respond to defence contingencies, need to maintain high levels of readiness (which includes combat proficiency with missiles). The present assessment is that all ADF units are able to achieve appropriate levels of training with the existing allocation of training stocks of missiles. Defence planning provides for additional training stocks of missiles to be allocated to units if they are required to work up to higher levels of readiness in preparation for combat operations.

Recommendation 16

The Committee recommends that the career structure for (Logistics) specialist officers include appointment to the specialist military Command and division head positions.

Agreed

Existing manpower policies and procedures allow logistics specialist officers to aspire to command and division head positions. Presently, there are six Logistics specialists (five with Engineering and one with Supply backgrounds) in a total of 25 regular serving officers at the two star rank level.

Senator SHERRY —by leave—I move:

  That the Senate take note of the document.