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Monday, 17 June 2013
Page: 3049


Senator MARK BISHOP (Western Australia) (17:57): On behalf of the Joint Committee of Public Accounts and Audit, I present two reports of the committee as well as the executive minutes on various reports. I move:

That the Senate take note of report no. 436, Review of the 2011-12 Defence Materiel Organisation major projects report.

I would like to provide some comments on the report as tabled. This was the fifth annual major projects report to be produced by the ANAO and the Defence Materiel Organisation. The report covers 29 major defence projects with a combined budget of over $47 billion. The committee's aim in reviewing the MPR is to help maximise transparency and accountability in the defence acquisition and procurement process.

The committee's review examined the presentation in the report of financial information, project schedule slippage, and DMO governance and business processes. The committee has made recommendations aimed at supporting the development of meaningful project financial insurance statements, improving public reporting on the DMO's sustainment of capability functions, improving consistency in the application of project maturity scores and taking a more strategic approach to business system improvements.

The committee also examined the issue of publicly disclosing information on project contingency funds, and I will focus my remaining comments on this topic. The MPR currently discloses DMO's total contingency spending across 29 major projects. However, it does not provide any project-specific information. The 2011-12 MPR disclosed around $1.1 billion has been drawn upon from project contingency budgets in the last year in order to 'retire project risk'. Given the committee's role of overseeing the spending of public money, transparency in the use of contingency budgets is a key area of interest.

In response to a question on notice, the DMO told the committee that:

Public release of details regarding project contingency provisions could be prejudicial to taxpayers' interests. DMO experience indicates that knowledge of contingency provisions encourages some contractors to find ways to gain access to the funds, which can have negative implications for good project governance.

The committee had previously raised the transparency issue with DMO privately, and was given a similar response.

At a public hearing in March this year the committee asked the DMO to explore how the use of contingency budgets could be better disclosed in the MPR, including the amount spent, why and when it was spent, and to whom the money went. In response the DMO undertook to look at the issue and come back to the committee with a proposal. At the time our report was completed we had not yet received the DMO's response. In our report the committee suggested that, while the DMO may have legitimate concerns about the amount of contingency budget available not being disclosed to contractors, there would be less danger in disclosing information about funds that had already been spent. We recommended that, at a minimum, projects that have used contingency funds during the previous financial year, or that are anticipated to use contingency funds in the forthcoming financial year, along with the amount of such funds, should be identified in the MPR.

After the committee's report was finished, and shortly before tabling, we received a response from DMO about how the level of disclosure could be increased. The DMO has offered no further transparency in relation to contingency funds. The DMO continues to claim that any public disclosure of contingency information at the project level would jeopardise the Commonwealth's commercial position. But this does not address the question of why details of contingency spending could not be disclosed after it has already occurred. It also does not provide a strong case for keeping roughly $1 billion of annual contingency spending from public scrutiny. It is a fool's paradise, this proposition advanced by the DMO.

Consider the multitude of primes around the world in Defence contracting, capitalised at a minimum in many tens of billions of dollars, employing tens of thousands of senior, experienced workers with knowledge of the industry—virtual heartlands of intellectual activity. In every country of the world at committee level, board level and director level these companies employ hundreds of retired senior officers, mostly at two-star levels and above. It is Alice in Wonderland stuff to think that these companies cannot model almost exactly the real costs of any and all projects. Yet, the DMO wants to keep secret levels of contingency expenditure exceeding $1 billion a year because it might, they say, give some unknown and unidentified commercial knowledge to Defence contractors. What utter rubbish, what nonsense, and what contempt do senior officers of Defence hold for the parliament when that is the best reason they bother to advance? It is a continuing scandal that the parliament regulatory agencies like the ANAO and executive agencies like the DMO countenance this situation where we cut the incomes of single mothers because of budgetary demands.

I hope that the DMO will give more consideration to points raised during the inquiry in response to the committee's report. On behalf of the committee, I sincerely thank the individuals who participated in this inquiry for their time and their input. I commend the report to the Senate.

Question agreed to.