CHAIR —I welcome representatives of the Defence Science and Technology Organisation. These are proceedings of the parliament and, while we do not ask anyone to take an oath, they should be treated with the same respect as proceedings of the parliament. Would you like to make an opening statement?

Dr Anderson —Yes. The DSTO is the Defence Science and Technology Organisation. It is part of the Department of Defence and it is the second largest research and development organisation in Australia. It assists industry to assist Defence. It does this by transferring technology to industry, where it can be further developed for Defence use or for broader civilian application. DSTO’s efforts to assist and transfer technology to Australian industry have several pay-offs for Australia. Firstly, the ADF benefits through the evolution of sustainable, competitive Australian defence industry capabilities and the savings delivered by improved technology and products that are tailored to Defence requirements.

Secondly, Australian businesses, including small and medium enterprises, benefit from exposure to DSTO’s research base, the introduction of new technology and potential new defence markets, the development of spin-off products with civilian application and potential income from sales, including exports. And DSTO itself benefits from experience gained through the widespread application of its technology and through collaboration with other parties. Of course, this benefits Defence generally, through new capabilities and building a strong and more reliant Australian industry, which we believe is an important part of our role.

DSTO is currently involved in 17 industry alliances; 78 collaborative agreements with industry, including 11 research agreements with universities; 26 memoranda of understanding with industry, including six with universities; 78 agreements licensing its technology to industry; 10 cooperative research centres; seven centres of expertise based in universities and numerous technical support service contracts, which in total amount to approximately nine or 10 per cent of the DSTO budget. That is, that amount of money is contracted out to other parties to supply research and development and other contracted services.

Much of this information is in our partnership booklet. I do not know if you have a copy or have had the opportunity to look at one, but it does detail a lot of what I have just described. DSTO actively encourages engagement with industry and with the science and technology community. We regard ourselves as not only a full operational part of Defence but a full operational part of the Australian science and technology community, and we participate in some of the appropriate bodies to represent them.

One of the prime mechanisms for engaging with industry is our capability and technology demonstrator program. The CTD program allows industry to demonstrate how their advanced technologies might enhance Defence capability. New arrangements have been put in place in the last year. These include an annual funding increase and the provision of some seed money to allow small companies to develop initial proposals. This allows them to put innovative solutions to Defence for consideration. Earlier this year, the Minister for Defence announced that $26 million will be invested in 12 new technology projects, including a handheld underwater sonar device to detect mines, blast resistant material for Army vehicles and flexible solar panels to generate power for ADF operations in the field.

That was as a result of round 9, which concluded a few months ago. As I said, the outcomes were 12 new projects, and we have just started our analysis for round 10. We have had something like 120 applications, which are now being filtered down to a more manageable number. DSTO manages the CTD program on behalf of Defence, but it does have a capability theme to it, not just a technology theme. In other words, we are looking for things that will be useful for Defence as defence capabilities, not just technologies that look exciting and show potential. The program has been running since 1998. We currently have 38 active projects. Several of these run for several years. Some, of course, have already concluded. To date, about $116 million has been invested in the CDT program.

The next thing I want to mention is the Trenberth review. This was conducted by Robert Trenberth in 2003. The subsequent report was called the Review of DSTO’s external engagement and contribution to wealth, and I guess it is very pertinent to your considerations here today. If you do not have a copy, I would certainly commend it to you. It is all about the transition of publicly funded research in DSTO and how it interacts with universities. This report examined DSTO’s interaction with industry and assessed its impact on national wealth creation. It found that DSTO has covered its own annual budget for the last 13 years with just six of its innovative products. It also found that DSTO engages extensively and effectively with large and small companies and other research institutions to create new technically complex capabilities for Defence.

DSTO’s quantitative contribution to national wealth was demonstrated by the six case studies I mentioned. This was carried out by economics consultants ACIL Tasman for Mr Trenberth, and that is where it was estimated that the economic benefits of those six projects would be as high as they were. Those figures are available if you want to examine them, but I think some of the figures are commercial in confidence, so we do not release them publicly.

The review found that, while DSTO try hard, they could do better with regard to technology transfer to the wider national innovation community and, to that extent, some initiatives were put in place. In fact, this year we have introduced something we call the TTAG, the Technology Transfer and Advisory Group. This comprises three industry representatives who provide independent technology and market analysis and guidance for the DSTO Business and Commercialisation Office on potential commercialisation opportunities. This body has already met several times this year and has reviewed a number of technologies that have been put before it. I think there may have been some details in the paper that we put to you.

In addition, we have established something called DSAN, the Defence Science Access Network, which is meant to make it easier for small or medium enterprises to gain access to information about DSTO’s research program and where there might be potential for some commercialisation. It certainly helps to connect industry to DSTO and assist DSTO in seeking out industry where R&D might have defence applications. However, I do want to emphasise that DSTO’s prime mission is not about commercialisation; the mission for DSTO is to apply science and technology to allow Defence to carry out its mission of the defence of Australia and its interests.

CHAIR —Is that like scientists in universities saying that, after commercialisation, our prime mission is the generation of knowledge for its own sake?

Dr Anderson —I will leave universities to say what they wish, but Defence is funded to a figure of $16 billion or so per annum to provide for the defence of Australia and its interests. Approximately just under two per cent of that is allocated to DSTO, so this is a substantial sum of the order of $300 million per annum. That is being provided so that DSTO can provide advice, partly as a smart buyer, partly policy advice on S&T matters and partly to provide in-service support—particularly how to make the existing technology in the Australian Defence Force last longer, work better or run more efficiently or more cheaply.

I guess that is our prime mission but, in the process of doing this, we have developed some new technologies and, again, there are some details in the booklet for such things like the high-frequency radar for over-the-horizon work; and things like sonar systems for the detection of mines, submarines or, indeed, other bodies in the ocean. Some of this work has led to commercialisation, in some cases for some substantial export earnings.

If I could return to my script here—I will probably repeat myself—DSTO’s objective is about saving Defence and ultimately taxpayers’ money through investing in future technologies for defence applications, ensuring Australia is a smart buyer and user of defence equipment, developing new defence capabilities in some cases where we have specific needs and enhancing existing capabilities by increasing performance and safety or reducing costs. DSTO is an applied research organisation with a well-defined client. That allows our program to be scrutinised by the client on an annual basis and to be focused and prioritised in accordance with defence priorities.

Where it is consistent with this work, DSTO, of course, does contribute to and assist with national wealth creation in several ways, including technology transfer. This is detailed, to some extent, in the Trenberth report that I mentioned earlier. Often this goal coincides with our objectives to enable industry to support Defence and the defence mission—for example, by keeping vital knowledge and production skills within Australia and within Australian industry.

Specifically, other than through direct utilisation of DSTO output by its clients, DSTO output assists in national wealth creation in several ways, not necessarily resulting in an income stream to DSTO. These are things like building a secure nation through the transfer of technology and through reducing imports by assisting local manufacturers, and enhancing defence industry and, in some cases, by the development of dual use technology.

CHAIR —Thank you very much. Your total budget is in the order of what?

Dr Anderson —It is just a little over $300 million in our basic Defence portfolio budget, but on top of that there are some other funds that come to DSTO which we call tied funds. They are for defined, specific, non-discretionary purposes.

CHAIR —In the order of, for just this year?

Dr Anderson —In the order of another $50 million. But some of that is Defence money, I should say—that is, from other Defence agencies who give us money to do things.

CHAIR —When you distinguish between tied funds and your recurrent funds, what is the difference?

Dr Anderson —Tied funds are funds that come to DSTO for a specific non-discretionary purpose. It might be, for example, to carry out a test on a specific rocket that requires the development of some equipment, the employment of some contractors, the building of some rig, taking people to Woomera and ultimately putting together something that is very specific to a particular project. So it is a service provided.

CHAIR —And the other times?

Dr Anderson —The bulk of our budget is our discretionary budget—perhaps not as discretionary as the name might say—insofar as we keep 10 per cent of that for DSTO initiated purposes—that is, for DSTO choice about where to invest our funds. The other 90 per cent is substantially directed by a series of research and development committees that we have that run through Defence. One looks at aerospace applications, one at maritime, one at land and one at intelligence. Another one looks at joint and information and another one looks at strategy and future capability. These separate little segments of the program have their own committees that work out what their priorities are so that, in effect, the Air Force, through the aerospace R&D review committee, can tell us that this year their current priority is for us to do more work on, let us say, structural integrity for fatigue studies and life extension of air frames as opposed to perhaps more work on electronic counter-measures or whatever it might be.

CHAIR —Who determines the allocation of your 10 per cent?

Dr Anderson —Our 10 per cent is at the discretion of DSTO.

CHAIR —What is DSTO, for the purposes of determining that?

Dr Anderson —Ultimately it is the prerogative of the Chief Defence Scientist, but the Chief Defence Scientist has to go along to the Defence Capability Investment Committee every year. In fact, it is this very Friday that the Chief Defence Scientist and I will go along to describe our program. In addition to describing our program for the major clients—the 90 per cent—we also describe what we do in the 10 per cent. Typically the 10 per cent are things where we have got some ideas through collaboration with other parties or possibly with the universities or through some innovative work of our staff. We think some package of work is worthy of some further investment and then we see how it goes. If it starts to yield something useful then we probably migrate it into the client sponsored program after a period of three or four years.

If I can give you an example, we have the long-range research program within DSTO at the moment; we are doing some work on network-centric warfare; and we are doing some work on automation of the battle space. This is effectively the use of unmanned air vehicles, underwater vehicles, ground vehicles or stationary objects—robots, if you like—to do a range of things that might otherwise be done by humans. We think that is important for a whole range of future reasons. Much of this work in time will migrate into the client sponsored program, but at this stage it is not directly relevant to a specific agreed acquisition program. For that reason our clients do not wish to sponsor it. That is a balance that we have to work every year.

Certainly some of the work, in our 10 per cent, if you like—the long-range research program—is longer term, blue sky, boundary-pushing work. Some of it, however, is more about capability for things that we think we will need to do in five or 10 years time because we can see the impact of technology as it is developing in an area where perhaps we do not currently have many skills. There are a number of ways that we use that budget. We do have to expose it to scrutiny—we do so periodically—and it usually stands up pretty well.

Dr JENSEN —You talk about the issue of budgetary oversight. I see a bit of a problem in that the desk officer is in effect, in combination with DSTO, defining the direction of research, but he is also the overseeing authority. The problem that I foresee is that maybe the research direction goes down a path that Defence, not DSTO, thinks is the right way to go, and DSTO will do its best to help in that regard, but the person doing the research may be aware that the question being asked is not actually the right question. How do you see this process of the desk officer and potential separation of the oversight from the actual funding authority?

Dr Anderson —We do work with our client, our desk officers, who go through the detail of a specific task plan. A task plan is a bit like a contract, with a DSTO task manager working out something and a desk officer working out what the sponsor would like. Those task plans have to be endorsed at more senior level committees. The purpose of that is to ensure that there is an appropriate degree of balance and priority in terms of the allocation of resources and the allocation of tasks.

We recognise that there is a bit of a two-edged sword here. If that connection is too loose there is the potential for the work to be more motivated by the interests of the scientists, the curiosity—whatever the skill strength is of that group of people. On the other hand, if the grip is too tight you wind up with a program that is very tightly focused on near-term objectives; it tends to be risk averse and tends not to be discovering anything terribly new; it is essentially a contracting or consulting role. We try to strike a balance. In some cases one model is more appropriate and at other times the other model might be more appropriate. As I say, we try to strike a balance.

Periodically we have an external review. In fact, just a couple of weeks ago we had in three experts—one from the UK, one from the US and one from Canada—who are leaders in their own country’s chemical, biological and radiological defence networks. They were reviewing our program in those areas—not only its content but also its application and balance. The purpose of this was to give us some confidence about the way we are doing it and to give us guidance about how we might structure it better. We recognise that there is a need for periodic reviews to look at quality. Our customers tend to give us pretty good feedback on the issue of relevance.

You raised the point about their real insight, and we certainly recognise that, for longer term technology issues, there are occasions when DSTO has to take a lead with its clients and say that, looking at the next generation aircraft—when the JSF or whatever comes in—we are going to have a whole lot of issues that we do not have now with the current generation aircraft, and we have to talk through those. In some cases this leads to the generation of new work, either for us or externally to do that.

Dr JENSEN —How do you deal with political pressure in terms of—

CHAIR —I do not think DSTO knows what political pressure is. I would like to keep it a little bit tight, and Jackie also has some questions. Is that okay?

Dr JENSEN —Okay.

Miss JACKIE KELLY —You mentioned that Defence has developed a new IP policy. Could you tell the committee about that policy and what mechanisms you are using to protect your IP overseas?

Dr Anderson —I sit on the Defence Materiel Export Committee, which is looking at IP issues and the protection of it with regard to exports of Australian technology. Very often, the examples we are talking about are technologies that have been developed by the Commonwealth—by DSTO or some other government agency. The IP issue is a mixed one in many cases, because we feel that we want to encourage private industry to have the opportunity to exploit a technology.

Much of the thinking behind our Technology Transfer Advisory Group is to do what we can to get small and medium enterprises engaged with the IP to think about how it might be commercialised by not putting up too many barriers and putting the IP hurdle too high. But equally, we do not ever want to be caught in the situation where the Commonwealth has to pay for IP that it developed itself. Certainly if there are royalties to be had, if there is potential for earning commercial income, we are quite keen about identifying that early and protecting it as appropriate. If you are thinking more about not allowing IP out of the country because it might get into—

Miss JACKIE KELLY —What did you change between your old policy and your new one?

Dr Anderson —I am not closely familiar with the previous policy; it would have been in the time of my predecessor. Certainly the key point that we are emphasising now is that, in addition to protecting IP for our own use, we do not want to put it behind barriers so high that it can never be accessed by Australian industry. But that is really an Australian industry engagement policy, not a national protection policy. With regard to national protection, I do not believe there has been any change in that respect. The Defence committee that looks at that has to make judgments about the IP case by case—what it might be used for and who might be able to use it.

Mr Gray —Our DSTO industry interaction manual is scheduled to be updated in the third quarter of 2005. In updating it, we will be picking up on new initiatives such as TTAG and some of the new licence arrangements that flow out of the Trenberth report. We would be happy to table some of the changes that are being made to that manual, which goes to your question, I think.

Dr WASHER —You mentioned the new plane, and that will be a cooperative international construction effort. How is that managed? Would Australia build a component of the plane and have that intellectual property? How do we do that? How do we internationally collaborate successfully and innovate and retain our own share? How does it operate?

Dr Anderson —I think I would have to ask the head of the JSF program office to brief you on that specific point. It is a large international engagement. Australia does have a role as a tier 3 contributor to the JSF, but the major design and development are all US led and operated. There have been a number of commercial opportunities; and I believe a number of Australian companies, some with some DSTO help, have got access to contribute to some of the design and development phase. While I cannot speak with great certainty, I imagine that where Australian IP has been generated it would be retained. Certainly, I understand that the idea is, in the longer term, that some of the manufacture of the JSF will be shared in Australia.

Mr HAYES —Regarding your collaborative aspects, does your organisation go and make the contact or establish the networks out there or are you being targeted by developers?

Dr Anderson —Do you mean within Australia?

Mr HAYES —Yes.

Dr Anderson —Yes. A point I should have made earlier is that we do have within DSTO—indeed within Alan’s branch—a business and commercialisation office. Its job is to build a lot of those linkages, to write a lot of the contracts, to facilitate various alliance meetings and so on, to organise the TTAG system and to provide them with appropriate material to identify appropriate technologies that might work there. So we do have a number of business development managers employed inside the DSTO business and commercialisation office. Indeed, in line with the Trenberth recommendations, our expenditure in that area has risen from about $1.6 million a year to about $2.3 million a year.

Mr HAYES —So you are in a relatively unique position—at one stage you would be considered the researcher and at other points you are the lead agency outsourcing, or collaborating on, levels of research.

Dr Anderson —That is probably right.

Mr Gray —To add to the answer to the earlier question, we take a proactive role so that people from my team go out at least once a year and visit all the states and territories together with the Defence Materiel Organisation. We do a bit of a roadshow to companies of some of our capabilities and some of our wares. Over and above that we have TTAG which has been in place now for about 18 months. TTAG is the Technology Transfer Advisory Group and it includes three venture capital companies: UniQuest, QPSX and Starfish. They meet three or four times a year to look at the research and some of the products that are coming through and provide expert advice on the sorts of companies who could take it on to the next phase.

Mr HAYES —Do you have a weighting system of some sort that actually looks at Australian based research companies for your collaboration?

Mr Gray —The rating system is more for the rating of the technology. We have a scale of one to nine for how commercialisable some of the technology is. We would normally operate in the range of one to four, and then you are starting to move it out into industry from there on up.

CHAIR —I may have misheard your opening statement. Is 90 per cent of your expenditure consumed internally and 10 per cent expended on collaborative operations?

Dr Anderson —Approximately 10 per cent of the DSTO budget is spent outside DSTO—that is, with university research agreements or with some private companies to do some of our work.

CHAIR —What do the Brits and the Americans do with the balance between internal and external?

Dr Anderson —I do not know the precise answer to that, but I do not think it would be very relevant either because the amount of industry and the magnitude of universities they have to deal with is very different from what we have here.

CHAIR —Is that data available? Is there an international comparison?

Dr Anderson —We could look for it—I am sure we could. Organisations like DAPA run a huge multibillion dollar annual contract for research and development and it is all contracted out. Indeed, some of it comes to us in Australia—some to DSTO as well as some to Australian universities.

CHAIR —I am trying to get some standpoint from which to compare that amount of internal as against that amount of external science—what does the world look like?

Mr Gray —On page 32 of the Trenberth report, there is a table which shows DSTO benchmarked against recent US commercialisation survey data. That table suggests that we were not performing too badly.

CHAIR —I had no prima facie views. I just wanted to see.

Mr JENKINS —At the end of the submission you talk about the 71 licences that DSTO manages. Do you directly manage all those or do you enter into agreements with other companies to manage them on your behalf?

Dr Anderson —We do employ some contract project managers but many of these would be managed by our own staff. Certainly, the S&T advice that goes with it would normally come from our own staff, but, in some cases, we may use contractors to help with the process.

Mr JENKINS —How does it change if you have worked with a similar overseas agency to work up an outcome which has led to a licensing?

Dr Anderson —Yes, we certainly have to be careful. We cannot go licensing somebody else’s IP. There is no doubt that we do gain a lot from our international collaboration. We have a very active international collaboration program, particularly with the US, UK, Canada and more recently with Singapore. The purpose of a lot of that collaboration is of course to get back more than we put in and to share their ideas. We clearly have to be careful if there is something that goes that next stage to becoming a commercial product not just a scientific concept, where it is beyond a matter of giving advice to government, where it potentially becomes a commercial product, that we duly recognise any foreign IP. It is not just the recognition for royalties reasons; it is also for the authority to make further use of it.

Mr JENKINS —Your submission talks about not necessarily everything going to create revenue but to enhancing defence capability and therefore it is in the national interest. In your ranking of commercialisation, is it considered the same when it goes to enhance the defence capability without bringing a revenue stream that we would attach to a common course of commercialisation?

Dr Anderson —In the hierarchy of things our greatest preference would be something that helped defence and led to a revenue stream, but at the next level we would rather have a project that was commercialised and led to some enhanced defence capability and enhanced business activity, even if there were no revenue stream, than have nothing at all. We could look back at previous examples. Doubtless, you have read of the black box or the T-VASIS landing aid system where things have been developed in DSTO and led to no revenue and not nearly as much commercial exploitation as we may have wished.

Mr JENKINS —I take it from raising that example that your organisation has developed a capacity that not only enhances a capability, whether it be the black box or any other defence capability, but has an eye to the revenue stream commercialisation.

Dr Anderson —Yes.

Mr Gray —I would add a caveat to that. It has an eye to national wealth. Now we are defining national wealth more broadly than simply a dollar value, so we are looking at the contribution that it is making to welfare and to the overall safety of the country. So there is a range of criteria there which we apply.

Mr JENKINS —I wonder what your brothers and sisters at CSIRO would say.

CHAIR —Could I ask for some clarification there. What does national wealth actually mean for you?

Mr Gray —National wealth, which was defined in Trenberth, includes natural man-made capital, environmental assets, knowledge, skills, networks, distribution systems and attitude to innovation and risk taking.

Dr JENSEN —DSTO, in terms of research organisations, is fairly unique in that you have various levels of secrecy within the ADF and collaborative arrangements with the US, Europe, Canada or whoever. What is the best way in which you can operate within those constraints and still commercialise ideas, technologies and so on? In other words, that is a significant constraint—you have all this compartmentalisation and so on. What is the best way in which you can identify how some of those constraints could be loosened up?

Mr Gray —I have only been with the organisation for a fairly short time, but I have spent a fair bit of time in science and technology in Australia over a number of years. I think DSTO does it pretty well and there is a pretty good balance with respect to reaching out to industry. It is improving all the time. The TTAG is one example. Australian industry are starting to participate in some quite complex and highly secure activities. It is not an easy task; nonetheless they are increasingly getting involved in that. Indeed, some of the SMEs are getting involved as well. So there is a track record there and it is improving all the time.

Dr Anderson —DSTO manages the patent portfolio for Defence. Many of them are DSTO patents, anyway. Some of those patents are secret. We can have secret patents. We do, of course, as you point out, share some information that is classified with people from other countries. Sometimes that translates into capability—something we might develop, something that might be transferred to industry or an industry might help to commercialise it. But there may be some component of the design, of the algorithms, that are classified and we keep a tight hold on it. That is particularly pertinent when it comes before the defence exports committee for consideration. We certainly see part of our role as keeping a careful eye on monitoring that.

I refer back to a previous comment about CSIRO. There are obviously some significant differences between ourselves and CSIRO, such as the way we manage IP, the way we interact with industry. Allow me to suggest that the fundamental reason behind that is that DSTO is part of Defence. It is connected to its main customer. Its main customer allocates its budget. That gives us a lot of insight into Defence requirements. It means that we have a program that is tightly aligned with defence application and outcomes. To that extent that is our main business and that is the way it is funded. The commercialisation activities, valid as they are, are effectively secondary.

CHAIR —I think Dr Jensen was making the point that I was thinking about—that somehow it looks quite similar to CSIRO in terms of measuring outputs. Would you like to make any final statements?

Dr Anderson —No, I think we have covered all the issues that I had in mind.

CHAIR —Tell me that we are managing our IP better than we did with JORN.

Dr Anderson —I think we could find lots of other examples where the IP in previous years has not been well managed. We are certainly trying to keep a tighter grip on things where there is potential, as I was saying earlier, for a defence application, where we want to keep it for ourselves or we certainly do not want to have to pay for it to get it back, or we might have some particular reasons why we do not wish others to have access to it at all.

Mr Gray —Since JORN, there is now in DSTO a full-time business office and its full-time job is to manage the commercial relationship. So it is a much tighter affair.

CHAIR —Thank you very much. That has been very useful.

Resolved (on motion by Dr Jensen):

That this committee authorises the publication of evidence given before it at public hearing this day.