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Friday, 1 May 1987
Page: 2450


Mr ALDRED —I refer the Minister for Defence to his answer to me yesterday in Question Time that the cost of Australia's new submarine project would be substantially less than the reported blow out to at least $4.5 billion. How does the Minister explain the report in this morning's Australian Financial Review that, according to official documents sighted by that newspaper, the total project cost could be as high as $5.6 billion, when the initial estimate was only $2.6 billion. Why is the Minister apparently excluding the cost of key elements of the project when, until now, all figures stated publicly by him were based on total-I repeat total-project cost as properly called for in the original request for tender document?


Mr BEAZLEY —I thank the honourable gentleman very much for his question because it saves me having to make an explanation under the standing order relating to misrepresentation. I am indeed grateful for the question and, as usual, will give a detailed answer.


Mr Holding —Will he understand it?


Mr BEAZLEY —I am sure that he will be able to understand this one. I am not sure what documents the journalist concerned has seen or believes she has seen. I believe her to be a truthful journalist so when she says that she has seen them, I suspect that she has. I do not think that she would persist in misrepresentation on that basis. Documents circulate in the Department of Defence by the bushel, and it has been my experience as a Minister that quite a few of them shake out from time to time and turn up in ways that on occasions I would rather they did not. The simple fact is that whatever document it was does not reflect the position and I shall go through the matter in detail.

The figures I gave yesterday hold for the whole project; they are apples with apples. They are the same figures that went into underpinning the estimates on the $2.6 billion. They include all those items that were mentioned, including the berthing facilities, support, spares and all the rest of it which the article suggests must have been excluded from my figures. There is one small discrepancy in that area and that is that there is a higher inclusion in these figures than to the $2.6 billion for Royal Australian Navy costs. In other words, we are in one small area including a larger number of figures than were included in the $2.6 billion. So, far from excluding, we are in fact including a greater number of elements in the total project.

It is not, as the article suggests, a matter of my figures being at odds with the Department's. The figures are determined by two processes. One is by departmental committees which review all elements of the submarine project. In this case they are augmented departmental committees so that there is an opportunity for representatives of other departments to review the same figures. The figures that will be presented to the Cabinet, the parameters of which I mentioned in the House yesterday, are a result of that process. It is not a process involving my sitting down and trying to work out the costs of a submarine. Quite clearly I am not capable or competent to do so, nor is any other member of this House. That is the first point I make about those figures.

The second point is that the figures are based on a tender on which the four tender parties are willing to sign fixed price contracts variable only by the normal price movements in generalised labour costs and by the normal requirements of extreme force majeure, like a decision by the Government to cancel the project half way through and start it up again five years later or something like that. The figures are not just based on departmental estimates. They are figures on what four tenderers are prepared to build the submarine for. They are prepared to sign their names on the dotted line on the bottom of those figures. In addition, the figures that will be presented to Cabinet are based on June 1986 prices. In doing so, I shall be presenting myself to Cabinet at a slight disadvantage because the dollar is now about 2c, 3c or 4c ahead of where it was in June 1986. But there has to be some cut-off point of time for the purpose of negotiations when one is establishing the base line around which one will permit price movement in the future. We have chosen June 1986 figures in the contract.

So whatever figures may have been circulating at any point of time or somebody's idea at some point of time, those are the figures that have come through from the various committees in the Department. They are the figures to which they are prepared to sign on the dotted line. They are all-inclusive of every single category of element that was included in the $2.6 billion, with the addition I mentioned. Not only are they all-inclusive; they also relate to six submarines. It was also suggested in the article that one other way I could get down the figures was to bid for fewer than six submarines. It will be open to Cabinet to determine what number of submarines the country has. I am not pre-empting the Cabinet decision in that regard, but the figures that will be presented to it will be for six submarines. So in every single detail the article is incorrect on the basis of those figures. I thank the honourable gentleman most sincerely for asking me this question on the subject.