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Joint Standing Committee on Foreign Affairs, Defence and Trade
04/05/2018
Department of Defence annual report 2016-17

BERGMANN, Ms Victoria, First Assistant Secretary, Procurement and Contracting, Department of Defence

BIRRER, Mr Chris, First Assistant Secretary, Estate and Infrastructure, Department of Defence

DAVIES, Air Marshal Leo, AO, CSC, Chief of Air Force, Department of Defence

DEWAR, Mr Scott, Acting Deputy Secretary, Strategic Policy and Intelligence, Department of Defence

DIAMOND, Ms Angela, Acting Chief Finance Officer, Department of Defence

DIVALL, Mr Greg, Group Business Manager, Capability Acquisition and Sustainment Group, Department of Defence

GREIG, Ms Justine, First Assistant Secretary, People Policy and Culture, Department of Defence

GRIGGS, Vice Admiral Ray, AO, CSC, Vice Chief of Defence Force, Department of Defence

GRZESKOWIAK, Mr Steve, Deputy Secretary, Estate and Infrastructure Group, Department of Defence

HAMILTON, Mr Tom, First Assistant Secretary, Strategic Policy, Department of Defence

JOHNSON, Mr Stephen, General Manager, Submarines, Capability Acquisition and Sustainment Group, Department of Defence

KEARNAN, Ms Sheridan, First Assistant Secretary, Defence Industry Policy, Department of Defence

OLIVER, Mr Richard, Acting Deputy Secretary, Defence People Group, Department of Defence

PERKINS, Ms Celia, First Assistant Secretary, Defence Security and Vetting Services, Department of Defence

QUINN, Rear Admiral Peter, CSC, Head, Navy Capability, Department of Defence

SKINNER, Mrs Rebecca, Acting Associate Secretary, Department of Defence

TOOHEY, Major General Kathryn, Head, Land Capability, Department of Defence

Subcommittee met at 09:15

CHAIR ( Senator Reynolds ): I declare open this public hearing of the Defence Subcommittee of the Joint Standing Committee on Foreign Affairs, Defence and Trade. This is the first public hearing for the subcommittee's inquiry into the Defence annual report 2016-17. These are public proceedings, although the subcommittee may agree to a request to have evidence heard in camera or may determine that certain evidence should be heard in camera. I remind witnesses that, in giving evidence to the subcommittee, they are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage a witness on account of evidence given to a committee, and such action may be treated by either house of parliament as contempt. It is also a contempt to give false or misleading evidence to a committee. In accordance with the committee's resolution of 12 October 2016, this hearing will be broadcast, and the proof and official transcripts of proceedings will be published on the parliament's website. Those present here today are advised that filming and recording are permitted during the hearing, but mobile phones should be switched off.

I now welcome the Associate Secretary of the Department of Defence and the Vice Chief of the Defence Force. I remind subcommittee members that the Senate has resolved that an officer of a department of the Commonwealth or of a state shall not be asked to give opinions on matters of policy and shall be given reasonable opportunity to refer questions asked of the officer to superior officers or to a minister. This resolution prohibits only questions asking for opinions on matters of policy and does not preclude questions asking for explanations of policies or factual questions about when and how policies were adopted. If a witness objects to answering a question, the witness should state the grounds upon which the objection is taken, and the subcommittee will determine whether it will insist on an answer, having regard to the grounds on which it is claimed. If the subcommittee determines to insist on an answer, a witness may request that an answer be given in camera. Such a request may, of course, also be made at any other time.

I now invite you to make a brief opening statement before we proceed to questions and discussion.

Mrs Skinner : I'll start, and then I'll hand over to the vice chief. Good morning and thank you for the opportunity to make an opening statement. I apologise on behalf of the secretary for his inability to be here today.

CHAIR: Could you just explain his inability to be here today.

Mrs Skinner : The secretary and the CDF are unavoidably with ministers today. Between the vice chief and me, who run two of the three key committees of the organisation, I think it would be hoped that we will be able to answer all your questions.

CHAIR: They're up in Sydney today, are they?

Mrs Skinner : I believe that's where they are, with the ministers. I'd also like to thank the committee for providing a program. That's enabled us to make sure the relevant staff are available for the allocated program.

Senator FAWCETT: You should expect a lot of questions on notice, bearing in mind that we have estimates in less than two weeks time.

CHAIR: We have a series of questions, as Senator Fawcett said, but we will foreshadow them and then put the rest on notice.

Vice Adm. Griggs : We have tried to focus everyone on the fact that this is an inquiry into the Defence annual report, and that's how they've been shaping their thinking.

CHAIR: That's exactly right, thank you. Sorry, Mrs Skinner, please continue.

Mrs Skinner : Compiling the annual report, as you would imagine, is a major undertaking in the department, particularly the development of the financial statements. Defence continues to improve its reporting processes, consistent with the Department of Finance and the enhanced Commonwealth performance framework. Defence has engaged in a continuous process to improve the quality of our financial reporting, and we continue to work with the Australian National Audit Office and the Department of Finance to improve the quality of the financial information and refine our financial reporting activities.

Defence has also aligned the portfolio budget statement and the corporate plan under two outcomes and two purposes for the 2016-17 period. The approach strengthens our performance reporting and supports a stronger narrative through our annual reports, trying to make a stronger connection as we've been reforming our reporting framework from our budget statements through to the annual report. We've also focused on improving the readability and usability of the annual report.

I just want to highlight a couple of key achievements. I think we're tracking well—and we might cover this a bit later—in the implementation of the First Principles Review. While we hadn't completed as many, we've now completed seven. In that annual report period, we've completed 71 out of 75 recommendations that were agreed, or agreed in principle, by government. Under the new Capability Life Cycle, the government's agreed that Defence project pathways can be tailored according to risk rather than financial value, resulting in reduced approval time frames and improved oversight by government. Commercial policies and practices are being streamlined, trying to make it easier for industry to work with Defence. Over that period of time, we reduced the number of senior committees from 72 to 26, so we're trying to tighten up the quality of advice and the strategic decision-making.

During the 2016-17 annual report period, the department released the Naval Shipbuilding Plan and continued the process of implementing the government's Naval Shipbuilding Plan, which over time will be a very substantial undertaking in Defence in both dollar and staffing terms but also for industry and the nation in the broad. Implementation commenced on the Next Generation Technologies Fund, which has seen substantial engagement by Australian industry in seeking to meet Defence's future capability needs. The Centre for Defence Industry Capability and the Defence Innovation Hub were launched. Defence completed the Pathway to Change program and commenced the next phase of cultural reform.

I just want to point out to the committee two particular programs that were significant in 2016-17. The first was the Dandelion Program, which, in concert with industry partners, uses people affected by autism to support Defence business, particularly in ICT. The second is the Defence Administrative Assistance Program, which employs in excess of 100 disabled people to undertake valuable administrative and customer support functions throughout the Defence enterprise.

While the vice chief will outline our major operational activities, I'd note that these reforms occurred against the backdrop of a substantial operational activity, and it's important to note that operations engaged the whole of the department—ADF, APS and service providers—in supporting deployed personnel and military capabilities. Thank you.

CHAIR: Thank you very much.

Vice Adm. Griggs : First, can I thank the committee for the opportunity to appear today. This hearing's always a good opportunity because it allows us to pause, if only briefly, to look back at a period in time and reflect on our performance and our achievements.

What strikes me, in reading through the latest report, is again the skill and professionalism displayed by the men and women of the ADF throughout 2016-17. They've continued to step up and to meet the challenges presented to them. The Middle East remained a focus over those 12 months as our people undertook successive rotations on Operation Okra, taking the fight to Daesh from the skies while also training, advising and assisting Iraqi forces as they achieve significant breakthroughs, including in Fallujah and Mosul.

Meanwhile, Australia remained one of the largest non-NATO contributors in Afghanistan. The government's decision in May 2017 to boost our contribution with an additional 30 personnel recognised the ongoing success of our training mission there and took our overall numbers to around 300.

In the maritime domain, our naval personnel were also having a significant impact in the region through the maritime security contribution that they make. HMASArunta took over from HMASPerth in November 2016, marking the 64th rotation of an Australian fleet unit in the region since the First Gulf War in 1990. During her deployment, the first of a nine-month deployment for Operation Manitou, Arunta continued to build on the reputation that successive RAN ships have established as part of the Combined Maritime Forces, by intercepting more than 1.3 tonnes of illegal narcotics that otherwise might have been used to help fund both international crime and terrorism. In addition to these concurrent operations in the Middle East, the ADF has maintained its international commitments in South Sudan, the Sinai and the Golan Heights.

Closer to home, our support to border protection operations continued and our growing contribution to regional counterterrorism efforts saw AP3C Orion aircraft deployed to the Philippines in June 2017 to assist the Armed Forces of the Philippines in their fight against terrorism.

Perhaps the ADF's most visible contribution to the wellbeing of Australians was in our response to crises at home. In March 2017, Severe Tropical Cyclone Debbie caused widespread damage across Queensland and northern New South Wales. Together with federal, state and local authorities—and, of course, the thousands of volunteers who prove so valuable in such times—the ADF's rapid deployment assisted in an extensive clean-up required across a number of impacted communities.

In 2016-17, the ADF made significant changes to the administration and higher level organisation of the ADF cadets. These changes were catalysed by the harrowing stories that I and others heard at the Royal Commission into Institutional Responses to Child Sexual Abuse. The formation of the Australian Defence Force Cadets headquarters, including the co-location of the three service headquarters, is something we've been trying to achieve for a long time, and the development of the youth safety framework has demonstrated the ADF's commitment to change to ensure the ADF cadet experience continues to be a safe experience for this premier youth development scheme.

We also honoured some of the proudest moments in our history as the Centenary of Anzac continued; then its focus moved firmly to the Western Front.

So maybe the best summation I can offer of 2016-17 is that, as always, it presented both challenges and opportunities, as the ADF fulfilled operational commitments at home and abroad. We paid tribute to our heritage and we continued with the reform needed to make us a better organisation and one that can continue to deliver into the future.

CHAIR: Thank you very much. On behalf of the committee, I hope you can convey our thanks. Obviously, it has been another busy but very operationally successful year for the ADF. I would just like to note that for the record. Thank you.

Vice Adm. Griggs : Thank you.

Senator FAWCETT: If I can reiterate the chair's comments, we recognise that this report covers a period of pretty intense activity overseas and also domestically, at a time also when the department has been going through a lot of reform and change. So, whilst we'll make some comments on what's occurred in the period and also the report, I want to acknowledge up-front that we really appreciate your work and would like you to pass on to members of the defence department and the Australian Defence Force our thanks for their service and what they're doing.

In the preamble to the report, it highlights that the report is the 'primary mechanism of accountability to the Parliament of Australia'. So some of the comments I'm going to make go to the fact that this is the primary mechanism and yet my sense is that there are some deficiencies in what it explains. I'll highlight some of those. As we indicated before, we may well put some questions on notice to you to get detailed explanations rather than trying to get detailed answers today.

CHAIR: On that point, there might be some issues that you don't believe you're in a position to answer in a public forum, and one of the things we want to determine is, of all the issues that we want to raise with you, which ones can raise in a public forum and which ones might we have to seek a closed hearing for. As we go through, if you can give us some guidance on that, that will help us.

Vice Adm. Griggs : We're happy to do that.

Senator FAWCETT: I have one very conceptual thing to start. Under 'Defence portfolio structure', the annual report states:

As at 30 June 2017, the Defence portfolio is supported by three ministers …

From the point of view of the concept of civilian control of the military, is it 'supported' or 'led'?

Vice Adm. Griggs : We work for the ministers.

Senator FAWCETT: So I would have imagined that the department is 'led' by three ministers as opposed to 'supported' by three ministers.

Mrs Skinner : That's a fair point. I think the context is that the Defence portfolio has three ministers—that is probably the language that could be used there.

Senator FAWCETT: Sure. What I'm coming to—because it goes to the efficacy of the whole report—is the culture within the organisation that says, 'Where does your accountability lie?' Clearly, you have an accountability to the government of the day—

Mrs Skinner : To government, absolutely.

Senator FAWCETT: and to the ministers, but the government of the day and, therefore, by extension the department has an accountability to the parliament in terms of what's disclosed. As we've said, this report is the primary reporting mechanism. With that basis, I just want to move on to a couple of things that are highlighted in the report. I think the First principles review has been a fantastic exploration of Defence and its structure et cetera, but one of the criticisms that Rufus Black made is that we ended up with management structures which became processes in their own right and, in the end, there were no individual accountabilities because it was seen as 'the process'. One of my concerns in reading this report is that multiple times it talks about how a 'stronger strategic centre' will be able to provide clear direction and contestability. Ultimately, when that becomes embedded as a mouthful of words that are used to time and time again there isn't actually accountability because who is the stronger strategic centre? You talk about how there are management structures and appointments, but for the outside observer here in parliament looking to understand who actually has responsibility for the implementation of the decisions that are taken, even if taken by a committee within that stronger strategic centre, that is not clear. I would welcome brief comments now—

Mrs Skinner : I can make some comments about that.

Senator FAWCETT: but it's something that we would like to explore with you—how the committee and therefore the parliament can trace accountability for decisions that have been taken—because it does not come through in the report at all.

Mrs Skinner : Firstly, ultimately the secretary and the CDF are the accountable officers for anything that occurs in the organisation. What their accountabilities are depends on their roles. The concept of a strong strategic centre is that, for any given issue, there is one accountable person or one process that gives you the outcome. In terms of strategic policy and white papers, there is a strategic centre that is centred around the secretary and deputy secretary of strategic policy intelligence, who have got responsibilities to coordinate and do all the normal things you would do to own and deliver the policy outcomes for the organisation. That is one context for the strategic centre.

Another context for the strategic centre might be the deputy secretary's people who are ultimately responsible for the delivery of policy outcomes and services related to people but must be the people who do all the normal coordination you would need to do in a large organisation. Not having confused accountability and other voices with a right of veto or a suggestion that when there is a policy and a direction set that others in the organisation have a right to not follow that or not to do what the centre has determined is the path is what has been highlighted in the First principles review and also in the Rufus Black work. In our committee processes and in anything we are doing we are focusing in on who has the authority and the accountability and that they must do their proper job well will in working with others. It is not to exclude other voices. But ultimately when those choices or decisions are taken they are accountable and they are responsible for the implementation. That's how I would characterise that concept of a strategic centre. It manifests itself in a range of different ways that improve the accountability. The shared outcome is the inability to allow other voices to undermine, stop or veto something that's been decided in the organisation.

Vice Adm. Griggs : I think the language in the review is actually around a 'stronger and more strategic centre'. That's been compressed into 'strong strategic centre', so people start to think it is geography—that you can have an org chart that shows you what the centre is. The stronger and more strategic centre is a mindset that the organisation has to get into and that the periphery of the organisation has to accept the legitimate role of.

That's the journey we're on. I think that the accountabilities in some areas are much clearer now than they were; others are still evolving. I think that the capability managers now have very clear accountabilities right through the capability life cycle. They don't have that big gap that I had when I was Chief of Navy between second pass and entering into service, where a whole bunch of cost and capability trade-offs got made that the service chief had no real accountability for. It could be a squeaky wheel and make a lot of noise but, ultimately, it was not accountable for a fairly important part of that capability life cycle, and then was handed a capability to introduce into service and operate.

In the capability world, particularly, the accountabilities are much sharper, but I would accept your premise that there are other areas where we are still evolving.

Senator FAWCETT: I'm just going to ask you to talk me through one example that I offered up to the first principles review when they came through seeking stakeholder input, to tell me how this would be different in today's environment. When Air Force wanted to have a stand-off weapon, the then centre view was that Defence Estate should not be gaining new estate and that they should actually be selling estate and divesting wherever possible. Air Force had decided that with a new stand-off weapon they actually needed to take on a new pastoral lease at Woomera. Air Force found the money and said, 'Yes, we want to take on this lease so that we can do end-to-end testing of the stand-off weapon capability.'

The estate group—whatever they were called in that decade—said, 'Fantastic we're the ones to do that purchase.' Air Force transferred the money and said, 'In accordance with our centre directed policy we are divesting and not buying new estate; we're going to return this money to government as savings.' That resulted in a nine-month stoush between Air Force and that central group until the minister finally intervened, by which time the lease was no longer available.

Under your current structure, who ultimately has accountability for the delivery of the outcome—which was for Defence to have a stand-off weapon capability? Is the Chief of Air Force now able to say, 'No, this is an operational requirement; I will get this estate.' Or is it the Defence Estate and Infrastructure Group, which might have a general philosophy of divesting where possible? How does that work under the current structure?

Vice Adm. Griggs : It now comes under the remit of the Defence Investment Committee. The previous incarnation of the investment committee was the Defence Capability and Investment Committee, which really didn't take a portfolio view of our capital program. It was very much the Defence Capability Plan implementation committee, if you like. It really only considered project after project after project. It didn't look at programs and it didn't look at streams of work. It had very much a single project-by project orientation.

What we've done with the investment committee is, first of all, to start to group projects into programs, subprograms and streams so that we get more holistic views of those capability decisions. In that particular example, the Chief of Air Force would come to the committee as the accountable capability manager and put his case. We would, in consultation with central agencies—because we have Prime Minister and Cabinet and Finance as part of the committee—work through the issues around that and then put forward a recommendation.

But the Chief of Air Force is ultimately accountable for the delivery and sustainment of that capability. Infrastructure is a delivery agency, so if the centre says, 'That's what we're going to do,' then they get on and deliver.

Mrs Skinner : In the example you were talking about, the committee framework of the day had an estate committee that was—

Vice Adm. Griggs : Separate.

Mrs Skinner : separate. It had its own separate money and would make trade-off decisions. So there is no such money because it's all part of the Integrated Investment Program. And the other piece was that if there were any policy considerations around whether the weapon is the right thing or whatever, the alignment with the white paper strategy would also be picked up through that investment committee process, because the deputy secretary for policy is in that committee as well. So you have everyone there, and then the program and accountability, as the vice chief said.

Vice Adm. Griggs : I think there is a really fundamental difference in the way we did business in the past.

Senator FAWCETT: Would that same mechanism work—it says:

A stronger … centre able to provide clear direction, contestability of decision-making, along with enhanced organisational control of resources and monitoring of organisational performance.

One of the criticisms that led to the First Principles Review was that, when we did the 2012 inquiry into Defence procurement and management, we found that Defence was very much an input-constrained organisation as opposed to an output-focused organisation. One of the real issues was that agreements were made between different parts of Defence—interagency contracts and agreements—that essentially bound the service chiefs. And, even when the circumstances changed, they had no ability to change the terms of those agreements. Does this central committee that you're describing have the flexibility to respond in a timely manner to a change in circumstances where those agreements need to change?

Vice Adm. Griggs : Yes. And it would depend—and this is where there are two key working committees: I chair the investment committee; and Mrs Skinner chairs the enterprise business committee. Some of those things would be dealt with in the enterprise business committee; others would be dealt with in the investment committee. Things like major contracts over $100 million—say, something like the health contract—in years past never really had the central scrutiny and overall visibility across the organisation that they now do. They come to the investment committee well ahead of contract extensions or retendering to analyse: is it fit for purpose; is it delivering value; what do we need to change; and what's our strategy going to be in renegotiating that? That hadn't really been a feature in a collective way that it is now, and I think it improves our ability to understand what we're entering into, why we're entering into it and what value we're getting from it.

Senator FAWCETT: I will come back to health later when we talk defence personnel. Just while we're talking the broad picture around governance, there's been a lot of discussion in this report about risk management and enterprise risk management right down to individual project risk management. Again, the 2012 report, the First Principles Review, identified that the lack of willingness to make appropriate risk based decisions was a significant detractor. There was a comment in here that I think 40 per cent of defence—it wasn't clear which level of leadership had had risk based training. Is that 40 per cent who didn't have it who now have it and nobody else needs it? That's still 60 per cent outstanding? Who provided the training? I'm just interested to understand what is substantially changing around Defence's appetite to understand and manage risk as opposed to avoiding it compared to where we were before the First Principles Review?

Mrs Skinner : Let me take a couple of points there—I would need to probably get some further detail on the risk training for you. The report reflects a trajectory of improving the capability for leaders and others who need, in particular, to have the skill to have risk management understanding. I would not say that we have landed that but, from 2016 into current times, we're continuing with the trajectory. We've got some risk management training that has been rolled out to the senior leadership group so there's a better professional understanding of risk management. I'd need to get you—I can't quite find it at the moment—some details of exactly what we've been doing there.

There are strong risk frameworks in some parts of the organisation. The overall risk framework is coming up through the enterprise business committee, and we're having the opportunity to consider the overall risks of the organisation through that process separate to the more detailed risk management that you do in capability programs. I think the 40 per cent is probably of the time. I'd say there are more senior leaders who've had the risk training now. It's still work we need to do. I'd say that we are improving, but it is still work that we need to do. I think there is an understanding that we have a risk discussion when we're talking about trade-offs, but how well that is happening right down in the organisation is still a piece of work that we have to do—we're still trying to really set manageable risk frameworks at the top that make sense for people being able to manage. That is some of the work that we are still trying to achieve.

Vice Adm. Griggs : Could I just say that the Smart Buyer methodology, on the capability side, has been a significant improvement in dealing with risk across all the fundamental inputs to capability. A large number of people have been trained in that methodology. It is a form of risk management training.

Senator FAWCETT: On that latter point, I have talked with people who have been working as PSPs or others within the system since the introduction of Smart Buyer, and my perception is that it is still a work in progress.

Vice Adm. Griggs : Absolutely.

Mrs Skinner : Absolutely.

Senator FAWCETT: I understand that, but, as I look back to some of the key ANAO reports and the 2012 report of the Senate committee into, particularly, the procurement side of things, what it says to me is that we need to become far better at incorporating the lessons learned from both Defence through ANAO and also through industry as the starting point for analysing risk for a given activity. The feedback I've had from one PSP is that it is still almost at the point where it was a decade ago, where there is almost a blank spreadsheet saying, 'We need a risk analysis and plan,' and people are sitting around a table with cups of coffee talking about it, as opposed to having quite well defined starting points based on previous experience in like projects. I understand it's a work in progress, but it's an area that I think we need to really put a focus on.

I have one last comment on the report itself. I will talk about a specific area, but it's applicable across a whole range of inputs. This is the primary reporting or accountability mechanism of the department back to the parliament, but when I read through the report and look at things like, for example, IT, the assessment metrics, essentially, are saying, 'We're improving, because we're doing customer surveys and they tell us they're happy, but there's further work we could do.' I have no idea whether we are talking about a digger in the field who is able to access his family via the internet and is really happy, or whether we are talking about something like the part in your report where you talk about the need to improve business intelligence around decision-making—I'm assuming for your capability development and your chief financial officer. Out of that, I have no visibility as to whether we are talking about serious governance, whole-of-organisation financial IT systems or preparedness reporting. Are we talking about the digger in the field or are we talking about an administrative system? There is no breakdown to give me a sense of: what was the original baseline that you've improved from, and what are the areas where you still have critical shortages? To my mind, that kind of granularity is important for the parliament to be aware of, as opposed to what I, essentially, call motherhood statements: 'We're getting better, but there's more to do.' Historically, IT—not just in Defence but in many organisation—is a key enabler but it's also been a key focus for projects that have gone wrong. That's just one example of where I think the reporting in this report is seriously deficient, given that this is your primary reporting mechanism to the parliament, because I am none the wiser as to what we're talking about, what the baseline was, how much further we have to go and how critical it is that we provide additional resources to address any of the IT shortfalls that are there.

Mrs Skinner : I think your points are well made. The reporting here is a journey as well. Some of the challenges have been getting the right measures in a very rolled-up report. If were to take a slice down on ICT, we would be able to drill down into all those sorts of areas that you are talking about, and there is the need to have some sorts of measures. That measure you talk about is a customer service measure. That would be allowing people to say, 'I liked the service I got when I was deployed, and I like this other bit of the service.' I think your point is well made. Some of the challenge is getting from the high-level purposes and outcomes of the organisation down to that level of detail, without the secretary submitting an annual report that is this big. Your point is really that our measures are not as helpful as they should be—

Senator FAWCETT: Even an explanation of how you come up with your measures—say a digger in the field who gets a hot meal on time and he gets fuel for his truck or his plane, or whatever, is happy; he fills out a survey and says, 'that's fantastic'. That's what this report says to me that your reporting is based on. I'm hoping that there is a far more detailed and in-depth analysis—

Mrs Skinner : Absolutely, there is.

Senator FAWCETT: that looks at the whole supply chain and says: were the reporting or the IT infrastructure that was required to say, 'hey, we actually have a 25 per cent'—or whatever; your mandated reserve—'reserve of fuel,' or foodstuffs, et cetera—that all of that was tickety-boo. I'm trusting that's there, but nothing in this report gives me the assurance that it is. And, as we've talked about with liquid fuel security and other things in the past, I'm not necessarily 100 per cent convinced that—even if there is a system and it does flag an issue—we're going to learn about it until afterwards. The chair has wound me up now, so I'll come back to it.

CHAIR: This is an issue that I'm also going to want to look at in much more detail when I come to my questions. Mr Perrett?

Mr PERRETT: I'm going to ask the same question I asked on 13 February about personnel. I notice on page 111 you talk about Indigenous participation, and you talk about permanent members increasing from two per cent to 2.3 per cent. But when it comes to the measure for culturally and linguistically diverse backgrounds, it says: 'will continue to develop specific initiatives,' and you talk about marketing material for the APS. Could you make a comment on that? I seem to recall that, when we spoke in February, you made the point that our ADF is better if it looks like Australia.

Vice Adm. Griggs : That's right.

Mr PERRETT: Could you make a comment on that? I'm assuming, with a multicultural electorate, that a more effective ADF would have more culturally and linguistically diverse people. And why isn't the measure in here—and can it be measured?

Mrs Skinner : Yes, there is a measure; our expert on this might come into the room to talk a bit further about it. There is a Bureau of Statistics measure of culturally and linguistically diverse, but I don't think it's particularly useful in the context of the Defence workforce. But I'll get the expert to come and talk about that.

Mr PERRETT: Is that one where Griggs has to say what his country of origin is? Or how do you do it?

Mrs Skinner : Yes, there is an element between language and country of origin, and I think what we are talking about is that the way in which that measure is done doesn't really meet the intent of understanding the sort of workforce that we've got.

Mr PERRETT: And if there's a second language? It might be more useful, in a way—

Mrs Skinner : And so 'culturally and linguistically diverse' might be German as opposed to—

Mr PERRETT: Can speak German.

Mrs Skinner : Yes, that's right.

Vice Adm. Griggs : And of course, there is an element of self-reporting as well.

Mr PERRETT: Yes. I'm more interested in the efficacy of culturally and linguistically diverse communities—

Mrs Skinner : Here is Justine, and Richard.

Mr PERRETT: Before they start, I think it's very important to keep making the point that our whole diversity journey is a capability issue.

Vice Adm. Griggs : Yes, that's my approach.

Mr PERRETT: Well, there are a lot of people out there who don't agree with us, and who are not listening to that message, and don't want to listen to that message. And that's fine, but we'll keep making the point that diversity is a capability issue. An ADF that looks like the country it serves has got to be a good thing. All the literature on diversity clearly shows that the more diverse the workforce you have, the more capable the workforce. I just want to make that point again, because I never miss an opportunity to make it.

Ms Greig : The way we've approached the culturally and linguistically diverse measurement, we did quite a lot of investigation, as Mrs Skinner said, with the Australian Bureau of Statistics. There are actually four measures that combine; that's the way, nationally, it's looked at. So it's not only country of birth, there is also the Indigenous community, and there's also the language area. So there's no one metric, and that's the way we tend to look at it: as a more holistic group. When we do our internal workforce reporting, we certainly look at both country of birth and also language spoken. So we do do that. But nationally, if we're benchmarking, it's a combined approach.

Mr PERRETT: My example would be: Senator Wong might have some advantages if she's visiting China, but she can't speak Mandarin, so there might be other people who have advantages that Senator Wong doesn't, and I assume, for the ADF interacting with the rest of the world, it would be useful to have connections and languages and so forth.

Ms Greig : We certainly look internally, as I said, at two different measures, but I think you've highlighted the point: it's quite a complex thing to try and measure and understand because, even if you were born overseas—take your example of China—

Mr PERRETT: Senator Wong is from Malaysia, but, yes, my point was—

Ms Greig : Sorry. But, to take an example, it doesn't necessarily mean that that's the language spoken at home in Australia.

Mr PERRETT: So it is being worked on; it's just hard to show a measure of achieving what Vice Admiral Griggs has committed to?

Ms Greig : What might be a good idea is to provide the workforce report that we provide each month. That updates those culturally and linguistically diverse statistics, so it provides a finer measure. But, again, to do this as a benchmark nationally, it's those four measures that combine.

Mr PERRETT: Are there other parts of the Public Service that are trying to do this, other than the Defence Force? I know you've been patient about this.

Mrs Skinner : The question is probably more for the Public Service Commissioner, but certainly there's a recognition that any workforce is strengthened by having diversity, whether that's gender diversity or cultural and linguistic diversity, and Australian government organisations who are engaged in public policy will be strengthened by having the diversity of people engaged in that process. It's sort of an underpinning given. Whether other agencies have a specific program, I couldn't talk to that.

Mr PERRETT: You have a language school.

Mrs Skinner : We have a language school because part of our capability is to have languages. Language training is also an important element of DFAT's foreign diplomatic capability. For other agencies, those things might be less important.

Mr WALLACE: I'd like to reiterate what my colleagues have said: Vice Admiral, thank you for your service, and I'd ask you to pass it on to all and sundry. For my sins, I've been drafted onto the Public Works Committee. I was at Larrakeyah on Monday and Tuesday in relation to the $500 million upgrade to the defence precinct there. What came out of that hearing raised some concerns with me in relation to contractors and what sort of security vetting is done by the companies themselves, the head contractors or subcontractors. A comment by one of your personnel that concerned me was: 'This—meaning the naval base aspect—is a relatively low-risk-environment base, for want of a better term, so we don't see this as a terribly important facility from an intelligence perspective or a security perspective.'

Vice Adm . Griggs : We might beg to differ.

Mrs Skinner : Yes.

Mr WALLACE: That concerned me a great deal, and I hope I'm paraphrasing the officer correctly. Even if it were true that the base was of relatively low importance from an intelligence perspective or a security perspective, that could change in a heartbeat, couldn't it?

Vice Adm. Griggs : I don't think it's true.

Mr WALLACE: My question was: what protections does Defence have in place to ensure that head contractors and subcontractors are appropriately vetted to ensure that they're not going to do us harm—that they're not going to be installing listening devices as has happened or allegedly happened in other Commonwealth facilities?

Vice Adm. Griggs : With Ms Perkins and Mr Grzeskowiak here, I think you've got the right people to answer that.

Mrs Skinner : We might start with the security policy framework. To put your mind at ease, there is a risk management process that goes to making those determinations and the flexibility in that system that enables you to ramp up based on the threat. I will let Ms Perkins talk about that.

Ms Perkins : I will start by giving you a quick overview of how we take care of security where we are working with companies outside of Defence in two key ways. The first is that, as we start up any sort of project, including infrastructure projects, we undertake security risk assessments as part of the planning for that activity. A security risk assessment will consider the classification of the facility or the work that might be done through time, where it is and the sort of access that is had to that site. We run a very extensive program called the Defence Industry Security Program. Through that program, companies that work with us at any level of classification become a member and work with us to become accredited and to sponsor things like personal security clearances. That builds a level of assurance that a company understands all the required security policies and processes that they need to implement, gives them a venue for all of their staff to have the appropriate level of security clearance and is the mechanism through which we would then work with a company to accredit and assure the work that they're doing.

We currently have about 550 member entities in the DISP, and that is growing all the time. I would say that, on an annual basis, around 30 per cent of all the security clearances we do are for people in industry who are working with Defence at a classified level. Very importantly, all the security requirements that contractors are required to follow working with us on our bases or with access to our information are exactly the same as the security policies and processes we apply within Defence. So, when you're working with us, when you're on a project, when you become a DISP member, you are required to implement the Defence security manual and then we work with those companies on their accreditation and certification of their facilities and their IT systems and look at the assurance of those processes throughout.

Mr WALLACE: Does that apply to the subcontractors—the subcontractor electricians and so on?

Ms Perkins : The head contractor, through the DISP, is responsible for managing the security of their subcontractor network, including the security clearances and access arrangements for the subcontractor network.

Mr Birrer : As part of that, the managing contractor—in this case, the contract that you are talking about is a managing contractor model—is responsible for the worksite, including the worksite security. Referenced in the contracts that we have with the managing contractor is the Defence security policies and manuals, and they have to manage the site in accordance with them.

Mr WALLACE: A number of the officers that I questioned about this during the hearing when I asked them what security clearances were done on individual contractors said Australian police checks. I asked whether that was it and they said yes. So we're relying on someone to have been charged and convicted for our—

Ms Perkins : Let me tell you a little more about that. That's true to a point, but, as I said, when we start a project we do an assessment of the classification that it needs to be treated at and the security clearance processes for access to national security information. In our contractor workforce very many people will not have access to information or systems or sites that are in any way sensitive from a national security capability perspective—and my colleague Mr Birrer can speak about the workforce. We have a very large number of people who come onsite to do a bricklaying job, a tiling job and so forth, so we use a slightly different process for that because it's outside the vetting process. We make an assessment based on the kind of job, who needs to be there and what level of clearance they have, and at that point we have people entering into the baseline and negative vetting 1 levels of security clearance.

I'll hand over in just a moment, but essentially, as a job is being managed, what we're concerned about is who has access to a site and what kind of access it is. We all have passes that are coded in various ways and denote our level of access. For what we would call the casual subcontractor workforce there are red passes, which make very clear that these people have no level of security clearance. Their access is extremely curtailed. It will be for a specific job, in a specific site, without access to any of our internal building systems, people et cetera. And they do go through a process. Again, that's not just carte blanche. You can't just turn up to tile the swimming pool and get a pass. There is a police check to check that there are no obvious problems with those people being on our worksites.

Mr WALLACE: I'm less concerned about the tiler who turns up to tile the swimming pool and I'm more concerned about someone who gets access to build or renovate or provide materials to an area that could become sensitive. You said yourself that one of the first things you do is look at the classification of the site.

Ms Perkins : Yes.

Mr WALLACE: I go back to my earlier point—and I don't want to overstate it—that there seemed to be a sense of: 'This is only Larrakeyah. Nothing too much happens in Larrakeyah.' Those are my words, not your officers', but that was the intent: 'We don't do too much sensitive stuff here, so the classification is low.' I could imagine a circumstance arising, if it hasn't already, where Larrakeyah becomes a highly sensitive area. We are allowing people into sensitive areas to do work because it has a low classification now, but what might it be in five years time? That's my first point.

My second question is: what measures are being put in place at a departmental level to look at changes in company structure and ownership? Look at the classic example of John Holland, for example. What happens when John Holland is undergoing defence contracts and there's a change of ownership? Presumably that would cause a red flag. What happens during contracts?

Mr Grzeskowiak : That's a real example and it's a good one. Many of those issues are subject to Foreign Investment Review Board consideration, and Defence is a part of that process. We would make an assessment, depending on the proposed future corporate structure of the industry involved, and, depending on the risk assessment, we would take action to either leave contracts as they were or make adjustments. In the case of John Holland, in particular, we did novate a range of contracts away from that company to other companies when the company structure and ownership changed. So it's a case-by-case basis, but we do watch that very closely, across the breadth of industry that Defence operates with, and we make strategic and risk based decisions in every case.

Ms Perkins : If I could take that just one step further. Within the DISC program, part of the initial accreditation of a member is what we call foreign ownership, control and influence checks. We work with the intelligence community to look at the nature of the ownership structure of the company and those things that might be concerning to us from a security point of view. Then, through the life of contract arrangements or DISP membership, if the company's ownerships change—because this is often below FIRB thresholds—FOCI checks are undertaken to again assess if there is an issue there that we need to pursue.

Mr Birrer : Companies do have to notify—

Ms Perkins : They have to notify us.

Mr Birrer : a change of ownership, both under the DISP arrangement, but also under most of our contractual arrangements too.

Mr WALLACE: All right. Thanks, Chair.

CHAIR: Thank you. Mr Perrett, do you have some follow-on questions?

Mr PERRETT: While we have the security people here, yes. There's a suggestion that the positive vetting average times remain high, so I have a few questions. Is Defence envisaging that the need for higher security clearances will continue to increase, or will we reach a stage where we normalise? I'm thinking of the submarines and, at the Air Force level, we're obviously in it as well, working with Boeing and the like. Is Defence experiencing problems where personnel recruited cannot achieve the level of security clearance they need to do the job they were selected for?

Ms Perkins : Chair, we were on the schedule later to talk to this question more broadly. Would you like to hear that now, or—

CHAIR: Let's do it. We do have a few questions, so while you're here—

Ms Perkins : I do have a short opening statement, if that's useful, and then we can get to the PV question, because that is the one of most interest. I'll just start by saying that the Australian Government Security Vetting Agency is a branch within my division. It undertakes security vetting across government and industry. We have over 150 client agencies and entities and we manage around 380,000 active security clearances.

The 2016-17 Defence annual report noted that AGSVA partially achieved its performance results in 2016-17. We met our service charter during the reporting period, and performance at the lower clearance levels—that is, baseline and negative vetting level 1 and negative vetting level 2—were strong, and average processing times were consistently below benchmark timeframes. Positive vetting average benchmark processing times remained high in 2016-17, but our remediation activities are delivering sustainable improvements. In early 2016, AGSVA commenced a comprehensive reform and renewal program to improve performance, to meet growing demand for clearances and to achieve our benchmark timeframes. There's a dedicated PV remediation program and substantial internal business process reforms, which I can speak to.

Demand for security clearances is growing in all levels. In the last three years we've grown by about 34 per cent in demand, and positive vetting is growing also. But, at the same time, AGSVA's performance has improved significantly. In the 2016-17 time frame we completed 46,471 clearances—

CHAIR: How many, sorry?

Ms Perkins : It was 46,471—79.2 per cent of those were under benchmark time frames.

CHAIR: Which is what?

Ms Perkins : In the last financial year, those that were under benchmark—36,825 of the people who came through our system were served quicker than told, but the average was well under benchmark. That was the first time since AGSVA's inception.

The benchmark time frame in 2016-17 for a baseline clearance was one month; we were doing them in about 0.8 of a month. The benchmark for the negative vetting level 1—that's the secret level; that's our most popular clearance—is four months; we were down to 3.4 months. Negative vetting level 2 is six months; we were at 5.2 months. This current year we're much lower again. This year about 89 per cent of clearances will be done under benchmark time frames.

CHAIR: Ms Perkins, on notice could you provide a comprehensive summary of that, so that next time we can just have a look at the different categories, the numbers, increases and the change in time frames.

Mr PERRETT: You can say: top secret—

CHAIR: Absolutely—by category.

Ms Perkins : Let me speak to your specific question on PV. PV has been a persistent challenge over the last 20 years. We developed a backlog of PVs from about 2014-15. We started a comprehensive remediation program in January 2016. It's important to understand why this kept happening and to understand the drivers of demand that were impacting. I'm happy to speak to those. We knew this would be a multiyear program. We have addressed policy, processes, elements across government that contribute to the process, and we've grown capacity to a very strong place.

In 2016-17, we completed 1,500 PVs. This year we will complete more than 2,400, and AGSVA has grown in internal capacity to about 3,000 and we're continuing to grow that. There is still a backlog, but we're very close to resolving that. The backlog of new and initial PVs right now will be cleared at some point in the middle of June. When I checked last night there were 301 people waiting for a new PV who have been waiting more than the benchmark time frame.

CHAIR: Is that benchmark time line the same as for the NVs?

Ms Perkins : No. The benchmarks changed over the last year. Part of the reform and renewal process of AGSVA in our ongoing work across government to deliver a better vetting service has been to strengthen governance arrangements. The government instituted a governance board for AGSVA and other governance arrangements in late 2016. The AGSVA Governance Board is chaired by our associate secretary and has members from across the national security community at the deputy secretary level. Part of their work has been to work with us on AGSVA's service level charter, our commitment to customer service and our benchmark time frames. We did a lot of work last year to review benchmark time frames against what happens in the other agencies that vet and to represent them in the same way, which is in business days. Our current benchmark time frames agreed by the governance board in 2017 are a bit tighter in some areas and a bit different in others. The time frame is 20 business days for a baseline, and we are currently averaging 14 business days; 90 business days for an NV1, and we are currently averaging 62 days; 125 days for an NV2—that's a top-secret clearance—and that's 79 days currently. So we're well under our averages there. I'm really pleased to say for NV1s and NV2s we're at 93 and 95 per cent under benchmark. That's 95 per cent of our workload in those NV categories, and they're really moving fast.

For PV the benchmark is 180 business days and that aligns us with benchmarks of other agencies that vet. We've set a new category, which is priority PVs. Where there is a priority need they enter a different stream, and that benchmark is 90 days. You are right: we are still substantially over those average processing times. We're sitting, on average, at about 18 months, but when we break it down to our new people—you have to think about PV in two parts. There are people who are getting a PV for the first time and people like us who are in the system and who are due for a revalidation. So we've separated those two streams. With our priority people we're down to about 10 months. So we've brought that processing time down. When we get through this backlog in the next two months, we will start to see those average time frames really start to accelerate.

Mr PERRETT: Why the historical backlog? Is there a surge—

Ms Perkins : Yes. It's a really important point, because we've been concerned to not just fix the problem but understand the business better so that we build to meet our future capacity. A couple of things happened in parallel which contributed to the backlog. There were a range of policy reforms in personal security and vetting to respond to what has been an increased threat environment. The nature of checking in PV is substantially greater than it was when we all first did a PV. It is much more intrusive and it is much more detailed, and the work that other agencies do in national security checks takes a lot longer.

Mr PERRETT: I had it done a few years ago and I think it was your people. There were very, very good.

Ms Perkins : I'm pleased to hear that. We expanded significantly the amount of work that gets done in a PV. At the same time, demand increased significantly through a couple of identifiable areas. There were a range of areas of growth in the national security community to deal with contemporary events, including the work that our colleagues in Home Affairs do and so forth, that drove up the number of people needing PVs across government. Within Defence this coincides with the bringing online of next-generation capabilities, where many more of our ADF members will move from the NV1 and NV2 category to the PV category.

Mr PERRETT: So even the corporal—

Ms Perkins : That's right.

Vice Adm. Griggs : Capabilities will have the F-35, for example.

Ms Perkins : The entire thing from start to finish with PV, the lot of them.

Mr PERRETT: The cleaner?

Ms Perkins : Absolutely. If you're in a top-secret environment—and, for the F-35, the hangar will be—even the people who come in and clean will need a PV. So what we find, then, is that the demand is high, and it's higher than we predicted when we started this process. So we work on a very regular basis with all our clients around where they predict their demand will be. As I said, our work has been to understand that and to grow our internal capacity such that we get through this backlog and then we're well placed for the future.

Mr PERRETT: Chair, I have a follow-up on that, but I'm happy to go back in line.

CHAIR: Let's conclude anything on security clearances now. That way, Ms Perkins can go.

Mr PERRETT: It's probably more directed at the Vice Chief of the Defence Force. You may have seen the ABC article about the US naval personnel and Mr Gillett, who I think was the officer in the Navy. I'm interested in the security clearance and then ethics, because the cleaner cleaning the new Growlers won't be able to influence policy, but there'll be more and more people who perhaps are engaged with big bits of equipment and big-budget decisions and won't necessarily have the ethics of people at the top of their tree. I don't know. I've only read what the ABC wrote about Mr Gillett.

Vice Adm. Griggs : Obviously I don't talk about that, because that's an ongoing AFP matter.

Mr PERRETT: No, but just generally, from having a credit card through to whatever.

Vice Adm. Griggs : There are two strands to this: there's the values-based piece, which of course both ADF and APS personnel are inculcated with.

Mr PERRETT: Thank you.

Vice Adm. Griggs : That's your foundational piece, but we all have regular mandatory training in ethics as part of the fraud and ethics. I personally don't like the linkage between fraud and ethics, because I think ethics needs to be put separately and more positively, because it is part of that values proposition that we're trying to inculcate throughout the workforce. But they're the planks that we use to pursue that.

Mr PERRETT: So you got the stick, but you need the carrot, and the carrot is serving the nation and some remuneration. There just seem to be more opportunities for people along the way to dangle fruit, perhaps.

Vice Adm. Griggs : If you look at our fraud figures and things like that, they are extremely low.

Mr PERRETT: Once they sorted out the credit cards, it was—

Vice Adm. Griggs : We're not saying that we're happy with that, but they are extremely low. When you stand back and take all the emotion out of it, they're very low given the amount of money that is spent in our budget and in such a distributed workforce. Frankly, I think that the values base and the ethics programs work, and that's manifest in the very low rate of incidents of fraud in the organisation.

Mrs Skinner : And, when those instances come to attention, they are investigated, and there are consequences for individuals involved. I think that's also an important part of your ethics program: you set a good culture that enables people to come forward if there is a problem, through public interest disclosure but also other mechanisms in our organisation. They're then thoroughly investigated, and there are consequences for those people who may be involved. Going to the vice chief's point, we have a very large workforce: if you include reserves, there are 100,000. There are incredibly low levels of credit card fraud in those things, because transactions are actually quite easy to trace. The other thing is around our major capital—

Mr PERRETT: I do some stuff in the RAAF reserve. I'm a legal officer in the RAAF reserve. Once you have some proper processes, the 17-year-old with the card seems to get sorted out pretty quickly.

Mrs Skinner : Yes. The other thing is that our major capital programs have significant probity advice provided and significant frameworks. They have strong governance around those elements involved in major capital procurement as well.

Mr PERRETT: Thank you.

CHAIR: I'd now like to come to the Defence Strategy Framework, if I could. I will ask some questions and then get some more taken on notice. Going through this annual report, trying to link it up to the PBS statements and get some consistency between last year and this year, and to work out accountabilities, has been incredibly difficult. I come back to your comments, Mrs Skinner, that Defence has come a long way and, again, with VCDF, in terms of streamlining committees and processes and reporting mechanisms. I would like to focus a little more just on the reporting mechanisms currently within the annual report this year.

Where I started was where Senator Fawcett started and in terms of our own responsibilities as MPs but also as members of this committee. Taking it from that perspective, in terms of oversight and understanding not only where the annual budget—$30-plus billion—goes every year, you can follow that through the framework reasonably well, because it says 'year-on-year activities' and 'year-on-year reporting' and 'annual performance statements', which go through the purpose down to this annual report.

I want you, perhaps, to take on notice and come back and explain how some of these flow into each other. When you start at the left, in the budget cycle, 'Defence purposes'—this is reporting on last year's lines, more or less, to last year's budget PBS statements. There were two purposes then. If you go to the portfolio overview in this statement—sorry, there are now two purposes—the year before, that this is reporting on, there were three.

Mrs Skinner : Three, that's right.

CHAIR: The program's details in the PBS documents, program by program by the outcome—so 1.1, 1.2, 2.2 et cetera—is not consistent between last year's report—

Mrs Skinner : That's right.

CHAIR: and this year's report feeding into this framework. Your start point, for somebody who wants to logically go through, to say, 'What are the purposes and what is being funded in Defence?', already has a disconnect with last year. The goalposts have changed from three to two. So the three were strategic—

Mrs Skinner : Two operational and one sort of strategic, if you like—

CHAIR: Yes, and now they've gone to defend Australia and protect and advance Australia's interest. So from an oversight perspective you're already completely disconnected from last year to this year, in terms of following the money, and following the accountabilities and deliverables, at the end of this year and across the forward estimates. In the portfolio estimates from last year and from the PBS documents for last year you have the breakdown budget estimates and forward estimates by outcomes and programs. But this year's annual report doesn't report it that way.

Mrs Skinner : That's right.

CHAIR: It's actually impossible for us as MPs to go through and try and work out 'This is what you said last year' for the last financial year that you're reporting on and the forward estimates, because the goalposts have completely changed and the financial reporting in the annual report has changed and it's not against the same criteria.

Mrs Skinner : All of that is absolutely correct. This, I guess, reflects part of the journey. What you're reflecting is a lag in getting our full financial statement piece aligned within the strategy framework.

CHAIR: Absolutely. This is the current strategy framework and it's the only thing that as committee members and parliamentarians we can go on. That's the first bit. I'm not saying this to be critical, because we want to work through this year with you to get some more cogent streamlining of this.

Mrs Skinner : No, that's right.

CHAIR: Starting on the left, you've got 'Defence purposes' that don't align year by year and don't align between PBS documents and Defence annual reports, in terms of financial reporting. Then you go into aligning strategy. Some are short-term strategic requirements, in terms of your setting requirements, and some of them are long term.

And it goes into the capability development to go out for decades. That feeds into your corporate plan but then as you move through to the operation to your Defence business plan, business operations and through to assess and assure, that then reads as 'year-in only'. So one of the Defence purposes was the long-term delivery of capability. Presumably that is the $200 billion expenditure out over the decades. So for us as MPs, having a look at your annual report and trying to contextualise it year by year in terms of past performance, this performance has been reported on. But then having a look at accountabilities for the next few decades in terms of that purpose 3, there is no way for us to say, 'Well this is what you said last year was going to be expended,' particularly on that purpose 3 on capability, development and implementation—because it is only year-on-year.' So is there any way that you can report back to this committee?

Vice Admiral Griggs, you were saying there are much clearer accountabilities. But what this framework doesn't show is where the accountabilities sit for the delivery of milestones of that $200 billion worth of capability expenditure for this year. The report does not in any way provide any information that we can see as a committee on how you are going on milestones for longer term delivery of capability and who is actually responsible for those milestones. Where would we go to find that? Because it is not in this document.

Mrs Skinner : It is not in this document. Going forward—and Ms Diamond might comment—the PBS will be aligned. We've got the corporate plan which looks further forward—

CHAIR: Will it be aligned and consistent year by year?

Mrs Skinner : It will be aligned and consistent because we have got no proposal to change any of the purposes going forward. The corporate plan covers a four-year window, the business plan covers that in-year and the business plan would then align the money through the PBS to deliver an annual report. You should be able to see that traceability better going forward.

CHAIR: Can I just clarify that? So the corporate plan is the in-year plus forward estimates. Is that what you said?

Mrs Skinner : The business plan is in-year. The corporate plan covers that year plus three years.

CHAIR: So it is roughly the forward estimates?

Mrs Skinner : But it gives you that slightly longer term view. White papers et cetera give an even longer term view and integrated investment programs a still longer term view. So those are the really long-term documents. The corporate plan and the business plan are trying to enable the business to go through the year achieving those longer term milestones.

Ms Diamond : If I can take you the 2016-17 budget, as part of our corporate plan, there were some changes to our programs. The way the programs work is the Department of Finance agree to those programs and our budgets are linked to those programs. So there is no, I suppose, differentiation from the budget in terms of how we are funded and how each of those programs are actually funded.

In terms of your question relating to capability, you will notice in the budget papers each of the programs are actually on an income statement presentation. They do not have a balance sheet. That is complying with the Department of Finance requirements. Noting that capability aspect, noting it is a balance sheet—it is capital—we will have asked or we will have suggested that maybe they should be on a cash flow basis to be able to see by program where we are actually spending money, not in terms of just the actual operating costs and the workforce costs but also the capital costs as well. So it is a presentational issue, but it is one that's mandated by the Department of Finance.

CHAIR: That was very helpful. I do understand that it is very complex, in terms of the requirements for finance, and that makes perfect sense. But, in terms of readability, so that we can actually have a look at it and track it over the years, and in terms of our responsibilities and also for members of the public, the feedback from ASPI on this was that it was impossible for them—and they are very knowledgeable—to follow year on year and track not only the money but also the deliverables. The next part of that is that the strategy framework is mostly in-year reporting. But, in terms of the capability, how do we know in here, not only in forward estimates but beyond, who is responsible today for delivering the milestones for future capability? That doesn't come out in the annual report, and it is certainly not clear in the performance framework, which really is about in-year plans and reporting. As a committee, we've got various reports. For example, the PBS reports on the top 30 projects; in the Defence annual report 62 projects were planned this year, but actually 74 have commenced through the process. In the Defence annual report you report on 74 projects, but the PBS report only talks about the top 30 projects. So could you just unpack that process of identifying and reporting on, in this case, the 74 projects?

Vice Adm. Griggs : First of all, Chair, I think there are two different 74s. The 74 approvals were not all project approvals. There was a combination of first- and second-pass approvals. There were a number of updates which had decisions in them that government made which were approvals. So we've just got to get our language right.

CHAIR: I'll just clarify the ones I'm talking about. In last year's Defence annual report, it said it was planned for 62 to go through that pass process this year. But, in fact, it reported that this year there were 74.

Vice Adm. Griggs : There were 74 approvals.

CHAIR: There were 15 first-pass, 31 second-pass and 15 others.

Vice Adm. Griggs : It's the others I'm talking about. In terms of the delivery of long-term capability, I think we need to focus on first- and second-pass approvals. All I'm saying is we're muddying the waters a bit with the others, because they might be a six-monthly update that goes back to a big project that government wants a regular look at, versus a particular gate that we're going through.

CHAIR: So the question is: what's the difference between that and 30 major projects they report on in the PBS? You've just made my point, which is that, when you read it, it is actually not very clear, given the difference in and some similarities between language. For example, in the PBS, how do they pick their top 30 acquisition projects?

Vice Adm. Griggs : By value, isn't it?

Ms Diamond : Yes, that's right. In terms of the top 30, in relation to approved projects, that's the difference. It's approved projects; it's what we've actually spent our money on. It is, by value, the top 30 projects, whereas approvals are actually in the unapproved space.

CHAIR: But those top 30 projects don't include ICT projects.

Ms Diamond : You are correct. It only includes the major capability projects.

CHAIR: This report also doesn't give any real indication to the committee of the ICT projects themselves—where they are in the process, how many are on track, what the values are. Where would we find that information?

Ms Diamond : Currently, that is not reported in the PBS. It is very much focused on the military capability projects.

CHAIR: Where is it in the PBS? Where does one find the expenditure that goes on these roughly $10 billion worth of projects, then, if they're not in the Defence annual report?

Ms Diamond : A PBS is more about planning in terms of the forward estimates. In terms of the ICT projects, there isn't that visibility project by project, which you've outlined. It is not reported. We've not undertaken a more holistic project-reporting disclosure. As I said, we've actually focused on the military capability side of things.

CHAIR: But surely the ICT projects, given the nature of some of them, are enablers for the other Defence projects and the delivery of capability?

Ms Diamond : I think that may be something that we should consider going forward as part of managing more at the IIP level rather than looking at things through a military capability lens.

CHAIR: Given the history not just of Defence but of pretty much all government agencies in delivering ICT projects, I would have thought that that's a pretty significant deficiency in terms of visibility, because I think, from memory, that it was about $10 billion, give or take, of investment in these programs. Is that right?

Ms Diamond : Yes, that's right. The only comment I would make, because it has been raised with me, is that I'm not sure that any other agency actually discloses by project across the Commonwealth in terms of ICT projects.

CHAIR: But is anyone else spending $10 billion on ICT projects that have a bad history of delivery?

Ms Diamond : I would imagine that there are some agencies that are spending a significant amount of money. That would be the main part of their business.

CHAIR: But you would agree that these ICT projects are critical enablers for pretty much all of Defence capability?

Mrs Skinner : I would. And that's not to suggest that there's no governance. Those programs are part of the integrated investment program. That's where you determined the $10 billion or so. They go through the same contestability and scrutiny process as major capability programs. And, to go to Senator Fawcett's question from earlier, about how the strategic centre has changed, there was a point in time when those ICT programs were not subject to an integrated investment program, a contestability, and the same balanced sort of gate 1, gate 2 process; they had other governance. ICT also has governance through the gateway review program, which is run by Finance, and those programs go to government in the same way as major capabilities, and they're required to be updated. Ministers and the government are updated on those as well.

CHAIR: Again, we're looking at this through a parliamentary lens, not an executive lens. So, we're not saying in any way that the department is not, through these processes, accountable and reporting correctly through to the executive government. What we're saying, as parliamentarians and as a parliament, is that this expenditure is pretty much invisible. In fact, for the process of the whole integrated investment program it's largely invisible in the annual report and in the publicly available documentation to the parliament. That's the point I'm making: just because it hasn't necessarily been made available before, is there any reason it shouldn't be, or couldn't be?

Mrs Skinner : I think your point is well made—about whether focusing on the top 30 projects in a major capability context couldn't be expanded to the top 30, full stop, and therefore you get to see, and it will then give you more clarity about whether any of the ICT programs fill into the top 30.

Ms Diamond : If I could just clarify: we talked about the $10 billion; out of the $10 billion, about $800 million is actually spent on ICT projects per year. So, it is a small percentage in comparison with the military capability. But I take your point: disclosure is something that we should—

CHAIR: I certainly agree, but when you're looking at $800 million a year—

Ms Diamond : I'm not suggesting it's small money.

CHAIR: It is not small money. It's a lot of money that taxpayers are putting in.

Mrs Skinner : We'll have a look at where they fit in terms of that practice of the top 30. I think the point Ms Diamond is making is that it is possible that they still don't meet the threshold of being in the top 30—

Ms Diamond : That's right.

Mrs Skinner : despite the well-made point that they are quite substantial programs. We do, though, report that there is reporting available and announcements made on delivery of major ICT programs and how they've gone as they wrap up.

CHAIR: Having a look at this strategic framework, once we go past the set requirements in terms of government direction, which has many multiples of decades, and once we've got to the far right corner of this—you've got this annual report here—in terms of defence outcomes, neither in this framework nor in the annual report is any sense given of what's next in terms of what the expectations and requirements are for next year, particularly in terms of purpose 3, future capability. Defence is in a unique situation, because Defence has never had so many projects go out for such a length for so long. Of this $200 billion, how does the public know that you've actually got that planning right and that people today are meeting the milestones to deliver not only in the next forward estimates but beyond that? In relation to purpose 3, how do Australians know that what should be happening this year, the in-year, is happening for that purpose 3 in the out-years? That's not at all visible. Does that make sense?

Mrs Skinner : Capability acquisitions and sustainment performances are articulated in the annual report.

Vice Adm. Griggs : We have a Major projects report.

Mrs Skinner : We have a Major projects report, as well. The ANAO do—

CHAIR: You've made a very good attempt. This is not being critical. Figure 3.1 on page 23 and through that—it is a good attempt to start linking purposes, outcomes and programs.

Mrs Skinner : We're not declaring victory!

CHAIR: No, I'm not saying that. It is a good start but, looking at this and going through this in detail, it seems that there needs to be an out-year strategic framework that works its way back, particularly for that purpose 3—delivering future capability.

Mrs Skinner : That's part of the internal business process of every year—doing the corporate plan and the business plan, and the work that's done to prepare the PBS and the capability cycle.

Vice Adm. Griggs : The capability cycle is the force design process, which is not a public process.

CHAIR: I know. That's what I was saying. It's not a public process—

Vice Adm. Griggs : It will not be a public process.

CHAIR: No. Again, that comes back to my point about what you can talk about publicly.

Vice Adm. Griggs : Yes.

CHAIR: The annual report is completely silent on that aspect. Over time, executives turn over, but the parliament endures. How do we then get that longer sense of where things are going?

Vice Adm. Griggs : As I said, you've got the Major projects report; you've got projects of concern; you've got a number of ways that we report progress on things—

CHAIR: For the next annual report, should those things be clearer?

Vice Adm. Griggs : Then you are doubling up on reporting.

Mrs Skinner : Correct me if I'm wrong, Angela, but the annual report is in a framework that obliges us to meet certain things in relation to finance.

Ms Diamond : I think there are certain criteria. I'm not able to confirm that, but I am able to say that the PBS and the AEs are very strictly governed by the Department of Finance in terms of how they are presented. I might just add that the top 30 is something that is not mandated by the Department of Finance.

Mrs Skinner : My take on what your questions are is that you would question whether that's sufficient. On page 46:

Capability proposals, once approved by Government, meet agreed schedule and are delivered within agreed costs and scope.

That's the performance measure. Results are achieved and there is some narrative there. My understanding, from the questions you're asking, is that you would challenge whether that's sufficient.

CHAIR: Yes.

Vice Adm. Griggs : The other issue here is that we've got multiple committees looking at this too. JCPAA looks very closely at the MPR and the sustainment piece, and we're still evolving how we get the sustainment piece right. We've had a number of attempts at that over the last few years. I think, when you aggregate, there's a lot of material and there's a lot of reporting about these issues.

CHAIR: Hence, one of this committee's issues is that there is nowhere—we absolutely accept and understand that there are numerous, very disjointed, parliamentary committees that look at pieces of this.

Vice Adm. Griggs : I didn't say that.

CHAIR: And quite often the reporting is not separate.

Vice Adm. Griggs : I didn't say that. I just said there are multiple committees.

CHAIR: There are multiple.

Mr PERRETT: Do you want to go on the record saying we're better than them?

CHAIR: No, it is just a fact of how things are currently structured. But the fact is that the reporting you do to the Public Accounts and Audit Committee, as you were saying, is not reflected. You've got various amounts of reporting that are going to various parts of the strategy framework, but it's not consolidated into a single picture in terms of the Defence annual report for example.

Vice Adm . Griggs : No.

CHAIR: Which makes it very difficult for anybody—parliamentarians or anybody else—who's trying to get a handle on year-on-year progress.

Vice Adm . Griggs : That said, the MPR is available to the parliament. The Projects of Concern list is on the public record, and the ANAO reports are on the public record.

CHAIR: I absolutely accept that, but, again, I think you're making the point that there are many different places. If people would logically go to the Defence annual report to try and get a sense of the integration of all of that—

Vice Adm . Griggs : Then the question becomes, as Mrs Skinner said earlier: do you want a thousand-page annual report? And then, if we're trying to keep the size of the annual report manageable and the summary becomes diluted, does it provide the value of taking that report and taking the Major projects report

CHAIR: I suspect there is a happy balance. Even if you summarised it in the Defence annual report and then said, 'For further information on this aspect of it, see this or see that,' someone could get a true annual snapshot.

Vice Adm . Griggs : We'll have a look at that, Chair.

Mrs Skinner : We will have a look at that. I would say that, like in an earlier point, we've not declared a victory; there is still further alignment work being done so that there is a better flowthrough from PBS through to annual report, but you're not likely to see that until the following cycle.

CHAIR: One final question from me: the Defence Compliance Framework, which you have talked about in the annual report—can you give us an update on that. Has it been completed and implemented? Where does that fit within the Defence Strategic Framework?

Mrs Skinner : Can you point me to the page? It might trigger my memory.

CHAIR: It's on page 25 in the third-last paragraph:

Work continues to mature Defence's key governance frameworks, with the Defence Strategy Framework endorsed for implementation in the second half of 2016-17 and the Defence Compliance Framework to be introduced in 2017-18.

Mrs Skinner : We're still working through that. Some elements of that are understanding the legislation we need to comply with and how you bring your full governance across the implementation of the strategy framework. We're still doing some pieces of work around that. It's not yet been introduced.

CHAIR: What's the intent of that?

Mrs Skinner : The intent of the compliance framework is to ensure, where we've got regulatory and other functions, that accountable officers are clear and aware and that they sign off, as part of their accountabilities, that we were compliant with all of the things that we should've been compliant with so that we understand that. The work that was done in 2016-17 was to bring forward an understanding of—and it's quite extensive—all the areas of legislation where Defence accountable officers could have some regulatory accountability under legislation and to make sure that it was fully visible to accountable officers so they are able to ensure that the compliance requirements fit in with their own group business plans, if that's what they're accountable for, and then, as part of that cycle, that those things are signed off. There's a balance here between making sure that's not something that you need a cast of thousands for and hugely onerous and making sure that it's accountable but manageable.

CHAIR: In terms of the hierarchy, that would then come under 'Assess and Assure'? That would be another box within the framework here, is that right?

Mrs Skinner : Yes, that would be where I would put it—when it exists.

CHAIR: Will that still be delivered this financial year?

Mrs Skinner : Yes, it will be. I'd sent it back for some more work, but I'm now happy with it and I think it will go forward to our Enterprise Business Committee shortly.

CHAIR: Excellent. Thank you.

Senator FAWCETT: Can I go back to the section of the report looking at preparedness—Purpose 2, which is at page 32 and following. I refer you to the annual report that was issued just ahead of the so-called collapse of the amphibious fleet that led to the Rizzo review, and the report there that said, 'Everything is good; nothing to see here.' There was no indication at all that there was a problem with the materiel state of the amphibious fleet. As I come to this report, we've discussed this previously—

Vice Adm. Griggs : For about seven years.

Senator FAWCETT: for about seven years. Can you appreciate my concern? I now come to the annual report, to preparedness. The text under 'Achievement' says that, despite some pressure on some elements, we've achieved it. It look at things like enabling services to support preparedness, and it says:

… customer satisfaction survey responses demonstrating that overall levels of satisfaction were increasing over time—

of our critical enablers. Then there is a statement that says elements available to government have increased from 76.3 to 80.8 per cent. That's it—that's the amount of disclosure around preparedness in this report. To be blunt, that tells me diddly squat. Why can't you provide some more granularity around not so much those things where there are satisfactory levels but where there are pressure points? Surely it's one of the oversight functions of parliament to understand the areas where Defence is sensing pressure, whether it's within enabling inputs to capability or the capability element itself, so that we have an understanding of what the executive should be doing to support the department to resolve those pressure points. This tells me nothing.

Vice Adm. Griggs : As you know, we are very happy to have those sorts of preparedness-related discussions in private hearings.

Senator FAWCETT: On another committee that I sit on a regular basis in this room, the intelligence and security committee, we have literally two sets of reports for the various agencies that we oversee. We have a public report and we have a classified report. If this committee were to recommend that it move to a system whereby, as a routine element of business, Defence provided a public report—again, as you say at the start of the report, this report is your primary accountability mechanism to the parliament—and, were this committee to be formed of members approved of by the PM and the Leader of the Opposition like the intelligence and security committee, a classified report that the committee could then delve into and have those accountability issues on behalf of the parliament, is there any reason from Defence's perspective why that wouldn't work?

Mrs Skinner : It's a matter for government how it chooses to do that. The mechanism that has been offered and that we've participated in, of a private briefing, is equally a way for you to explore that as opposed to the preparation of further reporting in the organisation. It's a matter for government. We produce an annual report, as we're required to do. We're working on some of these measures, and I take your point around that particular measure. I'm happy to talk further about corporate enabling services in another session. But I think that there's much more valuable exploration through a conversation.

Senator FAWCETT: We'll move on. It's something that we will be working with government and Defence on further.

Vice Adm. Griggs : The other thing I would say is that when we do have private hearings, one of the things that we've been keen to do is understand the areas of interest that the committee has. Obviously committees are under time pressures, just as anyone else is. Sometimes those private hearings get cut short, and we've sometimes come away thinking that there was more that we could have discussed.

Senator FAWCETT: I accept that, but part of the reason I think there's a failure is that they are relatively unstructured—and, dare I say, ad hoc—as opposed to the PJCIS, where that is an expectation and there is a framework and consistency of reporting across what we have determined over time to be important elements of disclosure. The directors of the agencies and the committee members turn up and, as needs be, we schedule additional meetings, because you then have a focus group of people who have a deeper knowledge and therefore a deeper ability to probe and understand the issues. That means agencies, whilst I'm sure they never like coming to Parliament House, recognise that there is a valuable exchange. The move to a more structured environment would be beneficial for the department in knowing what to prepare to present as opposed to the more ad hoc process that goes on. As I said, it's not for you to determine, but it's something we'll be working with the government on.

I will get your feedback on some more granular issues out of the report. Looking at the table that looks at flying hours achieved, Growler has a 41 per cent shortfall between the planned and achieved performance. There is a 41 per cent shortfall there and Spartan has a 32 per cent shortfall in flying hours.

Vice Adm. Griggs : We'll get the Chief of Air Force in, but I imagine the Spartan's introduction into service had issues. I don't have the details handy for Growler.

Senator FAWCETT: I just note that because there's been a lot of bad press, for example, around Tiger, but I noticed that their shortfall was only 17 per cent. As a comparison to similar number of airframes, the amount of hours generated for Tiger and Black Hawk are almost identical. If people are critical around the support infrastructure for Tiger, and it's performing almost as well as Black Hawk and has only a 17 per cent difference, then I'm interested to understand the 41 per cent shortfall with Growler and 32 per cent shortfall with Spartan.

Air Marshal Davies : The introduction of Growler has been one of evolution. It's in two parts. One is our training with the United States Navy in Whidbey Island, and that has gone extremely well. The transition back to Australia then effectively involves three parts. One of them is the aircraft itself. We have our full complement of jets now. The second part is around our ability to have the infrastructure in place to do the advanced training. That is a second part of a flow-on part of the entire Growler program, which includes the ability to do electronic testing and training. A lot of that at the moment is evolving as we evolve Delamere. MTTES and those systems that need to go in are still coming and, therefore, some of our advance training is still required to be done at China Lake or at Fallon in the United States. We are under flying at the moment because we don't want to burn hours; we need the right level of training. That's the Growler story, if that meets your question. C-27J, we now have all 10 aircraft—

Senator FAWCETT: Sorry, I will just step back. That is the primary driver, so if those enabling elements for the ground based elements were in place, are the design, support network and maintenance support in place for the aircraft so that it could generate those flying hours were the training scenarios available?

Air Marshal Davies : Yes. We now have all C-27J aircraft here. The C-27 has been, again, in two parts. The evolution is one of—and flagged at NSC for that C-27 approval was the United States' divestiture from the U.S. Army of C-27 as a program. That transition has been a little more problematic in getting back to the OEM, Leonardo in Italy—away from what was an FMS case to working directly with Leonardo. That has been a bit cumbersome, hence the result has been a slightly slower flow of spare parts and update of flight publications and maintenance documents. We are still meeting our training objectives, but we are not getting as rapid an evolution on advancing C-27. I would have liked to have been a little further advanced on some of the more intimate flying profiles for C-27, and we are not making that progress. Since this report is 2016-17, that was in that frame. We are now seeing a significant increase in the training rate, which will improve as we get towards the move to Amberley next year and then our own training devices and our own ability to settle into a logistics framework.

Senator FAWCETT: Is it predominantly the commercial aspects in changing from an FMS to a commercial relationship? Have you, as part of the handover from USAF, completed all of the certification activities? I think carriage of explosive ordinance, night vision—a few areas were outstanding the last time we talked about this.

Air Marshal Davies : They remain outstanding for this report. There has been some remediation over the last six to eight months, but there are still some deficiencies. To your question about whether the aircraft is fully certified, the answer is no. There is still some work to do with flight instrumentation, and I would offer to you that the most significant work to do at this point is on weight, balance and performance.

Senator FAWCETT: I have one tangential question while we're talking about certification. You would have seen the Defence Industry Capability Plan, where you as a force element capability manager now have a responsibility for FIC that involves industry. One of those elements is the ability to do test and evaluation to certify that it's safe and suitable for use.

Air Marshal Davies : Yes.

Senator FAWCETT: Can you give us an update on your assessment of the status of the test and evaluation and certification capabilities available to you as Chief of Air Force both in uniform—people like OSG as well as industry—and are there gaps that we still need to close?

Air Marshal Davies : I am quite buoyant about the way we are evolving our ability to do our own tests and eval. If I use C-27J as an example, we are still to acquire the training device, the simulator. There are options in there for us to do our own aircraft—you'll understand the term 'put orange wires in it'—and do our own tests. I think that is a demonstration of how we are now looking at providing that source for the ongoing use of—we now have a C-27J international users group. Our intention would be to offer them the thought that, if we do this work, it will be exportable. We are growing in that area.

Senator FAWCETT: I'm getting a wrap-up from the chair. I will quickly touch on one more RAAF thing—

CHAIR: The Chief of Air Force is back after the break, or is this part of this—

Senator FAWCETT: It's part of what we tried to bring forward in terms of major projects.

CHAIR: That's fine.

Senator FAWCETT: What is causing the F-35 delayed land acquisition of Williamtown? What's our recovery path? It's indicating that it may be something that pushes out the schedule for the ability to operate the aircraft.

Air Marshal Davies : My overall comment on Williamtown is that there is nothing that I am aware of that would delay IOC, our aircraft arriving and the transition from classic Hornet to F-35. The element that I believe you're referring to is to get approval for a relatively small parcel of land to allow the other end of the runway extension to occur, which will allow us to use dry power take-offs and not require afterburner and, of course, gives us that runway safety margin to take off and land safely that we believe will be central for single-seat ops.

Senator FAWCETT: Can we perhaps then get the details on notice. There was a comment about the delays due to releasability issues around IP. I assume that goes to the electronic side of things—reprogramming et cetera—and it's basically saying US government policy is delaying releasability. That's been an ongoing issue for some time now, particularly working with USAF as opposed to USN, who we have a very good relationship with. What is Defence doing strategically to address that?

Air Marshal Davies : Senator, the comment you make is not, in my view, a single element. This is an ongoing ownership issue. We've had it with classic Hornet and Super Hornet. Yes, the relationship with USN is very good. This will be, I think, an ongoing program. We will want to get—and not just get but understand what we are getting as part of that release program for F-35. My suggestion is that that will apply to lots of intimate and sophisticated technologies as we evolve as a Defence Force. I am not concerned with that at this point. We have been given more release and greater access as we've asked the questions.

Senator FAWCETT: Sure. Can I suggest, perhaps—since VCDF has offered some private briefings—that we might come back to that. We have raised this with the House Armed Services Committee and the Senate Armed Services in the States. They are aware at a legislative level that there are issues. I'm keen to understand, and perhaps discuss a little more in detail, how we make sure we actually close that gap.

There has been some media recently around cost pressures causing the US to look at how they do the global supply arrangements. The media is speculating on what that might mean for the commercial outcomes of companies here. As we seek to develop our sovereign capability to be an owner and operator of this aircraft, I'd be interested, again, in that briefing, if you could come prepared to talk about what that means with those pressures. In particular, for example, Korea is now ramping up its pressure, when some of that work has currently been allocated to Australia and its companies.

Another topic for that discussion is maritime strike. I see in the report that we talk about an agreement between partners to delay. I'm interested to understand what alternatives we are exploring, given the importance of our ability to interdict in our maritime approaches.

Air Marshal Davies : That's quite a valid question. We are getting very close to the end of the preparation of that scenario around maritime strike not just for F-35 but for the ADF. It is coming through IOC very shortly.

Vice Adm. Griggs : We can do that in a private briefing.

Senator FAWCETT: Okay. I have a last question on the defence industry and export side of things. One of the defence export plan requirements, which is also one of this committee's recommendations to government in 2015, was that defence attaches should receive focused training on defence industry and what the opportunities are here so that they can represent that overseas. Could you give us an update on whether that's happened, because the feedback I'm getting is that it's still not translating, in practical terms, to industry having strong engagement with defence attaches in some of our key potential export markets.

Mrs Skinner : It may go up to the break. We can get Mr Dewar, who can give a more detailed breakdown of what is occurring there. But certainly there is quite a lot happening, and defence attaches are well aware of that being part of the responsibilities. It is part of the new attache training, but I'd probably defer to Mr Dewar to give you a bit of detail on what's happened recently. Certainly we got a range of our international policy experts together this week, and one of the whole sessions was around defence industry in our international engagement. So it's certainly a feature of our conversation and international engagement, but I think probably Mr Dewar can answer that a bit more strongly for you.

CHAIR: We're running just a few minutes over time. We have a couple more questions on the IIP itself, so we can do those now. We'll only have a five-minute break, and then we'll pick up again at half past with the Chief of Army, and then we'll be back on schedule.

Mr PERRETT: Could you please provide an update on the Integrated Investment Program, with specific focus on the value of having representatives from PM&C and the Department of Finance on the integrated investment committee?

Vice Adm. Griggs : I will start with the second part of that. I have said this before to the committee, I think: one of the best things we did out of the first principles review was to have external representation on the investment committee—external to the department. To have the two key central agencies actively involved makes a massive difference. It has made a difference to the way we do business. It has made a huge difference in terms of value-add from what they bring to the equation. They have visibility of what we are doing very early on in the process. I think it is fair to say that when they first came onto the committee there was a view that maybe we weren't as rigorous as they thought we should be—all those perception issues that abound in this town. Very quickly, I think they saw that that was not the case. In fact, they have become very strong supporters of the process, of the way we go about our capital investment planning and delivery. The introduction of a gate 0 consideration of projects was very important, I think.

Mr PERRETT: Gate 0?

Vice Adm. Griggs : It is before any formal approach to government. Conceptually, it is—

Mr PERRETT: Gatekeeping?

Vice Adm. Griggs : It is the very first consideration of a new project or a concept or an issue. I think we have added pre-gate-0 to that as well, as only Defence can do! It is that very early upstream discussion that is occurring and that has central agency involvement right from the outset. They are with us on the journey as we prepare and develop and look at risks and try to take steps to mitigate those risks as we go through the acquisition process.

Mr PERRETT: You bring the why, because I assume they don't know the why?

Vice Adm. Griggs : They ask the really good questions. In my mind they are part of the contestability function, writ large. The good thing is that it is not adversarial. It is constructive, it is collaborative, but it is probing. Just bringing the very different perspective and lens that both PM&C and Finance have—and they have different lenses to each other—really makes us think through things in a different way. It certainly has improved engagement at the working level between the department and the Department of Finance and PM&C, as well. So there have been very tangible improvements in the way that that occurs.

Mr PERRETT: I was previously the deputy chair on the Public Works Committee. I saw it in that role, in terms of some of the processes before it got to the Public Works Committee.

Mr WALLACE: Part of the $200 billion defence industry program that the federal government is engaged in recognises the importance of SMEs, particularly with trial projects, engaging directly to Defence. Defence has previously concentrated on dealing with primes, but now that there is this interest—and it is a good interest, because we are all for small business—what shift has there been in Defence's procedures and even its mindset now that we are dealing in some instances with small- to medium-sized enterprises, where cash is king, and the importance of trying to ensure that we get money flowing down the contractual chain as quickly as possible?

What I'm hearing from some SMEs is that that's not happening—the engagement from, 'Gee, this is a good idea; we'd like to explore whatever widget it is that you're making' to 'Here's a contract' to 'You've delivered what you've said you were going to deliver, and here's payment'. What I'm hearing is that there are inordinate delays in going to contract and in payment—delays that primes may have been able to deal with as large multinational companies but SMEs simply cannot.

Mrs Skinner : Victoria might be able to run through the procurement framework and how there's—trying to enable better sort of engagement with Defence. Certainly with large programs you've got taxpayers' money and there are going to be governance and overheads that can sometimes complicate that. But Victoria maybe can give you a little bit of an overview of how we're attempting to make that sort of access more fit for purpose for the size of the entity that needs to work with us at the same time as maintaining the sort of governance and accountability that would be expected on taxpayers' money.

Ms Bergmann : I've heard part of the question, but I'm probably missing the tail end.

Mr WALLACE: Yes, you're obviously at a distinct disadvantage.

Ms Bergmann : But I can certainly run through the things that we've got in place to help SMEs in relation to payment provisions.

Mr WALLACE: And engagement—as in from, 'This is a great idea; we'd like to go to contract on this' to going to contract and then milestone payments.

Ms Bergmann : Sure. So, in the first instance we fully comply with the resource management guide, which talks about paying suppliers on time. For agreements that are up to $1 million, we have an obligation if we are more than 30 days late in terms of payment that we pay interest. That's a really important aspect in terms of cash flow and acknowledging if there are delays.

Mr WALLACE: That's contracts up to $1 million.

Ms Bergmann : Yes.

Mr WALLACE: What about contracts over $1 million?

Ms Bergmann : No, those provisions don't apply.

Mr WALLACE: There's no obligation to pay within 30 days?

Ms Bergmann : There is. We endeavour to pay within 30 days, and we've got a very good track record of paying within 30 days.

Mr WALLACE: But no—

Mrs Skinner : I think what she's saying is that there's an obligation on us to pay interest if we are not administratively quick enough to make the payment within the 30 days. If the contract's a smaller contract, we will pay interest to the company. If it's a larger contract, then there's—

Mr WALLACE: There's no obligation.

Mrs Skinner : we're not paying—or there's not an obligation to pay—interest.

Mr WALLACE: Okay. Thanks.

Mrs Skinner : Certainly those things are negotiable.

Ms Bergmann : In relation to Defence's non-construction contracting templates, they follow that payment policy regardless of the contract value. So, there's an obligation. We endeavour to pay within 30 days of receipt of a correctly rendered invoice. We have been quite actively engaging with the Australian Small Business and Family Enterprise Ombudsman. They recently had an inquiry in relation to payment times and practices, and we provided submissions in relation to that.

In relation to Defence construction contracting templates, we comply with relevant state and territory legislation, particularly that regarding the Building and Construction Industry (Security of Payment) Act. There are some obligations there in terms of ensuring that contractors have paid their subcontractors. And under our construction contracting templates we require monthly payment to contractors, sort of further down that supply chain. However, under our major contracts the prime and subcontractor relationship is a matter for them; it's a commercial arrangement between them. But we do have a range of things to encourage effective relationships between primes and subcontractors. For example—

Mrs Skinner : I think you've probably got the gist. We've got some good frameworks in place—

Mr WALLACE: Although I have an interest in the construction perspective, it's not so much the construction perspective; it's: 'I have a great widget, you want to buy it, you want us to build it. You've conceded you want to buy it; the time delay is in getting a contract to me so that I can then go ahead and build it. Given I'm an SME, cash is king. I need to keep the money flowing quickly down the contractual chain.'

Ms Bergmann : We have a number of commercial reforms in place to look at streamlining and reducing the cost of tendering, and enhancing procurement processes to ensure we're getting into contract as quickly as possible and reducing those costs, particularly for SMEs, which is why we have a proportional procurement framework. It's not one size fits all; it endeavours to ensure the commercial arrangements we're putting in place are reflective of the risk, value, sensitivity and complexity of what we're acquiring.

CHAIR: I can see you'd like to follow that up, Mr Wallace.

Mr WALLACE: Perhaps another day.

CHAIR: On notice, if you like.

Mr WALLACE: What are the benchmark times from when Defence has said to an SME, 'We want to buy your widget,' to when that SME would be provided with a contract.

Vice Adm. Griggs : I'm not sure we can answer that there's a benchmark. It depends on the circumstance of it. If it has come out of something like the Innovation Hub or the Next Generation Technologies Fund, for example, it's a different circumstance to another separate proposal—

Mrs Skinner : Things like capability items, buildings or consumable services would be all different.

Mr WALLACE: I'm not talking so much about that; I'm talking about a widget. Perhaps you can get back to me on that to give me some idea about—I appreciate this is a relatively new area for you, when you're now encouraged to deal with SMEs.

Vice Adm. Griggs : We'll have a crack at answering that on notice.

CHAIR: I have to wind this section up, given we are a bit over time. Given the questions we've had on the strategy framework and the relation between PBS figures and the annual report, we will follow up with some further questions on notice, because I suspect this might be a work in progress for a little while between the committee and Defence to streamline that further. In relation to the discussion with VCDF, the Defence annual report 2014-15 was in two volumes back then: one had the financial statements and the other was much more comprehensive. This format was more helpful for the committee and other people to get some more information in a consolidated way, but we had more information on each of the programs—and also the traffic-light system, so we can get an indication of what's on track, what's not and then starting to look at why, then going back and looking at the last year's report, so we can start tracking that more longitudinally. I would commend that one to you. Thank you very much for consolidating two sessions into one.

Senator FAWCETT: I have two questions on notice. There's a lot of discussion in the report about strategic workforce plans and recruitment across a whole range of diversity things, but absolutely nothing about how we're going with attracting and retaining the critical trades we need. Do we have a 50 per cent gap in marine engineers? It's wonderful that recruitment is 97 per cent of what we need globally, but I'd like to see some more breakdown in those critical trades we've discussed previously. On page 116 you talk about mental health services. I'm aware some work is being initiated between Joint Health Command and DVA around alignment of health services.

Vice Adm. Griggs : It's a transition program.

Senator FAWCETT: Part of the evidence given to the Senate inquiry into veteran suicide was that the model of essentially dispersing care across existing providers in community as opposed to having hubs of people with specialisation in Defence was a factor. I'm interested in understanding whether the work Defence and DVA are doing is taking account of whether we need to re-hub as opposed to pushing people out to the Lyell McEwin Hospital, the Royal Adelaide Hospital or wherever else in South Australia and other states.

CHAIR: Thank you very much.

Proceedings suspended from 11:29 to 11 : 39