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

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

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

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

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

SKINNER, Mrs Rebecca, Associate Secretary, Department of Defence

[12:07]

CHAIR: I now welcome the Chief of Navy's representative for program 1.2.

Mrs Skinner : I've got some answers to your questions on risk management, if you want, while we're waiting for Navy. They were from this morning. You'd asked about how many people had taken risk management training, and you'd mentioned a figure of 40 per cent.

Senator FAWCETT: At senior management level—

Mrs Skinner : Senior management—so, senior leadership group. Around 60 per cent now have undertaken the training—noting that there has been a bit of turnover, too, since 2016. The training is coordinated by the enterprise risk management directorate, but the facilitator is Kevin Riley of Riley & Riley, Strategy Advisers, and that facilitator is recommended by the Department of Finance. There is a little bit more. The enterprise business committee approved the risk management framework in February last year, and, more recently, Defence's overall rating has been given as 'advanced'—that's compared to other departments—by the Department of Finance's annual risk management survey of Commonwealth entities. So that gives some assurance that we're still driving at improving that even further, but we're considered to be good.

Senator FAWCETT: If I go back again to both ANAO reports but also the 2012 Senate report, one of the things that was clear was that decisions have been made by senior committees, populated by senior Defence leaders who did not understand the commercial and technical risks that were being offered up to them in proposals to put to government, and one of the key drivers in the first principles review was to have risks by subject matter experts identified all the way up the decision tree, so, even when it gets to NSC, Defence has made its decision but it can also say, 'We had concerns raised in areas A, B, C and D; this is how we've either treated that risk or have considered that it's not relevant,' as opposed to them just cutting off identified risk without actually having the expertise. So I'm interested to understand both the process and what that whole enterprise risk management is doing in terms of ensuring that people who are making decisions on those kinds of committees have a relevant understanding to know the signposts to look for for that commercial and technical risk.

Mrs Skinner : Got it.

CHAIR: I welcome Rear Admiral Quinn representing the Chief of Navy. Would you like to make an opening statement?

Rear Adm. Quinn : In the interests of time I'm happy to table my opening statement.

CHAIR: That would be appreciated. Are there any particular points you would like to highlight to us in opening?

Rear Adm. Quinn : During the financial year we saw a number of new capabilities starting to be delivered to Navy—the 24th Romeo helicopter and the start of the delivery of the DDGs. We also saw a significant maturing of the Navy's seaworthiness system. We took decisions during the year about the LHDs, in particular. The way we manage the pods issue with those ships showed that our processes had matured significantly since 2011. We also sourced the first steps forward in our major projects, SEA 1000, SEA 5000 and SEA 1180.

I think the key issue, though, is maybe workforce—that we underachieved in 2016-17. We've underachieved this financial year as well. We're starting to see some trends that we will start approaching our workforce strength, but workforce retention, getting the right skilled workforce into place, will be an ongoing area of focus for Navy.

Senator FAWCETT: I might start off on that point. You may have been listening to previous questions. I am interested to follow up on critical trades. I've raised this with CNO on a number of occasions. My impression, the last time it was reported, was that Navy is still struggling, whether it's through lateral recruitment, retention bonuses or whatever, to attract and retain critical trades. Can you give us the status of where that is at and what your current initiatives are to try and remediate it?

Rear Adm. Quinn : Navy has one perilous and eight critical categories at this stage. MTSM remains perilous. Medical officers and MTs, but they've all improved. Our PWOs, our ME submariners and our CTL and CTS have steadied throughout the period.

Mr WALLACE: For those of us who are not military, can I get you to translate that?

Rear Adm. Quinn : Cryptologic linguists and cryptologic systems trades have both steady. Intelligence officers and weapons electrical engineering submariners have declined slightly.

Senator FAWCETT: Declined slightly—assuming that we're getting four or perhaps five out of our six boats, what does that mean in terms of our ability to man those?

Rear Adm. Quinn : We are achieving our manning requirements for the rate of effort of the submarines. The submarines have achieved a very good availability. I think we're achieving about 103 per cent of our unit availability days.

Senator FAWCETT: That's fantastic. Congratulations to Defence.

Rear Adm. Quinn : We are achieving that, but we need to watch, in particular, those critical submarine trades very closely. We have introduced some things over the last couple of years, deliberately differentiated packages, and we are seeing, particularly for the submariner trades, that that is steadying the workforce and starting to grow the workforce as we retain people longer. We've also just introduced a deliberately differentiated package for the cryptologic trades as well. If they follow the same trend as the submarine workforce we should see them steadying as well.

The Navy has just released a new Navy workforce strategy in March. It is a broad strategy, looking at from ab initio training all the way through to retention. One of the key things that we have that underpins that is, in particular, the retention strategies. If we can retain our sailor and non-commissioned ranks for another year to two years and our officers for another year to two years, we will not have the workforce issues that we've seen in the past. So a particular focus on those retention areas underpins the plan. We are also looking closely at our training pipelines and what we can do to make sure that there aren't any bottlenecks in those pipelines. We have increased recruiting by about 33 per cent, and we're starting to see that flow through into the workforce.

In summary, a new Deputy Chief of Navy joined just over a month ago—Rear Admiral Mark Hammond. His number one priority is addressing the workforce issue. The current chief, Vice Admiral Barrett, is very clear that we need to look at the workforce challenge very broadly. We need to look at the type of people that we getting in to man our current and future capabilities. We need to look outside the box for solutions. With Project Suakin and a number of other policy changes we've had in the department, we actually have the tools to look more broadly at that workforce.

Senator FAWCETT: Does Navy believe that you have all the levers that you need to address and remediate workforce within your power? For example, I'm told that one of the pressures on submariners is the fact that they do sea time then training courses, then when a ship or boat is coming out of a full cycle docking, for example, they spend extended periods doing the work up and acceptance—sector task or whatever—for the vessel. So family reunification time is a huge issue. Are there things that government needs to be looking at in terms of manpower caps or ability to essentially employ reservists or contractors to do some of that remote work so that the sailors concerned actually get the appropriate amount of time with family so they do stay in service for that extra two or three years? Do you have all the levers within your power, or are there things that you would want to flag to government?

Rear Adm. Quinn : I think that the reforms we've had in the department, particularly the Suakin reforms, give us the policy levers that we require. When we look specifically at the submarine workforce, we do have a growth trajectory to get towards the workforce we need for our 12 submarines. We're actually slightly ahead of those targets, because we've had a very focused effort looking at that submarine workforce.

Senator FAWCETT: In net terms, but what I'm hearing is that you still have some critical trades—

Rear Adm. Quinn : We do have critical trades. As I said, I think we're steadying those critical trades with the deliberately differentiated packages. In the chief's view, he has the policy levers to use. We just need to look more broadly. We need to be looking at models, particularly with our very ambitious shipbuilding plan going into the future, of the sort of skills that we have in Navy that will also be valuable out in industry. We need to start looking at how we enable our workforce to be skilled up in Navy, move outside, work in industry and welcome them back again recognising the skills that they've picked up by working in industry. We need to look at those sorts of models, because we need all the skills we have in Defence and in industry to actually deliver the capability that the government has outlined in the white paper.

Vice Adm. Griggs : Over the last seven years or so Navy has had a fairly conservative approach to rebuilding the submarine workforce and the number of crews that we have. Certainly, from what I see, the current Chief of Navy has continued on. We don't build an extra crew until it is at a sustainable level. One of the problems that we had in the mid to late 2000s is that we were just burning people out. We've had significant emphasis on lateral recruitment and on bringing people back. We went through a phase of bonuses, and then into the differentiated schemes. I think all the levers are there and all the levers are being pulled. I think that conservative approach—don't put the extra crew on until it's a fully sustainable one—is a crucial element. Otherwise we will end up culturally back in the same death spiral that we were in 10 or 12 years ago.

Senator FAWCETT: Can we move onto LHD? Can you give us an update on the pods and whether you're still risk managing that, or whether you have a material solution that has actually fixed the problem for the foreseeable future?

Rear Adm. Quinn : We did the remediation last year. We had the issues with pods in March last year. There were two docking availabilities where we repaired the pods in both Adelaide and Canberra. We have had an issue this year in March, where we started to have a small amount of leakage into one of the pods because one of the seals was leaking. That was able to be managed by the bilge pumps fitted to the pods, but we have actually just taken the opportunity, before Adelaide deploys to Indo-Pacific Endeavour 18 and then on to RIMPAC, to replace that seal during her docking. She only undocked today. So we're continuing to watch those issues very closely. We're continuing to work with CASG and with industry to understand the root causes of the defects that we have with the pod. Industry is working for long-term engineering solutions for those issues. It remains something that we are very focused on, but we have the monitoring in place to make sure that we can continue to achieve our operational goals. The focus will remain on it, because we need to get this right for those capabilities, noting that they're going to be in service for the next 40 years.

Senator FAWCETT: So there was some a discussion at the time of the incident but about material design and maintenance, but also some discussion about operator involvement in terms of how settings, vibrations and other things from what I would call the operational airworthiness or operational seaworthiness perspective of training and techniques. Where is Navy up to with that?

Rear Adm. Quinn : From a seaworthiness perspective, we've looked at all of those issues. We're operating the vessels correctly. We're maintaining the systems correctly. Are there any inherent defects in the systems themselves? We've looked at all of those things. There are some issues with the materiel. There are fixes that have needed to be put into the pods to address these issues. We're continuing to monitor and further understand those issues. So I think we're taking a very disciplined and methodical approach to addressing this. There are still discussions, both with Siemens and Navantia and others with respect to the pods, particularly in response to warranty issues and those sorts of things.

Senator FAWCETT: I guess what I'm really driving at here is about learning lessons that we then apply to OPV and Future Frigate. Were there any failures in terms of our training for operating crews that involved them applying incorrect techniques? If so, have we identified why that failure occurred to make sure that we close the gap for future types that are coming on board?

Rear Adm. Quinn : I'm not aware of any training failures that resulted in these issues for those platforms. Looking to the future, one of the things that we have been very focused on in our seaworthiness reforms is making sure that we clearly define the statement of operational intent for each of our platforms. That is the operating and supporting intent for each of our platforms. For example, for the OPV, even at this stage of the project we have very clearly laid down and documented how we will operate that capability, in what circumstances, for what purposes, and how we will support that capability through life. So right from the earliest phase of the project we're sharing that with industry, with Navy and developing around that OSI right from the start. It's something we didn't do in the past. It's something we've introduced as part of the new capability life cycle, taking a whole of life capability approach, and also as a result of our seaworthiness reforms. So we have the mechanisms in place and we are using those mechanisms to make sure that we really identify the root causes. And whichever part of the FIC—the fundamental inputs to capability—might be that are contributing to that issue, we have the mechanisms in place to address that.

Senator FAWCETT: Sure. My final question goes to the Hobart class, with HMAS Hobart and NUSHIP Brisbane. Collectively, where are you at with its introduction into service? And the other day I read about the collaborative engagement activity, which sounded very positive. Can you give us an update on where that's at?

Rear Adm. Quinn : Hobart has been continuing its first-of-class trials. It completed most of its first-of-class trials with the Romeo helicopter earlier this year. It's been doing trials on its integrated sonar system of late. They have both been going very well. And we're getting Hobart ready to go to the United States to conduct its combat system sea qualification trial later in the year. That's where we will use the full US system to really bring Aegis up to its full spec to groom that system and conduct a number of firings and make sure that that system is right. And when we achieve that—and we're confident that we'll successfully achieve it—we'll declare IOC by the end of this year.

Brisbane has been conducting its builders trials. We had the opportunity to get both Brisbane and Hobart in the same piece of water off South Australia earlier. We tested the cooperative engagement capability between those two ships. It's a very advanced data fusion system and integrated fire control system that worked very well, and that is the first time that system has been used by another nation outside of the US. So, Brisbane is on track. We're seeing fewer issues with her as she goes through her trials than we saw with Hobart, as we would expect with a second ship. And the third ship, Sydney, will be launching on the 19th of this month. So, we're remaining on track with the Destroyer project post the reforms that are being put into place.

CHAIR: Thank you. I've got some questions in relation to SEA 1180, and obviously coming from Western Australia I know there are some issues at the moment. Is this the right place to ask? Or should we do it when we get to joint capabilities?

Vice Adm. Griggs : Given that we've done the major projects, this would be the—

CHAIR: This would be the place? Thank you.

Vice Adm. Griggs : There'll be some limits to what we can say.

CHAIR: I understand, and that's actually what I want to test, in terms of what we can do here, or get some advice about what would be the appropriate forum in which to pursue them. As a Western Australian senator, I know that there are obviously some issues at the moment with the contract itself and the process to finalise arrangements with the Prime, Austal and Forgacs—

Vice Adm. Griggs : Sorry: I'm not sure that there are issues with the contract. I think the contract is still being finalised.

CHAIR: Yes. So, however we—

Vice Adm. Griggs : I think the characterisation of it is important.

Mrs Skinner : The contract has been signed with Lurssen.

CHAIR: Yes. The contract has been signed with Lurssen. And now the discussions are ongoing, and I understand that there's some mediation underway between—

Vice Adm. Griggs : There are commercial negotiations between Austal and Lurssen.

CHAIR: Okay. So, in relation to that—I understand they have now gone over the original scheduled time frame; is that correct? These negotiations are taking longer than was originally planned for?

Vice Adm. Griggs : I'm not sure that we have a date on that.

Mrs Skinner : No, that's right.

Vice Adm. Griggs : Maybe someone can come in and—

Mr Divall : Perhaps I could just hear the question again; I was on the—

CHAIR: I'm looking for an update on 1180, not just as the chair of this committee but also as a Western Australian senator. I've got a range of questions in relation to this, but I suspect that some of those questions will be deemed not appropriate to be answered in this particular forum. So I'd also like to get some advice back in terms of the types of questions that I'm interested in. If this is not the right forum, how much would be possible in a private briefing, or would that not be possible at this point in the process? I will give you the context so that you can understand where I am coming from. So the contract has been signed with Lurssen, but—

Mr Divall : Correct.

CHAIR: the negotiations are still going on in contractual arrangements between Lurssen, Austal and Forgacs. There has been considerable discussion in WA about this and there has been speculation that it is taking longer to go through these negotiations than was initially planned and that some mediation is underway. Could you give us an update on the status of this project as appropriate for this forum?

Mr Divall : There's not much of an update that I can provide you. I can tell you that those contractual discussions are still underway and haven't concluded, as far as I'm aware. Until they conclude, there's not much we can update on.

CHAIR: In private or not at all?

Mrs Skinner : While there are commercial discussions underway there's probably not anything that a private briefing could do to enable your understanding at this point. Once that piece is resolved, there might be something else, but—

CHAIR: Can you confirm that these discussions have taken longer than originally planned for?

Mr Johnson : To put this in perspective, the focus is the first two ships in South Australia. The commercial arrangements would naturally focus on that, and there is a time constraint to get started. If we use as a benchmark the Future Submarine program—which was a much more complicated program—that program was announced in April and the first contracts were signed in September. That was a more complicated program. This one was done at the end of January—so let's call it 1 February. So we're in the first 90 days. I don't think that that's particularly unusual.

Vice Adm. Griggs : I think the key point is that these particular negotiations do not impact the start of the Adelaide construction. They are around the follow-on 10 vessels to be built in Western Australia. So we have a bit more time in that respect.

CHAIR: So you're saying that these commercial discussions that are still ongoing are not impacting in any way in terms of the project for the first two in Adelaide?

Vice Adm. Griggs : No; they're focused on the construction share in Henderson.

CHAIR: If I have questions in relation to some of the detail of this particular project and the contract—so in relation to the RFT and some of the tender evaluation criteria—I suspect you'll say that they're not appropriate questions that you could answer at this point in time?

Mrs Skinner : Perhaps if you put them on notice we can answer what we can answer within the context of—

Vice Adm. Griggs : And if we can talk about it in a private hearing, for example.

CHAIR: I'll put these ones on notice, because they do relate to some of the detail of that in trying to understand the project and the process in more detail.

Vice Adm. Griggs : I think that would be a more efficient way of dealing with it, to be honest.

CHAIR: I will do that. Thank you.

Mr WALLACE: Senator Fawcett was talking about skill shortages within the Navy. Are there any identified skill shortages for the construction of our ships and submarines within the civilian workforce?

Mr Johnson : We have many thousands of people yet to hire. So the very glib answer would be yes, of course, there are shortfalls. But, if we go to the deeper thought that you have, I believe that we will find—and this view is shared by industry—the entry-level labour and the touch labour that we need within Australia. That won't be an issue at all. The success of these programs is going to revolve around middle management, and that's an area where it's difficult to develop, and we will have a shortfall because we're going from one air warfare destroyer in construction to three simultaneous programs at three different yards. So you can anticipate that, in addition to focusing on entry-level training, you'll see a strong focus on mid-level management, advanced computer programing and techniques, scheduling and those sorts of skills. Of course, you can go to a course, but that's not the same thing as doing it.

To follow up on your concern, you will see us focus very deliberately on bringing in a core team, have them do a project, add to that team and do two projects. That's the standard sort of thing that we would do. We don't have time for that for the offshore patrol vessel in South Australia—that's a start-right-now kind of project—but there is time, but not much, to get that started for the offshore patrol vessel in Western Australia. And, of course, it's fundamental to where we are going in the Future Submarine program and the future frigate. Those programs will mature, and you will see quite a bit of detail on the Future Submarine program first, because they've had the prime the longest, followed shortly thereafter by the future frigate. It's a worthy topic for—

Senator FAWCETT: Did you perhaps also want to touch on where Defence is at in liaising with the successful bidder for the naval shipbuilding college in terms of your identified workforce needs and gaps and what they'll be seeking to facilitate.

Mr Johnson : It's almost exactly the same thing if we shift the discussion to the naval shipbuilding college, whose contract was awarded on 3 April. That team is standing up nicely and quite promptly. They have access to very detailed submarine workforce productions, again, because we've had that prime in place the longest. Those workforce predictions are industry based. They come from the eight major players that we expect to be participating. The information is shared across the industry. We do that in a forum that's called the defence and shipbuilding forum, chaired by Mr Gillis. You will see the OPV data, naturally, follow in a couple of months and the future frigate a few months after that. That's exactly what we have to do to get a good demand signal, and then the supply side can start responding to that.

CHAIR: Following on from that, in relation to the future infrastructure of Garden Island and the Henderson precinct to support capability not only for shipbuilding and also for any sustainment and other requirements, I'm bringing the state minister for defence matters to meet with Minister Pyne on Tuesday to start discussing in detail where we need to be going with the Henderson precinct and the wider area to better support current Navy requirements—because I understand there are a number of deficiencies in the Henderson area in terms of infrastructure—and how we can nest that into the broader commercial space. There are a lot of constraints in the Henderson area already for commercial shipbuilders who just simply don't have enough infrastructure there to expand their businesses. I understand that there might have been some reporting that has gone back to the minister, but are you able to provide the committee with an update of where Defence's planning and considerations for the Henderson precinct are up to?

Mrs Skinner : I think we might take that on notice, depending on where we are in the process of discussion.

CHAIR: Because that's going to be very important. Techport's a bit of a different case, and I know—what's the organisation who's now looking after the facility?

Vice Adm. Griggs : AMI.

CHAIR: AMI—there is a discrete customer for AMI, and that's obviously Navy, but Henderson is quite a different beast. I'm wondering if you can come back to us on notice so that, with the input that we're having back through both ministers now, we can work out not only a process but also infrastructure investment priorities over the forward estimates and beyond.

Vice Adm. Griggs : Yes.

CHAIR: Thank you very much. That concludes our inquiry into Navy, program 2.1.