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Foreign Affairs, Defence and Trade References Committee
17/11/2015
Capability of Defence's physical science and engineering workforce

BUSSELL, Mr Timothy John, Defence Scientist, Professionals Australia

EFTHYMIOU, Mr Tim, Private capacity

SMITH, Mr David Philip, Executive Officer, Australian Government Group, Professionals Australia

[11.16]

CHAIR: Welcome.

Senator BACK: Just before we go on, we need to establish that you are employees of the Commonwealth?

Mr Efthymiou : That is correct.

Mr Bussell : Yes.

Senator BACK: And yourself, Mr Smith?

Mr Smith : No. I am an employee of Professionals Australia.

Senator BACK: So even though you are appearing in a private capacity, we should make it clear to you that you are under no obligation to give us opinions. We do not want to, I think, place you in positions where you might be embarrassed with your employer. Is that a reasonable caution?

CHAIR: We will ask the questions and you will need to be careful about the answers.

Senator BACK: You might not need to be. I think, from our point of view, it is wise for us to give you that advice. Away we go.

CHAIR: Mr Smith, would you like to make a brief opening statement before we go to questions?

Mr Smith : Briefly, Professionals Australia, or the Association of Professional Engineers, Scientists and Managers Australia, as we are known by most people still, has a deep involvement in defence, particularly across engineering and science areas dating back, in fact, to after the First World War through the Professional Officers Association, as it was known then. Whilst we primarily look after the industrial interests of our members, our members have a deep commitment to the ongoing health of the defence organisation and commitment to the defence mission. There has always been a particular concern about the health of their professions. In the last 10 to 15 years, there have been significant concerns that our members have raised on a constant basis and generally been reflected in reviews that have been conducted throughout the organisation. Some of the more recent reviews include the 2010 review of the naval civilian engineering capability. Back in 2010—this is before the Rizzo review—it was identified that civilian naval engineering capability was on the precipice.

We state in our submission that effectively you do not know what you have until it is almost gone. Not long after that review was published, we, of course, had the issues with Kanimbla and Manoora, critical supply ships not just in their defence purposes but also in supporting humanitarian efforts both here in Australia, with cyclone relief and things such as that, and across the region. One of those key supply ships lost power in Sydney Harbour and went dangerously close to coming aground on the rocks. This led to an inquiry, the Rizzo review, which then led to the decommissioning of the Manoora and Kanimbla, effectively about half a billion dollars worth of capability. The thing you need to remember when you lose half a billion dollars worth of capability is you have to replace it, so it led quickly to a procurement.

I will sum up, I guess, the three key concerns that our members have. First of all, it is about the effective value of Commonwealth funds. That is ensuring that we do not waste Commonwealth funds wherever possible. It is ensuring that we have available capability. There is a reason why governments determine the need and requirement for defence capability. You want that capability to be as available as possible. The third issue is understanding that there are always going to be risks but that, as much as possible, that capability is safe. So for our ADF colleagues when they are using that capability, it needs to be safe. That is where particularly engineers come into the picture. It is about supporting the technical integrity of that capability.

We overheard some great questions in relation to naval architecture about which we might be able to provide some additional information for the benefit of the committee. To summarise the role of Commonwealth engineers, obviously the bulk of engineering work is provided by industry. The role of Commonwealth entities and technical staff, particularly in sustainment, is to ensure that, as Senator Back mentioned, there is independent advice to government on the expenditure of Commonwealth funds. It might be something as simple as just being able to determine what a contract really is putting up is the most effective use of funds. Will a particular option as put up have long-term or medium-term impacts on the capability and the availability of that capability? Are there potential safety issues that might be known if a particular avenue is taken?

Basically, civilian engineers working for the government are free of the pressures that are often placed on contractors either to at times maximise emergent work and, therefore, profit for particular organisations or at times to minimise work in order to meet contractual milestones and obligations. So the Commonwealth has that significant role to play. So they may not be hands-on, day to day, but they have to be able to understand how it all works and whether we are getting cost effective, safe results.

Naval architecture is a particular discipline that has a lack of supply. We have only a few institutions that provide courses. Because there are only particular industries in which you will find naval architecture, it is a classic example where there is often a bit of a supply problem. At the moment in the submarine space on both the sustainment—trying to sustain the life of the Collins class for five or 10 years—and procurement sides in the Commonwealth, there are probably at best, you could say, three APS civilian engineers with senior expertise in submarine naval architecture. So there are three. We could end up in an argument with one of our members if we say this too loudly to him. Arguably, one does not have currency in that he is a naval architect working mainly out of Canberra as opposed to the naval architects working out of Adelaide. C1000 has one senior naval architect from the APS in an organisation that is generally full of contractors. The Collins class sustainment also has one senior naval architect. Both of those senior naval architects have been offered redundancy in a very recent round of executive level redundancies.

Senator BACK: C1000. What is the other one?

Mr Smith : And the existing Collins sustainment group. We are going from a position where, 10 years ago, we had probably about 95 years worth of experience in naval architecture. We had still not a big group in submarines. There was probably about eight to 10. Five years ago, we had about four or five. If both of these senior engineers take redundancy, we will have no experience and we will have no internal expertise.

We have similar concerns across some other projects. Six Joint Strike Fighter engineers have been offered redundancy, again in those areas of senior expertise. To be honest, we do not have enough information to know exactly what effect there will be, but certainly there is going to be a greater risk to the Commonwealth in terms of cost and potentially about availability. We will know less about those systems. Hopefully, it is less likely, but still there are going to be issues about safety. One of the real lessons from the Collins class submarines is that we did not take enough of the construction workforce engineers and technical officers across to the sustainment side. So we did not actually maintain the expertise of the people who built the original submarines over to the sustainment side. There is a real fear that we are about to repeat some of the same problems. Obviously, the price ticket on that is quite high.

CHAIR: Mr Smith, at that point I think we might ask you to pause, because most of what you are going to be putting on the record we will probably draw out of you in questions. In a number of submissions, there is reference to being a smart buyer and a smart sustainer. I suppose my question is: do we have the smart capability in-house to be a smart buyer and a smart sustainer? You have given us some examples there in submarines where we are probably losing capability. A number of submissions say that we should not be worried because industry will pick it up. Give us your view on that.

Mr Smith : Look, the average age of the engineering and technical workforce in Defence is 52. There was a report by the then DMO; there was an audit of the age of the workforce last year. We have a workforce that is rapidly headed towards retirement. Our view is that across too many disciplines, because we are either only one deep or, at the most, two or three deep, we do not have the expertise to be a smart buyer. We do not have the capacity to be necessarily in both the procurement and sustainment spaces. My colleagues might have some insights from their own experiences in that space.

Mr Bussell : The issue on smart buyer advice is having the expertise in-house to interpret claims from manufacturers and industry about the performance of their products. Industry does a wonderful job of developing technologies and they also do a wonderful job of marketing those technologies. Unless have you the in-depth detailed expertise to question those marketing claims, you are putting yourself at risk of buying a product that does not perform to a specification that you thought it might. It takes a long time for defence scientists and engineers to develop a degree of expertise that allows them to look through the cracks of those marketing brochures and identify just what is a realistic level of performance for this technology.

CHAIR: Do you get a warranty when you buy a strike fighter or a submarine? Can you hold them to what they sold you, or do you need that technical ability to evaluate it?

Mr Bussell : I am not sure if I can comment too much on how Defence procures. But you do include maintenance and sustainment in the contracts as part of the procurement of the equipment. However, if it is going to perform at the level you expect it to perform, you need to know that it has been built to do that. If you do not have the expertise to determine that, you are not going to know until it does not perform at that level. That is the point in time when our personnel need it to perform.

Mr Efthymiou : Yes, we do have warranties on equipment, but we use much of our equipment in ways that it is difficult to prove that you were within warranty. We buy weapons, for example, from a range of manufacturers. We have Australian ammunition. Those weapons may not have been certified with our Australian ammunitions. So then it is incumbent to ensure that the level of reliability is still there using systems in ways that perhaps are unique to Australia.

Senator BACK: You are somewhat linked, I guess, to Engineers Australia. Are there relationships between you?

Mr Smith : Senator, we used to be the child of Engineers Australia. We split in the 1940s. We definitely still have a close relationship. I am certainly aware that Engineers Australia would share a range of our concerns, particularly about the capacity for the government to have the technical expertise to remain an informed buyer.

Senator BACK: The reason I ask is that, in 2013, Engineers Australia very kindly asked me to launch a paper that they had prepared which was entitled Government as an informed purchaser. The background of that is that Senator Gavin Marshall and I had run a Senate inquiry into public infrastructure contracting in Australia. We had come up with a conclusion that there was at least $5 billion a year of waste as a result of the things I am about to talk about. A group came to see us afterwards from major contractors and they said, 'We thought when you said your $5 billion figure you were absolutely out of the league. We went and looked at it closely.' I said, 'Well, what are your conclusions now?' They said, 'Two things. First of all, the $5 billion is significantly low and, secondly, when we sat down and worked out what it was costing us in legal fees to prosecute all these issues, we thought it was also about $5 billion a year.'

And that led to Infrastructure Australia, then with Michael Deegan, the Caravel Group in Melbourne and Melbourne university conducting an inquiry. What I want to get to is that I identify six areas. I want your comments on the adequacy in the defence space, particularly with the new submarines. There is independent expertise needed in the writing and the development of tender documentation; the selection of the appropriate party to win a tender or contract; the selection of the tenderer; the oversight of construction; signing off on commissioning when it is complete; and execution under the warranty, which the Chair was asking you about, and post-warranty sustainment. Give this committee some comfort that, for example, in the new submarine project we have independent expertise from your discipline across each of those six areas that I have identified, or correct me on the six. Add to them or delete them, whichever you want to do. We represent the taxpayers of Australia. That is what we are here for as senators. We write a report to the Senate. We stand up and talk about that report. We see ourselves as representing the interests of the taxpayers in a $36 billion plus project. We want to know that the best expertise is there independently so that the taxpayer can be satisfied as to the effectiveness of their spend.

Mr Smith : Unfortunately, we cannot provide you with that comfort. The future submarines project is an example. At the moment, the main technical specification area has somewhere between 46 to 48 engineering personnel. That number might potentially be about right. At the moment, there are five to six APS civilian Defence employees in that group, of which at least one critical one has been offered a redundancy. So we really do not have that confidence. It is the same, unfortunately, with the Joint Strike Fighter. For us, it is almost mind boggling that projects so critical to our ongoing defence capability come at such a significant cost to the taxpayer that we are undermining our internal expertise.

Last year, when DSTG went through a restructure, we lost from the APS side of the house a couple of our leading scientific minds who were working on the Joint Strike Fighter, again through redundancy. You might not be too surprised to understand that they have come back as contractors. Again, the Commonwealth is footing the bill, but they are obviously reporting. They have not necessarily the same allegiances. Only in the last week, with the executive level redundancy program in Defence—do not get us wrong; we think the organisation needs to look at what it does and how you best deliver that—we have been informed that six senior engineers working on the Joint Strike Fighter have been offered redundancy. At the moment, we have very little confidence in the capacity to provide that assurance to the taxpayer.

Senator BACK: Could you comment further, then? If those six people have been offered redundancy, who fills the gap? Are there particularly bright young people coming along behind them who have the skill, expertise and experience to fill that gap? Is the defence industry capable? We have a lot of confidence in the senior military people. They appear before us. They seem to me to be across the issues. It is not adequate for us to learn that that pool of knowledge has gone and is not being replaced. What is it being replaced with?

Mr Bussell : This is squarely in the senior component of Defence. Our severe directives are that we will downsize. In DSTG, for example, over the past three to four years we have lost 40 plus senior people, all offered voluntary redundancies. There is some question about the voluntariness of some of those packages. But a lot of them, if not most of them, have taken expertise out of the organisation for one reason or another and then gone to industry, where the taxpayer is paying them their pension, their settlement amount and their increased salary as a contractor. So we need the expertise that we are getting rid of and we have to pay to get it back from the same people.

In DSTG's case, the impact this is having on the culture of the organisation is devastating. I have been a member for 34 years. I have never seen the staff in such a state of disillusionment. Our morale is low and decreasing. The confidence we have in our senior management team is decreasing. The trust we have in our senior management team is decreasing. The only thing that is increasing is the number of people that want to leave the organisation. For an organisation that has an historical exit rate, a separation rate, of five per cent, it is now sitting at something like 27 per cent. That is a 440 per cent increase on the numbers of people who are leaving the organisation. And these are people who have spent their lives dedicating their careers to defence sites. In my case, it is 34 years. I am absolutely committed to Defence because I want my children to be able to live in the country that I grew up in. I want them to be safe and I want them to be free. That is why I have dedicated my career to Defence. That is why many of my colleagues have done that. And we exist as defence scientists to protect those Australians that put themselves in harm's way. We need a degree of expertise to do that. The only way we can do it is to have continuity in the training and the development of those skill sets.

DSTG at the moment is a hollow organisation. The people that were removed have not been replaced because there is a freeze on recruitment and promotions. So we have 40 people that left and 40 vacant positions, filled by people of junior ranks who are acting above on temporary positions. We are not then being able to refill at the lower levels. That is the critical area for science and engineering—young people learning their skills.

CHAIR: It would be fair to say, though, that all governments of whatever political party has been in power have had an efficiency dividend and that has basically gone through into the most expensive people in the department or the most expense, which is people. So there has been a continual theme of reducing it. But it is voluntary, so people have to volunteer to go?

Mr Bussell : The process that Defence followed recently within DSTG was called voluntary.

CHAIR: Well, I have read that there were 1,200 voluntary applications, and the secretary made the final decision.

Mr Bussell : That is the secondary one. There was an earlier process that DSTG went through to redesign the organisation. Those voluntary redundancies were somewhat forced on many people. There are examples. Mr Smith raised an example with the JSF. People who were our leading experts in the JSF area who did not want to leave the organisation and wanted to remain a member of the Public Service had to leave. They subsequently took up positions in industry at an increased salary.

CHAIR: Sorry, Mr Efthymiou, I cut you off.

Mr Efthymiou : I was going to respond to the senator's earlier question. The process that you have described is a classic systems approach or systems engineering approach, which we do apply in the branch that I work in, which is the integrated soldier systems branch, for example. You would utilise your workforce to articulate requirements working closely with the services, evaluate the submissions from the tendering parties, pick one and choose the best candidate. Part of that evaluation process could be the design of testing and trials because not in all cases will you get that information. Integrated soldier systems branch, for example, buys a lot more diverse equipment in smaller lots. Therefore, the suppliers generally tend to be smaller and not have access to some of the information that you may have through larger projects like the JSF. We tend to generate our own through testing services. There is the acceptance part, where I guess the first batch will jump through a series of hoops to ensure that all specification requirements are met and introduced into service. There is then the design of the logistics train to support and sustain that. That is where you utilise your engineering workforce.

In my area, we try to cover a diverse range of technologies. My branch alone, for example, deals in everything from boots to body armour, weapons to uniforms, and electro-optic site systems to cooking sets. Trying to cover all those technologies and having expertise in a variety of areas is challenging. In many areas, the pool is one or two deep. The redundancy program throws another challenge. What I have seen over the last 18 months is that an effective staff freeze, because we have not been able to recruit or promote, has a larger effect. The staff freeze that we have had for 18 months was preceded by a previous one in 2011. I am an EL1 with 11 staff and five direct reports. I have had three people leave in the last four months. I have not been able to recruit because I have not been able to advertise. I am relying on the MGS program, the Materiel Graduate Scheme, which is an excellent scheme. It has high quality graduates. It is one scheme that is working very well. If it were not for that scheme, I would say that my division would be in a bit of strife in terms of maintaining its engineering capability.

If you maintain that for a period of time, you see an ageing workforce, natural attrition and retirement. When people are gathering a bit of expertise over five or six years at the APS5 and 6 levels, they start to become attractive to industry and make their way out because I have not been able to offer any opportunity or hope in terms of career progression. I am replacing experienced staff with staff from a graduate scheme with 18 months of experience. At some point, that has to have an effect. Logic would dictate that we are introducing risk. It may not emanate in anything, but the fact is that you cannot replace someone with 15 or 20 years of experience with someone with one or two.

Senator BACK: I understand. Thank you.

CHAIR: The evidence we have got this morning is very interesting. I get the impression that you believe there is almost a running down of capability within your organisation, not an enhancement of capability?

Mr Efthymiou : We are maintaining numbers through replacement with staff with limited experience, although they are highly capable young people. But, as a manager, I have not got many tools in my toolbox. I cannot promote. I cannot pay them any more. I can offer interesting work and perhaps training to keep their interest in. But training itself is a double-edged sword. Defence is a pretty good training organisation. We spend a significant amount of money on training. At some point they start to look fairly attractive to industry. So the people that have left me have been at that APS5 and 6 level. In my branch, we have APS5 staff paid as APS6s on higher duties doing the work of EL1s. That is the way we are treating it. We are still maintaining schedule. We are getting into contract. It is a high pressure environment. What do I do to mitigate some of those, I guess, constraints? I have had in the last month a couple of my staff working weekends, Saturdays and Sundays on some occasions, to ensure that we do not make a mistake. It is risk mitigation. We do do the quality assurance before we accept prototypes.

CHAIR: So you would say, in a nutshell, the freeze and the voluntary redundancies, from your organisation's point of view, should be reversed and you should build your capability and enhance your capability and give people somewhere to go?

Mr Efthymiou : Well, I would say the First Principles Review looks at the human resources. It has been focussed on the input side. When you start to look at something from the input side, you start to treat it as a cost, as a liability to be minimised and a cost to be reduced. If you were to look at it, you know, as an investment—what could you achieve if you had more staff—you may get a different view of things. For example, if you gave me one staff member, six months of time and $110,000, I could, for example, deliver you an unmanned ground vehicle which follows you through an android type beacon device with obstacle avoidance to carry all your water, batteries and so on and so forth. But that is not a high priority. It is not a high priority for the army right now. It is not a high priority for me, because 80 per cent of my staff have been allocated to the priorities to ensure that we deliver to our customers what we said we were going to deliver, which is where the major projects or procurements are.

So that is an opportunity. For example, if you look at the APS workforce as an investment to achieve an end state, it may give you a different perspective of things. We have priority industry capabilities, for example. One of them is selected ballistic munitions and explosives. It is a priority industry capability. I work in Diggerworks, which is a design development sort of area. An effective mechanism, including DSTO—DSTG is similar—is to give comparative advantage to Australian industry. I cover only a certain technology area because I do not have the staff to cover everything. If you emulated a successful organisation, such as my own, you may get a boost in the capability of Australian industry. We regularly design, develop and commercialise body armour and load carriage technology, for example, working with companies such as Australian Defence Apparel and those sort of companies. But there are areas of priority industry capability that we are missing because I cannot address everything with the 11 staff I have at my disposal. In a resource constrained environment, the natural and intelligent thing to do is to put your resources on the priorities that you have already committed to. The challenge is maintaining a little flexibility to address upcoming issues and priorities. That is the challenge that land systems division will face, I would say.

Mr Bussell : Senator, we get the mantra 'less with less' all the time, but that translates as 'do as much as you can with as little as possible and we will worry about the risk later'.

CHAIR: Thank you very much for your evidence. We are a couple of minutes over time. We have your submission and we have heard your answers. There is plenty of food for thought there. Thank you for your submission today.